Toromont Industries Annual Report 2023

Plain-text annual report

CONNECTING TOGETHER Toromont Industries Ltd. Annual Report 2023 Toromont Industries Ltd. serves the specialized equipment and product support needs of a diversiﬁed customer base from six business units and 160+ locations. While our brands and services distinguish us in our markets, it is our team culture that makes the difference. Our company listed on the Toronto Stock Exchange (symbol TIH) in 1968 and is a member of the S&P/ TSX Canadian Dividend Aristocrats®. For more information, including our Sustainability Report, please visit www.toromont.com. Our business units We are one of the largest Caterpillar dealers in the world with Toromont Cat branches and ﬁeld-service operations across seven provinces and one territory. We serve the specialized heavy equipment, power generation, heavy rent, used equipment, product support and component remanufacturing needs of thousands of public infrastructure, construction, demolition, paving, mining, aggregate, waste management, forestry, trucking, shipping, transit and data centre customers. We serve ports and terminals, paper producers, automotive parts manufacturers, beverage companies, hardware retailers and government agencies through Toromont Material Handling, which sells, rents and supports brand name lift trucks, container handlers, industrial batteries, chargers and racking systems. We specialize in providing machine control systems, site positioning software and asset management technologies as well as professional and data support services through SITECH Eastern Canada Ltd., a Trimble and Cat AccuGrade® dealer. We rent and sell brand-name machines, tools and supplies and provide product support to contractors, specialty trades and do-it-yourself customers through Battleﬁeld Equipment Rentals – The Cat Rental Store. We meet the specialized tool crib and rental equipment needs of contractors working in reﬁnery industries, healthcare, automotive, steel and pulp and paper through Jobsite Industrial Rental Services in eastern and western Canada. We serve industrial, recreational and commercial markets through CIMCO, one of North America’s leading suppliers of thermal management solutions that enable customers to reduce energy consump- tion and emissions, use natural refrigerants and monitor and control their operating environments autonomously. Our full-service capabilities include design, engineering, manufacturing and service. With dedicated ﬁeld-service technicians throughout our territories, we support the mission-critical nature of our equipment. Fellow shareholders: Mike S. H. McMillan President and Chief Executive Officer Richard G. Roy Chair of the Board of Directors At Toromont, continuous improvement is the product of a culture that believes we can always do better and 7,000 employees who connect together to prove it with discipline, empowerment and passion. In 2023, guided by our customers’ needs and with the help of our valued manufacturing partners, Toromont made tangible progress in our quest, and identiﬁed many opportunities to do more in 2024 to build an exciting and sustainable future. Record backlog entering 2023 along with demand for rental equipment, product support and CIMCO’s thermal solutions provided the basis for positive ﬁnancial performance. Basic earnings per share on a continuing operations basis of $6.43 (or $6.38 diluted EPS) increased 18% from 2022 on revenue growth of 12%. Supply-chain shortages that were pronounced in 2022 continued to ease gradually in most but not all product lines, allowing us to respond better to customer schedules across our markets and territories. The rate of inﬂation, which drove selling prices and operating costs higher through 2022 and early 2023, also began to moderate. Our focus on traditional operating disciplines, including tight control of expense-to-sales ratios and rigorous performance tracking at the branch level, remained fundamental to our continuous improvement mindset. Once again, demand for rental equipment was strong with rental revenues up 8% over 2022. Toromont responded by increasing the size of our heavy and light machine ﬂeets. Our heavy rental ﬂeet, now numbering close to 600 units, achieved one of the highest levels of ﬁnancial utilization on record. Financial utilization measures rental rates and time utilization against original acquisition cost. Used machine sales were 4% below the record set in 2022, in part a function of greater availability of new equipment supply. Toromont Equip, our online marketplace for used equipment, attachments, and restored parts added to our market presence. In 2023, we used the site to expand our reach to customers, including those not previously served. Improving product selection and digital functionality will continue to receive strong focus going forward. Our machine consignment service also proved to be a popular connection point for customers who leverage our sales channels to market their used equipment. Product support revenues increased 11% year over year (10% in the Equipment Group and 18% at CIMCO) and represented 43% of total revenue. Our shops, parts counters, remanufacturing operations and ﬁeld-service teams responded well to demand across our larger installed base of equipment. Monitoring hours of machine usage allows us to pinpoint the need for maintenance and respond to customers proactively. Insight gained also makes us more attuned to customer demand signals in planning our resources. Annual Report 2023 1 $9.6 billion Market capitalization at year end $1.2 billion order backlog at year end 35 years of consecutive dividend increases Shareholder value creation On the strength of disciplined capital deployment, Toromont’s return on opening shareholders’ equity was 23.1%, exceeding our goal of 18% over a business cycle. Pre-tax return on capital employed (ROCE) was 30.1% compared to 32.1% in 2022. Each of our businesses operates with its own ROCE target based on capital intensity. Strong execution produced good returns, reﬂecting higher investments in working capital to support growth. Shareholder value creation also came in other tangible forms. At its meeting in February 2024, Toromont’s Board announced a quarterly dividend of $0.48 per share, representing an 11.6% increase in the quarterly dividend rate. With this latest move, Toromont has now increased its dividend 35 years in a row and consistently paid dividends quarterly since listing on the TSX in 1968. Toromont’s total 5- and 10-year shareholder returns, including reinvested dividends, outpaced the S&P/TSX Composite Index. Market capitalization at year end was $9.6 billion while total enterprise value (market capitalization plus debt, net of cash) was $9.2 billion. 2023 Revenues Dividends per Share 5 year CAGR = 13.3% $1.72 $1.56 $1.36 $1.24 $1.08 Return on Opening 2023 Revenues 2023 Revenues Shareholders’ Equity % 23.5 23.1 21.4 19.6 16.6 Cumulative Value of Dividends per Share Cumulative value $100 Invested 5 year CAGR = 13.3% of $100 invested (Assuming Reinvestment of Dividends) (assuming reinvestment of dividends) $1.36 $1.24 $1.08 $1.72 $230.49 $1.56 $170.79 Return on Opening Shareholders’ Equity % 21.4 23.5 23.1 19.6 16.6 Cumulative Value of $100 Invested (Assuming Reinvestment of Dividends) $230.49 $170.79 43% Product support 42% New & used equipment 11% Rentals 4% Thermal equipment ’19 ’20 ’21 ’22 ’23 ’19 43% Product support 42% New & used equipment ’22 11% Rentals 4% Thermal equipment ’23 ’21 ’20 ’18 ’19 ’19 ’20 ’21 ’21 ’20 TIH TSX ’22 ’23 ’22 ’23 ’19 ’20 ’21 ’22 ’23 ’18 ’19 ’20 ’21 ’22 ’23 TIH TSX 2 Toromont Industries Ltd. Under Toromont’s Normal Course Issuer Bid, 353,000 common shares were repurchased for $37.5 million (an average cost of $106.35 per share) during 2023, offsetting the dilutive effect of shares issued under the Executive Option Plan. COVID-19 lockdowns in 2020, 2021 and 2022 through the unprecedented fall and rise in interest rates to stimulate and then curb inﬂation, the nature and pace of change has been remarkable. Safety performance Continuous improvement is the goal in all aspects of our business, including safety outcomes. Getting everyone home safely every day is our objective. Accordingly, we operate with Board-reviewed safety programs designed to mitigate risk and create management, team and personal alignment and accountability. With consistent focus and effort, 84% of our facilities achieved a Total Recordable Injury Rate (TRIR) of zero in 2023. Company-wide, TRIR was down 25% from 2022, a solid improvement but also an indication that there is an opportunity and collective obligation to do better. Please see our Sustainability Report for details on safety performance and developmental programs for employees. Management lessons learned Like other businesses, Toromont experienced a volatile operating environment over the past four years. From During this period, we learned valuable lessons about how to operate safely, effectively and efficiently to deliver on our commitments and gained an elevated appreciation for the importance of the technology networks that connect us with customers and each other. The pandemic also allowed us to validate Toromont’s business model and stress test the ﬁve foundational strategies that accompany it. Of those strategies, Maintain a Strong Financial Position served us particularly well through the lockdown years and was once again on display in 2023. Year-end leverage, represented by net debt to total capitalization was -17% as cash and equivalents of $1.0 billion once again exceeded debt. A year ago, this ratio was -14%. This change reﬂected strong cash ﬂow from operations that exceeded signiﬁcant working capital and capital asset investments made to support current and future activity levels. Even with these deployments, 2023 Revenues 2023 Revenues Dividends per Share 5 year CAGR = 13.3% Dividends per Share Dividends per share 5 year CAGR = 13.3% 5 year CAGR = 13.3% Return on Opening Return on Opening Return on opening Shareholders’ Equity Shareholders’ Equity shareholders’ equity % % % Cumulative Value of Cumulative Value of $100 Invested $100 Invested (Assuming Reinvestment of Dividends) (Assuming Reinvestment of Dividends) $1.72 $1.72 $1.56 $1.56 $1.36 $1.36 $1.24 $1.24 23.5 23.5 23.1 23.1 21.4 21.4 19.6 19.6 16.6 16.6 $1.08 $1.08 43% Product support 43% Product support 42% New & used equipment 42% New & used equipment 11% Rentals 11% Rentals 4% Thermal equipment 4% Thermal equipment ’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’18 ’18 ’19 ’20 ’21 ’19 ’20 ’21 ’22 ’23 ’22 ’23 TIH TIH TSX TSX Annual Report 2023 3 $230.49 $230.49 $170.79 $170.79 Service vehicle replacements also accelerated as supply chain pressures eased. This replacement strategy sees us sell older models and replace them with new, more fuel-efficient units. Since use of service vehicles accounts for approximately 60% of Toromont’s carbon footprint, ﬂeet optimization is important. Construction of a 143,000 sq.ft. component remanufacturing plant in Bradford was one of the year’s key investments. This $70 million facility will open in the second quarter of 2024. It will enhance our capacity and efficiency as a circular- economy contributor by enabling Toromont to remanufacture more end-of-life machine components. 43% Product support as a percentage of total revenue in 2023 25% Decline in total recordable injury rate in 2023 15.2% Operating margin in 2023 Toromont has the ﬁnancial capacity and ﬂexibility to support ongoing growth. What was most evident during the pandemic is the value of having great customers; business activities that are essential to society; employees whose passion for excellence never wavered; high-quality products; and business partners with the strength and wherewithal to continue investing, innovating and producing. Reinvesting with purpose Invest in Resources is a core Toromont strategy. In 2023, net reinvestment in rental ﬂeets, branches, plants and other capital assets amounted to $275.4 million. Approximately 60% of this sizeable sum was used to grow our ﬂeets of heavy, light and power systems rental equipment, a move enabled by improved product supply. The site will be well equipped with new closed-loop engine dynamometers cooled with recycled water, a specialized hydraulic and powertrain test bench for transmissions and torque converters and the market’s ﬁrst robotic soda cleaning station, all in a CIMCO conditioned-air environment. Soda blasting is an environmentally friendly alternative to caustic cleaning prior to disassembly. This system can use a variety of cleaning agents including walnuts, glass beads and sand as the need arises. A CIMCO thermal system, using a natural refrigerant, will control humidity and prevent ﬂash rust from forming on components. At start-up, the plant will employ 160 people, with the majority transferring from nearby facilities. Among many advantages, the new plant will allow us to test high- horsepower engines, which were previously shipped out of province, and increase specialization in our other remanufacturing locations. Notably, Québec City will become the centre of excellence for Caterpillar Expanded Mining Products. We will also retain one remanufacturing site in Concord to focus exclusively on hydraulic cylinders. 4 Toromont Industries Ltd. Connected for continuous improvement Toromont’s business model and strategies are consistent across our decentralized operations but what truly unites us is our system of management. We grant decision-making authority to our business units. In exchange, they are accountable for continuous improvement. This system of empowerment with strategic alignment cascades throughout our operations. From 35 years of experience, we believe there are many advantages to our brand of decentralization – including faster and more market-responsive decision making and better, broader management talent development. As we refreshed our management ranks over the past few years, largely through internal promotions, the value of our system has been evident. Turning strategies into action Toromont Cat’s branches, parts warehouses, remanufacturing facilities and ﬁeld service operations were busy in 2023. Mining was particularly active. In northern Ontario, we delivered and commissioned additional Cat® Command 793F autonomous haul trucks to serve alongside Cat® 994K loaders and Cat® 6060 electric drive hydraulic mining shovels at IAMGOLD’s Côté Gold project. Tethered to the electrical grid, Cat® 6060 front shovels can load autonomous haul trucks in just four passes, increasing efficiency and reducing loading time. Another mining customer purchased Cat 798 AC electric drive trucks, each with a payload of up to 372 tonnes (410 tons). These massive units use hybrid A/C electric powertrain technology rather than traditional diesel/ mechanical drives to haul more with greater efficiency. To enhance product support, we equipped three more parts warehouses on customer sites. Mine planning, permitting, and construction often stretches across years, meaning Toromont must build long-term industry connections. We are, with dedicated effort. Looking ahead, the federal government’s Critical Minerals Strategy, which sets a course for Canada to become the global supplier of choice for minerals that are essential to the production of battery electric vehicles, is a welcome policy initiative. In our construction division, road building, the supporting aggregate industry, and sewer/water infrastructure repairs, provided an off-set to a late-year decline in new residential housing developments. In forestry and steel, Toromont’s Broaden Product Offerings strategy was assisted by Caterpillar’s introduction of a family of Cat MH3000 material handlers. With a wide range of industry-speciﬁc boom and stick combinations, these machines proved to be popular with customers. PROVEN BUSINESS MODEL AND STRATEGY E N P P O R T H S U T G T PRODUC B R O T A D S ELL O E F F N E R I N G S N ST R E D U C O R P M A R E X P A K N E T D S SPECIALIZED EQUIPMENT S E R V I C E T N RE N I T S E V IN S E C R U O S E R M AINTAIN A S T R O N G FINANCIAL P O S I T I O N ALIGNMENT AUTHORITY ACCOUNTABILITY OUR VALUES › Safe and respectful workplace › Social responsibility › Uncompromising integrity › Empowerment at all levels › Growth of the individual and enterprise › Returns to all stakeholders Annual Report 2023 5 $275.4 million Net reinvestment in 2023 $4.6 billion 2023 revenue increased 12% over 2022 353,000 Shares repurchased in 2023 In power systems, the team worked hard to meet the needs of industrial, mining, marine and data centre customers in a supply-constrained environment. Growth in product support, including engine and propulsion system overhauls, added to the year’s results. Distributed generation (or power created by customers outside the grid) is a growing trend that is incentivized in Ontario by the Industrial Conservation Initiative. Customers that generate their own power during the province’s top ﬁve peak demand hours save money. To take advantage of this opportunity, a leading Ontario utility in partnership with one of our industrial customers recently acquired Cat generators and technology to provide power on demand at 11 different locations. Caterpillar’s predictive software will switch the generators on at precise times to replace electricity from the grid. Toromont is there to support all parties. Growth in our workforce of technicians was a key accomplishment and consistent with Toromont’s Strengthen Product Support strategy. Toromont Cat ended 2023 with over 2,000 technicians, our largest team ever, and spent heavily on equipping our people with the right tools and training. As our installed base grows and ages, and we serve more machines proactively through Customer Value Agreements, the need to recruit remains strong as does our potential to provide product support. With continuous demand for rebuilt machines, we dedicated four bays in our Candiac, Québec branch for this purpose in early 2024. Battleﬁeld Equipment Rentals – The Cat Rental Store beneﬁtted from customer demand for specialized rental equipment in core markets: civil infrastructure (bridge repairs, road construction, transit projects and water treatment) and mining. As machine supply constraints eased, higher investment levels enabled an increase in rental ﬂeet uploads, which in turn acted as the ﬂywheel for a ﬁnancial model that depends on appropriate equipment aging, depreciation and divestiture. A Québec market- driven shift in product mix that began shortly after we acquired Québec and Maritimes (QM) dealership operations paid dividends. We look to make further gains, with focus on machine and service offerings for road construction. Consistent with Toromont’s Invest in Resources strategy, Battleﬁeld opened a 17,000 sq.ft. store in Sherbrook, Québec in January 2024 as a replacement for another location in the city that did not meet our customer experience standards or support efficient workﬂow. The new store includes an on-site workshop and water recycling system for equipment cleaning; both capabilities that were missing in the previous location. More rental equipment at our stores carries a Green Leaf insignia, a symbol denoting products powered by alternative energy. Among many choices, customers can now rent equipment such as Cat 300.9D VPS with HPU300 mini excavators capable of running on electric and diesel power, Terex Genie Z45FE and Z60FE hybrid lifts and ANA Energy Boss hybrid generators. With sustainability a growing customer priority, we are working with ﬂeet partners to expand Green Leaf products. 6 Toromont Industries Ltd. Jobsite Industrial Rental Services added to its new presence in Western Canada, an example of Toromont’s Expand Markets strategy. Anchored by a 16,000 sq.ft. hub facility in Edmonton, branches now operate in Fort McMurray and Burnaby, as well as Winnipeg. Early progress is promising, but more work is needed to elevate our business proﬁle in these key markets and improve performance. System wide, revenue exceeded that of 2022 despite a quieter year for turnaround work in the petrochemical industry. SITECH Eastern Canada Ltd. responded well to demand for advanced grade control, site positioning and machine monitoring systems and related consulting and data management services. To aid management decision making, we put SITECH’s Québec and Maritimes operations on the same rental management system as our other light rental operations. Toromont Material Handling continued to show good progress as a standalone business unit, a status realized six years ago. Investments in market coverage included a new branch in Woodstock as part of an effort to raise its proﬁle in Ontario to match the brand recognition it enjoys in Québec. Driving ﬁnancial utilization of its rental ﬂeet through the application of traditional operating disciplines – supported by the Toromont Dealer Management System – remains a key focus. Applying Toromont’s Strengthen Product Support strategy also brought greater attention to growth opportunities in parts. CIMCO Refrigeration leveraged its leadership position as a thermal management solutions provider to grow throughout North America. Results were best-ever, including U.S. operations. Highlights included installations of a CO2 package for the Columbus Blue Jackets of the National Hockey League and a natural refrigerant system for a major food processing operation in Texas. In Canada, Blatchford, Alberta purchased a CIMCO Thermal Force One thermal system that provides zero combustion heating and cooling for the entire community to meet their decarbonization goals. Environmental stewardship demonstrated by these leaders is spreading. Of all CIMCO capital project order bookings in 2023, 89% will feature natural, zero emission refrigerants including a CO2 package for the Washington Capitals as a replacement for Freon. CIMCO’s Net Zero Naturally “Green Series” product offerings align with current environmental objectives by providing unique, economically viable solutions that reduce carbon emissions. Operationally, market coverage and project efficiency improved with the opening of a 40,000 sq.ft. prefabrication facility in Duncan, South Carolina. The order-to-cash cycle, which extended during the early years of COVID-19, is returning to more normal levels. New software was introduced to enhance project management capabilities. Additional rigour was brought to bidding processes. As an example of Toromont’s Broaden Product Offerings strategy, CIMCO co-developed the “iQ” control system for ice rinks and installed systems at several facilities including that of the Los Angeles Kings. It uses an advanced thermal camera to measure surface ice temperatures across 91,000 data points. With better information fed to a smart phone app, ice rink operators can now easily pinpoint variations in ice quality, adjust building conditions and meet in-game reporting requirements. This development has broad application not only for professional leagues, but also community rinks throughout North America. Leadership succession In October 2023, we completed a planned leadership change with Mike McMillan succeeding Scott Medhurst as President, CEO and Director and John Doolittle joining Toromont to take on Mr. McMillan’s former role as Executive Vice President and Chief Financial Officer. These important appointments were the product of a thorough and extensive search and vetting process carried out by the Board of Directors to ensure Toromont continues to be led by experienced, well-qualiﬁed executives who understand and appreciate the company’s values, traditions and proven way of doing business. Thanks to Scott Medhurst Over his 35-year Toromont career, the past 11 as CEO, Mr. Medhurst made countless contributions to our business, working tirelessly to ensure the successful expansion of our Caterpillar dealership territories to Québec and the Martimes, ensuring that all Toromont businesses have the management talent and depth to excel for the long term and leading us thoughtfully through the pandemic. Scott deserves and receives our utmost thanks. Annual Report 2023 7 23.1% Return on equity in 2023 30.1% We are particularly excited to be part of collaborations with Caterpillar, which is using its formidable engineering and product development capabilities to help customers meet their climate-related goals. Caterpillar is also working closely with its dealers to align and grow the rental opportunity. We look forward to contributing to this objective through meaningful rental ﬂeet investments. Toromont will also do its part for environmental sustainability: our own, through careful stewardship of our assets; and our customers, through ongoing development of energy efficient and climate-friendly thermal management solutions. Please see our Sustainability Report for details. Return on capital employed in 2023 Connecting Together Connect26, our roadmap for continuous improvement In 2024, Toromont embarks on its next three-year business plan journey. Entitled Connect26, our plan identiﬁes numerous opportunities to improve performance and commits us to achieve organic growth by connecting people, ideas and solutions together as we deliver specialized equipment and services to support our customers. The plan’s success factors include: • • • • • recruiting and retaining service technicians investing in safety, employee development and products/capabilities that contribute to a sustainable future leveraging our digital infrastructure to make it easier and more rewarding for customers to connect with us expanding the use of data and analytics to improve decision making, productivity and efficiency encouraging collaborations that will allow us to reach new customers and expand Toromont’s leadership positions in existing markets Toromont started 2024 with order backlog of $1.2 billion, which provides a solid base of business in an uncertain economic environment. Backlog is a function of both demand and supply, with both being disrupted by the pandemic over the past few years. We also started the new year with a renewed sense of purpose and dedication to our core values, business model, strategies and the continuous improvement mindset that invigorates our culture and produces consistent results for our customers and shareholders. As we prepare for an exciting future in the context of short-term economic headwinds and market tailwinds, we recognize that it is not the gale but the set of the sail that counts. We thank all employees and business partners for Connecting Together in the ongoing pursuit of excellence. On behalf of our management team and the Board of Directors, our utmost thanks goes to our customers and shareholders for your ongoing support. Yours sincerely, Richard G. Roy Chair of the Board of Directors Mike S. H. McMillan President and Chief Executive Officer February 13, 2024 8 Toromont Industries Ltd. FINANCIAL REPORT 10 53 54 58 63 Management’s Discussion and Analysis Management’s Report to the Shareholders Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements 104 Ten-Year Financial Review 106 IBC Board of Directors/Executive Team Corporate Directory TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 MANA(cid:30)EMENT(cid:6)S DIS(cid:26)USSION AND ANAL(cid:48)SIS This (cid:38)anagement's (cid:29)iscussion and Analysis ((cid:2)(cid:38)(cid:29)(cid:5)A(cid:2)) of the financial position and results of operations of Toromont Industries Ltd. ((cid:2)Toromont(cid:2) or the (cid:2)(cid:28)ompany(cid:2)) as at and for the year ended (cid:29)ecember 31, 2023 is prepared as at (cid:31)ebruary 13, 2024, and should be read in conjunction (cid:72)ith the audited consolidated financial statements and related notes for the year ended (cid:29)ecember 31, 2023. The consolidated financial statements reported herein have been prepared in accordance (cid:72)ith International (cid:31)inancial Reporting (cid:44)tandards ((cid:2)I(cid:31)R(cid:44)(cid:2)). The (cid:38)(cid:29)(cid:5)A is presented in thousands of (cid:28)anadian dollars unless other(cid:72)ise noted. Additional information about Toromont is available online at (cid:72)(cid:72)(cid:72).sedar.com and Toromont's (cid:72)ebsite (cid:72)(cid:72)(cid:72).toromont.com. Use o(cid:54) Non(cid:10)I(cid:29)RS (cid:29)inancial Measures The (cid:38)(cid:29)(cid:5)A presents certain financial and operating performance measures that management believes provide meaningful information in assessing Toromont's underlying performance. Readers are cautioned that these measures may not have a standardi(cid:75)ed meaning prescribed by I(cid:31)R(cid:44) and therefore may not be comparable to similar measures presented by other issuers. Accordingly, non(cid:11)I(cid:31)R(cid:44) or non(cid:11)(cid:32)enerally Accepted Accounting (cid:41)rinciples ((cid:2)(cid:32)AA(cid:41)(cid:2)) measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance (cid:72)ith I(cid:31)R(cid:44). (cid:29)efinitions and a reconciliations of the (cid:28)ompany's non(cid:11)I(cid:31)R(cid:44) or non(cid:11)(cid:32)AA(cid:41) measures are included in the (cid:2)Additional (cid:32)AA(cid:41) (cid:38)easures(cid:2), (cid:2)Non(cid:11)(cid:32)AA(cid:41) (cid:38)easures(cid:2) and (cid:2)(cid:36)ey (cid:41)erformance Indicators(cid:2) sections of this report. (cid:29)or(cid:70)ard(cid:10)Loo(cid:58)ing In(cid:54)ormation Information in this (cid:38)(cid:29)(cid:5)A that is not a historical fact is (cid:2)for(cid:72)ard(cid:11)loo(cid:60)ing information(cid:2). (cid:48)ords such as (cid:2)plans(cid:2), (cid:2)intends(cid:2), (cid:2)outloo(cid:60)(cid:2), (cid:2)expects(cid:2), (cid:2)anticipates(cid:2), (cid:2)estimates(cid:2), (cid:2)believes(cid:2), (cid:2)li(cid:60)ely(cid:2), (cid:2)should(cid:2), (cid:2)could(cid:2), (cid:2)(cid:72)ould(cid:2), (cid:2)(cid:72)ill(cid:2), (cid:2)may(cid:2) and similar expressions are intended to identify statements containing for(cid:72)ard(cid:11)loo(cid:60)ing information. (cid:31)or(cid:72)ard(cid:11)loo(cid:60)ing information in this (cid:38)(cid:29)(cid:5)A reflects current estimates, beliefs, and assumptions, (cid:72)hich are based on Toromont(cid:80)s perception of historical trends, current conditions and expected future developments, as (cid:72)ell 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 (cid:72)ill prove to be correct. Numerous ris(cid:60)s and uncertainties could cause the actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the for(cid:72)ard(cid:11)loo(cid:60)ing statements, including, but not limited to(cid:24) business cycles, including general economic conditions in the countries in (cid:72)hich Toromont operates(cid:25) commodity price changes, including changes in the price of precious and base metals(cid:25) inflationary pressures(cid:25) potential ris(cid:60)s and uncertainties relating to (cid:28)O(cid:47)I(cid:29)(cid:11)19 or a potential ne(cid:72) (cid:72)orld health issue(cid:25) increased regulation of or restrictions placed on our businesses(cid:25) changes in foreign exchange rates, including the (cid:28)dn$(cid:13)(cid:46)(cid:44)$ exchange rate(cid:25) the termination of distribution or original equipment manufacturer agreements(cid:25) equipment product acceptance and availability of supply, including reduction or disruption in supply or demand for our products stemming from external factors(cid:25) increased competition(cid:25) credit of third parties(cid:25) additional costs associated (cid:72)ith (cid:72)arranties and maintenance contracts(cid:25) changes in interest rates(cid:25) the availability and cost of financing(cid:25) level and volatility of price and liquidity of Toromont's common shares(cid:25) potential environmental liabilities and changes to environmental regulation(cid:25) information technology failures, including data or cybersecurity breaches(cid:25) failure to attract and retain (cid:60)ey employees as (cid:72)ell as the general (cid:72)or(cid:60)force(cid:25) damage to the reputation of (cid:28)aterpillar, 1 10 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 product quality and product safety ris(cid:60)s (cid:72)hich could expose Toromont to product liability claims and negative publicity(cid:25) ne(cid:72), or changes to current, federal and provincial la(cid:72)s, rules and regulations including changes in infrastructure spending(cid:25) any requirement to ma(cid:60)e contributions or other payments in respect of registered defined benefit pension plans or postemployment benefit plans in excess of those currently contemplated(cid:25) increased insurance premiums(cid:25) and ris(cid:60) related to integration of acquired operations including cost of integration and ability to achieve the expected benefits. Readers are cautioned that the foregoing list of factors is not exhaustive. Any of the above mentioned ris(cid:60)s and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied in the for(cid:72)ard(cid:11)loo(cid:60)ing information and statements included in this (cid:38)(cid:29)(cid:5)A. (cid:31)or a further description of certain ris(cid:60)s and uncertainties and other factors that could cause or contribute to actual results that are materially different, see the ris(cid:60)s and uncertainties set out in the (cid:2)Ris(cid:60)s and Ris(cid:60) (cid:38)anagement(cid:2) and (cid:2)Outloo(cid:60)(cid:2) sections of Toromont's most recent annual (cid:38)anagement (cid:29)iscussion and Analysis, as filed (cid:72)ith (cid:28)anadian securities regulators at (cid:72)(cid:72)(cid:72).sedar.com or at our (cid:72)ebsite (cid:72)(cid:72)(cid:72).toromont.com. Other factors, ris(cid:60)s and uncertainties not presently (cid:60)no(cid:72)n 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 for(cid:72)ard(cid:11)loo(cid:60)ing information. Readers are cautioned not to place undue reliance on statements containing for(cid:72)ard(cid:11)loo(cid:60)ing information, (cid:72)hich reflect Toromont(cid:80)s expectations only as of the date of this (cid:38)(cid:29)(cid:5)A, and not to use such information for anything other than their intended purpose. Toromont disclaims any obligation to update or revise any for(cid:72)ard-loo(cid:60)ing information, (cid:72)hether as a result of ne(cid:72) information, future events or other(cid:72)ise, except as required by la(cid:72). (cid:26)OR(cid:39)ORATE (cid:39)RO(cid:29)ILE AND (cid:25)USINESS SE(cid:30)MENTATION As at (cid:29)ecember 31, 2023, Toromont employed over 7,000 people in more than 160 locations across (cid:28)anada and the (cid:46)nited (cid:44)tates. Toromont is listed on the Toronto (cid:44)toc(cid:60) Exchange under the symbol TI(cid:33). Toromont has t(cid:72)o reportable operating segments(cid:24) the Equipment (cid:32)roup and (cid:28)I(cid:38)(cid:28)O. The Equipment (cid:32)roup includes Toromont (cid:28)at, one of the (cid:72)orld(cid:80)s larger (cid:28)aterpillar dealerships, (cid:27)attlefield (cid:78) The (cid:28)at Rental (cid:44)tore, an industry(cid:11)leading rental operation, (cid:44)ITE(cid:28)(cid:33), providing Trimble technology products and services, Toromont (cid:38)aterial (cid:33)andling, representing (cid:38)(cid:28)(cid:31)A, (cid:36)almar and other manufacturers' products. The (cid:28)ompany is the exclusive (cid:28)aterpillar dealer for a contiguous geographical territory in (cid:28)anada that covers (cid:38)anitoba, Ontario, (cid:42)u(cid:77)bec, Ne(cid:72)foundland, Ne(cid:72) (cid:27)runs(cid:72)ic(cid:60), Nova (cid:44)cotia, (cid:41)rince Ed(cid:72)ard Island and most of Nunavut. Additionally, the (cid:28)ompany is the (cid:38)a(cid:36) engine dealer for the Eastern (cid:44)eaboard of the (cid:46)nited (cid:44)tates, from (cid:38)aine to (cid:47)irginia. (cid:41)erformance in the Equipment (cid:32)roup is driven by activity in several industries(cid:24) road building and other infrastructure(cid:11)related activities(cid:25) mining(cid:25) residential and commercial construction(cid:25) po(cid:72)er generation(cid:25) aggregates(cid:25) (cid:72)aste management(cid:25) steel(cid:25) and forestry. (cid:44)ignificant activities include the sale, rental and service of mobile equipment for (cid:28)aterpillar and other manufacturers(cid:25) sale, rental and service of engines used in a variety of applications including industrial, commercial, marine, on-high(cid:72)ay truc(cid:60)s and po(cid:72)er generation(cid:25) and sale of complementary and related products, parts and service. (cid:28)I(cid:38)(cid:28)O is a mar(cid:60)et leader in the design, engineering, fabrication, installation and after(cid:11)sale support of refrigeration systems in industrial and recreational mar(cid:60)ets. Results of (cid:28)I(cid:38)(cid:28)O are influenced by conditions in the primary mar(cid:60)et segments served(cid:24) beverage and food processing(cid:25) cold storage(cid:25) food distribution(cid:25) mining(cid:25) and recreational ice rin(cid:60)s. (cid:28)I(cid:38)(cid:28)O offers systems designed to optimi(cid:75)e energy usage through proprietary 2 Toromont Industries Ltd. Management’s Discussion and Analysis 11 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 products such as E(cid:28)O (cid:28)(cid:33)ILL(cid:76). (cid:28)I(cid:38)(cid:28)O has manufacturing facilities in (cid:28)anada and the (cid:46)nited (cid:44)tates and sells its products and services globally. (cid:39)RIMAR(cid:48) O(cid:25)(cid:33)E(cid:26)TI(cid:45)E AND MA(cid:33)OR STRATE(cid:30)IES The primary objective of the (cid:28)ompany is to build shareholder value through sustainable and profitable gro(cid:72)th, supported by a strong financial foundation. To guide its activities in pursuit of this objective, Toromont (cid:72)or(cid:60)s to(cid:72)ard specific, long(cid:11)term financial goals (see section heading (cid:2)(cid:36)ey (cid:41)erformance (cid:38)easures(cid:2) in this (cid:38)(cid:29)(cid:5)A) and each of its operating groups consistently employs the follo(cid:72)ing broad strategies(cid:24) E(cid:71)pand Mar(cid:58)ets Toromont serves diverse mar(cid:60)ets that offer long(cid:11)term potential for profitable expansion. Each operating group strives to achieve or maintain leading positions in mar(cid:60)ets served. Incremental revenue is derived from improved coverage, mar(cid:60)et share gains and geographic expansion. Expansion of the installed base of equipment provides the foundation for product support gro(cid:72)th and leverages the fixed costs associated (cid:72)ith the (cid:28)ompany(cid:80)s infrastructure. Strengt(cid:56)en (cid:39)roduct Support Toromont's parts and service business is a significant contributor to overall profitability and serves to stabili(cid:75)e results through economic do(cid:72)nturns. (cid:41)roduct support activities also represent opportunities to develop closer relationships (cid:72)ith 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(cid:11)mar(cid:60)et support is an integral part of the customer(cid:80)s decision(cid:11)ma(cid:60)ing process (cid:72)hen purchasing equipment. (cid:25)roaden (cid:39)roduct O(cid:54)(cid:54)erings Toromont delivers speciali(cid:75)ed capital equipment to a diverse range of customers and industries. (cid:28)ollectively, hundreds of thousands of different parts are offered through the (cid:28)ompany's distribution channels. The (cid:28)ompany 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(cid:11)in(cid:11)class from suppliers and business partners (cid:72)ho continually expand and develop their offerings. (cid:44)trong relationships (cid:72)ith suppliers and business partners are critical in achieving gro(cid:72)th objectives. In(cid:69)est in Resources The combined (cid:60)no(cid:72)ledge and experience of Toromont's people is a (cid:60)ey competitive advantage. (cid:32)ro(cid:72)th is dependent on attracting, retaining and developing employees (cid:72)ith values that are consistent (cid:72)ith Toromont's. A highly principled culture, share o(cid:72)nership and profitability(cid:11)based incentive programs result in a close alignment of employee and shareholder interests. (cid:27)y 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 mar(cid:60)etplace. The (cid:28)ompany's selective investments in technology, inclusive of e(cid:11)commerce and other digital initiatives, strengthen customer service capabilities, generate ne(cid:72) opportunities for gro(cid:72)th, drive efficiency and increase returns to shareholders. 3 12 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Maintain a Strong (cid:29)inancial (cid:39)osition A strong, (cid:72)ell(cid:11)capitali(cid:75)ed balance sheet creates stability and financial flexibility, and has contributed to the (cid:28)ompany(cid:80)s long(cid:11)term trac(cid:60) record of profitable gro(cid:72)th. It is also fundamental to the (cid:28)ompany(cid:80)s future success. DIS(cid:39)OSITION AND DIS(cid:26)ONTINUED O(cid:39)ERATIONS On (cid:38)ay 1, 2023, the (cid:28)ompany completed the sale of Ag(cid:48)est Ltd., a (cid:72)holly o(cid:72)ned subsidiary, in a share and asset transaction. Total proceeds (cid:72)ere paid in cash of approximately $41.6 million and are subject to customary post(cid:11)closing adjustments. Ag(cid:48)est Ltd. (cid:72)as reported in the Equipment (cid:32)roup. This transaction is not expected to have a material impact on Toromont's overall future operations, revenue or earnings. The results of operations from this business have been presented as a discontinued operation. (cid:44)ee note 4 in the consolidated financial statements. This (cid:38)(cid:29)(cid:5)A reflects the results of continuing operations, unless other(cid:72)ise noted. (cid:26)ONSOLIDATED ANNUAL O(cid:39)ERATIN(cid:30) RESULTS ($ thousands(cid:6) e(cid:41)(cid:23)ept pe(cid:37) sha(cid:37)e a(cid:33)ounts) RE(cid:45)ENUE (cid:28)ost of goods sold (cid:32)ross profit (1) (cid:44)elling and administrative expenses O(cid:39)ERATIN(cid:30) IN(cid:26)OME (1) Interest expense Interest and investment income Income before income taxes Income taxes Net income (cid:54)rom continuing operations Net income (cid:54)rom discontinued operations NET EARNIN(cid:30)S (cid:25)ASI(cid:26) EARNIN(cid:30)S (cid:39)ER S(cid:31)ARE (cid:28)ontinuing operations (cid:29)iscontinued operations 2023 4,622,301 $ 3,377,412 1,244,889 540,661 704,228 28,098 (45,982) 722,112 193,005 529,107 $ 5,605 534,712 $ 2022 4,115,347 $ 2,996,831 1,118,516 499,418 619,098 27,331 (21,717) 613,484 163,384 450,100 $ 4,098 454,198 $ $ change 506,954 380,581 126,373 41,243 85,130 767 (24,265) 108,628 29,621 79,007 1,507 80,514 % change 12 % 13 % 11 % 8 % 14 % 3 % nm 18 % 18 % 18 % 37 % 18 % 6.43 $ 0.07 6.50 $ 5.47 $ 0.05 5.52 $ 0.96 0.02 0.98 18 % 40 % 18 % $ $ $ $ $ (cid:34)E(cid:48) RATIOS(cid:23) (cid:32)ross profit margin (1) (cid:44)elling and administrative expenses as a % of revenue Operating income margin (1) Income taxes as a % of income before income taxes Return on capital employed (1) Return on equity (1) 26.9% 11.7% 15.2% 26.7% 30.1% 22.8% 27.2% 12.1% 15.0% 26.6% 32.1% 23.3% (1) (cid:29)escribed in the sections titled (cid:2)Additional (cid:32)AA(cid:41) (cid:38)easures(cid:2), (cid:2)Non(cid:11)(cid:32)AA(cid:41) (cid:38)easures(cid:2) and (cid:2)(cid:36)ey (cid:41)erformance (cid:38)easures(cid:2). The (cid:28)ompany delivered strong bottom line results in 2023, reflecting good execution on strong opening bac(cid:60)log, customer demand for products and services, and favourable operating leverage. (cid:33)igher revenue in 4 Toromont Industries Ltd. Management’s Discussion and Analysis 13 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 both the Equipment (cid:32)roup and (cid:28)I(cid:38)(cid:28)O, lo(cid:72)er relative expenses and higher interest income on cash balances, (cid:72)ere partially offset by lo(cid:72)er gross margins. Rental and product support revenue increased on greater customer activity, utili(cid:75)ation of the larger fleet and improved execution. (cid:32)eneral economic uncertainty and macroeconomic factors such as inflation, higher interest rates, geopolitical instability, and the (cid:28)anadian dollar movements continue to challenge the business, as (cid:72)ell as influence buying patterns, and are expected to continue to do so as (cid:72)e progress into 2024. Revenue for the year increased 12% from prior year to $4.6 billion. Equipment (cid:32)roup revenue increased 12% compared to last year on higher equipment sales, product support revenue and rental activity. (cid:46)sed equipment sales (cid:72)ere lo(cid:72)er despite an increase in rental fleet dispositions of aged units, largely reflecting supply and demand of equipment. (cid:28)I(cid:38)(cid:28)O revenue increased 13% versus last year, on higher pac(cid:60)age and product support activity levels. (cid:48)hile (cid:72)e continue to see improvement in the inflo(cid:72) of inventory through the supply chain, challenges still exist in some product lines and parts, as (cid:72)ell as customer delays. (cid:32)ross profit margin decreased 30 basis points ((cid:2)bps(cid:2)) to 26.9% versus 27.2% for last year. The Equipment (cid:32)roup reported lo(cid:72)er margins in most areas, coupled (cid:72)ith an unfavourable sales mix, (cid:72)hile (cid:28)I(cid:38)(cid:28)O margins increased on good execution. (cid:41)roduct support margins increased in both groups on higher volume and improved operating efficiencies. (cid:44)elling and administrative expenses for the year increased $41.2 million or 8% compared to the prior year. In 2023 property dispositions reduced expenses by $5.0 million (2022 (cid:78) property related gains of $17.7 million). Excluding these items, expenses increased $28.6 million or 6% year over year, reflecting the higher activity levels. (cid:28)ompensation costs increased approximately $16.4 million, reflecting higher staffing levels, regular salary increases, and increased profit sharing accruals on the higher income, partially offset by lo(cid:72)er defined benefit pension expense. Other expenses such as training, travel and occupancy costs have increased as a result of higher activity levels and inflationary pressures. Allo(cid:72)ance for doubtful accounts decreased $5.3 million compared to last year on improved aged receivables and good collections. A higher share price in the current period resulted in a $1.9 million mar(cid:60)-to-mar(cid:60)et expense on cash(cid:11)settled (cid:29)(cid:44)(cid:46)s, compared to a recovery of $3.2 million in 2022, a $6.1 million change. (cid:44)elling and administrative expenses (cid:72)ere 40 basis points lo(cid:72)er as a percentage of revenue (11.7% versus 12.1% last year). Operating income increased $85.1 million or 14% in the year on the higher revenue. Operating income margin increased 20 bps to 15.2%, reflecting the lo(cid:72)er gross margins. Interest expense (cid:72)as largely unchanged at $28.1 million due to our term debt and unused credit facility. Interest and investment income increased $24.3 million or 112% in the year on higher average cash balances and higher interest rates on cash deposits. The effective income tax rate for the year (cid:72)as up slightly to 26.7% compared to 26.6% last year, reflecting the lo(cid:72)er capital gains rate on the property dispositions in both years. Net earnings (including discontinued operations) for the year increased $80.5 million or 18% to $534.7 million from 2022. (cid:27)asic earnings per share ((cid:2)E(cid:41)(cid:44)(cid:2)) increased $0.98 or 18% to $6.50. Other comprehensive loss of $17.4 million in the year (2022 (cid:78) comprehensive income of $67.4 million) included an actuarial gain on post(cid:11)employment benefit plans of $2.1 million (2022 (cid:78) actuarial gain of $58.8 million). These gains reflect actuarial changes used in the valuation, as (cid:72)ell as changes in the fair value of pension plan assets. Other comprehensive income also included a unfavourable net change in the fair value of cash flo(cid:72) hedges of $19.0 million (2022 (cid:78) favourable net change of $7.5 million). These changes reflect mar(cid:60)(cid:11)to(cid:11)mar(cid:60)et 5 14 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 differences in the value of foreign exchange derivative contracts designated as cash flo(cid:72) hedges and are largely a function of the underlying (cid:46)(cid:44)(cid:29)(cid:13)(cid:28)A(cid:29) exchange rates at period end compared to the contract date. (cid:25)USINESS SE(cid:30)MENT ANNUAL O(cid:39)ERATIN(cid:30) RESULTS The accounting policies of the segments are the same as those of the consolidated entity. (cid:38)anagement evaluates overall business segment performance based on revenue gro(cid:72)th, operating income relative to revenue and return on capital employed. (cid:28)orporate expenses are allocated based on each segment(cid:80)s revenue. Interest expense and interest and investment income are not allocated. The operating results belo(cid:72) have been restated and reflect continuing operations, unless other(cid:72)ise noted. Ag(cid:48)est Ltd. (cid:72)as previously reported in the Equipment (cid:32)roup results and no(cid:72) represent our discontinued operations results. Equipment (cid:30)roup ($ thousands) Equipment sales and rentals Ne(cid:72) (cid:46)sed Rentals Total equipment sales and rentals (cid:41)roduct support (cid:41)o(cid:72)er generation Total re(cid:69)enue Operating income (cid:34)E(cid:48) RATIOS(cid:23) (cid:41)roduct support revenue as a % of total revenue Operating income margin (cid:32)roup total revenue as a % of consolidated revenue Return on capital employed 2023 2022 $ change % change $ $ $ 1,647,757 $ 303,551 487,178 2,438,486 1,775,310 11,326 4,225,122 $ 664,688 $ 42.0% 15.7% 91.4% 28.2% 1,377,446 $ 315,140 452,039 2,144,625 1,609,330 10,410 3,764,365 $ 592,606 $ 270,311 (11,589) 35,139 293,861 165,980 916 460,757 72,082 20 % (4) % 8 % 14 % 10 % 9 % 12 % 12 % 42.8% 15.7% 91.5% 30.2% The Equipment (cid:32)roup delivered solid results in the year (cid:72)ith good mar(cid:60)et activity driving higher revenue across most mar(cid:60)ets and regions, supported by a strong opening order bac(cid:60)log and gradually improving equipment availability. Rental and product support activity continued to increase, on higher utili(cid:75)ation of the larger rental fleet and end customer demand, supported by the larger technician (cid:72)or(cid:60)force. Lo(cid:72)er gross margins and an unfavourable sales mix of higher equipment sales to total revenues (cid:72)ere more than offset by lo(cid:72)er relative expenses, resulting in improvements in operating income. Total equipment revenue (ne(cid:72) and used) increased $258.7 million or 15% compared to 2022, predominantly reflecting the inflo(cid:72) and delivery of equipment against the order bac(cid:60)log, coupled (cid:72)ith end customer demand. Ne(cid:72) equipment sales increased 20% in the year, across all mar(cid:60)et segments and regions, as the supply of equipment improved. (cid:46)sed equipment sales decreased 4% during the year. (cid:46)sed equipment sales from trades and purchases have been lo(cid:72)er in the current year as supply and demand dynamics shifted. (cid:46)sed equipment sales also include rental fleet dispositions, (cid:72)hich have increased in the current year after a period of constraint, reflecting fleet management decisions (age of the fleet), as (cid:72)ell as availability and cost of ne(cid:72) equipment. Overall, equipment revenue by mar(cid:60)et segments (cid:72)as as follo(cid:72)s for the year(cid:24) construction mar(cid:60)ets higher (cid:9)7%, mining up (cid:9)42%, po(cid:72)er systems up (cid:9)17%, and material handling up (cid:9)39%. 6 Toromont Industries Ltd. Management’s Discussion and Analysis 15 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Rental revenue increased $35.1 million or 8% versus last year. All mar(cid:60)ets and most regions (cid:72)ere up, reflecting higher mar(cid:60)et activity, strong execution and an expanded heavy and light equipment fleet. Revenue increases in each mar(cid:60)et (cid:72)ere as follo(cid:72)s(cid:24) Light equipment rentals up (cid:9)7%, heavy equipment rentals (cid:9)11%, po(cid:72)er systems (cid:9)12%, and material handling (cid:9)3%. As at (cid:29)ecember 31, 2023, the R(cid:41)O fleet (rent (cid:72)ith a purchase option) (cid:72)as $81.1 million versus $44.7 million at this time last year. (cid:41)roduct support revenue increased $166.0 million or 10% compared to last year (cid:72)ith increases in both parts (up 10%) and service (up 12%). Activity (cid:72)as higher across all mar(cid:60)ets and in all regions on good end user activity as follo(cid:72)s(cid:24) construction mar(cid:60)ets (cid:9)7%(cid:25) mining (cid:9)13%(cid:25) po(cid:72)er systems (cid:9)17%(cid:25) and material handling (cid:9)8%. (cid:32)ross profit margin decreased 50 bps to 27.0% from 27.5% in 2022. Equipment margins (cid:72)ere do(cid:72)n 20 bps on improving availability in ne(cid:72) equipment from suppliers. Rental margins (cid:72)ere do(cid:72)n 10 bps on lo(cid:72)er fleet utili(cid:75)ation, higher recent acquisition costs, in part due to a (cid:72)ea(cid:60)er (cid:28)anadian dollar, and higher maintenance and repair costs. (cid:41)roduct support margins increased 10 bps on continued focus on efficiency as (cid:72)ell as higher activity levels. (cid:44)ales mix, (cid:72)ith a lo(cid:72)er proportion of rental and product support revenues to total, decreased margin by 30 bps. (cid:44)elling and administrative expenses increased $34.7 million or 8% in 2023. In 2023 property dispositions reduced expenses by $5.0 million (2022 (cid:78) property related gains of $17.7 million). Excluding these items, expenses increased $22.0 million or 5% year over year, reflecting the higher activity. (cid:28)ompensation costs (cid:72)ere higher in both periods reflecting staffing levels, regular salary increases, and increased profit sharing accruals on the higher income. Other expenses such as training, travel and occupancy costs have increased in light of activity levels and inflationary pressures. Allo(cid:72)ance for doubtful accounts decreased $7.3 million, reflecting good collection activity and improved aging of receivables. As a percentage of revenue, selling and administrative expenses (cid:72)ere 40 bps lo(cid:72)er at 11.3% in the current period versus 11.7% in the similar period last year. Operating income increased $72.1 million or 12%. As a percentage of revenue, operating income (cid:72)as 15.7%, unchanged from the prior year, reflecting the higher revenue and lo(cid:72)er expenses offset by the lo(cid:72)er gross margins. (cid:26)apital e(cid:71)penditures ($ (cid:33)(cid:29)ll(cid:29)ons) Rental equipment (cid:28)apital expenditures (cid:41)roceeds on disposals Net e(cid:71)penditure (cid:39)roperty, plant and equipment (cid:28)apital expenditures 2023 2022 $ change % change 221,650 $ 60,707 160,943 $ 214,693 $ 34,206 180,487 $ 6,957 26,501 (19,544) 3 % 77 % (11) % 115,256 $ 61,089 $ 54,167 89 % $ $ $ Investment in both the heavy and light equipment rental fleets across our territory continued in light of both improving mar(cid:60)et conditions and to support future gro(cid:72)th initiatives. (cid:31)leet dispositions, as measured by proceeds, increased as aged units (cid:72)ere disposed of, moderni(cid:75)ing our fleet, and as equipment availability improved. 7 16 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:41)roperty, plant and equipment additions increased in 2023, as business activity improved. (cid:28)apital expenditures in 2023 included(cid:24) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) $38.2 million related to the ne(cid:72), state(cid:11)of(cid:11)the art remanufacturing facility in (cid:27)radford, Ontario (planned opening in mid(cid:11)2024)(cid:25) $19.0 million for upgraded facilities and locations across the business(cid:25) $42.2 million for ne(cid:72) and replacement service and delivery vehicles(cid:25) $4.9 million for information technology infrastructure improvements and developments(cid:25) and $12.0 million for other machinery and equipment for general operations. (cid:25)oo(cid:58)ings and (cid:25)ac(cid:58)log ($ (cid:33)(cid:29)ll(cid:29)ons) (cid:27)oo(cid:60)ings (cid:78) years ended (cid:29)ecember 31 (cid:27)ac(cid:60)log (cid:78) as at (cid:29)ecember 31 $ $ 2023 1,876.6 $ 957.3 $ 2022 1,642.3 $ 1,032.0 $ $ change 234.3 (74.7) % change 14 % (7) % Ne(cid:72) boo(cid:60)ings increased $234.3 million or 14% in 2023, compared to 2022. (cid:27)oo(cid:60)ings in the follo(cid:72)ing sectors (cid:72)ere higher(cid:24) construction ((cid:9)1%), mining ((cid:9)66%) and po(cid:72)er systems ((cid:9)23%), partially offset by lo(cid:72)er orders in material handling ((cid:11)21%). (cid:27)ac(cid:60)log of $957.3 million at (cid:29)ecember 31, 2023, (cid:72)as do(cid:72)n $74.7 million or 7%, compared to the same time last year, reflecting improving equipment delivery from manufacturers as (cid:72)ell as planned deliveries against customer orders. As at (cid:29)ecember 31, 2023, the brea(cid:60)do(cid:72)n of bac(cid:60)log by mar(cid:60)et (cid:72)as as follo(cid:72)s(cid:24) construction 26%(cid:25) mining 38%(cid:25) po(cid:72)er systems 32%(cid:25) and material handling 4%. Approximately 90% of the bac(cid:60)log is expected to be delivered over the next t(cid:72)elve months, ho(cid:72)ever this is subject to timing of vendor supply and customer delivery schedules. (cid:27)oo(cid:60)ings and bac(cid:60)log can vary significantly from period to period on large project activities (especially in mining and po(cid:72)er systems), the timing of orders and deliveries (cid:72)ith customers ((cid:72)hich are in turn reflective of economic factors and general activity levels), and the availability of equipment from either inventory or suppliers. (cid:26)IM(cid:26)O ($ thousands) (cid:41)ac(cid:60)age sales (cid:41)roduct support Total re(cid:69)enue Operating income (cid:34)E(cid:48) RATIOS(cid:23) (cid:41)roduct support revenue as a % of total revenue Operating income margin (cid:32)roup total revenue as a % of consolidated revenue Return on capital employed $ $ $ 2023 187,573 $ 209,606 397,179 $ 39,540 $ 52.8% 10.0% 8.6% 60.4% 2022 173,273 $ 177,710 350,983 $ 26,492 $ $ change 14,300 31,896 46,196 13,048 % change 8 % 18 % 13 % 49 % 50.6% 7.5% 8.5% 41.9% 8 Toromont Industries Ltd. Management’s Discussion and Analysis 17 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:28)I(cid:38)(cid:28)O delivered improved results for 2023, (cid:72)ith the advancement on construction schedules against a strong order bac(cid:60)log and improved execution. (cid:41)roduct support activity continued to demonstrate strong gro(cid:72)th, supported by the larger technician (cid:72)or(cid:60)force. Operating income increased on the higher revenues, improved gross margins, and favourable sales mix (a higher proportion of product support revenues to total), partially offset by higher expenses. (cid:41)ac(cid:60)age sales increased $14.3 million or 8% versus 2022, (cid:72)ith increases in both mar(cid:60)ets. Industrial mar(cid:60)et revenue (cid:72)as up 12%, (cid:72)ith higher activity in the (cid:46)(cid:44) (up 173%) offset by lo(cid:72)er revenue in (cid:28)anada (do(cid:72)n 10%). Recreational mar(cid:60)et revenue increased 2%, as higher revenue in (cid:28)anada (up 27%) (cid:72)as largely offset by lo(cid:72)er (cid:46)(cid:44) revenue (do(cid:72)n 28%). (cid:41)ac(cid:60)age revenue reflects the progress of project construction applying the percentage-of-completion method of accounting. This introduces a degree of variability as the timing of projects and construction schedules are largely under the control of third parties (contractors and end(cid:11)customers). (cid:41)roduct support revenue increased $31.9 million or 18% versus 2022 on higher activity levels in both (cid:28)anada (up 12%) and the (cid:46)(cid:44) (up 38%). Activity levels continued to improve on good customer demand and the increased technician base. (cid:32)ross profit margin increased 220 basis points versus last year to 26.0%. (cid:41)ac(cid:60)age margins (cid:72)ere up 120 bps, on good execution and the nature of projects in process. (cid:41)roduct support margins increased 80 bps on improved execution and higher volume of mar(cid:60)et activity. A favourable sales mix, (cid:72)ith a higher proportion of product support revenue to total revenue, accounted for 20 bps of the increase. (cid:44)elling and administrative expenses increased $6.5 million or 11% versus last year. Allo(cid:72)ance for doubtful accounts increased $2.0 million on a larger balance of aged receivables and slo(cid:72)er collections. (cid:28)ompensation costs increased reflecting staff levels, annual salary increases and higher profit sharing accruals on the higher earnings. Other expenditures such as travel and training expenses increased to support activity and staffing levels. (cid:31)oreign exchange translation on (cid:46)(cid:44) operations increased expenses by $0.4 million in the year. As a percentage of revenue, selling and administrative expenses improved to 16.0% in 2023 versus 16.3% in 2022, reflecting continued focus on expense controls. Operating income increased by $13.0 million or 49% in 2023, reflecting improved gross margins and higher revenue. Operating income as percentage of revenue increased 250 bps to 10.0% compared to last year. (cid:26)apital e(cid:71)penditures ($ (cid:33)(cid:29)ll(cid:29)ons) 2023 2022 $ change % change (cid:39)roperty, plant and equipment $ 6,573 $ 9,206 $ (2,633) (29) % (cid:28)apital expenditures in 2023 included final renovations at the ne(cid:72) head office facility in (cid:28)anada. Other expenditures included ne(cid:72) and replacement service vehicles ($3.7 million), other machinery and equipment for general operations ($0.8 million) and information technology enhancements and upgrades ($0.6 million). (cid:25)oo(cid:58)ings and (cid:25)ac(cid:58)log ($ (cid:33)(cid:29)ll(cid:29)ons) (cid:27)oo(cid:60)ings (cid:78) years ended (cid:29)ecember 31 (cid:27)ac(cid:60)log (cid:78) as at (cid:29)ecember 31 9 18 Toromont Industries Ltd. $ $ 2023 245.9 $ 255.2 $ 2022 206.9 $ 198.4 $ $ change 39.0 56.8 % change 19 % 29 % Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:27)oo(cid:60)ings increased $39.0 million or 19% to $245.9 million in 2023. Industrial boo(cid:60)ings (cid:72)ere up 58% (cid:72)ith an increase in both (cid:28)anada ((cid:9)50%) and in the (cid:46)(cid:44) ((cid:9)100%), (cid:72)ith good mar(cid:60)et activity in our (cid:48)estern (cid:28)anada and (cid:42)uebec regions. Recreational boo(cid:60)ings (cid:72)ere do(cid:72)n 30%, (cid:72)ith lo(cid:72)er orders in the (cid:46)(cid:44), do(cid:72)n 62%, slightly offset by higher orders in (cid:28)anada, up 2%. (cid:27)ac(cid:60)log of $255.2 million increased $56.8 million or 29% compared to 2022, (cid:72)ith an increase in the industrial mar(cid:60)et being partially offset by a decrease in the recreational mar(cid:60)et. Industrial bac(cid:60)log increased 55%, (cid:72)ith an increase in (cid:28)anada ((cid:9)68%), offset by a decrease in the (cid:46)(cid:44) ((cid:11)15% on a tough comparable). Recreational bac(cid:60)log (cid:72)as do(cid:72)n 2%, as marginally higher bac(cid:60)log in (cid:28)anada ((cid:9)7%) (cid:72)as offset by lo(cid:72)er bac(cid:60)log in the (cid:46)(cid:44) ((cid:11)9%). Approximately 85% of the bac(cid:60)log is expected to be reali(cid:75)ed as revenue over the next t(cid:72)elve months, ho(cid:72)ever this is subject to construction schedules and potential changes stemming from supply chain dynamics. (cid:26)ONSOLIDATED (cid:29)INAN(cid:26)IAL (cid:26)ONDITION The (cid:28)ompany's strong financial position continued. At (cid:29)ecember 31, 2023, the ratio of net debt to total capitali(cid:75)ation decreased to (cid:11)17% (cash and cash equivalents exceeded debt) compared to (cid:11)14% at (cid:29)ecember 31, 2022. Non(cid:10)cas(cid:56) (cid:46)or(cid:58)ing (cid:26)apital The (cid:28)ompany's investment in non(cid:11)cash (cid:72)or(cid:60)ing capital (cid:72)as $704.0 million at (cid:29)ecember 31, 2023. The major components, along (cid:72)ith the changes from prior year, are identified in the follo(cid:72)ing table. ($ thousands) Accounts receivable Inventories Other current assets Accounts payable and accrued liabilities (cid:41)rovisions Income tax payable (cid:29)erivative financial instruments (cid:29)ividends payable (cid:29)eferred revenue and contract liabilities Total non(cid:10)cas(cid:56) (cid:70)or(cid:58)ing capital 2023 627,243 $ 1,119,071 23,733 (619,318) (30,269) (7,006) (13,946) (35,383) (360,143) 703,982 $ 2022 579,682 $ 1,025,759 17,444 (658,980) (27,653) (28,653) 18,530 (32,104) (309,349) 584,676 $ $ $ (cid:26)(cid:56)ange $ % 47,561 93,312 6,289 39,662 (2,616) 21,647 (32,476) (3,279) (50,794) 119,306 8 % 9 % 36 % (6) % 9 % (76) % nm 10 % 16 % 20 % Accounts receivable increased 8% from (cid:29)ecember 31, 2022, largely reflecting the higher trailing revenue ((cid:42)4 2023 revenue (cid:72)as 9% higher than (cid:42)4 2022). (cid:29)ays sales outstanding ((cid:2)(cid:29)(cid:44)Os(cid:2)) (cid:72)ere unchanged at 42 days, (cid:72)ith a slight decrease in the Equipment (cid:32)roup (do(cid:72)n 1 day) being offset by an increase in (cid:28)I(cid:38)(cid:28)O (up 3 days). (cid:28)ollection activity and credit metrics are closely monitored, (cid:72)ith added focus considering the current economic environment. 10 Toromont Industries Ltd. Management’s Discussion and Analysis 19 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Inventories at (cid:29)ecember 31, 2023 (cid:72)ere 9% higher compared to (cid:29)ecember 31, 2022, (cid:72)ith increases in both (cid:32)roups(cid:24) (cid:81) Equipment (cid:32)roup inventories (cid:72)ere up $87.7 million or 9% higher (cid:72)ith increases in equipment (up $73.4 million or 13%) and (cid:72)or(cid:60)-in-progress (up $19.3 million or 21%), partly offset by lo(cid:72)er parts inventories (do(cid:72)n $5.0 million or 2%). Inventory levels are typically lo(cid:72)est at the end of the year due to seasonality, (cid:72)ith inventories building during the year in advance of the busier selling period. Economic and other factors including supply chain issues have altered this pattern over the past t(cid:72)o years. Ag(cid:48)est inventory at (cid:29)ecember 31, 2022 totalled $21.9 million. (cid:81) (cid:28)I(cid:38)(cid:28)O inventories (cid:72)ere up $5.6 million or 16%, predominantly led by higher (cid:72)or(cid:60)(cid:11)in(cid:11)process levels (up $6.5 million or 22%), slightly offset by lo(cid:72)er parts inventories (do(cid:72)n $0.8 million or 14%) reflecting the progression of construction schedules. Other current assets are comprised of prepaid expenses and vendor deposits. These vary over time based on timing of ordering, receipt of invoice, vendor terms and payment. Accounts payable and accrued liabilities at (cid:29)ecember 31, 2023, (cid:72)ere 6% lo(cid:72)er than at (cid:29)ecember 31, 2022, largely reflecting the timing of purchases and payment for inventory and other supplies. This (cid:72)as partly offset by higher cash(cid:11)settled (cid:29)(cid:44)(cid:46) liability (higher share price) and higher profit sharing accruals on the higher earnings. Income tax payable reflects the difference bet(cid:72)een tax installments and current income tax expense. (cid:29)erivative financial instruments represent the fair value of foreign exchange contracts. (cid:31)luctuations in the value of the (cid:28)anadian dollar have led to a cumulative net loss of $13.9 million as at (cid:29)ecember 31, 2023. This is not expected to affect net earnings as the unreali(cid:75)ed losses (cid:72)ill offset future gains on the related hedged items, either current accounts payable or future transactions. (cid:29)ividends payable increased year over year reflecting the increased dividend rate. Effective (cid:72)ith the April 4, 2023 payment, the quarterly dividend rate (cid:72)as increased 10.3% from $0.39 per share to $0.43 per share. (cid:29)eferred revenue and contract liabilities represent billings to customers in excess of revenue recogni(cid:75)ed. (cid:81) In the Equipment (cid:32)roup, these balances arise due to(cid:24) progress billings from the sale of po(cid:72)er and energy systems(cid:25) long(cid:11)term product support maintenance contracts(cid:25) and, customer deposits for equipment to be delivered in the future. These balances increased $33.7 million or 12.2%, in 2023, generally on timing of progress billings under long(cid:11)term maintenance contracts, as (cid:72)ell as customer deposits for future equipment deliveries, largely for the mining industry. (cid:81) At (cid:28)I(cid:38)(cid:28)O, these balances arise on progress billings from the sale of refrigeration pac(cid:60)ages and vary depending on timing of billings compared to customer(cid:80)s construction schedules. These balances increased $17.1 million or 51.2%, reflecting the timing of billings compared to revenue recogni(cid:75)ed under the percentage(cid:11)of(cid:11)completion method. (cid:30)ood(cid:70)ill and Intangi(cid:50)les The (cid:28)ompany performs impairment tests on its good(cid:72)ill and intangibles (cid:72)ith indefinite lives on an annual basis or as (cid:72)arranted by events or circumstances. The assessment entails estimating the fair value of operations to (cid:72)hich the good(cid:72)ill and intangibles relate using the fair value less cost to sell valuation method. This assessment affirmed good(cid:72)ill and intangibles values as at (cid:29)ecember 31, 2023, as outlined in note 9 of the notes to the annual consolidated financial statements. 11 20 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Employee S(cid:56)are O(cid:70)ners(cid:56)ip The (cid:28)ompany employs a variety of share(cid:11)based compensation plans to align employees' interests (cid:72)ith corporate objectives. (cid:28)ertain programs are offered to to all employees, (cid:72)hile other programs are offered selectively to executives, senior managers and directors. Executive (cid:44)toc(cid:60) Option (cid:41)lan (cid:44)toc(cid:60) options have a 10(cid:11)year life, vest 20% per year on each anniversary date of the grant and are exercisable at the designated common share price, (cid:72)hich is fixed at prevailing mar(cid:60)et prices at the date the option is granted. As at (cid:29)ecember 31, 2023, 1.8 million options to purchase common shares (cid:72)ere outstanding, of (cid:72)hich 1.0 million (cid:72)ere exercisable. (cid:29)irectors do not participate in the option program. Long(cid:11)Term Incentive (cid:41)rogram Amendments to the LTI(cid:41) (cid:72)ere effective in early 2022, the (cid:28)ompany introduced performance share units ((cid:2)(cid:41)(cid:44)(cid:46)s(cid:2)), restricted share units ((cid:2)R(cid:44)(cid:46)s(cid:2)) and executive deferred share units ((cid:2)E(cid:29)(cid:44)(cid:46)s(cid:2)). The (cid:28)ompany has the ability to grant options and a(cid:72)ards under each of these plans. The (cid:28)ompany intends that total incentive a(cid:72)ard grants (cid:72)ill be based on historical share option grant levels at approximately a 50(cid:13)50 split bet(cid:72)een share options and grants under the LTI(cid:41). (cid:29)etails of each grant (cid:72)ill be determined at the date of grant, including performance requirements, vesting and settlement method. (cid:41)(cid:44)(cid:46)s and R(cid:44)(cid:46)s (cid:72)ill settle upon vesting, (cid:72)hile E(cid:29)(cid:44)(cid:46)s (cid:72)ill settle upon cessation of service to the (cid:28)ompany. (cid:41)(cid:44)(cid:46) vesting (cid:72)ill be based upon the achievement of performance objectives established at the time of grant by the (cid:27)oard of (cid:29)irectors. The maximum number of common shares reserved for issuance under the LTI(cid:41) is in aggregate 750,000. A total of 14,396 restricted share units ((cid:2)R(cid:44)(cid:46)s(cid:2)) and 56,784 performance share units ((cid:2)(cid:41)(cid:44)(cid:46)s(cid:2)) (cid:72)ere outstanding under the LTI(cid:41) as at (cid:29)ecember 31, 2023, including reinvested dividends. LTI(cid:41) expense of $3.6 million (2022 (cid:78) $0.6 million) (cid:72)as included in selling and administrative expenses (cid:72)ith a credit to contributed surplus during the year. Employee (cid:44)hare (cid:41)urchase (cid:41)lan Employees may purchase shares by (cid:72)ay of payroll deductions. The (cid:28)ompany matches employee contributions at a rate of $1 for every $3 contributed, to a maximum of 2.5% of an employee's base salary per annum. (cid:28)ompany contributions prior to 2019 vested to the employee immediately, (cid:72)hile contributions in 2019 on(cid:72)ards vest five years from date of contribution. (cid:28)ompany contributions amounting to $4.4 million in 2023 (2022 (cid:78) $3.8 million) (cid:72)ere charged to selling and administrative expense (cid:72)hen paid. Approximately 3,200 employees participate in the plan (2022 (cid:11) 2,800) (cid:72)hich is administered by an independent third party. (cid:29)eferred (cid:44)hare (cid:46)nits ((cid:2)(cid:29)(cid:44)(cid:46)(cid:2)) A (cid:29)(cid:44)(cid:46) is a notional unit that reflects the mar(cid:60)et value of a single Toromont common share and generally vests immediately. (cid:29)(cid:44)(cid:46)s may be redeemed only on cessation of employment or directorship. (cid:29)(cid:44)(cid:46)s have dividend equivalent rights. Executives and senior managers may elect, on an annual basis, to receive all or a portion of their performance incentive bonus in (cid:29)(cid:44)(cid:46)s. Non(cid:11)employee directors received 55% of their annual compensation in the form of (cid:29)(cid:44)(cid:46)s and may also elect to receive some or all of their remainder compensation in (cid:29)(cid:44)(cid:46)s. The (cid:28)ompany records the cost of the (cid:29)(cid:44)(cid:46) plan as compensation expense in selling and 12 Toromont Industries Ltd. Management’s Discussion and Analysis 21 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 administrative expenses. (cid:46)nits credited prior to (cid:44)eptember 2022 (cid:72)ere issued under a cash-settled plan, (cid:72)hile units elected or granted after that date (cid:72)ill be issued under a share(cid:11)settled plan. As at (cid:29)ecember 31, 2023, 191,320 cash-settled (cid:29)(cid:44)(cid:46)s (cid:72)ere outstanding (cid:72)ith a total value of $22.1 million (2022 (cid:78) 190,128 units at a value of $18.5 million). The liability for cash(cid:11)settled (cid:29)(cid:44)(cid:46)s is included in accounts payable and accrued liabilities on the consolidated statements of financial position. As at (cid:29)ecember 31, 2023, 33,360 share(cid:11)settled (cid:29)(cid:44)(cid:46)s (cid:72)ere outstanding (2022 (cid:78) 7,534 units). (cid:44)hare(cid:11)settled (cid:29)(cid:44)(cid:46)s are credited to contributed surplus at time of grant. Employee (cid:29)uture (cid:25)ene(cid:54)its The (cid:28)ompany sponsors pension arrangements for substantially all of its employees. These include(cid:24) (cid:81) (cid:29)efined contribution plans, including 401((cid:60)) matched savings plans for employees in the (cid:46)(cid:44), covering the largest segment of employees, including all ne(cid:72) hires(cid:25) (cid:81) (cid:29)efined benefit pension plans(cid:25) and, (cid:81) Other post(cid:11)employment benefit plans for certain grandfathered employees. (cid:28)ertain unioni(cid:75)ed employees do not participate in (cid:28)ompany(cid:11)sponsored plans, and contributions are made to their retirement programs in accordance (cid:72)ith the respective collective bargaining agreements. (cid:29)efined (cid:28)ontribution (cid:41)lans In the case of defined contribution plans, regular contributions are made to the individual employee accounts, (cid:72)hich are administered by a plan trustee in accordance (cid:72)ith the plan documents. As at (cid:29)ecember 31, 2023, approximately 4,600 employees participated in (cid:28)ompany(cid:11)sponsored defined contribution plans. (cid:29)efined (cid:27)enefit (cid:41)ension (cid:41)lans The (cid:28)ompany sponsors defined benefit plans, (cid:72)hich provide pension benefits for approximately 1,100 active employees. All (cid:41)lans are administered by a separate (cid:31)und that is legally separate from the (cid:28)ompany, (cid:72)ith the exception of the Executive (cid:41)lan described belo(cid:72). The funded status of these plans improved by $6.1 million during 2023 (a reduction in post employment obligations). Actuarial gains, largely related to a higher discount rate reduced the defined benefit obligation by $12.7 million. (cid:44)tronger capital mar(cid:60)ets resulted in a positive return on plan assets, increasing the funded position by $13.7 million, net of the interest expense on the obligation. The Executive (cid:41)lan is a supplemental plan and is solely the obligation of the (cid:28)ompany. All members of the plan are retired. The (cid:28)ompany is not obligated to fund the plan but is obligated to pay benefits under the terms of the plan as they come due. At (cid:29)ecember 31, 2023, the (cid:28)ompany has posted letters of credit in the amount of $11.8 million to secure the obligations under this plan. A (cid:60)ey assumption in pension accounting is the discount rate. This rate is set (cid:72)ith regard to the yield on high-quality corporate bonds of similar average duration to the cash flo(cid:72) liabilities of the (cid:41)lans. (cid:49)ields are volatile and can deviate significantly from period to period. 13 22 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:41)ost(cid:11)employment (cid:27)enefit (cid:41)lans The (cid:28)ompany sponsors defined benefit plans, (cid:72)hich provide supplementary post-employment health and life insurance coverage to certain employees. The (cid:28)ompany is not obligated to fund the plans but is obligated to pay benefits as they come due. The plan is closed to ne(cid:72) entrants. (cid:44)ee notes 2, 3 and 21 to the audited consolidated financial statements for further information Legal and Ot(cid:56)er (cid:26)ontingencies (cid:29)ue to the si(cid:75)e, complexity and nature of the (cid:28)ompany'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 (cid:72)ill have a material effect on the (cid:28)ompany's financial position or results of operations. Normal (cid:26)ourse Issuer (cid:25)id ("N(cid:26)I(cid:25)") The (cid:28)ompany's N(cid:28)I(cid:27) program (cid:72)as rene(cid:72)ed in (cid:44)eptember 2023. The current issuer bid allo(cid:72)s the (cid:28)ompany to purchase up to 8.2 million common shares during the 12-month period ending (cid:44)eptember 18, 2024. All shares purchased under the bid (cid:72)ill be cancelled. The (cid:28)ompany purchased and cancelled 353,000 common shares for $37.5 million (average cost of $106.35 per share, including transaction costs) during the year ended (cid:29)ecember 31, 2023. The (cid:28)ompany maintains an Automatic (cid:44)hare (cid:41)urchase (cid:41)lan ((cid:2)A(cid:44)(cid:41)(cid:41)(cid:2)) (cid:72)ith a bro(cid:60)er to enable the purchase of common shares under the N(cid:28)I(cid:27) during regular trading blac(cid:60)out periods. The volume of the purchases are determined by the bro(cid:60)er based on share price and maximum volume parameters established by the (cid:28)ompany prior to the commencement of each blac(cid:60)out period. As at (cid:29)ecember 31, 2023, an obligation for the repurchase of shares of $12.5 million (cid:72)as recogni(cid:75)ed under the A(cid:44)(cid:41)(cid:41). The (cid:28)ompany purchased and cancelled 473,100 common shares for $48.5 million (average cost of $102.52 per share, including transaction costs) during the year ended (cid:29)ecember 31, 2022. As at (cid:29)ecember 31, 2022, there (cid:72)as no obligation for the repurchase of shares under the A(cid:44)(cid:41)(cid:41). S(cid:56)are(cid:56)older Rig(cid:56)ts (cid:39)lan ("SR(cid:39)") The (cid:28)ompany has a shareholder rights plan, (cid:72)hich is designed to encourage the fair treatment of shareholders in connection (cid:72)ith any ta(cid:60)eover offer. Rights issued under the plan become exercisable (cid:72)hen a person, and any related parties, acquires or commences a ta(cid:60)eover bid to acquire 20% or more of the (cid:28)ompany(cid:80)s outstanding common shares (cid:72)ithout complying (cid:72)ith certain provisions set out in the plan or (cid:72)ithout approval of the (cid:28)ompany's (cid:27)oard of (cid:29)irectors. (cid:44)hould such an acquisition occur, each rights holder, other than the acquiring person and related parties, (cid:72)ill have the right to purchase common shares of the (cid:28)ompany at a 50% discount to the mar(cid:60)et price at that time. Outstanding S(cid:56)are Data As at the date of this (cid:38)(cid:29)(cid:5)A, the (cid:28)ompany had 82,306,297 common shares and 1,783,993 share options outstanding. 14 Toromont Industries Ltd. Management’s Discussion and Analysis 23 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Di(cid:69)idends Toromont pays a quarterly dividend on its outstanding common shares and has historically targeted a dividend rate of approximately 30 (cid:11) 40% of trailing earnings from continuing operations over the business cycle. In (cid:31)ebruary 2023, the quarterly dividend (cid:72)as increased by 10.3% or 4 cents per share, to 43 cents per common share, effective (cid:72)ith the April payment. In 2023, the (cid:28)ompany declared dividends of $1.72 per common share (2022 (cid:78) $1.56 per common share). (cid:28)onsidering the (cid:28)ompany's strong financial position and positive long(cid:11)term outloo(cid:60), the (cid:27)oard of (cid:29)irectors increased the quarterly dividend by 11.6% to 48 cents per share effective (cid:72)ith the dividend payable on April 4, 2024, to shareholders on record on (cid:38)arch 8, 2024. Toromont has paid dividends every year since 1968 and this is the 35th consecutive year of dividend increases. LI(cid:40)UIDIT(cid:48) AND (cid:26)A(cid:39)ITAL RESOUR(cid:26)ES Sources o(cid:54) Liquidity Toromont's liquidity requirements can be met through a variety of sources, including cash on hand, cash generated from operations, long and short(cid:11)term borro(cid:72)ings and the issuance of common shares. (cid:27)orro(cid:72)ings are obtained through a variety of senior debentures, notes payable and committed credit facilities. Toromont's debt portfolio is unsecured, unsubordinated and ran(cid:60)s pari passu. The (cid:28)ompany has a $500.0 million committed revolving credit facility, maturing in November 2026, (cid:72)ith a syndicate of financial institutions. (cid:29)ebt under this facility is unsecured and ran(cid:60)s pari passu (cid:72)ith debt outstanding under Toromont(cid:80)s existing debentures. Interest is based on a floating rate, primarily ban(cid:60)ers' acceptances and prime, plus applicable margins and fees based on the terms of the credit facility. No amounts (cid:72)ere dra(cid:72)n on this revolving credit facility as at (cid:29)ecember 31, 2023 or 2022. (cid:44)tandby letters of credit issued utili(cid:75)ed $40.3 million of the facility as at (cid:29)ecember 31, 2023 (2022 (cid:78) $28.9 million). The (cid:28)ompany'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 (cid:28)ompany (cid:72)as in compliance (cid:72)ith all covenants at (cid:29)ecember 31, 2023 and 2022. The (cid:28)ompany expects that continued cash flo(cid:72)s from operations in 2024, together (cid:72)ith cash and cash equivalents on hand (2023 (cid:78) $1,040.8 million) and currently available credit facilities (cid:72)ill be more than sufficient to fund requirements for investments in (cid:72)or(cid:60)ing capital, capital assets and dividend payments through the next 12 months. The (cid:28)ompany's credit ratings (cid:72)ill also continue to provide access to capital mar(cid:60)ets to facilitate future debt issuance. The (cid:28)ompany also has a certain degree of flexibility in its operating and investing plans to mitigate fluctuations. 15 24 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:39)rincipal (cid:26)omponents o(cid:54) (cid:26)as(cid:56) (cid:29)lo(cid:70) (cid:28)ash from operating, investing and financing activities, as reflected in the (cid:28)onsolidated (cid:44)tatements of (cid:28)ash (cid:31)lo(cid:72)s, are summari(cid:75)ed in the follo(cid:72)ing table(cid:24) ($ thousands) (cid:26)as(cid:56) and cas(cid:56) equi(cid:69)alents, (cid:50)eginning o(cid:54) year (cid:28)ash, provided by (used in)(cid:24) Operating acti(cid:69)ities Operations (cid:28)hange in non(cid:11)cash (cid:72)or(cid:60)ing capital and other Net rental fleet additions In(cid:69)esting acti(cid:69)ities (cid:29)inancing acti(cid:69)ities 2023 927,780 $ 2022 916,830 $ 701,421 (177,021) (171,192) 353,208 597,303 (212,720) (171,213) 213,370 (104,313) (44,162) (164,451) (162,014) Effect of foreign exchange on cash and cash equivalents balances (210) 489 Increase in cas(cid:56) and cas(cid:56) equi(cid:69)alents during t(cid:56)e year (cid:54)rom continuing operations Discontinued operations (cid:26)as(cid:56) and cas(cid:56) equi(cid:69)alents, end o(cid:54) year $ $ $ 84,234 $ 28,743 $ 1,040,757 $ 7,683 3,267 927,780 (cid:28)ash (cid:31)lo(cid:72)s from Operating Activities Operating activities provided cash in both 2023 and 2022. (cid:28)ash generated from operations increased 17% from 2022 primarily on the higher net earnings, (cid:72)hich increased 18%. Non(cid:11)cash (cid:72)or(cid:60)ing capital and other used cash in 2023, as (cid:72)or(cid:60)ing capital levels increased on higher activity levels. Accounts receivable and inventory both increased reflective of activity, (cid:72)hile accounts payable reduced on timing of payment to vendors. This (cid:72)as partially offset by higher customer deposits received on future order delivery. Non(cid:11)cash (cid:72)or(cid:60)ing capital also used cash in 2022, as higher inventory and account receivables, (cid:72)ere only partially offset by higher account payables and customer deposits. Net rental fleet additions (purchases less proceeds of dispositions) (cid:72)ere relatively unchanged compared to 2022. The (cid:28)ompany continued to investment in both the heavy and light equipment rental fleets across Eastern (cid:28)anada reflective of mar(cid:60)et conditions and gro(cid:72)th strategies. (cid:29)ispositions increased year over year as ne(cid:72) equipment supply improved and aged units (cid:72)ere able to be rolled out. The components and changes in non(cid:11)cash (cid:72)or(cid:60)ing capital are discussed in more detail in this (cid:38)(cid:29)(cid:5)A under the heading (cid:2)(cid:28)onsolidated (cid:31)inancial (cid:28)ondition(cid:2). (cid:28)ash (cid:31)lo(cid:72)s from Investing Activities Investing activities used $104.3 million in 2023 compared to $44.2 million in 2022. 16 Toromont Industries Ltd. Management’s Discussion and Analysis 25 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Toromont invested $114.5 million in 2023 in property, plant and equipment (2022 (cid:78) $68.6 million), as follo(cid:72)s(cid:24) (cid:81) (cid:81) (cid:81) (cid:81) $53.2 million additions for land, buildings and construction in process for ne(cid:72) and upgraded facilities across the business (2022 (cid:78) $22.3 million)(cid:25) $44.6 million for normal replacement of service and delivery vehicles (2022 (cid:78) $34.3 million)(cid:25) $5.8 million for upgrades and enhancements to information technology infrastructure and office furniture (2022 (cid:78) $3.7 million)(cid:25) and $10.9 million for machinery and equipment replacements and upgrades (2022 (cid:78) $8.3 million). In 2023, the (cid:28)ompany sold excess properties for gross proceeds of $9.2 million (2022 (cid:78) $24 million) resulting in a capital gains of $5.0 million (2022 (cid:78) $17.7 million) or $4.5 million (2022 (cid:78) $15.4 million) after(cid:11)tax. Total disposition proceeds for 2023 (cid:72)ere $10.3 million (2022 (cid:78) $24.6 million). (cid:28)ash (cid:31)lo(cid:72)s from (cid:31)inancing Activities (cid:31)or the year ended (cid:29)ecember 31, 2023, financing activities used $164.5 million (2022 (cid:78) used $162.0 million) in cash, major uses and sources of cash during the year included(cid:24) (cid:81) (cid:29)ividends paid to common shareholders of $138.6 million or $1.68 per share (2022 (cid:78) $125.2 million or $1.52 per share)(cid:25) (cid:81) (cid:28)ash received on exercise of share options of $21.0 million (2022 (cid:78) $20.6 million)(cid:25) (cid:81) (cid:41)urchase of shares under the N(cid:28)I(cid:27) program used $37.5 million (2022 (cid:78) $48.5 million)(cid:25) and (cid:81) Lease liability payments of $9.4 million (2022 (cid:78) $8.9 million). (cid:28)ash (cid:31)lo(cid:72)s from (cid:29)iscontinued Operations Net cash provided in 2023 from discontinued operations, Ag(cid:48)est Ltd., (cid:72)as $28.7 million, including $26.6 million in proceeds of disposition. (cid:44)ee note 4 to the interim condensed financial statements for further information on this transaction. OUTLOO(cid:34) (cid:48)e are closely monitoring regional, national and global economic factors, in particular, inflationary pressures from price and (cid:72)age increases, interest rate changes, and general economic health of the industries (cid:72)e serve. (cid:48)hile the global supply chain continues to improve, certain lines and components remain challenged. (cid:48)e continue to actively manage supply chain challenges by ta(cid:60)ing appropriate mitigation steps. (cid:48)e continue to enhance and leverage the use of technology to efficiently and effectively engage (cid:72)ith customers, employees and other partners, (cid:72)hile improving our operational efficiency. The Equipment (cid:32)roup's parts and service business provides stability supported by a large and diversified installed base of equipment. The long(cid:11)term outloo(cid:60) for infrastructure projects and other construction activity is positive across most territories although tied some(cid:72)hat to the general economic climate. (cid:38)ining customers and our operations that support them continue to evaluate appropriate activity levels on a daily(cid:13)(cid:72)ee(cid:60)ly basis. Longer term, mine investment and expansion (cid:72)ill remain dependent on global economic and financial conditions. 17 26 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Investment continues in broadening product lines and service offerings, expanding and enhancing the branch net(cid:72)or(cid:60), optimi(cid:75)ing rental fleets, and using technologies to create efficiency and effectiveness across the organi(cid:75)ation. Integration and alignment of operating processes and systems, best practices and culture, continues across our territory. (cid:41)roduct support technologies, such as remote diagnostics, telematics and digital information models support and expand our strategic platform. (cid:28)I(cid:38)(cid:28)O's installed base supports current and future operations and gro(cid:72)th trends. (cid:28)I(cid:38)(cid:28)O has a (cid:72)ide product offering using natural refrigerants including innovative (cid:28)O2 solutions, (cid:72)hich remains a differentiator in the mar(cid:60)ets they serve. In industrial mar(cid:60)ets, (cid:28)I(cid:38)(cid:28)O's proven trac(cid:60) record and strong geographical coverage provides gro(cid:72)th opportunities. (cid:28)urrent bac(cid:60)log is supportive of future activity. The diversity of the mar(cid:60)ets served, expanding product offering and services, strong financial position and disciplined operating culture position the (cid:28)ompany (cid:72)ell for continued positive results in the long term. (cid:26)ONTRA(cid:26)TUAL O(cid:25)LI(cid:30)ATIONS (cid:28)ontractual obligations are set out in the follo(cid:72)ing table. (cid:38)anagement believes that these obligations (cid:72)ill be met comfortably through cash and cash equivalents on hand, cash generated from operations and existing long(cid:11)term financing facilities. (cid:39)ayments due (cid:50)y year ($ thousands) Long(cid:11)term debt (cid:41)rincipal Interest Accounts payable and accrued liabilities Lease liabilities 2024 2025 2026 2027 2028 T(cid:56)erea(cid:54)ter Total $ (cid:79) $ 150,000 $ (cid:79) $ 500,000 $ 24,765 645,490 9,211 23,374 (cid:79) 6,764 19,200 (cid:79) 4,405 16,000 (cid:79) 3,402 $ 679,466 $ 180,138 $ 23,605 $ 519,402 $ (cid:79) $ (cid:79) (cid:79) 2,730 2,730 $ (cid:79) $ 650,000 (cid:79) 83,339 (cid:79) 645,490 7,777 34,289 7,777 $ 1,413,118 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. (cid:31)unding levels are monitored regularly and are reset (cid:72)ith ne(cid:72) actuarial funding valuations at least every three years. (cid:28)ontributions in 2023 totaled $11.2 million, including certain defined benefit pension payments, (cid:72)hich are made directly by the (cid:28)ompany. (cid:27)ased on the most recent valuations completed, funding contributions and pension payments are expected to be approximately $7.6 million in 2024. 18 Toromont Industries Ltd. Management’s Discussion and Analysis 27 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:34)E(cid:48) (cid:39)ER(cid:29)ORMAN(cid:26)E MEASURES (cid:38)anagement revie(cid:72)s and monitors its activities and the performance indicators it believes are critical to measuring success. (cid:44)ome of the (cid:60)ey financial performance measures are summari(cid:75)ed in the follo(cid:72)ing table. Others include, but are not limited to, measures such as mar(cid:60)et share, fleet utili(cid:75)ation, customer and employee satisfaction, and employee health and safety. (cid:46)nless other(cid:72)ise indicated, all financial information represents the (cid:28)ompany(cid:80)s results from continuing operations. (cid:49)ears ended (cid:29)ecember 31 2023 2022 2021 2020 2019 E(cid:47)(cid:39)ANDIN(cid:30) MAR(cid:34)ETS AND (cid:25)ROADENIN(cid:30) (cid:39)RODU(cid:26)T O(cid:29)(cid:29)ERIN(cid:30)S Revenue gro(cid:72)th Revenue per employee (thousands) 12.3% $ 668 $ 8.7% 628 $ 11.6% (5.5)% 617 $ 548 $ 5.5% 1,113 STREN(cid:30)T(cid:31)ENIN(cid:30) (cid:39)RODU(cid:26)T SU(cid:39)(cid:39)ORT (cid:41)roduct support revenue gro(cid:72)th IN(cid:45)ESTIN(cid:30) IN OUR RESOUR(cid:26)ES 11.1% 15.6% 5.4% (4.5)% 10.2% Investment in information technology (millions) Return on capital employed (1) $ 36.4 $ 35.6 $ 34.7 $ 37.4 $ 30.1% 32.5% 27.0% 20.7% 34.4 23.7% STRON(cid:30) (cid:29)INAN(cid:26)IAL (cid:39)OSITION Non(cid:11)cash (cid:72)or(cid:60)ing capital (millions) (1) Net debt to total capitali(cid:75)ation (1) (cid:27)oo(cid:60) value (shareholders' equity) per share (cid:25)UILD S(cid:31)ARE(cid:31)OLDER (cid:45)ALUE (cid:27)asic earnings per share gro(cid:72)th (cid:32)ro(cid:72)th in dividends declared per share Return on equity (1) $ $ 704.0 $ (17)% 32.61 $ 584.7 $ (14)% 28.25 $ 377.9 $ (16)% 23.69 $ 486.8 $ 3% 20.60 $ 463.7 15% 18.70 17.6% 10.3% 22.8% 36.4% 14.7% 23.3% 30.2% 9.7% 19.6% (13.5)% 14.8% 16.4% 14.8% 17.4% 21.7% (1) (cid:29)efined in the sections title (cid:2)Additional (cid:32)AA(cid:41) (cid:38)easures and Non(cid:11)(cid:32)AA(cid:41) (cid:38)easures.(cid:2) (cid:38)easuring Toromont's results against these strategies over the past five years illustrates that the (cid:28)ompany has delivered steady gro(cid:72)th through a challenging period (cid:72)hich included the pandemic in 2020, delivered good operating performance, financial results, cash generation and financial position. (cid:44)ince 2019, revenue increased at an average annual rate of 6.5%, (cid:72)ith product support gro(cid:72)ing at 7.6% annually. Over this period, gro(cid:72)th in revenue has resulted from(cid:24) (cid:81) Optimi(cid:75)ing operations and go(cid:11)to(cid:11)mar(cid:60)et strategies to increase mar(cid:60)et share, particularly in acquired territories(cid:25) Increased customer demand in certain mar(cid:60)et segments, most notably construction and mining(cid:25) (cid:81) (cid:81) Organic gro(cid:72)th through increased rental fleet si(cid:75)e and additional branches(cid:25) (cid:81) Increased customer demand for formal product support agreements(cid:25) (cid:81) Additional product offerings from (cid:28)aterpillar and other suppliers(cid:25) and (cid:81) (cid:32)overnmental funding programs that provide support for infrastructure spending. 19 28 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Over the same five(cid:11)year period, revenue gro(cid:72)th has been constrained at times by a number of factors including(cid:24) (cid:81) The (cid:28)O(cid:47)I(cid:29)(cid:11)19 pandemic, declared in (cid:38)arch 2020, (cid:72)hich resulted in a significant do(cid:72)nturn in economic activity and disruption of normal operations. (cid:44)ite restrictions and closures impacted the timing of construction and delivery schedules, as (cid:72)ell as product supply and demand, 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(cid:25) (cid:81) (cid:81) Economic (cid:72)ea(cid:60)ness and uncertainty, both generally and in specific mar(cid:60)ets or sectors(cid:25) (cid:81) (cid:32)eopolitical developments(cid:25) (cid:81) (cid:47)olatility in commodity prices(cid:25) (cid:81) (cid:28)ompetitive conditions(cid:25) (cid:81) (cid:81) Inflationary pressures and rising interest rates(cid:25) and Inability to hire necessary s(cid:60)illed technicians to service mar(cid:60)et demand. (cid:28)hanges in the (cid:28)anadian(cid:13)(cid:46)(cid:44) exchange rate also affect reported revenue as the exchange rate impacts the purchase price of equipment that, in turn, is reflected in selling prices. (cid:44)ince 2019, the average annual exchange rate of the (cid:28)anadian dollar against the (cid:46)(cid:44) dollar has varied from $0.74 to $0.80, ho(cid:72)ever, there have been periods of higher volatility, (cid:72)ith the dollar ranging from a lo(cid:72) 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 (cid:72)ell as to maintain our systems to be relevant and secure in the ever(cid:11)changing technological environment in (cid:72)hich (cid:72)e operate. Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of net debt to total capitali(cid:75)ation, (cid:72)as (cid:11)17% at the end of 2023 compared to (cid:11)14% at the end of 2022. (cid:44)ince 2019, strong cash generation has allo(cid:72)ed the (cid:28)ompany to invest in the business, reduce debt levels (cid:72)hile building cash balances. Toromont has paid dividends consistently since 1968 and has increased the dividend in each of the last 35 years. The (cid:28)ompany declared dividends of $1.72 per common share in 2023, or $0.43 per quarter (2022 (cid:78) $1.56 per common share (increase of 10.3%). 20 Toromont Industries Ltd. Management’s Discussion and Analysis 29 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:26)ONSOLIDATED (cid:29)OURT(cid:31) (cid:40)UARTER O(cid:39)ERATIN(cid:30) RESULTS ($ thousands(cid:6) e(cid:41)(cid:23)ept pe(cid:37) sha(cid:37)e a(cid:33)ounts) RE(cid:45)ENUE (cid:28)ost of goods sold (cid:32)ross profit (cid:44)elling and administrative expenses O(cid:39)ERATIN(cid:30) IN(cid:26)OME Interest expense Interest and investment income Income before income taxes Income taxes Net income (cid:54)rom continuing operations Net income (cid:54)rom discontinued operations NET EARNIN(cid:30)S (cid:25)ASI(cid:26) EARNIN(cid:30)S (cid:39)ER S(cid:31)ARE (cid:28)ontinuing operations (cid:29)iscontinued operations (cid:34)E(cid:48) RATIOS(cid:23) (cid:32)ross profit margin (cid:44)elling and administrative expenses as a % of revenue Operating income margin Income taxes as a % of income before income taxes $ T(cid:56)ree mont(cid:56)s ended Decem(cid:50)er 31 2022 1,128,528 $ 808,849 319,679 109,265 210,414 6,784 (8,652) 212,282 54,015 158,267 $ 1,595 $ 159,862 $ 2023 1,226,937 $ 897,994 328,943 124,388 204,555 7,122 (13,132) 210,565 56,513 154,052 $ (cid:75) $ 154,052 $ $ $ $ $ change 98,409 89,145 9,264 15,123 (5,859) 338 (4,480) (1,717) 2,498 (4,215) (1,595) (5,810) % change 9 % 11 % 3 % 14 % (3) % 5 % 52 % (1) % 5 % (3) % (100) % (4) % $ $ $ 1.87 $ (cid:75) $ 1.87 $ 26.8% 10.1% 16.7% 26.8% 1.92 $ 0.02 $ 1.94 $ (0.05) (0.02) (0.07) (3) % (100) % (4) % 28.3% 9.7% 18.6% 25.4% Net earnings in the fourth quarter of 2022 included a $15.4 million after(cid:11)tax gain related to a property disposition versus a $1.2 million gain in 2023. Excluding these gains, net earnings from continuing operations increased $9.9 million, or 7% in the fourth quarter of 2023 from the same period last year. (cid:33)igher revenues (cid:72)ere largely offset by reduced gross margins and higher relative expenses due to the higher activity levels. (cid:44)upply chain and economic factors continue to influence normal seasonal trends. Revenue increased 9% to $1.2 billion, (cid:72)ith the Equipment (cid:32)roup up 9% and (cid:28)I(cid:38)(cid:28)O up 2%. Rental and product support revenue continued to increase on good customer mar(cid:60)et activity and larger rental fleets. Equipment sales delivery improved slightly on good year(cid:11)end demand as (cid:72)ell as deliveries against order bac(cid:60)log as scheduled. (cid:41)ac(cid:60)age sales decreased in the fourth quarter of 2023 as delays in equipment delivery and project schedules by customers have delayed progression. (cid:32)ross profit margins decreased 150 bps to 26.8% in the quarter, (cid:72)ith lo(cid:72)er gross margins in both the Equipment (cid:32)roup ((cid:11)150 bps) and (cid:28)I(cid:38)(cid:28)O ((cid:11)100 bps) against tough comparatives. Overall sales mix (cid:72)as unfavourable, do(cid:72)n 40 bps (cid:72)ith lo(cid:72)er product support and rental revenue to total. (cid:44)elling and administrative expenses increased $15.1 million or 14% in the fourth quarter compared to the prior year. (cid:32)ains on property dispositions reduced expenses by $1.5 million in the fourth quarter of 2023 and $17.7 million in the fourth quarter of 2022. Excluding these items, expenses (cid:72)ere do(cid:72)n $1.1 million or 1% in the quarter. (cid:28)ompensation and other costs (cid:72)ere largely unchanged, (cid:72)ith good cost control focus offsetting costs in support of higher activity levels and inflationary pressures. Allo(cid:72)ance for doubtful accounts decreased $1.0 million in the quarter, reflecting good collections. (cid:44)elling and administrative expenses (cid:72)ere 40 basis points 21 30 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 higher as a percentage of revenue (10.1% versus 9.7% last year) largely due to the significant difference in property gains year(cid:11)over(cid:11)year. Operating income decreased $5.9 million or 3% reflecting the lo(cid:72)er property gains and lo(cid:72)er gross margins, partially offset by higher revenue. Operating income margin decreased 190 bps to 16.7%, reflecting the property gain in the prior year. Interest expense increased $0.3 million in the quarter largely unchanged from 2022. Interest income increased $4.5 million on higher interest rates and higher average cash balances. The effective income tax rate for the fourth quarter (cid:72)as 26.8% compared to 25.4% in 2022, mainly as a result of the lo(cid:72)er capital gains rate on the property dispositions. Net earnings (including discontinued operations) in the quarter decreased $5.8 million or 4% to $154.1 million. (cid:27)asic E(cid:41)(cid:44) decreased $0.07 or 4% to $1.87 versus $1.94 in 2022. (cid:25)USINESS SE(cid:30)MENT (cid:29)OURT(cid:31) (cid:40)UARTER O(cid:39)ERATIN(cid:30) RESULTS Equipment (cid:30)roup ($ thousands(cid:6) e(cid:41)(cid:23)ept as noted) Equipment sales and rentals Ne(cid:72) (cid:46)sed Rentals Total equipment sales and rentals (cid:41)roduct support (cid:41)o(cid:72)er generation Total re(cid:69)enue Operating income (cid:25)oo(cid:58)ings ($ millions) T(cid:56)ree mont(cid:56)s ended Decem(cid:50)er 31 2022 2023 $ change % change $ $ $ $ 480,556 $ 70,461 133,346 684,363 441,732 2,812 1,128,907 $ 192,368 $ 405,402 $ 75,500 124,470 605,372 424,989 2,489 1,032,850 $ 196,495 $ 75,154 (5,039) 8,876 78,991 16,743 323 96,057 (4,127) 537.2 $ 351.5 $ 185.7 19 % (7) % 7 % 13 % 4 % 13 % 9 % (2) % 53 % (cid:34)E(cid:48) RATIOS(cid:23) (cid:41)roduct support revenue as a % of total revenue Operating income margin (cid:32)roup total revenue as a % of consolidated revenue 39.1% 17.0% 92.0% 41.1% 19.0% 91.5% Results in the fourth quarter of 2022 included a $17.7 million pre(cid:11)tax gain related to a property disposition versus a $1.5 million gain in 2023. Excluding these gains, operating income for the Equipment (cid:32)roup increased $12.1 million, or 7% in the fourth quarter of 2023 from the same period last year. The Equipment (cid:32)roup delivered good results in the quarter, (cid:72)ith some delays in equipment delivery from earlier in the year and stronger year(cid:11)end customer demand. Rental revenue increased on a larger fleet and product support activity continued. Lo(cid:72)er gross margins largely offset higher revenues. Total equipment sales (ne(cid:72) and used) increased $70.1 million or 15%. Ne(cid:72) equipment sales increased 19% on good deliveries in the construction, mining and po(cid:72)er systems mar(cid:60)ets. (cid:46)sed equipment sales (cid:72)ere 7%, 22 Toromont Industries Ltd. Management’s Discussion and Analysis 31 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 lo(cid:72)er reflecting shifting supply and demand of equipment. Overall, revenue change by mar(cid:60)et segment (cid:72)as as follo(cid:72)s for the quarter(cid:24) construction (cid:9)15%, mining (cid:9)13%, po(cid:72)er systems (cid:9)22%, offset by material handling (cid:11)8%. Rental revenue increased $8.9 million or 7%. (cid:38)ost mar(cid:60)ets and regions (cid:72)ere higher, reflecting a larger fleet and good mar(cid:60)et activity. Revenue increased 6% in the quarter in light equipment rentals and 16% in po(cid:72)er systems rentals. (cid:33)eavy equipment rentals and material handling mar(cid:60)ets (cid:72)ere do(cid:72)n 7% and 12% respectively in the quarter. (cid:41)roduct support revenue increased $16.7 million or 4% on higher parts (up 3%) and service (up 7%). Activity levels (cid:72)ere good across all mar(cid:60)et segments and regions, (cid:72)hich changes by mar(cid:60)et in the quarter as follo(cid:72)s(cid:24) mining (cid:9)7%(cid:25) po(cid:72)er systems (cid:9)10%(cid:25) material handling (cid:9)8% and construction (cid:72)as unchanged compared to the same period last year. (cid:32)ross margins decreased 150 bps in the quarter versus last year. Equipment margins (cid:72)ere do(cid:72)n 100 bps, mainly reflecting competitive mar(cid:60)et conditions after a period of constrained supply, coupled (cid:72)ith an unfavourable sales mix (higher proportion of ne(cid:72) equipment versus used equipment). (cid:41)roduct support margins decreased 10 bps, reflecting higher input costs. Rental gross margins (cid:72)ere up 20 bps, reflecting improved activity and fleet utili(cid:75)ation. (cid:44)ales mix (cid:72)as unfavourable (do(cid:72)n 60 bps) (cid:72)ith a higher proportion of equipment sales to total revenue. (cid:44)elling and administrative expenses increased $13.7 million or 15%. (cid:32)ains on property dispositions reduced expenses by $1.5 million in the fourth quarter of 2023 and $17.7 million in the fourth quarter of 2022. Excluding these gains, expenses decreased $2.5 million or 3% in the quarter, reflecting good focus on cost controls. (cid:28)ompensation and other costs (cid:72)ere largely unchanged, (cid:72)ith good cost control focus offsetting costs in support of higher activity levels and inflationary pressures. Allo(cid:72)ance for doubtful accounts decreased $1.7 million in the quarter, reflecting a focus on collection efforts. Operating income decreased $4.1 million or 2% in the quarter. Operating income (cid:72)as 17.0% as a percentage of revenue, a decrease of 200 bps versus the comparable period last year, mainly reflecting the property gain in the prior year, along (cid:72)ith lo(cid:72)er gross margins in the current period. (cid:27)oo(cid:60)ings increased $185.7 million or 53% to $537.2 million. (cid:27)oo(cid:60)ings improved late in the quarter mainly in the construction sector, (cid:72)hich had been relatively lo(cid:72)er comparatively throughout the year, (cid:72)ith an increase in customer demand. (cid:27)oo(cid:60)ings for the fourth quarter (cid:72)ere up in construction ((cid:9)94%), po(cid:72)er systems ((cid:9)32%), and mining ((cid:9)14%) , partially offset by lo(cid:72)er orders in material handling ((cid:11)12%). 23 32 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:26)IM(cid:26)O ($ thousands(cid:6) e(cid:41)(cid:23)ept as noted) (cid:41)ac(cid:60)age sales (cid:41)roduct support Total re(cid:69)enue Operating income T(cid:56)ree mont(cid:56)s ended Decem(cid:50)er 31 2022 48,889 $ 46,789 95,678 $ 13,919 $ 2023 44,924 $ 53,106 98,030 $ 12,187 $ $ $ $ $ change (3,965) 6,317 2,352 (1,732) % change (8) % 14 % 2 % (12) % (cid:25)oo(cid:58)ings ($ millions) $ 56.2 $ 45.5 $ 10.7 24 % (cid:34)E(cid:48) RATIOS(cid:23) (cid:41)roduct support revenue as a % of total revenue Operating income margin (cid:32)roup total revenue as a % of consolidated revenue 54.2% 12.4% 8.0% 48.9% 14.5% 8.5% Revenue in the fourth quarter increased on the continued stronger product support activity levels. (cid:41)ac(cid:60)age sales (cid:72)ere dampened by delays in equipment deliveries and project schedule delays by customers deferring projects into 2024. Operating income decreased as lo(cid:72)er gross margins and higher expenses reduced the higher revenue contribution. (cid:41)ac(cid:60)age revenue decreased $4.0 million or 8% in the quarter compared to last year, as equipment supply issues and customer delays have deferred some projects into 2024. Recreational revenues (cid:72)ere up 25%, but (cid:72)ere more than offset by lo(cid:72)er industrial mar(cid:60)et revenues do(cid:72)n 25%, against a strong comparative. In (cid:28)anada revenue (cid:72)as do(cid:72)n 6%, (cid:72)ith stronger recreational activity ((cid:9)80%) being offset by (cid:72)ea(cid:60)er industrial activity ((cid:11)31%). In the (cid:46)(cid:44), pac(cid:60)age sales (cid:72)ere do(cid:72)n 14% mainly on lo(cid:72)er recreational activity ((cid:11)28%), (cid:72)hich (cid:72)as only slightly offset by marginally higher industrial activity ((cid:9)7%). (cid:41)roduct support revenue increased $6.3 million or 14% from last year in both (cid:28)anada ((cid:9)10%) and the (cid:46)(cid:44) ((cid:9)26%). Activity levels continue to improve, supported by increased (cid:72)inter seasonal activities. The increased technician base continues to support activity levels. (cid:32)ross margins decreased 100 bps in the quarter versus the comparable period in 2022. (cid:41)roduct support margins (cid:72)ere 170 bps lo(cid:72)er against a tough comparable. (cid:41)ac(cid:60)age margins (cid:72)ere up 30 bps, due to good execution on projects, (cid:72)hile sales mix (cid:72)as favourable (cid:72)ith a higher proportion of product support revenue to total revenue (up 40 bps). (cid:44)elling and administrative expenses increased $1.4 million or 9%. Allo(cid:72)ance for doubtful accounts decreased $0.7 million from the similar period last year reflecting focused efforts on collections. (cid:28)ompensation costs increased reflecting, higher staffing levels, annual salary increases and higher profit sharing accruals on the higher activity levels. All other expenses such as, travel and training, insurance and information technology spend increased to support gro(cid:72)th in activity levels. Operating income decreased $1.7 million in the quarter versus a year ago, as higher revenue (cid:72)as dampened by lo(cid:72)er gross margins and higher selling and administrative expenses. As a percentage of revenue, operating income decreased to 12.4% in 2023, from 14.5% in 2022. (cid:27)oo(cid:60)ings increased $10.7 million or 24% to $56.2 million on higher orders in (cid:28)anada, slightly offset by (cid:72)ea(cid:60)er boo(cid:60)ings in the (cid:46)(cid:44). Timing of decisions by customers and receipt of orders can vary from period to period. (cid:27)oo(cid:60)ings (cid:72)ere up 40% in (cid:28)anada in both mar(cid:60)ets and do(cid:72)n 13% in the (cid:46)(cid:44) in both mar(cid:60)ets, follo(cid:72)ing similar trends as the full year basis. 24 Toromont Industries Ltd. Management’s Discussion and Analysis 33 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:40)UARTERL(cid:48) RESULTS The follo(cid:72)ing table summari(cid:75)es quarterly consolidated financial data for the eight most recently completed quarters on a continuing operations basis. This quarterly information is unaudited but has been prepared on the same basis as the 2022 annual audited consolidated financial statements. ($ thousands(cid:6) e(cid:41)(cid:23)ept pe(cid:37) sha(cid:37)e a(cid:33)ounts) RE(cid:45)ENUE Equipment (cid:32)roup (cid:28)I(cid:38)(cid:28)O Revenue (cid:11) continuing operations NET EARNIN(cid:30)S (cid:10) continuing operations (cid:39)ER S(cid:31)ARE IN(cid:29)ORMATION(cid:23) (cid:27)asic earnings per share (cid:29)iluted earnings per share (cid:29)ividends paid per share (cid:48)eighted average common shares outstanding (cid:78) basic (in thousands) (cid:40)4 2023 (cid:42)3 2023 (cid:42)2 2023 (cid:42)1 2023 (cid:42)4 2022 (cid:42)3 2022 (cid:42)2 2022 (cid:42)1 2022 $ 1,128,907 $ 1,065,615 $ 1,070,194 $ 960,406 $ 1,032,850 $ 992,401 $ 966,015 $ 773,098 73,516 $ 1,226,937 $ 1,174,045 $ 1,174,956 $ 1,046,363 $ 1,128,528 $ 1,086,507 $ 1,053,698 $ 846,614 98,030 108,430 104,762 87,683 95,678 94,106 85,957 $ 154,052 $ 145,619 $ 133,317 $ 96,119 $ 158,267 $ 120,555 $ 111,010 $ 60,268 $ $ $ 1.87 $ 1.86 $ 0.43 $ 1.77 $ 1.76 $ 0.43 $ 1.62 $ 1.61 $ 0.43 $ 1.17 $ 1.16 $ 0.39 $ 1.92 $ 1.91 $ 0.39 $ 1.47 $ 1.46 $ 0.39 $ 1.34 $ 1.33 $ 0.39 $ 0.73 0.72 0.35 82,315 82,282 82,294 82,333 82,279 82,183 82,433 82,467 Interim period revenue 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 recent periods sho(cid:72)n and may result in continued variations to historically experienced trends. The Equipment (cid:32)roup has historically had a distinct seasonal trend in activity levels. Lo(cid:72)er revenue is recorded during the first quarter due to (cid:72)inter shutdo(cid:72)ns 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(cid:11)specific orders and conversions of equipment on rent (cid:72)ith 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. (cid:28)I(cid:38)(cid:28)O has also had a distinct seasonal trend in results historically, as the timing of construction activity impacts revenue recognition under percentage(cid:11)of(cid:11)completion accounting. Revenue is typically lo(cid:72)er during the first quarter as (cid:72)inter (cid:72)eather slo(cid:72)s do(cid:72)n construction schedules. Revenue increases in subsequent quarters as construction schedules ramp up. This trend can be impacted by governmental funding initiatives, supply constraints and the customer's timing of significant industrial projects. (cid:44)equential comparisons are also impacted by (cid:28)I(cid:38)(cid:28)O's relatively high fixed cost structure. (cid:33)istorically, 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. These seasonal sales trends also typically lead to accounts receivable to be at their highest level at year-end. In 2022, patterns (cid:72)ere disrupted by supply chain pressures impacting the timing of receipt and delivery of products and services to final customers. In 2023, (cid:72)e sa(cid:72) gradual improvements to supply chain availability across most of our product offerings, although constraints in some areas still exist. 25 34 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Net earnings have generally follo(cid:72)ed the trend in revenue. (cid:28)ost reduction and containment strategies continue to be a focus, ho(cid:72)ever, have a delayed effect on net earnings. (cid:38)ar(cid:60)et, local and global economic factors, and supply chain issues have affected and may continue to impact these trends. There can be no certainty that this historical seasonal pattern (cid:72)ill recur in the future. SELE(cid:26)TED ANNUAL IN(cid:29)ORMATION The selected information presented belo(cid:72) has been derived from and should be read in conjunction (cid:72)ith the annual consolidated financial statements of the (cid:28)ompany dated (cid:29)ecember 31, 2023, 2022 and 2021. The analysis of the data contained in the table focuses on the trends and significant events or items affecting the results of operations and financial condition of the (cid:28)ompany over the latest three year period. (cid:46)nless other(cid:72)ise indicated, all financial information represents the (cid:28)ompany(cid:80)s results from continuing operations. ($ thousands(cid:6) e(cid:41)(cid:23)ept pe(cid:37) sha(cid:37)e a(cid:33)ounts) Revenue Net earnings Earnings per share ((cid:2)E(cid:41)(cid:44)(cid:2)) (cid:27)asic (cid:29)iluted (cid:29)ividends declared per share Total assets Total long(cid:11)term debt (cid:48)eighted average common shares outstanding (cid:11) basic (in millions) $ $ $ $ $ $ $ 2023 4,622,301 $ 529,107 $ 2022 4,115,347 $ 450,100 $ 6.43 $ 6.38 $ 1.72 $ 4,571,847 $ 647,784 $ 82.3 5.47 $ 5.42 $ 1.56 $ 4,182,125 $ 647,060 $ 82.3 2021 3,786,060 331,400 4.01 3.98 1.36 3,583,796 646,337 82.5 Revenue increased 12% in 2023 versus the prior year. Equipment (cid:32)roup revenue increased 12% on gro(cid:72)th in equipment sales, rental revenue and product support activity, reflecting the increase in inflo(cid:72) and delivery of equipment, along (cid:72)ith end customer demand. (cid:28)I(cid:38)(cid:28)O revenue increased 13% versus a tough comparable, (cid:72)ith the advancement on construction schedules against a strong order bac(cid:60)log and improved execution, (cid:72)hile product support activity continued to increase year over year (cid:72)ith the hiring of more technicians and increased customer demand. (cid:32)eneral macroeconomic factors such as inflation, higher interest rates, geopolitical developments and (cid:28)anadian dollar movements continued to challenge the business, as (cid:72)ell as influence buying patterns. Revenue increased 9% in 2022 compared to 2021. Equipment (cid:32)roup revenue increased 10% on gro(cid:72)th in equipment sales, rental revenue and product support activity, reflecting the increase in demand as pandemic restrictions eased compared to 2021. (cid:28)I(cid:38)(cid:28)O revenue decreased 3% versus a tough comparable, (cid:72)hich included several large industrial construction projects, (cid:72)hile product support activity increased year over year (cid:72)ith the higher technician (cid:72)or(cid:60)force. (cid:44)upply chain challenges continued to constrain revenue in 2022 in both operating groups. Net earnings increased 18% in 2023, mainly reflecting the 12% increase in revenue, partially offset by higher selling and administrative expenses on increased activity. Net financing costs (cid:72)ere significantly lo(cid:72)er, due to the higher interest earned on cash balances year over year. 26 Toromont Industries Ltd. Management’s Discussion and Analysis 35 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Net earnings increased 36% in 2022, mainly reflecting the 9% increase in revenue and improved gross margins in both the Equipment (cid:32)roup and (cid:28)I(cid:38)(cid:28)O, partially offset by higher selling and administrative expenses. Net financing costs (cid:72)ere lo(cid:72)er, on higher interest earned on cash balances year over year. (cid:29)ividends have generally increased in proportion to trailing earnings gro(cid:72)th. The quarterly dividend rate increased(cid:24) in 2021 by 12.9% to $0.35 per share(cid:25) in 2022 by 11.4% to $0.39(cid:25) and in 2023 by 10.3% to $0.43 per share. The (cid:28)ompany has paid dividends every year since 1968. Total assets increased 9% in 2023, largely on higher cash balances and increased other (cid:72)or(cid:60)ing capital and investment levels in support of elevated activity levels. Although supply constraints have improved on most product lines, inventory levels increased due to demand signals, as (cid:72)ell as recent input price increases and inflationary impacts. Accounts receivable increased on the higher trailing revenue. Investments in capital assets have been made to support gro(cid:72)th initiatives and expand the rental fleets. In 2022, total assets increased 17% compared to 2021, reflecting higher (cid:72)or(cid:60)ing capital and other investment levels in support of increased activity levels. Inventory levels increased in light of strengthened demand signals and a tight supply environment. Accounts receivable increased on higher activity and (cid:72)ea(cid:60)er collection activity, (cid:72)hich lead to an increase in (cid:29)(cid:44)O. Increased investment in capital assets (cid:72)ere also made to support mar(cid:60)et share expansion and rental fleets. Long(cid:11)term debt (cid:72)as largely unchanged over the three year period noted. (cid:29)uring 2021, the (cid:28)ompany rene(cid:72)ed and extended the $500 million revolving credit facility to mature in November 2026. RIS(cid:34)S AND RIS(cid:34) MANA(cid:30)EMENT In the normal course of business, Toromont is exposed to ris(cid:60)s that may potentially impact its business, results of operations and financial condition. The (cid:28)ompany and each operating segment employ ris(cid:60) management strategies designed to identify, mitigate and report on these ris(cid:60)s. (cid:48)e maintain a strong ris(cid:60) management culture to protect and enhance shareholder value. The (cid:27)oard revie(cid:72)s all material ris(cid:60)s on an annual basis. The Audit (cid:28)ommittee and (cid:27)oard also revie(cid:72)s the adequacy of disclosures of (cid:60)ey ris(cid:60)s in our AI(cid:31), (cid:38)(cid:29)(cid:5)A and financial statements on a quarterly and annual basis, as applicable. (cid:25)usiness (cid:26)ycle 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, inflation, geo(cid:11)political factors impacting the economy, credit conditions and the availability of capital to finance purchases, and the level of government infrastructure spending. Toromont's customers are typically affected, to varying degrees, by these factors and trends in the general business cycle as (cid:72)ell as (cid:72)ithin their respective mar(cid:60)ets 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 (cid:28)ompany(cid:80)s customer base. (cid:28)ommodity prices, and, in particular, changes in the vie(cid:72) on long(cid:11)term trends, affect demand for the (cid:28)ompany's products and services in the Equipment (cid:32)roup. (cid:28)ommodity price movements in base and precious metals sectors in particular can have an impact on customers' demands for equipment and services. Lo(cid:72)er commodity prices reduces short term demand as development of ne(cid:72) and existing projects, along (cid:72)ith production levels, may be curtailed or deferred, leading to less demand for heavy equipment, parts and service. 27 36 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:48)e rely on (cid:28)aterpillar to supply financing to our customers. In periods of global credit mar(cid:60)et disruption, (cid:28)aterpillar may tighten sources or terms of financing for our customers. In the current economic climate, our customers may have limited access to financing from (cid:28)aterpillar or alternate sources such as financial institutions. (cid:29)isruption in (cid:28)aterpillar's or our customers' access to liquidity, due to the effects of the pandemic or other(cid:72)ise, could have a material adverse impact on our business, results of operations and financial condition. The business of the (cid:28)ompany is diversified across a (cid:72)ide range of industry mar(cid:60)et segments, serving to temper the effects of business cycles on consolidated results. (cid:28)ontinued diversification strategies such as expanding the (cid:28)ompany's customer base, broadening product offerings and geographic diversification are designed to moderate business cycle impacts. (cid:41)roduct support activity has been, and (cid:72)ill continue to be, fundamental to the mitigation of do(cid:72)nturns in the business cycle as it is typically subject to less volatility than equipment supply activities. (cid:48)e mitigate the economic ris(cid:60)s associated (cid:72)ith lo(cid:72)er business volumes at a regional level through cost reduction initiatives and through constant evaluation of efficiency and process improvements. No assurances can be given that our mitigating steps (cid:72)ill offset the impact of these economic ris(cid:60)s. (cid:39)roduct and Supply The Equipment (cid:32)roup purchases most of its equipment inventories and parts from (cid:28)aterpillar Inc. ((cid:2)(cid:28)aterpillar(cid:2)) under a dealership agreement that dates bac(cid:60) to 1993. As is customary in distribution arrangements of this type, the agreement (cid:72)ith (cid:28)aterpillar can be terminated by either party upon 90 days' notice. In the event (cid:28)aterpillar terminates, it must repurchase substantially all inventories of ne(cid:72) equipment and parts at cost. Toromont has maintained an excellent relationship (cid:72)ith (cid:28)aterpillar since inception and management expects this (cid:72)ill continue going for(cid:72)ard. Toromont is dependent on the continued mar(cid:60)et acceptance of (cid:28)aterpillar's products. It is believed that (cid:28)aterpillar has a solid reputation as a quality manufacturer, (cid:72)ith excellent brand recognition and customer support as (cid:72)ell as strong mar(cid:60)et shares in many of the mar(cid:60)ets it serves. (cid:33)o(cid:72)ever, there can be no assurance that (cid:28)aterpillar (cid:72)ill be able to maintain its reputation and mar(cid:60)et position in the future. If (cid:28)aterpillar is unsuccessful in developing and enhancing its product lines to meet evolving customer needs, including no(cid:13)lo(cid:72) carbon alternatives to support customer energy transition and net (cid:75)ero goals, is unable to maintain the quality of its products, or is unable to provide its products at competitive prices, mar(cid:60)et acceptance for (cid:28)aterpillar products may deteriorate over time. Any resulting decrease in the demand for (cid:28)aterpillar products could have a material adverse impact on the (cid:28)ompany's business, results of operations and future prospects. Toromont is also dependent on (cid:28)aterpillar for timely supply of equipment and parts to meet our customers' demand for equipment deliveries and product support services. (cid:31)rom time to time during periods of intense demand and(cid:13)or supply chain disruptions, (cid:28)aterpillar may find it necessary to allocate its supply of particular products among its dealers. (cid:44)uch allocations of supply have not in the past proven to be a significant impediment in the conduct of business. (cid:48)hen supply constraints have occurred in the past, (cid:72)e have been able to lessen the impact by utili(cid:75)ing our rental assets, used equipment, remanufacturing capabilities, and other sources (such as the dealer net(cid:72)or(cid:60)) to meet demand, but there can be no assurance of continued success in this area. (cid:48)e continue to monitor these issues as they could adversely affect our business, results of operations, and financial condition. The general supply chain is also affected by other factors, including global demand and economic factors, more recently resulting in (cid:60)ey component and parts shortages and longer order and shipment times for equipment and parts. (cid:48)e continue to monitor these issues as they could adversely affect our business, results of operations, and financial condition. 28 Toromont Industries Ltd. Management’s Discussion and Analysis 37 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 In addition, ne(cid:72) digital and other technologies and advancements to equipment in the mar(cid:60)et, such as equipment electrification, can become disruptive to our operations, mar(cid:60)et share and business model. (cid:48)e scan continuously for emerging digital and other technologies and equipment advancements and their potential impacts. In order to face this disruption ris(cid:60), our digital and technology solutions initiatives are focused on investigating emerging digital technologies to determine ho(cid:72) they can impact customers and our core business opportunities, improving the customer experience, and identifying and pursuing ne(cid:72) opportunities for revenue generation in the digitally enabled value(cid:11)added services area. (cid:48)hile execution performance to date has been strong, our failure to meet these objectives could have an adverse impact on our business. (cid:26)ompetition The (cid:28)ompany competes (cid:72)ith a large number of international, national, regional and local suppliers in each of its mar(cid:60)ets. Although price competition can be strong, there are a number of factors that have enhanced the (cid:28)ompany's ability to compete throughout its mar(cid:60)et areas including the range and quality of products and services including digital performance solutions, ability to meet sophisticated customer requirements, distribution capabilities including number and proximity of locations, financing offered by (cid:28)aterpillar (cid:31)inance, e-commerce solutions, reputation and financial strength. (cid:48)e may encounter increased competition in the future through ne(cid:72) entrants in the mar(cid:60)et and the expansion of suppliers' e-commerce channels for parts and equipment sales, (cid:72)hich may also put pressure on prices. (cid:48)e may also encounter competition through the introduction of digitally enabled or digitally enhanced value-added services from third parties, including potential ne(cid:72) non(cid:11)traditional entrants into the mar(cid:60)et. In addition, pressure on prices may occur as a result of increased data in the mar(cid:60)etplace, increasing price transparency and customers' pursuit of value-added services, (cid:72)hich (cid:72)ould put commoditi(cid:75)ation pressure on equipment, core physical parts and service sales. Increased competitive pressures or the inability of the (cid:28)ompany to maintain the factors that have enhanced its competitive position to date could adversely affect the (cid:28)ompany(cid:80)s business, results of operations or financial condition. (cid:31)ealt(cid:56) and Sa(cid:54)ety (cid:28)ertain ha(cid:75)ards and ris(cid:60)s are inherent in the (cid:28)ompany's operations, (cid:72)ith the potential for serious injury, loss of life and damage to property, (cid:72)hich could result in negative financial and(cid:13)or reputational impacts. To mitigate these ris(cid:60)s, a comprehensive and standardi(cid:75)ed health and safety program is in place, (cid:72)hich includes leadership (cid:72)al(cid:60)throughs, training, inspections, supervisory observations, safety standards for critical operations, safe (cid:72)or(cid:60) procedures, job ha(cid:75)ard assessments, incident investigations, emergency preparedness, industrial hygiene assessments and other measures focused on maintaining a safe and healthy (cid:72)or(cid:60) environment. To ma(cid:60)e the application of the different safety processes easier for employees and enable data analysis, some of the (cid:60)ey processes are supported by digital tools such as electronic job ha(cid:75)ard assessments and vehicle monitoring systems. No assurance can be given that these mitigating steps (cid:72)ill eliminate these ris(cid:60)s and the potential for negative financial and(cid:13)or reputational impacts. (cid:31)urther information on the (cid:28)ompany's health and safety practices and programs can be found in the (cid:44)ustainability Report on our (cid:72)ebsite at (cid:72)(cid:72)(cid:72).toromont.com. 29 Toromont Industries Ltd. 38 Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:34)ey (cid:39)ersonnel Our success in achieving our goals is largely dependent on the abilities and experience of our senior management team and other (cid:60)ey personnel. Our future performance (cid:72)ill also depend on our ability to attract, develop, motivate and retain highly qualified diverse and inclusive talent in all areas of our business and, as applicable, to successfully integrate employees transitioning to us from acquisitions. (cid:28)ompetition for highly s(cid:60)illed management, sales and technical personnel is intense, particularly in certain geographic areas (cid:72)here (cid:72)e operate. (cid:29)emographic trends are reducing the number of individuals entering the trades, ma(cid:60)ing access to s(cid:60)illed individuals more difficult. The (cid:28)ompany has several remote locations, (cid:72)hich ma(cid:60)e attracting and retaining s(cid:60)illed individuals more difficult. To help mitigate this ris(cid:60), (cid:72)e have implemented a number of human resources initiatives, including training and career development programs, succession plans, employee experience surveys, performance management systems, compensation programs and recruiting strategies. Although (cid:72)e actively manage our human resources ris(cid:60)s, there can be no assurance (cid:72)e (cid:72)ill be successful in our efforts. The loss of certain (cid:60)ey employees, or failure to attract, retain and engage talent as needed, may have an adverse impact on our business, results of operations and future prospects. (cid:28)ertain of our employees are represented by unions and (cid:72)e are party to a number of collective bargaining agreements, covering approximately 1,100 employees. Of the 21 agreements in place, 9 are scheduled for negotiation during 2024. (cid:48)hile (cid:72)e are committed to the collective bargaining process and to concluding a fair contract for us and for our employees, the renegotiation process could result in future (cid:72)or(cid:60) stoppages or higher (cid:72)ages and benefits paid to union members. (cid:32)enerally, Toromont believes its labour relations are satisfactory and does not anticipate any difficulties in respect of upcoming negotiations. The failure to rene(cid:72) collective agreements (cid:72)ith satisfactory terms and in a timely manner could have an adverse impact on our business, results of operations, and financial condition. (cid:26)redit Ris(cid:58) (cid:28)redit ris(cid:60) is the ris(cid:60) of financial loss to us if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arise principally in respect of cash and cash equivalents, accounts receivable and derivative financial instruments. The carrying amounts on the statement of financial position represent the maximum expected credit exposure. (cid:48)hen the (cid:28)ompany has cash on hand it may be invested in short(cid:11)term instruments, such as money-mar(cid:60)et deposits. The (cid:28)ompany has deposited cash (cid:72)ith reputable financial institutions, from (cid:72)hich management believes the ris(cid:60) of loss to be remote. The (cid:28)ompany has accounts receivable from a large diversified customer base, and is not dependent on any single customer or industry. The (cid:28)ompany's customers are engaged in various industries including construction, mining, food and beverage, and governmental agencies, predominately based in (cid:28)anada. Toromont also maintains policies to manage credit ris(cid:60), including establishing and revie(cid:72)ing credit limits for customers ta(cid:60)ing into account factors such as projected purchase values, credit (cid:72)orthiness of the customer, and payment performance. The credit ris(cid:60) associated (cid:72)ith derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimi(cid:75)e this ris(cid:60), the (cid:28)ompany enters into derivative transactions only (cid:72)ith highly rated financial institutions. 30 Toromont Industries Ltd. Management’s Discussion and Analysis 39 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:26)ontract E(cid:71)ecution, Including (cid:39)roduct (cid:46)arranty (cid:48)e enter into thermal heating and cooling and po(cid:72)er systems contracts, (cid:72)hich are engineered solutions involving the design, assembly and installation of large, complex systems. The length of these contracts varies but typically construction is completed in under t(cid:72)o years. The contracts are generally at a fixed price over the term and provide for penalties payable by us if contractual milestones are not met. (cid:48)e have developed processes and have controls in place to ensure contracts are bid appropriately, but due to the nature and complexity of these contracts, there is a ris(cid:60) that significant cost overruns may be incurred. If (cid:72)e miscalculate the extent of (cid:72)or(cid:60) required, or if costs increase beyond those anticipated, contract profitability may be adversely affected. (cid:48)e closely monitor these contracts for early (cid:72)arning signs of cost overruns, ho(cid:72)ever, there can be no assurance that cost overruns (cid:72)ill be avoided. The (cid:28)ompany also enters into long(cid:11)term maintenance and repair contracts, (cid:72)hereby it is obligated to maintain equipment for its customers. The length of these contracts varies generally from t(cid:72)o to five years. The contracts are typically fixed price on machine hours, (cid:72)ith provisions for inflationary and foreign exchange adjustments. (cid:29)ue to the long(cid:11)term nature of these contracts, there is a ris(cid:60) that maintenance costs may exceed the estimate, thereby resulting in a loss on the contract. (cid:41)reventative measures such as condition monitoring and scheduled fluid sampling help identify problems in equipment early on and help reduce the ris(cid:60) of costly repair (cid:72)or(cid:60). These contracts are closely monitored for early (cid:72)arning signs of cost overruns. In addition, the manufacturer may, in certain circumstances, share in the cost overruns if profitability falls belo(cid:72) a certain threshold. There is no assurance that such measures (cid:72)ill al(cid:72)ays address such ris(cid:60)s. Our failure to effectively price and manage these contracts could have a material adverse impact on our business, results of operations and financial position. (cid:44)tandard and extended (cid:72)arranties are provided for most of the equipment, parts and services sold. The (cid:72)arranty claim ris(cid:60) is generally shared jointly (cid:72)ith the equipment manufacturer. Accordingly, liability is generally limited to the service component of the (cid:72)arranty claim, (cid:72)hile the manufacturer is responsible for providing the required parts. There is a ris(cid:60) that product quality erosion or lac(cid:60) of s(cid:60)illed labor could increase (cid:72)arranty claims in the future, or that future (cid:72)arranty claims may be greater than (cid:72)e anticipate. If our liability in respect of such claims is greater than anticipated, it may have a material adverse impact on our business, results of operations and financial condition. To mitigate this ris(cid:60), (cid:72)e regularly revie(cid:72) our (cid:72)arranty offering to assess the experience (cid:72)ith the product and endeavour to adequately manage the costs to service the product over its (cid:72)arranty period. Additionally, (cid:72)e (cid:72)or(cid:60) closely (cid:72)ith (cid:28)aterpillar on all product quality issues and have extensive product improvement, product support and pre(cid:11)delivery inspection programs in place. No assurance can be given that these steps (cid:72)ill fully mitigate these ris(cid:60)s. (cid:29)oreign E(cid:71)c(cid:56)ange Toromont's operating results are reported in (cid:28)anadian dollars. (cid:48)hile the majority of Toromont's sales are transacted in (cid:28)anadian dollars, significant portions of its purchases are made in (cid:46).(cid:44). dollars. (cid:28)hanges in the (cid:46).(cid:44). dollar exchange rate can have a negative or positive impact on revenue, margins and (cid:72)or(cid:60)ing capital balances. (cid:31)oreign 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 (cid:28)ompany does not enter into foreign exchange for(cid:72)ard contracts for speculative purposes. The gains and losses on the foreign exchange for(cid:72)ard contracts designated as cash flo(cid:72) hedges are intended to offset the translation losses and gains on the hedged foreign currency transactions (cid:72)hen they occur. As a result, the foreign exchange impact on earnings (cid:72)ith respect to transactional activity is not significant. 31 40 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 The rate of exchange bet(cid:72)een the (cid:28)anadian and (cid:46)(cid:44) dollar can have an impact on revenue trends. (cid:44)ubstantially all of the equipment and parts sold in the Equipment (cid:32)roup are sourced in (cid:46)(cid:44) dollars, and (cid:28)anadian dollar. (cid:44)ales prices generally reflect changes in the rate of exchange. As a result, a stronger (cid:28)anadian dollar can adversely affect revenue, (cid:72)hile a (cid:72)ea(cid:60)er (cid:28)anadian dollar can increase reported revenue. The impact is not readily estimable as it is largely dependent on (cid:72)hen customers order the equipment versus (cid:72)hen it (cid:72)as sold. (cid:27)oo(cid:60)ings in a given period (cid:72)ould more closely follo(cid:72) period-over-period changes in exchange rates. (cid:44)ales 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 (cid:28)I(cid:38)(cid:28)O, sales are largely affected by the same factors. In addition, revenue from (cid:28)I(cid:38)(cid:28)O's (cid:46)(cid:44) subsidiary reflect changes in exchange rates on the translation of results, although this is not significant. The (cid:28)anadian dollar averaged (cid:46)(cid:44)$0.74 in 2023 and (cid:46)(cid:44)$0.77 in 2022. As (cid:72)ell, many of Toromont's customers export products to the (cid:46).(cid:44)., or sell products based on the (cid:46)(cid:44) dollar. A strengthening (cid:28)anadian dollar can negatively impact their overall competitiveness and demand for their products, (cid:72)hich in turn may reduce product purchases from Toromont. Interest Rate (cid:28)hanges in mar(cid:60)et interest rates can cause fluctuations in the fair value or future cash flo(cid:72)s of financial instruments. The (cid:28)ompany has exposure to changes in interest rates on interest(cid:11)bearing financial liabilities, primarily from long-term debt. The (cid:28)ompany has fixed(cid:11)rate debt obligations outstanding (cid:72)ith maturities in 2025 and 2027. (cid:31)ixed-rate debt exposes the (cid:28)ompany to future interest rate movements upon refinancing the debt at maturity. The fair value of fixed(cid:11)rate debt obligations fluctuates (cid:72)ith changes in interest rates, exposing the (cid:28)ompany to potential losses on early settlements or refinancing. The (cid:28)ompany does not intend to settle or refinance any existing fixed-rate debt before maturity. The (cid:28)ompany's revolving credit fluctuations in short-term interest rates by causing related interest payments and finance expense to vary. floating-rates and exposes the (cid:28)ompany to facilities bear interest at The (cid:28)ompany minimi(cid:75)es its interest rate ris(cid:60) by managing its portfolio of floating(cid:11)and fixed(cid:11)rate debt, as (cid:72)ell as managing the term to maturity. The (cid:28)ompany is exposed to changes in interest rates on interest bearing financial assets, primarily cash and cash equivalents. (cid:29)ue to the short(cid:11)term nature of cash and cash equivalents, the impact of fluctuations in fair value is limited but interest income earned can be impacted. Liquidity Ris(cid:58) Liquidity ris(cid:60) is the ris(cid:60) that (cid:72)e (cid:72)ill not be able to meet our financial obligations as they become due. The (cid:28)ompany follo(cid:72)s an active cash management program including continuous monitoring of actual and forecast cash flo(cid:72)s. The (cid:28)ompany also maintains syndicated credit facilities, and holds cash balances to provide added liquidity. (cid:27)ased on cash balances on hand, the availability of credit facilities, expected cash flo(cid:72) generation of operations, and the discretionary nature of some cash outflo(cid:72)s, such as rental and capital expenditures, the (cid:28)ompany expects to continue to have sufficient liquidity to meet operational needs. The (cid:28)ompany (cid:72)ill also require capital to finance future gro(cid:72)th and to refinance outstanding debt obligations as they come due for repayment. If the cash generated from the (cid:28)ompany's business, together (cid:72)ith the credit 32 Toromont Industries Ltd. Management’s Discussion and Analysis 41 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 available under existing ban(cid:60) facilities, are not sufficient to fund future capital requirements, the (cid:28)ompany (cid:72)ill require additional debt or equity financing in the capital mar(cid:60)ets. The (cid:28)ompany's ability to access capital mar(cid:60)ets, on terms that are acceptable, (cid:72)ill be dependent upon prevailing financial mar(cid:60)et conditions, as (cid:72)ell as the (cid:28)ompany's current and expected future financial condition. (cid:31)urther, the (cid:28)ompany's ability to increase its debt financing may be limited by existing financial covenants or credit rating objectives. The (cid:28)ompany maintains a conservative leverage structure and although it does not anticipate difficulties, there can be no assurance that capital (cid:72)ill be available on suitable terms and conditions, or that borro(cid:72)ing costs and credit ratings (cid:72)ill not be adversely affected. (cid:30)ro(cid:70)t(cid:56) Initiati(cid:69)es The (cid:28)ompany's (cid:44)trategic (cid:41)lan establishes priorities for gro(cid:72)th, including organic gro(cid:72)th and strategic acquisitions. (cid:48)e have strategic initiatives under(cid:72)ay, designed to improve our mar(cid:60)et competitiveness, and our operational and financial performance. These initiatives include enhancing our customers' experience including expanding our product offering(cid:25) operational excellence and sharing of best practices across our decentrali(cid:75)ed organi(cid:75)ation(cid:25) continuous investment and improvement in systems and processes to reduce cost-to-serve and provide value(cid:11)added information(cid:25) and, improving employee relations and engagement. (cid:31)ailure to effectively execute on these initiatives may result in the inability to obtain desired business results and could adversely affect our business, results of operations and financial condition. (cid:26)limate (cid:26)(cid:56)ange Toromont is committed to monitoring, reporting and reducing greenhouse gas ((cid:2)(cid:32)(cid:33)(cid:32)(cid:2)) emissions of our operations. (cid:31)urther, (cid:72)e see ourselves as valuable partners to our customers to help them reduce their carbon emissions and build resilience into their o(cid:72)n operations. Our service facilities and fleets of vehicles, generate direct (cid:32)(cid:33)(cid:32) emissions ((cid:44)cope 1) from fuel combustion in our fleet, natural gas use for heating facilities, and diesel use for engine and transmission diagnostics. (cid:48)e also generate indirect (cid:32)(cid:33)(cid:32) emissions ((cid:44)cope 2) from purchased electricity. Our strategy to address the climate change challenge is to focus on monitoring and reducing our emissions and to offer and develop products and services that help our customers further decarboni(cid:75)e their operations. (cid:31)ocus in this area is vie(cid:72)ed as a shared responsibility among our employees and is an important part of our corporate culture. Our principal climate-related ris(cid:60)s are categori(cid:75)ed into ris(cid:60)s related to the transition to a lo(cid:72)er carbon economy (transition ris(cid:60)s) and physical ris(cid:60)s resulting from climate change (physical ris(cid:60)s) (cid:72)hich may impact our operations and facilities. (cid:30)o(cid:69)ernment and Ot(cid:56)er Regulation Our business and customers are subject to evolving la(cid:72), regulation, and intervention by governments at the federal, provincial, state, and municipal levels in the countries (cid:72)here (cid:72)e and they conduct operations. The nature and magnitude of regulatory ris(cid:60)s has the potential to change over time, and have the potential to impact our existing and planned projects as (cid:72)ell as impose costs of compliance and increase capital expenditures and operating expenses. In addition, changes to la(cid:72)s and regulations may impact our customers in (cid:72)ays that affect their demand for our products. Amendments to, or more stringent implementation of current la(cid:72)s and regulations governing our operations, or the operations of our customers could have a material adverse effect on our business, operating results or financial position. In addition, noncompliance (cid:72)ith la(cid:72)s and 33 42 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 regulations could significantly damage, and require us to spend substantial amounts of money to rebuild, our reputation and negatively impact our business. Our operations expose Toromont to liability for environmental contamination, (cid:72)hich may render the (cid:28)ompany liable for remediation costs, natural resource damages and other damages as a result of conduct that (cid:72)as la(cid:72)ful at the time it occurred or the conduct of, or conditions caused by, prior o(cid:72)ners, operators or other third parties. In addition, (cid:72)here contamination may be present, it is not uncommon for neighbouring land o(cid:72)ners and other third parties to file claims for personal injury, property damage and recovery of response costs. Toromont maintains an environmental management program that includes robust policies and procedures, training and audit and compliance processes. (cid:48)e retain environmental engineering consultants to conduct the follo(cid:72)ing activities(cid:24) environmental site assessments prior to the acquisition or occupation(cid:25) ongoing monitoring of soil and ground(cid:72)ater contamination(cid:25) and remediation of contaminated sites. There can be no assurance that any future incidents, emissions or spills (cid:72)ill not result in a material adverse effect on Toromont(cid:80)s results of operations or cash flo(cid:72)s. (cid:38)anagement is not a(cid:72)are of any material environmental concerns for (cid:72)hich a provision has not been recorded. (cid:48)e have in place, in each of our business units, programs for monitoring and compliance to ensure that (cid:72)e meet or exceed applicable la(cid:72)s and regulatory requirements. In addition, our (cid:27)oard has established and maintains the (cid:33)uman Resources and (cid:33)ealth and (cid:44)afety (cid:28)ommittee, the Environment, (cid:44)ocial and (cid:32)overnance (cid:28)ommittee, and the Audit (cid:28)ommittee to oversee, monitor, and report to the (cid:27)oard on compliance matters. (cid:38)ore information about the mandates of these committees may be found in our most recent (cid:38)anagement (cid:41)roxy (cid:28)ircular, (cid:72)hich can be found on our (cid:72)ebsite (cid:72)(cid:72)(cid:72).toromont.com or under our profile on (cid:44)E(cid:29)AR at (cid:72)(cid:72)(cid:72).sedar.com. No assurance can be given that these steps (cid:72)ill be successful in completely mitigating these ris(cid:60)s and ensuring (cid:72)e meet all applicable la(cid:72)s and regulatory requirements. In(cid:54)ormation Tec(cid:56)nology The (cid:28)ompany depends on information technology infrastructure and systems, hosted internally or outsourced, to conduct day(cid:11)to(cid:11)day operations and for the effective operation of our business. Our business also requires the appropriate and secure utili(cid:75)ation of sensitive and confidential information belonging to third parties such as our customers and suppliers. (cid:48)hile (cid:72)e strive to leverage technology to meet the gro(cid:72)ing needs of our customers and enhance the efficiency of our operations, it nevertheless comes (cid:72)ith information ris(cid:60)s. The integrity, reliability and availability of technology and the data processed by that technology is an integral part of our business processes, including mar(cid:60)eting of equipment and support services, inventory and logistics optimi(cid:75)ation, business intelligence and finance. (cid:44)ome of these systems are integrated (cid:72)ith our suppliers and other partners(cid:80) core processes and systems. Toromont continues to invest in information systems to improve business performance through our internal transactional systems and install or upgrade various business process enablement and decision support systems as appropriate on a continuous basis. These system implementations often drive business process changes as (cid:72)ell as technology changes. Information systems, technology and business process changes, and related organi(cid:75)ational change, often carry a ris(cid:60) of business disruption, failure to achieve expected business benefits, cost overruns and ineffective design and operation of systems of internal control over financial reporting and disclosure controls and procedures. (cid:27)enefits assessment, change management, ris(cid:60) and impact assessments, solution validation, strong project governance, communication and training have been identified as critical success factors in the successful implementation of ne(cid:72) systems. Any disruptions to these systems or the failure of these systems to 34 Toromont Industries Ltd. Management’s Discussion and Analysis 43 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 operate as expected, or any failure to appropriately adapt to business process changes, could adversely impact our operating results by limiting our ability to effectively monitor and control our operations. In addition, ne(cid:72) digital and other technologies and advancements to equipment in the mar(cid:60)et, such as equipment electrification, can become disruptive to our operations, mar(cid:60)et share and business model. (cid:48)e scan continuously for emerging digital and other technologies and equipment advancements and their potential impacts. In order to face this disruption ris(cid:60), our digital and technology solutions initiatives are focused on investigating emerging digital technologies to determine ho(cid:72) they can impact customers and our core business opportunities, improving the customer experience, and identifying and pursuing ne(cid:72) opportunities for revenue generation in the digitally enabled value(cid:11)added services area. (cid:48)hile execution performance to date has been strong, our failure to meet these objectives could have an adverse impact on our business. A rigorous management process is follo(cid:72)ed to manage these ris(cid:60)s and a great deal of the business processes and systems transformation program focus is on developing capabilities to reduce and mitigate these ris(cid:60)s, ho(cid:72)ever, there is no certainty that these ris(cid:60)s can be sufficiently reduced or mitigated. (cid:26)y(cid:50)ersecurity (cid:28)ybersecurity incidents related to our information technology systems are a threat to the integrity, reliability, and availability of technology and data. (cid:28)ybersecurity incidents may ta(cid:60)e the form of mal(cid:72)are, computer viruses, cyber threats, cyber extortion, employee error, malfeasance, system errors and other types of security and data breaches and may arise from inside and outside of our organi(cid:75)ation. (cid:28)ybersecurity incidents could also target customer data or the security, integrity and(cid:13)or reliability of the hard(cid:72)are and soft(cid:72)are installed in products (cid:72)e sell or service. (cid:48)e rely heavily on information technology systems, some of (cid:72)hich are managed by third parties, to process, transmit and store electronic information, including personally identifiable information, credit card payment data and other sensitive customer and employee information, and to manage or support a variety of critical business processes and activities. The (cid:28)ompany continues to monitor and enhance its defenses and procedures to prevent, detect, respond to and manage these threats, (cid:72)hich are constantly evolving, ho(cid:72)ever there can be no assurance these efforts and measures (cid:72)ill be able to prevent all cybersecurity incidents. (cid:29)isruption to information systems or breaches of security could result in a negative impact on the (cid:28)ompany's financial results or result in reputational damage, including the follo(cid:72)ing(cid:24) disruption of our business operations and lost revenue(cid:25) unauthori(cid:75)ed access to, or destruction, loss, theft, misappropriation or release of, our proprietary, confidential, sensitive or other(cid:72)ise valuable information or that of our customers, suppliers or employees, (cid:72)hich could be used for disruptive or other(cid:72)ise harmful purposes(cid:25) disruptions in the functioning or operation of equipment, (cid:72)hich could lead to property loss or damage or personal injury or death(cid:25) damage to our reputation (cid:72)ith our customers, partners, suppliers, investors and the general public(cid:25) a disruption to the proper functioning of our information technology systems(cid:25) potential significant expenditures related to remediation(cid:25) investigations by regulatory agencies or litigation, claims and liability for breach of contract, damages or other penalties(cid:25) inability to process customer transactions or service customers(cid:25) and(cid:13)or disruptions to inventory management. To mitigate information security ris(cid:60)s, the (cid:28)ompany, through a dedicated, full(cid:11)time team of cybersecurity professionals, underta(cid:60)es preventative measures, including controlling access to its net(cid:72)or(cid:60) and applications using secure fire(cid:72)alls and limiting access to an (cid:2)as-needed(cid:2) basis. To identify information security ris(cid:60)s, the company uses various detection methods, including monitoring event logs for fire(cid:72)alls, server, mail systems, and applications. Third(cid:11)party experts are utili(cid:75)ed to perform testing and assessments. The (cid:28)ompany provides regular and mandatory information security training to employees as applicable and appropriate. The (cid:28)ompany maintains an insurance policy (cid:72)ith coverage for information security ris(cid:60). 35 44 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 The security of the (cid:28)ompany's data and other information is one of the operational ris(cid:60)s overseen by the (cid:27)oard. Three members of the (cid:27)oard have (cid:60)no(cid:72)ledge and experience in technology, including cyber ris(cid:60). (cid:38)anagement reports to the (cid:27)oard regularly on information technology and security matters. Ris(cid:60) and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of controls, processes, practices and training designed to protect systems, computers, soft(cid:72)are, data and net(cid:72)or(cid:60)s from attac(cid:60), damage or unauthori(cid:75)ed access remain a priority. To date, the (cid:28)ompany has not experienced any material losses relating to cyber(cid:11)attac(cid:60)s or other information security breaches(cid:25) ho(cid:72)ever, there can be no assurance that (cid:72)e (cid:72)ill not incur such losses in the future. (cid:25)usiness (cid:26)ontinuity Ris(cid:58)s The occurrence of one or more natural or man(cid:11)made disasters, such as earthqua(cid:60)es, floods, hurricanes, unusually adverse (cid:72)eather, health pandemic outbrea(cid:60)s, boycotts, security breach, po(cid:72)er loss, telecommunications failure, and geo(cid:11)political events in countries in (cid:72)hich (cid:72)e supply or sell goods, could materially adversely affect our business, people, customers and financial results. (cid:48)e maintain and continue to enhance our business continuity program to address and mitigate, to the extent possible, the impact of these ris(cid:60)s. Our decentrali(cid:75)ed operations provides certain coverage in the case of locali(cid:75)ed issues. (cid:33)o(cid:72)ever, no such plan can eliminate the ris(cid:60)s associated (cid:72)ith events of this nature, (cid:72)hich could still have a material adverse impact on our business, results of operations and financial condition. (cid:39)andemic Ris(cid:58) A pandemic can create significant volatility, uncertainty and economic disruption. A pandemic could exacerbate or amplify other ris(cid:60)s and uncertainties facing the (cid:28)ompany. (cid:44)uch ris(cid:60)s include, but are not limited to(cid:24) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) uncertainty associated (cid:72)ith the costs and ability of resources, including technicians, required to provide the appropriate(cid:13)required levels of service to our customers on site(cid:25) a material reduction in demand for, or profitability of, our products or services(cid:25) an increase in accounts receivable delinquencies from financial hardship for our customers(cid:25) issues delivering the (cid:28)ompany(cid:80)s products and services due to illness, (cid:28)ompany or government imposed isolation programs, restrictions on the movement of personnel and other supply chain disruptions(cid:25) increase in exposure to and reliance on net(cid:72)or(cid:60)ed systems and the internet increasing ris(cid:60) and frequency of cybersecurity incidents(cid:25) the impact of additional legislation, regulation and other government interventions in response to pandemic(cid:25) the negative impact on global debt and equity capital mar(cid:60)ets, including the trading price of the (cid:28)ompany(cid:80)s securities(cid:25) and the ability to access capital mar(cid:60)ets at a reasonable cost. Any of these ris(cid:60)s, and others, could have a material adverse effect on our business, operations, capital resources and(cid:13)or financial results of operations. A (cid:28)ritical Incident Executive Response Team monitors and assesses developments in our mar(cid:60)ets and operations, and develops appropriate plans in response. (cid:28)ommunication and safety protocols are in place. 36 Toromont Industries Ltd. Management’s Discussion and Analysis 45 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 MATERIAL A(cid:26)(cid:26)OUNTIN(cid:30) (cid:39)OLI(cid:26)IES AND SI(cid:30)NI(cid:29)I(cid:26)ANT A(cid:26)(cid:26)OUNTIN(cid:30) ESTIMATES The preparation of the (cid:28)ompany's consolidated financial statements in conformity (cid:72)ith I(cid:31)R(cid:44) requires management to ma(cid:60)e judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. (cid:33)o(cid:72)ever, 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 ma(cid:60)ing judgments, estimates and assumptions, management relies on external information and observable conditions (cid:72)here possible, supplemented by internal analysis as required. (cid:38)anagement revie(cid:72)s its estimates and judgments on an ongoing basis. The (cid:28)ompany has discussed the development, selection, and application of its (cid:60)ey accounting policies, and the critical accounting estimates and assumptions they involve, (cid:72)ith the Audit (cid:28)ommittee. Toromont's material accounting policies and significant accounting estimates, assumptions and judgments are described in the consolidated financial statements. Refer to notes 2 and 3 of the audited consolidated financial statements. (cid:26)(cid:56)anges in Accounting (cid:39)olicies The follo(cid:72)ing amendments to accounting standards (cid:72)ere adopted by the (cid:28)ompany on (cid:35)anuary 1, 2023(cid:24) IA(cid:44) 1, (cid:17)(cid:37)esentat(cid:29)on o(cid:26) (cid:13)(cid:29)nan(cid:23)(cid:29)al (cid:19)tate(cid:33)ents and (cid:14)(cid:13)(cid:18)(cid:19) (cid:17)(cid:37)a(cid:23)t(cid:29)(cid:23)e (cid:19)tate(cid:33)ent (cid:7): (cid:16)a(cid:31)(cid:29)n(cid:27) (cid:33)ate(cid:37)(cid:29)al(cid:29)t(cid:42) (cid:30)ud(cid:27)e(cid:33)ents (cid:78) the IA(cid:44)(cid:27) issued narro(cid:72)(cid:11)scope amendments to IA(cid:44) 1 in (cid:31)ebruary 2021, the amendments require the disclosure of material accounting policy information rather than significant accounting policies. The (cid:28)ompany has adopted these amendments in its consolidated financial statements for the period ended on (cid:29)ecember 31, 2023. IA(cid:44) 8, (cid:9)(cid:23)(cid:23)ount(cid:29)n(cid:27) (cid:17)ol(cid:29)(cid:23)(cid:29)es(cid:6) (cid:10)han(cid:27)es (cid:29)n (cid:9)(cid:23)(cid:23)ount(cid:29)n(cid:27) (cid:12)st(cid:29)(cid:33)ates and (cid:12)(cid:37)(cid:37)o(cid:37)s (cid:78) these amendments introduce a definition of (cid:2)accounting estimates(cid:2) and clarify the difference bet(cid:72)een changes in accounting policies and changes in accounting estimates. IA(cid:44) 12, (cid:14)n(cid:23)o(cid:33)e (cid:20)a(cid:41)es (cid:78) these amendments clarify ho(cid:72) companies should account for deferred taxes related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments narro(cid:72)ed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, recognition of a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of the related asset and liability is required. The implementation of these standard amendments did not have a significant impact on the (cid:28)ompany's consolidated financial statements. The (cid:28)ompany has not early(cid:11)adopted any standard, interpretation or amendment that has been issued but is not yet effective. Amendments Issued (cid:50)ut Not E(cid:54)(cid:54)ecti(cid:69)e A number of amendments to standards and interpretations have been issued but are not yet effective up to the date of authori(cid:75)ation of these consolidated financial statements, for the financial year ended (cid:29)ecember 31, 2023, and accordingly, have not been applied in preparing these consolidated financial statements. Information on ne(cid:72) standards, amendments and interpretations that are expected to be relevant to the (cid:28)ompany's consolidated financial statements is provided belo(cid:72). (cid:28)ertain other ne(cid:72) standards, amendments and interpretations to existing standards may have been issued but are not expected to have a material impact to 37 46 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 the (cid:28)ompany's consolidated financial statements. The (cid:28)ompany is in the process of revie(cid:72)ing these amendments to determine the impact on the consolidated financial statements. (cid:27)ased upon the (cid:28)ompany's current facts and circumstances, it does not expect its financial performance or disclosures to be materially affected by the application of the amended standards. Amendments to IA(cid:44) 1 (cid:78) (cid:17)(cid:37)esentat(cid:29)on o(cid:26) (cid:13)(cid:29)nan(cid:23)(cid:29)al (cid:19)tate(cid:33)ents (effective (cid:35)anuary 1, 2024)(cid:24) (cid:81) (cid:28)larify the classification of liabilities as current or non(cid:11)current based on contractual rights that are in existence at the end of the reporting period and are unaffected by expectations about (cid:72)hether an entity (cid:72)ill exercise its right to defer or accelerate settlement. A liability not due over the next 12 months is classified as non(cid:11)current even if management intends or expects to settle the liability (cid:72)ithin t(cid:72)elve months. The amendments also introduce a definition of (cid:2)settlement(cid:2) to ma(cid:60)e clear that settlement refers to the transfer of cash, equity instruments, other assets, or services to the counterparty. (cid:81) (cid:28)larify that only covenants (cid:72)ith (cid:72)hich an entity is obliged to comply (cid:72)ith on or before the reporting date (cid:72)ill affect a liability's classification as current or non(cid:11)current. (cid:31)urther, disclosure is required for any information that enables users of financial statements to comprehend the possibility that non(cid:11)current liabilities (cid:72)ith covenants may become payable (cid:72)ithin 12 months. Amendments to I(cid:31)R(cid:44) 16 (cid:78) (cid:15)ease (cid:15)(cid:29)a(cid:22)(cid:29)l(cid:29)t(cid:42) (cid:29)n a (cid:19)ale and (cid:15)ease(cid:22)a(cid:23)(cid:31) (effective (cid:35)anuary 1, 2024)(cid:24) (cid:81) (cid:44)pecifies the requirements that a seller(cid:11)lessee uses in measuring the lease liability arising in a sale and leasebac(cid:60) transaction, to ensure the seller(cid:11)lessee does not recogni(cid:75)e any amount of the gain or loss that relates to the right of use it retains. Amendments to IA(cid:44) 7 and I(cid:31)R(cid:44) 7 (cid:11) (cid:19)uppl(cid:29)e(cid:37) (cid:13)(cid:29)nan(cid:23)e (cid:9)(cid:37)(cid:37)an(cid:27)e(cid:33)ents (effective (cid:35)anuary 1, 2024)(cid:24) (cid:81) (cid:44)pecific disclosure requirements should be presented to enhance current disclosure requirements, (cid:72)hich are intended to assist users of the financial statements in understanding the effects of supplier finance arrangements on an entity's liabilities, cash flo(cid:72)s and exposure to liquidity ris(cid:60). (cid:26)ONTROLS AND (cid:39)RO(cid:26)EDURES Disclosure (cid:26)ontrols and (cid:39)rocedures The (cid:41)resident and (cid:28)hief Executive Officer ((cid:2)(cid:28)EO(cid:2)) and Executive (cid:47)ice (cid:41)resident and (cid:28)hief (cid:31)inancial Officer ((cid:2)(cid:28)(cid:31)O(cid:2)) are responsible for establishing and maintaining disclosure controls and procedures, as defined in National Instrument 52(cid:11)109 (cid:78) (cid:10)e(cid:37)t(cid:29)(cid:26)(cid:29)(cid:23)at(cid:29)on o(cid:26) (cid:11)(cid:29)s(cid:23)losu(cid:37)e (cid:29)n (cid:14)ssue(cid:37)s(cid:3) (cid:9)nnual and (cid:14)nte(cid:37)(cid:29)(cid:33) (cid:13)(cid:29)l(cid:29)n(cid:27)s, 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 (cid:72)ith respect to Toromont is made (cid:60)no(cid:72)n to them by others and is recorded, processed, summari(cid:75)ed and reported (cid:72)ithin the time periods specified in securities legislation. The (cid:28)EO and the (cid:28)(cid:31)O, together (cid:72)ith other members of management, have evaluated the effectiveness of the (cid:28)ompany(cid:80)s disclosure controls and procedures. (cid:27)ased on that evaluation, the (cid:28)EO and (cid:28)(cid:31)O concluded that the (cid:28)ompany's disclosure controls and procedures (cid:72)ere effective as at (cid:29)ecember 31, 2023. Internal (cid:26)ontrol o(cid:69)er (cid:29)inancial Reporting The (cid:28)EO and (cid:28)(cid:31)O, together (cid:72)ith management, are responsible for establishing and maintaining adequate internal control over financial reporting, as defined by National Instrument 52(cid:11)109 (cid:78) (cid:10)e(cid:37)t(cid:29)(cid:26)(cid:29)(cid:23)at(cid:29)on o(cid:26) (cid:11)(cid:29)s(cid:23)losu(cid:37)e (cid:29)n (cid:14)ssue(cid:37)s(cid:3) (cid:9)nnual and (cid:14)nte(cid:37)(cid:29)(cid:33) (cid:13)(cid:29)l(cid:29)n(cid:27)s(cid:6) and have designed such internal control over financial reporting, or 38 Toromont Industries Ltd. Management’s Discussion and Analysis 47 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 caused it to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance (cid:72)ith I(cid:31)R(cid:44). The (cid:28)EO and the (cid:28)(cid:31)O, together (cid:72)ith other members of management, have evaluated the effectiveness of the (cid:28)ompany's internal control over financial reporting as at (cid:29)ecember 31, 2023, using the criteria set forth in Internal (cid:28)ontrol (cid:78) Integrated (cid:31)rame(cid:72)or(cid:60) (2013 edition) issued by the (cid:28)ommittee of (cid:44)ponsoring Organi(cid:75)ations of the Tread(cid:72)ay (cid:28)ommission. (cid:27)ased on that evaluation, the (cid:28)EO and (cid:28)(cid:31)O concluded that the (cid:28)ompany's internal control over financial reporting (cid:72)as effective as at (cid:29)ecember 31, 2023. There have been no changes in the design of the (cid:28)ompany's internal control over financial reporting during 2023 that (cid:72)ould materially affect, or are reasonably li(cid:60)ely to materially affect, the (cid:28)ompany's internal control over financial reporting. (cid:29)ue 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 ris(cid:60) that the controls may become inadequate because of changes in conditions, or that the degree of compliance (cid:72)ith the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance (cid:72)ith 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 ho(cid:72) (cid:72)ell conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. ADDITIONAL (cid:30)AA(cid:39) MEASURES I(cid:31)R(cid:44) mandates certain minimum line items for financial statements and also requires presentation of additional line items, headings and subtotals (cid:72)hen such presentation is relevant to an understanding of the (cid:28)ompany's financial position or performance. I(cid:31)R(cid:44) also requires the notes to the financial statements to provide information that is not presented else(cid:72)here in the financial statements, but is relevant to understanding them. (cid:44)uch measures outside of the minimum mandated line items are considered additional (cid:32)AA(cid:41) measures. The (cid:28)ompany's consolidated financial statements and notes thereto include certain additional (cid:32)AA(cid:41) measures (cid:72)here management considers such information to be useful to the understanding of the (cid:28)ompany's results. (cid:30)ross (cid:39)ro(cid:54)it (cid:32)ross (cid:41)rofit is defined as total revenue less cost of goods sold. 39 48 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 Operating Income Operating income is defined as net income from continuing operations 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. (cid:31)inancing and related interest charges cannot be attributed to business segments on a meaningful basis that is comparable to other companies. (cid:27)usiness segments do not correspond to income tax jurisdictions and it is believed that the allocation of income taxes distorts the historical comparability of the performance of the business segments. ($ thousands) Net income from continuing operations plus: Interest expense less: Interest and investment income plus: Income taxes Operating income Total revenue Operating income margin Net De(cid:50)t to Total (cid:26)apitali(cid:73)ation(cid:12)Equity T(cid:56)ree mont(cid:56)s ended Decem(cid:50)er 31 2022 158,267 $ 6,784 (8,652) 54,015 210,414 $ 2023 154,052 $ 7,122 (13,132) 56,513 204,555 $ (cid:48)ear ended Decem(cid:50)er 31 2022 450,100 27,331 (21,717) 163,384 619,098 2023 529,107 $ 28,098 (45,982) 193,005 704,228 $ 1,226,937 $ 16.7% 1,128,528 $ 18.6% 4,622,301 $ 15.2% 4,115,347 15.0% $ $ $ Net debt to total capitali(cid:75)ation(cid:13)equity are calculated as net debt divided by total capitali(cid:75)ation and shareholders' equity, respectively, as defined belo(cid:72), and are used by management as measures of the (cid:28)ompany(cid:80)s financial leverage. Net debt is calculated as long(cid:11)term debt plus current portion of long(cid:11)term debt less cash and cash equivalents. Total capitali(cid:75)ation is calculated as shareholders' equity plus net debt. The calculations are as follo(cid:72)s(cid:24) ($ thousands) Long(cid:11)term debt less: (cid:28)ash and cash equivalents Net debt (cid:44)hareholders' equity Total capitali(cid:73)ation Net de(cid:50)t to total capitali(cid:73)ation Net de(cid:50)t to equity NON(cid:10)(cid:30)AA(cid:39) MEASURES 2023 647,784 $ 1,040,757 (392,973) 2022 647,060 927,780 (280,720) 2,683,852 2,290,879 2,325,359 2,044,639 $ $ (17)% (0.15)(cid:23)1 (14)% (0.12)(cid:24)1 (cid:38)anagement believes that providing certain non(cid:11)(cid:32)AA(cid:41) measures provides users of the (cid:28)ompany's audited consolidated financial statements (cid:72)ith important information regarding the operational performance and related trends of the (cid:28)ompany's business. (cid:27)y considering these measures in combination (cid:72)ith the comparable I(cid:31)R(cid:44) measures set out belo(cid:72), management believes that users are provided a better overall understanding of the 40 Toromont Industries Ltd. Management’s Discussion and Analysis 49 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 (cid:28)ompany's business and its financial performance during the relevant period than if they simply considered the I(cid:31)R(cid:44) measures alone. The non(cid:11)(cid:32)AA(cid:41) measures used by management do not have any standardi(cid:75)ed meaning prescribed by I(cid:31)R(cid:44) and are therefore unli(cid:60)ely to be comparable to similar measures presented by other issuers. Accordingly, these measures should not be considered as a substitute or alternative for net income or cash flo(cid:72), in each case as determined in accordance (cid:72)ith I(cid:31)R(cid:44). (cid:46)or(cid:58)ing (cid:26)apital (cid:48)or(cid:60)ing capital is defined as total current assets less total current liabilities. (cid:38)anagement vie(cid:72)s (cid:72)or(cid:60)ing capital as a measure for assessing overall liquidity. ($ thousands) Total current assets less: Total current liabilities (cid:46)or(cid:58)ing capital Non(cid:10)(cid:26)as(cid:56) (cid:46)or(cid:58)ing (cid:26)apital 2023 2,810,804 $ 1,066,065 1,744,739 $ 2022 2,569,195 1,056,739 1,512,456 $ $ Non(cid:11)cash (cid:72)or(cid:60)ing capital is defined as total current assets, excluding cash and cash equivalents, less total current liabilities, excluding current portion of long(cid:11)term debt, if applicable. ($ thousands) Total current assets less: (cid:28)ash and cash equivalents Total current liabilities Non(cid:10)cas(cid:56) (cid:70)or(cid:58)ing capital $ 2023 2,810,804 $ 1,040,757 1,770,047 2022 2,569,195 927,780 1,641,415 1,066,065 1,056,739 $ 703,982 $ 584,676 Mar(cid:58)et (cid:26)apitali(cid:73)ation (cid:5) Total Enterprise (cid:45)alue (cid:38)ar(cid:60)et capitali(cid:75)ation represents the total mar(cid:60)et value of the (cid:28)ompany's equity. It is calculated by multiplying the closing share price of the (cid:28)ompany's common shares by the total number of common shares outstanding. Total enterprise value represents the total value of the (cid:28)ompany and is often used as a more comprehensive alternative to mar(cid:60)et capitali(cid:75)ation. It is calculated by adding debt(cid:13)net debt (defined above) to mar(cid:60)et capitali(cid:75)ation. 41 50 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 The calculations are as follo(cid:72)s(cid:24) ($ thousands(cid:6) e(cid:41)(cid:23)ept (cid:26)o(cid:37) sha(cid:37)es and sha(cid:37)e p(cid:37)(cid:29)(cid:23)e) Outstanding common shares t(cid:29)(cid:33)es: Ending share price Mar(cid:58)et capitali(cid:73)ation Long(cid:11)term debt less: (cid:28)ash and cash equivalents Net de(cid:50)t Total enterprise (cid:69)alue 2023 82,297,341 116.10 $ 9,554,721 $ 2022 82,318,159 97.71 8,043,307 647,784 $ 1,040,757 (392,973) $ 647,060 927,780 (280,720) 9,161,748 $ 7,762,587 $ $ $ $ $ (cid:34)E(cid:48) (cid:39)ER(cid:29)ORMAN(cid:26)E INDI(cid:26)ATORS ("(cid:34)(cid:39)Is") (cid:38)anagement uses (cid:60)ey performance indicators to enable consistent measurement of performance across the organi(cid:75)ation. These (cid:36)(cid:41)Is are non(cid:11)(cid:32)AA(cid:41) financial measures, do not have a standardi(cid:75)ed meaning under I(cid:31)R(cid:44) and may not be comparable to similar measures presented by other issuers. (cid:30)ross (cid:39)ro(cid:54)it Margin This measure is defined as gross profit (defined above) divided by total revenue. Operating Income Margin This measure is defined as operating income (defined above) divided by total revenue. Order (cid:25)oo(cid:58)ings and (cid:25)ac(cid:58)log Order boo(cid:60)ings represent the retail value of firm equipment or project orders received during a period. (cid:27)ac(cid:60)log is defined as the retail value of equipment units ordered by customers (cid:72)ith future delivery, and the remaining retail value of pac(cid:60)age(cid:13)project orders remaining to be recogni(cid:75)ed in revenue under the percentage of completion method. (cid:38)anagement uses order bac(cid:60)log as a measure of projecting future equipment and project deliveries. There are no directly comparable I(cid:31)R(cid:44) measures for order boo(cid:60)ings or bac(cid:60)log. Return on (cid:26)apital Employed ("RO(cid:26)E") RO(cid:28)E is utili(cid:75)ed to assess both current operating performance and prospective investments. The adjusted earnings numerator used for the calculation is income from continuing operations before income taxes, interest expense and interest income (excluding interest on rental conversions). The denominator in the calculation is the monthly average capital employed, (cid:72)hich is defined as net debt plus shareholders' equity, also referred to as total capitali(cid:75)ation, adjusted for discontinued operations. 42 Toromont Industries Ltd. Management’s Discussion and Analysis 51 TOROMONT INDUSTRIES LTD. Management Discussion and Analysis – 2023 ($ thousands) Net earnings from continuing operations plus: Interest expense less: Interest and investment income plus: Interest income – rental conversions plus: Income taxes Adjusted net earnings Average capital employed Return on capital employed Return on Equity ("ROE") $ $ $ 2023 529,107 $ 28,098 (45,982) 3,348 193,005 707,576 $ 2022 450,100 27,331 (21,717) 4,760 163,384 623,858 2,347,864 $ 1,944,501 30.1% 32.1% ROE is monitored to assess profitability and is calculated by dividing net earnings from continuing operations by opening shareholders' equity (adjusted for shares issued and shares repurchased and cancelled during the year). ($ thousands) Net earnings from continuing operations Opening shareholder's equity (net of adjustments) Return on equity $ $ 2023 529,107 $ 2022 450,096 2,317,906 $ 1,935,365 22.8% 23.3% 43 52 Toromont Industries Ltd. Toromont Industries Ltd. MANA(cid:29)EMENT(cid:6)S REPORT TO THE SHAREHOLDERS The accompanying consolidated financial statements and (cid:37)anagement(cid:6)s Discussion and (cid:25)nalysis ((cid:2)(cid:37)D(cid:5)(cid:25)(cid:2)) are the responsibility of the management of Toromont Industries Ltd. (the (cid:2)Company(cid:2)). The consolidated financial statements have been prepared in accordance with International (cid:30)inancial (cid:42)eporting (cid:43)tandards as issued by the International (cid:25)ccounting (cid:43)tandards (cid:26)oard. The financial information presented in the Company(cid:6)s (cid:37)D(cid:5)(cid:25) is consistent, where applicable, with that contained in the consolidated financial statements. The consolidated financial statements reflect certain amounts which are, necessarily, based on estimates and judgments. (cid:37)anagement has 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. (cid:37)anagement is also responsible for establishing and maintaining appropriate systems of internal control and procedures over the financial reporting process. (cid:40)olicies and procedures are designed to give reasonable assurance that transactions are appropriately authori(cid:75)ed, assets are safeguarded from loss or unauthori(cid:75)ed use and financial records are properly maintained to provide reliable information for preparation of the consolidated financial statements. Ernst (cid:5) (cid:49)oung LL(cid:40), an independent firm of chartered professional accountants, were appointed by the shareholders as external auditor to examine the consolidated financial statements in accordance with generally accepted auditing standards in Canada and provide an independent professional opinion. Their report is presented with the consolidated financial statements. The (cid:26)oard of Directors (the (cid:2)(cid:26)oard(cid:2)) is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal controls. The (cid:26)oard carries out its responsibilities principally through its (cid:25)udit Committee, which is composed solely of independent directors. The (cid:25)udit Committee recommends the independent auditor for appointment by the 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 practices. Internal and external auditors have full and unrestricted access to the (cid:25)udit Committee. The consolidated financial statements and (cid:37)D(cid:5)(cid:25) have been approved by the (cid:26)oard of Directors, based on the review and recommendation of the (cid:25)udit Committee. (cid:4)signe(cid:33)(cid:5) (cid:20)(cid:8)S(cid:8) (cid:20)(cid:32)(cid:20)i(cid:41)(cid:41)an (cid:4)signe(cid:33)(cid:5) (cid:18)(cid:8)S(cid:8) (cid:13)(cid:44)(cid:44)(cid:41)itt(cid:41)e M(cid:56)chae(cid:59) S. McM(cid:56)(cid:59)(cid:59)an (cid:40)resident and Chief Executive (cid:39)fficer (cid:32)ohn M. Doo(cid:59)(cid:56)tt(cid:59)e Executive (cid:46)ice (cid:40)resident and Chief (cid:30)inancial (cid:39)fficer (cid:30)ebruary 13, (cid:15)(cid:13)(cid:15)(cid:17) Toronto, Canada 1 Toromont Industries Ltd. Consolidated Financial Statements 53 INDEPENDENT A(cid:43)DITOR(cid:6)S REPORT To the (cid:43)hareholders of Toromont Industries Ltd., O(cid:63)(cid:56)n(cid:56)on (cid:47)e 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, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15), and the consolidated statements of income, 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 material accounting policy information. 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, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15), and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International (cid:30)inancial (cid:42)eporting (cid:43)tandards (I(cid:30)(cid:42)(cid:43)). (cid:24)as(cid:56)s for O(cid:63)(cid:56)n(cid:56)on (cid:47)e conducted our audit in accordance with Canadian generally accepted auditing standards. (cid:39)ur responsibilities under those standards are further described in the (cid:11)(cid:50)(cid:33)it(cid:44)r(cid:56)s (cid:23)esp(cid:44)nsi(cid:31)i(cid:41)ities (cid:35)(cid:44)r t(cid:37)e (cid:11)(cid:50)(cid:33)it (cid:44)(cid:35) t(cid:37)e (cid:12)(cid:44)ns(cid:44)(cid:41)i(cid:33)ate(cid:33) (cid:15)inan(cid:32)ia(cid:41) Statements section of our report. (cid:47)e 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. (cid:47)e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. (cid:33)ey A(cid:68)d(cid:56)t Matter (cid:35)ey audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. (cid:30)or the matter below, our description of how our audit addressed the matter is provided in that context. (cid:47)e have fulfilled the responsibilities described in the (cid:11)(cid:50)(cid:33)it(cid:44)r(cid:56)s (cid:23)esp(cid:44)nsi(cid:31)i(cid:41)ities (cid:35)(cid:44)r t(cid:37)e (cid:11)(cid:50)(cid:33)it (cid:44)(cid:35) t(cid:37)e (cid:12)(cid:44)ns(cid:44)(cid:41)i(cid:33)ate(cid:33) (cid:15)inan(cid:32)ia(cid:41) Statements section of our report, including in relation to this matter. (cid:25)ccordingly, our audit included the performance of procedures designed to respond to our assessment of the ris(cid:60)s 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. (cid:15) 54 Toromont Industries Ltd. Annual Report 2023 Toromont Industries Ltd. Revenue recognition for long-term refrigeration packages sells (cid:33)ey a(cid:68)d(cid:56)t matter The Group recreational refrigeration pac(cid:60)ages, which involve the design, installation and commissioning of manufacture, longer(cid:10)term projects under the customer’s control and typically construction is completed in under two years. industrial and (cid:42)evenue is recogni(cid:75)ed progressively based on the percentage(cid:10)of(cid:10)completion method. This method is measured by reference to costs incurred to date as a percentage of the total estimated costs. The Group’s policy for revenue recognition together with the related significant accounting estimates and assumptions is described in notes (cid:15) and 3 of the consolidated financial statements. The Group recogni(cid:75)ed $1(cid:21)(cid:20).(cid:19) million of revenues for the year ended December 31, (cid:15)(cid:13)(cid:15)3 related to these contracts. The determination of the estimated costs to complete projects that are open at period end is a significant judgement that can have a material impact on the amount of revenue and profit recogni(cid:75)ed in the period. These significant judgements include those related to estimated future labour, materials and overhead costs for contracts. Given the variation in the types of refrigeration projects, these judgements related to the estimation of future costs are subjective in nature and dependent on the complexity and status of the related contract as of the period end date. Ho(cid:70) o(cid:68)r a(cid:68)d(cid:56)t addressed the (cid:58)ey a(cid:68)d(cid:56)t matter (cid:30)or long(cid:10)term refrigeration pac(cid:60)age contracts that were open as of December 31, (cid:15)(cid:13)(cid:15)3, our audit procedures included the following, among others(cid:23) to (cid:47)e obtained an understanding, evaluated the design, and tested the operating effectiveness of controls the Group’s estimation processes related (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(cid:24) (cid:47)e reviewed contractual arrangements, including pricing and billing terms, change orders and terms and conditions impacting revenue recognition, if any, and had discussions with operational personnel and assessed whether appropriate approvals were obtained in accordance with the Group’s authori(cid:75)ation matrix for a sample of projects. (cid:39)nce 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(cid:24) (cid:47)e compared prior period cost estimates to actual contract costs incurred in the current period to assess management’s ability to complete a contract(cid:24) to estimate the costs (cid:47)e 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(cid:24) and the adequacy of disclosures (cid:47)e assessed in describing the areas of judgement and estimation uncertainties for revenue projects that are open at period end. recognition involving Other Informat(cid:56)on (cid:37)anagement is responsible for the other information. The other information comprises(cid:23) (cid:80) (cid:37)anagement’s Discussion and (cid:25)nalysis (cid:80) The information, other than the consolidated financial statements and our auditor’s report thereon, in the (cid:25)nnual (cid:42)eport 3 Toromont Industries Ltd. Consolidated Financial Statements 55 (cid:39)ur opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. 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 (cid:60)nowledge obtained in the audit or otherwise appears to be materially misstated. (cid:47)e obtained (cid:37)anagement’s Discussion and (cid:25)nalysis prior to the date of this auditor’s report. If, based on the wor(cid:60) 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. (cid:47)e have nothing to report in this regard. The (cid:25)nnual (cid:42)eport is expected to be made available to us after the date of the auditor’s report. If based on the wor(cid:60) 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. Res(cid:63)ons(cid:56)b(cid:56)(cid:59)(cid:56)t(cid:56)es of Mana(cid:54)ement and Those Char(cid:54)ed (cid:70)(cid:56)th (cid:29)o(cid:69)ernance for the Conso(cid:59)(cid:56)dated F(cid:56)nanc(cid:56)a(cid:59) Statements (cid:37)anagement is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with I(cid:30)(cid:42)(cid:43), 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. A(cid:68)d(cid:56)tor(cid:6)s Res(cid:63)ons(cid:56)b(cid:56)(cid:59)(cid:56)t(cid:56)es for the A(cid:68)d(cid:56)t of the Conso(cid:59)(cid:56)dated F(cid:56)nanc(cid:56)a(cid:59) Statements (cid:39)ur 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. (cid:42)easonable 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. (cid:37)isstatements 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 ta(cid:60)en on the basis of these consolidated financial statements. (cid:25)s part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional s(cid:60)epticism throughout the audit. (cid:47)e also(cid:23) (cid:80) Identify and assess the ris(cid:60)s of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those ris(cid:60)s, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The ris(cid:60) 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. (cid:17) 56 Toromont Industries Ltd. Annual Report 2023 Toromont Industries Ltd. (cid:80) (cid:39)btain 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. (cid:80) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. (cid:80) 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. (cid:39)ur conclusions are based on the audit evidence obtained up to the date of our auditor’s report. (cid:32)owever, future events or conditions may cause the Group to cease to continue as a going concern. (cid:80) 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. (cid:80) (cid:39)btain 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. (cid:47)e are responsible for the direction, supervision and performance of the group audit. (cid:47)e remain solely responsible for our audit opinion. (cid:47)e 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. (cid:47)e 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. (cid:30)rom 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 (cid:60)ey audit matters. (cid:47)e 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 (cid:40)aula (cid:34). (cid:43)mith. (cid:4)signe(cid:33)(cid:5) (cid:14)rnst (cid:3) (cid:29)(cid:44)(cid:50)ng (cid:19)(cid:19)(cid:22) Ernst (cid:5) (cid:47)o(cid:68)n(cid:54) LLP Chartered (cid:40)rofessional (cid:25)ccountants Licensed (cid:40)ublic (cid:25)ccountants (cid:30)ebruary 13, (cid:15)(cid:13)(cid:15)(cid:17) Toronto, Canada 5 Toromont Industries Ltd. Consolidated Financial Statements 57 TOROMONT IND(cid:43)STRIES LTD. TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ thousands) ($ thousands) (cid:25)s at December 31 (cid:25)s at December 31 Assets Assets Current assets Current assets Cash and cash equivalents Cash and cash equivalents (cid:25)ccounts receivable (cid:25)ccounts receivable Inventories Inventories Derivative financial instruments Derivative financial instruments (cid:39)ther current assets (cid:39)ther current assets Total current assets Total current assets (cid:40)roperty, plant and equipment (cid:40)roperty, plant and equipment (cid:42)ental equipment (cid:42)ental equipment (cid:39)ther assets (cid:39)ther assets Deferred tax assets Deferred tax assets Goodwill and intangible assets Goodwill and intangible assets Tota(cid:59) assets Tota(cid:59) assets L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es Current liabilities Current liabilities (cid:25)ccounts payable and accrued liabilities (cid:25)ccounts payable and accrued liabilities (cid:40)rovisions (cid:40)rovisions Deferred revenue and contract liabilities Deferred revenue and contract liabilities Derivative financial instruments Derivative financial instruments Income taxes payable Income taxes payable Total current liabilities Total current liabilities Deferred revenue and contract liabilities Deferred revenue and contract liabilities Long(cid:10)term lease liabilities Long(cid:10)term lease liabilities Long(cid:10)term debt Long(cid:10)term debt (cid:40)ost(cid:10)employment obligations (cid:40)ost(cid:10)employment obligations Deferred tax liabilities Deferred tax liabilities Tota(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es Tota(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es Shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty Shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty (cid:43)hare capital (cid:43)hare capital Contributed surplus Contributed surplus (cid:42)etained earnings (cid:42)etained earnings (cid:25)ccumulated other comprehensive (loss) income (cid:25)ccumulated other comprehensive (loss) income Tota(cid:59) shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty Tota(cid:59) shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty Tota(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es and shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty Tota(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es and shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty Comm(cid:56)tments (cid:7)note 2(cid:16)(cid:8) Comm(cid:56)tments (cid:7)note 2(cid:16)(cid:8) See accom(cid:63)any(cid:56)n(cid:54) notes See accom(cid:63)any(cid:56)n(cid:54) notes A(cid:63)(cid:63)ro(cid:69)ed by the (cid:24)oard(cid:22) A(cid:63)(cid:63)ro(cid:69)ed by the (cid:24)oard(cid:22) (cid:4)signe(cid:33)(cid:5) (cid:23)(cid:8) (cid:16)(cid:8) (cid:23)(cid:44)(cid:54) (cid:4)signe(cid:33)(cid:5) (cid:23)(cid:8) (cid:16)(cid:8) (cid:23)(cid:44)(cid:54) (cid:42)ichard G. (cid:42)oy (cid:42)ichard G. (cid:42)oy Director Director Toromont Industries Ltd. Annual Report 2023 58 (cid:19) (cid:19) Note Note 2023 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) 5 5 (cid:19) (cid:19) 1(cid:17) 1(cid:17) (cid:20) (cid:20) (cid:20) (cid:20) (cid:21) (cid:21) 1(cid:20) 1(cid:20) 9 9 (cid:21), (cid:15)(cid:13) (cid:21), (cid:15)(cid:13) 1(cid:13) 1(cid:13) 11 11 1(cid:17) 1(cid:17) 1(cid:15), 1(cid:17) 1(cid:15), 1(cid:17) 11 11 (cid:21) (cid:21) (cid:15)1 (cid:15)1 1(cid:20) 1(cid:20) 13 13 (cid:3) (cid:3) 1,0(cid:16)0,7(cid:17)7 $ 1,0(cid:16)0,7(cid:17)7 $ (cid:18)27,2(cid:16)3 (cid:18)27,2(cid:16)3 1,11(cid:21),071 1,11(cid:21),071 (cid:75) (cid:75) 23,733 23,733 2,(cid:20)10,(cid:20)0(cid:16) 2,(cid:20)10,(cid:20)0(cid:16) (cid:17)3(cid:20),(cid:21)1(cid:21) (cid:17)3(cid:20),(cid:21)1(cid:21) (cid:18)(cid:20)2,3(cid:18)(cid:21) (cid:18)(cid:20)2,3(cid:18)(cid:21) (cid:18)(cid:20),2(cid:21)7 (cid:18)(cid:20),2(cid:21)7 1,370 1,370 (cid:16)70,0(cid:20)(cid:20) (cid:16)70,0(cid:20)(cid:20) (cid:16),(cid:17)71,(cid:20)(cid:16)7 $ (cid:16),(cid:17)71,(cid:20)(cid:16)7 $ (cid:18)(cid:17)(cid:16),701 $ (cid:18)(cid:17)(cid:16),701 $ 30,2(cid:18)(cid:21) 30,2(cid:18)(cid:21) 3(cid:18)0,1(cid:16)3 3(cid:18)0,1(cid:16)3 13,(cid:21)(cid:16)(cid:18) 13,(cid:21)(cid:16)(cid:18) 7,00(cid:18) 7,00(cid:18) 1,0(cid:18)(cid:18),0(cid:18)(cid:17) 1,0(cid:18)(cid:18),0(cid:18)(cid:17) 22,(cid:16)7(cid:21) 22,(cid:16)7(cid:21) 2(cid:17),07(cid:20) 2(cid:17),07(cid:20) (cid:18)(cid:16)7,7(cid:20)(cid:16) (cid:18)(cid:16)7,7(cid:20)(cid:16) 2(cid:20),703 2(cid:20),703 (cid:21)7,(cid:20)(cid:20)(cid:18) (cid:21)7,(cid:20)(cid:20)(cid:18) 1,(cid:20)(cid:20)7,(cid:21)(cid:21)(cid:17) 1,(cid:20)(cid:20)7,(cid:21)(cid:21)(cid:17) (cid:17)(cid:20)2,(cid:20)01 (cid:17)(cid:20)2,(cid:20)01 27,3(cid:16)(cid:18) 27,3(cid:16)(cid:18) 2,07(cid:21),(cid:21)1(cid:16) 2,07(cid:21),(cid:21)1(cid:16) (cid:7)(cid:18),20(cid:21)(cid:8) (cid:7)(cid:18),20(cid:21)(cid:8) 2,(cid:18)(cid:20)3,(cid:20)(cid:17)2 2,(cid:18)(cid:20)3,(cid:20)(cid:17)2 (cid:16),(cid:17)71,(cid:20)(cid:16)7 $ (cid:16),(cid:17)71,(cid:20)(cid:16)7 $ 9(cid:15)(cid:20),(cid:20)(cid:21)(cid:13) 9(cid:15)(cid:20),(cid:20)(cid:21)(cid:13) 5(cid:20)9,(cid:19)(cid:21)(cid:15) 5(cid:20)9,(cid:19)(cid:21)(cid:15) 1,(cid:13)(cid:15)5,(cid:20)59 1,(cid:13)(cid:15)5,(cid:20)59 1(cid:21),53(cid:13) 1(cid:21),53(cid:13) 1(cid:20),(cid:17)(cid:17)(cid:17) 1(cid:20),(cid:17)(cid:17)(cid:17) (cid:15),5(cid:19)9,195 (cid:15),5(cid:19)9,195 (cid:17)(cid:20)(cid:13),(cid:19)(cid:15)(cid:17) (cid:17)(cid:20)(cid:13),(cid:19)(cid:15)(cid:17) (cid:19)1(cid:19),(cid:15)(cid:21)9 (cid:19)1(cid:19),(cid:15)(cid:21)9 5(cid:15),5(cid:15)(cid:20) 5(cid:15),5(cid:15)(cid:20) 9(cid:15)5 9(cid:15)5 (cid:17)(cid:20)(cid:15),5(cid:19)5 (cid:17)(cid:20)(cid:15),5(cid:19)5 (cid:17),1(cid:21)(cid:15),1(cid:15)5 (cid:17),1(cid:21)(cid:15),1(cid:15)5 (cid:19)91,(cid:13)(cid:21)(cid:17) (cid:19)91,(cid:13)(cid:21)(cid:17) (cid:15)(cid:20),(cid:19)53 (cid:15)(cid:20),(cid:19)53 3(cid:13)9,3(cid:17)9 3(cid:13)9,3(cid:17)9 (cid:78) (cid:78) (cid:15)(cid:21),(cid:19)53 (cid:15)(cid:21),(cid:19)53 1,(cid:13)5(cid:19),(cid:20)39 1,(cid:13)5(cid:19),(cid:20)39 (cid:15)3,(cid:15)(cid:20)(cid:19) (cid:15)3,(cid:15)(cid:20)(cid:19) 1(cid:19),1(cid:19)(cid:13) 1(cid:19),1(cid:19)(cid:13) (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) 3(cid:13),59(cid:15) 3(cid:13),59(cid:15) (cid:21)(cid:15),939 (cid:21)(cid:15),939 1,(cid:21)5(cid:19),(cid:20)(cid:19)(cid:19) 1,(cid:21)5(cid:19),(cid:20)(cid:19)(cid:19) 5(cid:19)1,(cid:13)(cid:20)(cid:21) 5(cid:19)1,(cid:13)(cid:20)(cid:21) 19,(cid:15)(cid:19)(cid:15) 19,(cid:15)(cid:19)(cid:15) 1,(cid:20)31,(cid:19)(cid:19)1 1,(cid:20)31,(cid:19)(cid:19)1 13,35(cid:21) 13,35(cid:21) (cid:15),3(cid:15)5,359 (cid:15),3(cid:15)5,359 (cid:17),1(cid:21)(cid:15),1(cid:15)5 (cid:17),1(cid:21)(cid:15),1(cid:15)5 (cid:4)signe(cid:33)(cid:5) (cid:12)(cid:8) (cid:14)(cid:8) (cid:12)ranst(cid:44)n (cid:4)signe(cid:33)(cid:5) (cid:12)(cid:8) (cid:14)(cid:8) (cid:12)ranst(cid:44)n Cathy E. Cranston Cathy E. Cranston Director Director Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT IND(cid:43)STRIES LTD. TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF INCOME ($ thousands, except share amounts) ($ thousands, except share amounts) (cid:49)ears ended December 31 (cid:49)ears ended December 31 Re(cid:69)en(cid:68)e Re(cid:69)en(cid:68)e Cost of goods sold Cost of goods sold Gross profit Gross profit (cid:43)elling and administrative expenses (cid:43)elling and administrative expenses O(cid:63)erat(cid:56)n(cid:54) (cid:56)ncome O(cid:63)erat(cid:56)n(cid:54) (cid:56)ncome Interest expense Interest expense Interest and investment income Interest and investment income Income before income taxes Income before income taxes Income taxes Income taxes Income from cont(cid:56)n(cid:68)(cid:56)n(cid:54) o(cid:63)erat(cid:56)ons Income from cont(cid:56)n(cid:68)(cid:56)n(cid:54) o(cid:63)erat(cid:56)ons Income from discontinued operations Income from discontinued operations Net earn(cid:56)n(cid:54)s Net earn(cid:56)n(cid:54)s (cid:24)as(cid:56)c earn(cid:56)n(cid:54)s (cid:63)er share (cid:24)as(cid:56)c earn(cid:56)n(cid:54)s (cid:63)er share Continuing operations Continuing operations Discontinued operations Discontinued operations D(cid:56)(cid:59)(cid:68)ted earn(cid:56)n(cid:54)s (cid:63)er share D(cid:56)(cid:59)(cid:68)ted earn(cid:56)n(cid:54)s (cid:63)er share Continuing operations Continuing operations Discontinued operations Discontinued operations (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e n(cid:68)mber of shares o(cid:68)tstand(cid:56)n(cid:54) (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e n(cid:68)mber of shares o(cid:68)tstand(cid:56)n(cid:54) (cid:26)asic (cid:26)asic Diluted Diluted See accom(cid:63)any(cid:56)n(cid:54) notes See accom(cid:63)any(cid:56)n(cid:54) notes Note Note (cid:15)5 (cid:15)5 (cid:19), (cid:20) (cid:19), (cid:20) (cid:3) (cid:3) 1(cid:19) 1(cid:19) 1(cid:19) 1(cid:19) 1(cid:20) 1(cid:20) (cid:17) (cid:17) 1(cid:21) 1(cid:21) 1(cid:21) 1(cid:21) 1(cid:21) 1(cid:21) 1(cid:21) 1(cid:21) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) 2023 2023 (cid:16),(cid:18)22,301 $ (cid:16),(cid:18)22,301 $ 3,377,(cid:16)12 3,377,(cid:16)12 1,2(cid:16)(cid:16),(cid:20)(cid:20)(cid:21) 1,2(cid:16)(cid:16),(cid:20)(cid:20)(cid:21) (cid:17)(cid:16)0,(cid:18)(cid:18)1 (cid:17)(cid:16)0,(cid:18)(cid:18)1 70(cid:16),22(cid:20) 70(cid:16),22(cid:20) 2(cid:20),0(cid:21)(cid:20) 2(cid:20),0(cid:21)(cid:20) (cid:7)(cid:16)(cid:17),(cid:21)(cid:20)2(cid:8) (cid:7)(cid:16)(cid:17),(cid:21)(cid:20)2(cid:8) 722,112 722,112 1(cid:21)3,00(cid:17) 1(cid:21)3,00(cid:17) (cid:17)2(cid:21),107 (cid:17)2(cid:21),107 (cid:17),(cid:18)0(cid:17) (cid:17),(cid:18)0(cid:17) (cid:17)3(cid:16),712 $ (cid:17)3(cid:16),712 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13)(cid:15)(cid:15) (cid:17),115,3(cid:17)(cid:20) (cid:17),115,3(cid:17)(cid:20) (cid:15),99(cid:19),(cid:21)31 (cid:15),99(cid:19),(cid:21)31 1,11(cid:21),51(cid:19) 1,11(cid:21),51(cid:19) (cid:17)99,(cid:17)1(cid:21) (cid:17)99,(cid:17)1(cid:21) (cid:19)19,(cid:13)9(cid:21) (cid:19)19,(cid:13)9(cid:21) (cid:15)(cid:20),331 (cid:15)(cid:20),331 ((cid:15)1,(cid:20)1(cid:20)) ((cid:15)1,(cid:20)1(cid:20)) (cid:19)13,(cid:17)(cid:21)(cid:17) (cid:19)13,(cid:17)(cid:21)(cid:17) 1(cid:19)3,3(cid:21)(cid:17) 1(cid:19)3,3(cid:21)(cid:17) (cid:17)5(cid:13),1(cid:13)(cid:13) (cid:17)5(cid:13),1(cid:13)(cid:13) (cid:17),(cid:13)9(cid:21) (cid:17),(cid:13)9(cid:21) (cid:17)5(cid:17),19(cid:21) (cid:17)5(cid:17),19(cid:21) (cid:18).(cid:16)3 $ (cid:18).(cid:16)3 $ 0.07 $ 0.07 $ (cid:18).(cid:17)0 $ (cid:18).(cid:17)0 $ (cid:18).3(cid:20) $ (cid:18).3(cid:20) $ 0.07 $ 0.07 $ (cid:18).(cid:16)(cid:17) $ (cid:18).(cid:16)(cid:17) $ 5.(cid:17)(cid:20) 5.(cid:17)(cid:20) (cid:13).(cid:13)5 (cid:13).(cid:13)5 5.5(cid:15) 5.5(cid:15) 5.(cid:17)(cid:15) 5.(cid:17)(cid:15) (cid:13).(cid:13)5 (cid:13).(cid:13)5 5.(cid:17)(cid:20) 5.(cid:17)(cid:20) (cid:20)2,30(cid:17),(cid:20)70 (cid:20)2,30(cid:17),(cid:20)70 (cid:20)2,(cid:20)(cid:21)(cid:20),(cid:18)(cid:21)(cid:18) (cid:20)2,(cid:20)(cid:21)(cid:20),(cid:18)(cid:21)(cid:18) (cid:21)(cid:15),339,(cid:17)(cid:21)(cid:13) (cid:21)(cid:15),339,(cid:17)(cid:21)(cid:13) (cid:21)(cid:15),9(cid:20)(cid:21),3(cid:15)(cid:17) (cid:21)(cid:15),9(cid:20)(cid:21),3(cid:15)(cid:17) (cid:20) (cid:20) Consolidated Financial Statements 59 Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT IND(cid:43)STRIES LTD. TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF COMPREHENSI(cid:44)E INCOME CONSOLIDATED STATEMENTS OF COMPREHENSI(cid:44)E INCOME ($ thousands) ($ thousands) (cid:49)ears ended December 31 (cid:49)ears ended December 31 Net earn(cid:56)n(cid:54)s Net earn(cid:56)n(cid:54)s 2023 2023 (cid:17)3(cid:16),712 $ (cid:17)3(cid:16),712 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13)(cid:15)(cid:15) (cid:17)5(cid:17),19(cid:21) (cid:17)5(cid:17),19(cid:21) (cid:3) (cid:3) Other com(cid:63)rehens(cid:56)(cid:69)e (cid:7)(cid:59)oss(cid:8) (cid:56)ncome, net of (cid:56)ncome ta(cid:71)es(cid:22) Other com(cid:63)rehens(cid:56)(cid:69)e (cid:7)(cid:59)oss(cid:8) (cid:56)ncome, net of (cid:56)ncome ta(cid:71)es(cid:22) (cid:17)tems t(cid:37)at ma(cid:54) (cid:31)e re(cid:32)(cid:41)assi(cid:35)ie(cid:33) s(cid:50)(cid:31)se(cid:46)(cid:50)ent(cid:41)(cid:54) t(cid:44) net earnings(cid:10) (cid:17)tems t(cid:37)at ma(cid:54) (cid:31)e re(cid:32)(cid:41)assi(cid:35)ie(cid:33) s(cid:50)(cid:31)se(cid:46)(cid:50)ent(cid:41)(cid:54) t(cid:44) net earnings(cid:10) (cid:30)oreign currency translation adjustments (cid:30)oreign currency translation adjustments (cid:45)nreali(cid:75)ed (losses) gains on derivatives designated as cash flow hedges (cid:45)nreali(cid:75)ed (losses) gains on derivatives designated as cash flow hedges Income tax recovery (expense) Income tax recovery (expense) (cid:45)nreali(cid:75)ed (losses) gains on cash flow hedges, net of income taxes (cid:45)nreali(cid:75)ed (losses) gains on cash flow hedges, net of income taxes (cid:42)eali(cid:75)ed gains on derivatives designated as cash flow hedges (cid:42)eali(cid:75)ed gains on derivatives designated as cash flow hedges Income tax expense Income tax expense (cid:42)eali(cid:75)ed gains on cash flow hedges, net of income taxes (cid:42)eali(cid:75)ed gains on cash flow hedges, net of income taxes (cid:17)tems t(cid:37)at (cid:52)i(cid:41)(cid:41) n(cid:44)t (cid:31)e re(cid:32)(cid:41)assi(cid:35)ie(cid:33) s(cid:50)(cid:31)se(cid:46)(cid:50)ent(cid:41)(cid:54) t(cid:44) net earnings(cid:10) (cid:17)tems t(cid:37)at (cid:52)i(cid:41)(cid:41) n(cid:44)t (cid:31)e re(cid:32)(cid:41)assi(cid:35)ie(cid:33) s(cid:50)(cid:31)se(cid:46)(cid:50)ent(cid:41)(cid:54) t(cid:44) net earnings(cid:10) (cid:42)emeasurement gain on defined benefit plans (cid:42)emeasurement gain on defined benefit plans Income tax expense Income tax expense (cid:42)emeasurement gain on defined benefit plans, net of income taxes (cid:42)emeasurement gain on defined benefit plans, net of income taxes Other com(cid:63)rehens(cid:56)(cid:69)e (cid:7)(cid:59)oss(cid:8) (cid:56)ncome Other com(cid:63)rehens(cid:56)(cid:69)e (cid:7)(cid:59)oss(cid:8) (cid:56)ncome Tota(cid:59) com(cid:63)rehens(cid:56)(cid:69)e (cid:56)ncome Tota(cid:59) com(cid:63)rehens(cid:56)(cid:69)e (cid:56)ncome See accom(cid:63)any(cid:56)n(cid:54) notes See accom(cid:63)any(cid:56)n(cid:54) notes (cid:7)(cid:17)(cid:20)3(cid:8) (cid:7)(cid:17)(cid:20)3(cid:8) (cid:7)12,(cid:18)(cid:18)(cid:17)(cid:8) (cid:7)12,(cid:18)(cid:18)(cid:17)(cid:8) 3,2(cid:21)3 3,2(cid:21)3 (cid:7)(cid:21),372(cid:8) (cid:7)(cid:21),372(cid:8) (cid:7)12,(cid:21)(cid:20)(cid:21)(cid:8) (cid:7)12,(cid:21)(cid:20)(cid:21)(cid:8) 3,377 3,377 (cid:7)(cid:21),(cid:18)12(cid:8) (cid:7)(cid:21),(cid:18)12(cid:8) 2,(cid:21)11 2,(cid:21)11 (cid:7)772(cid:8) (cid:7)772(cid:8) 2,13(cid:21) 2,13(cid:21) (cid:7)17,(cid:16)2(cid:20)(cid:8) (cid:7)17,(cid:16)2(cid:20)(cid:8) 1,1(cid:15)(cid:17) 1,1(cid:15)(cid:17) (cid:17)(cid:19),(cid:19)(cid:15)3 (cid:17)(cid:19),(cid:19)(cid:15)3 (1(cid:15),1(cid:15)(cid:15)) (1(cid:15),1(cid:15)(cid:15)) 3(cid:17),5(cid:13)1 3(cid:17),5(cid:13)1 (3(cid:19),5(cid:13)9) (3(cid:19),5(cid:13)9) 9,(cid:17)93 9,(cid:17)93 ((cid:15)(cid:20),(cid:13)1(cid:19)) ((cid:15)(cid:20),(cid:13)1(cid:19)) (cid:20)9,9(cid:17)1 (cid:20)9,9(cid:17)1 ((cid:15)1,1(cid:21)(cid:17)) ((cid:15)1,1(cid:21)(cid:17)) 5(cid:21),(cid:20)5(cid:20) 5(cid:21),(cid:20)5(cid:20) (cid:19)(cid:20),3(cid:19)(cid:19) (cid:19)(cid:20),3(cid:19)(cid:19) (cid:3) (cid:3) (cid:17)17,2(cid:20)(cid:16) $ (cid:17)17,2(cid:20)(cid:16) $ 5(cid:15)1,5(cid:19)(cid:17) 5(cid:15)1,5(cid:19)(cid:17) 60 Toromont Industries Ltd. Annual Report 2023 (cid:21) (cid:21) Toromont Industries Ltd. Toromont Industries Ltd. TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF CHAN(cid:29)ES IN SHAREHOLDERS(cid:6) E(cid:39)(cid:43)IT(cid:47) TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF CHAN(cid:29)ES IN SHAREHOLDERS(cid:6) E(cid:39)(cid:43)IT(cid:47) ($ thousands, except share amounts) ($ thousands, except share amounts) Share ca(cid:63)(cid:56)ta(cid:59) Share ca(cid:63)(cid:56)ta(cid:59) Acc(cid:68)m(cid:68)(cid:59)ated other com(cid:63)rehens(cid:56)(cid:69)e (cid:56)ncome (cid:7)(cid:59)oss(cid:8) Acc(cid:68)m(cid:68)(cid:59)ated other com(cid:63)rehens(cid:56)(cid:69)e (cid:56)ncome (cid:7)(cid:59)oss(cid:8) N(cid:68)mber (cid:21)(cid:15),(cid:17)(cid:17)3,9(cid:19)(cid:21) $ 3(cid:17)(cid:20),(cid:15)91 3(cid:17)(cid:20),(cid:15)91 ((cid:17)(cid:20)3,1(cid:13)(cid:13)) (cid:21)(cid:15),31(cid:21),159 $ (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:75) (cid:75) (cid:75) (cid:75) 332,1(cid:20)2 (cid:7)3(cid:17)3,000(cid:8) (cid:75) (cid:75) As at (cid:32)an(cid:68)ary 1, 2022 (cid:38)et earnings As at (cid:32)an(cid:68)ary 1, 2021 (cid:39)ther comprehensive income (cid:38)et earnings Total comprehensive income Exercise of share options (cid:39)ther comprehensive income (cid:43)hare(cid:10)based compensation expense Total comprehensive income Effect of share compensation plans Exercise of share options (cid:43)hares purchased for cancellation Dividends declared (cid:43)hare(cid:10)based compensation expense As at December 31, 2022 Effect of share compensation plans (cid:38)et earnings (cid:43)hares purchased for cancellation (cid:39)ther comprehensive loss Total comprehensive income Dividends declared Exercise of share options As at December 31, 2021 (cid:43)hare(cid:10)based compensation expense (cid:38)et earnings Effect of share compensation plans (cid:43)hares purchased for cancellation (cid:39)ther comprehensive income (cid:43)hare repurchase commitment under Total comprehensive income Exercise of share options Dividends declared As at December 31, 2023 (cid:43)hare(cid:10)based compensation expense Effect of share compensation plans See accom(cid:63)any(cid:56)n(cid:54) notes (cid:43)hares purchased for cancellation Dividends declared As at December 31, 2022 (cid:38)CI(cid:26) Amo(cid:68)nt 539,(cid:19)(cid:20)(cid:20) $ N(cid:68)mber (cid:78) (cid:21)(cid:15),(cid:17)(cid:20)(cid:17),(cid:19)5(cid:21) $ (cid:78) (cid:78) (cid:78) (cid:15)(cid:17),5(cid:15)1 (cid:78) (cid:78) (cid:78) (cid:15)(cid:17),5(cid:15)1 (cid:17)39,91(cid:13) (3,1(cid:15)(cid:13)) (cid:78) (cid:78) 5(cid:19)1,(cid:13)(cid:20)(cid:21) $ (cid:17)39,91(cid:13) ((cid:17)(cid:20)(cid:13),(cid:19)(cid:13)(cid:13)) (cid:75) (cid:75) (cid:78) (cid:75) 2(cid:16),(cid:21)(cid:18)(cid:16) (cid:75) (cid:75) 2(cid:16),(cid:21)(cid:18)(cid:16) (cid:7)2,(cid:16)(cid:16)1(cid:8) (cid:75) (cid:75) (cid:7)(cid:20)00(cid:8) (cid:75) (cid:75) 3(cid:16)7,2(cid:21)1 (cid:17)(cid:20)2,(cid:20)01 (cid:3) 3(cid:16)7,2(cid:21)1 (cid:7)(cid:16)73,100(cid:8) (cid:75) 332,1(cid:20)2 (cid:21)(cid:15),(cid:17)(cid:17)3,9(cid:19)(cid:21) $ Contr(cid:56)b(cid:68)ted s(cid:68)r(cid:63)(cid:59)(cid:68)s 1(cid:19),35(cid:15) $ Cash f(cid:59)o(cid:70) hed(cid:54)es Fore(cid:56)(cid:54)n c(cid:68)rrency trans(cid:59)at(cid:56)on ad(cid:57)(cid:68)stments Reta(cid:56)ned earn(cid:56)n(cid:54)s 1,39(cid:15),551 $ (cid:17)5(cid:17),19(cid:21) Contr(cid:56)b(cid:68)ted s(cid:68)r(cid:63)(cid:59)(cid:68)s 1(cid:17),(cid:15)(cid:17)3 $ 5(cid:21),(cid:20)5(cid:20) 51(cid:15),955 Amo(cid:68)nt (cid:78) 51(cid:19),591 $ (cid:78) (cid:78) (3,(cid:21)(cid:21)9) (cid:19),(cid:20)99 (cid:15),91(cid:13) (cid:78) (cid:78) (cid:78) 19,(cid:15)(cid:19)(cid:15) $ (cid:15)(cid:19),11(cid:20) (cid:78) (cid:78) (cid:78) (cid:15)(cid:19),11(cid:20) (cid:75) (3,(cid:13)31) (cid:75) (cid:78) (cid:75) (cid:7)3,(cid:21)22(cid:8) 12,00(cid:18) (cid:20),0(cid:20)(cid:16) 539,(cid:19)(cid:20)(cid:20) $ (cid:78) (cid:78) (cid:78) ((cid:17)5,3(cid:21)(cid:15)) (1(cid:15)(cid:21),(cid:17)(cid:19)3) 1,(cid:20)31,(cid:19)(cid:19)1 $ (cid:17)3(cid:16),712 2,13(cid:21) (cid:17)3(cid:18),(cid:20)(cid:17)1 (cid:75) (cid:75) (cid:75) (cid:7)3(cid:17),101(cid:8) (cid:75) (cid:7)11,(cid:18)(cid:17)2(cid:8) (cid:7)1(cid:16)1,(cid:20)(cid:16)(cid:17)(cid:8) 2,07(cid:21),(cid:21)1(cid:16) (cid:3) (cid:75) (cid:75) (cid:75) (cid:75) 2(cid:16),(cid:17)21 (cid:75) (cid:75) 2(cid:16),(cid:17)21 (cid:7)3,120(cid:8) (cid:75) 1,(cid:21)(cid:19)(cid:21) $ (cid:78) 1,1(cid:15)(cid:17) 1,1(cid:15)(cid:17) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:15),99(cid:15) $ (cid:75) (cid:7)(cid:17)(cid:20)3(cid:8) (cid:7)(cid:17)(cid:20)3(cid:8) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) 2,(cid:16)0(cid:21) (cid:3) (cid:78) (cid:78) (cid:78) ((cid:17),3(cid:19)3) (cid:19),(cid:17)(cid:20)(cid:15) (cid:15),1(cid:13)9 (cid:78) (cid:78) (cid:75) (cid:75) (cid:75) (cid:7)3,(cid:20)(cid:20)(cid:21)(cid:8) (cid:18),7(cid:21)(cid:21) 2,(cid:21)10 (cid:75) (cid:75) 1(cid:19),35(cid:15) $ Cash f(cid:59)o(cid:70) Reta(cid:56)ned hed(cid:54)es (cid:15),(cid:21)(cid:21)1 $ earn(cid:56)n(cid:54)s (cid:78) 1,1(cid:19)9,(cid:15)39 $ (cid:20),(cid:17)(cid:21)5 33(cid:15),(cid:20)1(cid:13) (cid:20),(cid:17)(cid:21)5 (cid:78) (cid:17)9,91(cid:21) (cid:78) 3(cid:21)(cid:15),(cid:19)(cid:15)(cid:21) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) 1(cid:13),3(cid:19)(cid:19) $ (cid:78) (cid:75) ((cid:17)(cid:19),9(cid:20)(cid:15)) (cid:7)1(cid:20),(cid:21)(cid:20)(cid:16)(cid:8) (11(cid:15),3(cid:17)(cid:17)) (cid:7)1(cid:20),(cid:21)(cid:20)(cid:16)(cid:8) (cid:75) 1,39(cid:15),551 $ (cid:75) (cid:16)(cid:17)(cid:16),1(cid:21)(cid:20) (cid:75) (cid:75) (cid:17)(cid:20),7(cid:17)7 (cid:17)12,(cid:21)(cid:17)(cid:17) (cid:75) (cid:75) (cid:75) (cid:7)(cid:20),(cid:18)1(cid:20)(cid:8) (cid:3) (cid:75) (cid:75) (cid:7)(cid:16)(cid:17),3(cid:20)2(cid:8) (cid:7)12(cid:20),(cid:16)(cid:18)3(cid:8) 1,731,(cid:18)(cid:18)1 (cid:3) 13,35(cid:21) $ Tota(cid:59) shareho(cid:59)ders(cid:6) e(cid:64)(cid:68)(cid:56)ty 1,953,3(cid:15)9 (cid:17)5(cid:17),19(cid:21) (cid:19)(cid:20),3(cid:19)(cid:19) 5(cid:15)1,5(cid:19)(cid:17) (cid:15)(cid:13),(cid:19)3(cid:15) (cid:19),(cid:20)99 (cid:15)(cid:20),(cid:17)31 ((cid:17)(cid:21),5(cid:13)(cid:15)) (1(cid:15)(cid:21),(cid:17)(cid:19)3) (cid:15),3(cid:15)5,359 (cid:17)3(cid:16),712 (cid:7)17,(cid:16)2(cid:20)(cid:8) (cid:17)17,2(cid:20)(cid:16) 21,0(cid:16)2 12,00(cid:18) 33,0(cid:16)(cid:20) (cid:7)37,(cid:17)(cid:16)2(cid:8) Fore(cid:56)(cid:54)n c(cid:68)rrency trans(cid:59)at(cid:56)on Tota(cid:59) (cid:17),(cid:20)(cid:17)9 $ ad(cid:57)(cid:68)stments (cid:78) 1,(cid:21)(cid:21)(cid:13) $ (cid:21),(cid:19)(cid:13)9 (cid:78) (cid:21),(cid:19)(cid:13)9 (cid:78) (1(cid:15)) (cid:78) (1(cid:15)) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:75) (cid:78) (cid:7)1(cid:21),(cid:17)(cid:18)7(cid:8) (cid:78) (cid:7)1(cid:21),(cid:17)(cid:18)7(cid:8) (cid:75) 1,(cid:21)(cid:19)(cid:21) $ (cid:75) (cid:75) (cid:75) (cid:75) 1,12(cid:16) 1,12(cid:16) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) 2,(cid:21)(cid:21)2 (cid:3) (cid:7)12,(cid:16)(cid:17)2(cid:8) (cid:7)1(cid:16)1,(cid:20)(cid:16)(cid:17)(cid:8) 2,(cid:18)(cid:20)3,(cid:20)(cid:17)2 (cid:7)(cid:18),20(cid:21)(cid:8) (cid:3) (3,3(cid:13)1) $ (cid:78) (cid:19),1(cid:21)(cid:15) (cid:19),1(cid:21)(cid:15) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:15),(cid:21)(cid:21)1 $ (cid:75) 7,(cid:16)(cid:20)(cid:17) 7,(cid:16)(cid:20)(cid:17) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) 10,3(cid:18)(cid:18) (cid:3) (cid:20)2,31(cid:20),1(cid:17)(cid:21) (cid:3) (cid:17)(cid:18)1,07(cid:20) (cid:3) 1(cid:21),2(cid:18)2 (cid:3) (cid:20)2,2(cid:21)7,3(cid:16)1 (cid:3) 27,3(cid:16)(cid:18) (cid:3) Tota(cid:59) shareho(cid:59)ders(cid:6) Tota(cid:59) e(cid:64)(cid:68)(cid:56)ty (1,(cid:17)(cid:15)1) $ 1,(cid:19)9(cid:21),(cid:19)5(cid:15) (cid:17),(cid:20)(cid:17)9 $ 1,953,3(cid:15)9 (cid:78) (cid:19),1(cid:20)(cid:13) (cid:19),1(cid:20)(cid:13) (cid:78) (cid:78) (cid:78) (cid:78) (cid:78) (cid:75) (cid:20),(cid:18)0(cid:21) (cid:20),(cid:18)0(cid:21) (cid:75) (cid:75) (cid:75) (cid:75) (cid:75) 33(cid:15),(cid:20)1(cid:13) 5(cid:19),(cid:13)(cid:21)(cid:21) 3(cid:21)(cid:21),(cid:20)9(cid:21) (cid:15)1,(cid:20)5(cid:17) (cid:19),(cid:17)(cid:20)(cid:15) (cid:15)(cid:21),(cid:15)(cid:15)(cid:19) (5(cid:13),(cid:13)(cid:13)3) (11(cid:15),3(cid:17)(cid:17)) (cid:16)(cid:17)(cid:16),1(cid:21)(cid:20) (cid:18)7,3(cid:18)(cid:18) (cid:17)21,(cid:17)(cid:18)(cid:16) 20,(cid:18)32 (cid:18),7(cid:21)(cid:21) 27,(cid:16)31 (cid:7)(cid:16)(cid:20),(cid:17)02(cid:8) (cid:7)12(cid:20),(cid:16)(cid:18)3(cid:8) 13,3(cid:17)(cid:20) (cid:3) 2,32(cid:17),3(cid:17)(cid:21) See accom(cid:63)any(cid:56)n(cid:54) notes 9 9 Toromont Industries Ltd. Toromont Industries Ltd. Consolidated Financial Statements 61 TOROMONT IND(cid:43)STRIES LTD. CONSOLIDATED STATEMENTS OF CASH FLO(cid:45)S ($ thousands) (cid:49)ears ended December 31 O(cid:63)erat(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es Income from continuing operations Items not requiring cash(cid:23) Note 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:17)2(cid:21),107 $ (cid:17)5(cid:13),1(cid:13)(cid:13) Depreciation and amorti(cid:75)ation (cid:43)hare(cid:10)based compensation (cid:40)ost(cid:10)employment obligations Deferred income taxes Gain on sale of rental equipment and property, plant and equipment (cid:20), (cid:21), 9, 1(cid:15) (cid:15)3 (cid:20) (cid:20) (cid:17) 13 13 (cid:21) (cid:38)et change in non(cid:10)cash wor(cid:60)ing capital and other (cid:25)dditions to rental equipment (cid:40)roceeds on disposal of rental equipment Continuing operations Discontinued operations Cash (cid:63)ro(cid:69)(cid:56)ded by o(cid:63)erat(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es In(cid:69)est(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es (cid:25)dditions to property, plant and equipment (cid:40)roceeds on disposal of property, plant and equipment Increase in other assets Continuing operations Discontinued operations (cid:40)roceeds from sale of discontinued operations (net of cash) Cash (cid:68)sed (cid:56)n (cid:56)n(cid:69)est(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es F(cid:56)nanc(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es Dividends paid Cash received on exercise of share options (cid:43)hares purchased for cancellation (cid:40)ayment of lease liabilities Continuing operations Discontinued operations Cash (cid:68)sed (cid:56)n f(cid:56)nanc(cid:56)n(cid:54) act(cid:56)(cid:69)(cid:56)t(cid:56)es Effect of currency translation on cash balances Increase in cash and cash equivalents during the year Continuing operations Discontinued operations Cash and cash equivalents, at beginning of the year Cash and cash e(cid:64)(cid:68)(cid:56)(cid:69)a(cid:59)ents, at end of the year S(cid:68)(cid:63)(cid:63)(cid:59)ementa(cid:59) cash f(cid:59)o(cid:70) (cid:56)nformat(cid:56)on (cid:7)note 23(cid:8) See accom(cid:63)any(cid:56)n(cid:54) notes 1(cid:20)2,(cid:16)(cid:16)(cid:17) 10,(cid:20)(cid:17)0 (cid:7)(cid:16),(cid:21)72(cid:8) 1(cid:20),(cid:18)(cid:21)(cid:21) (cid:7)3(cid:16),70(cid:20)(cid:8) 701,(cid:16)21 (cid:7)177,021(cid:8) (cid:7)231,(cid:20)(cid:21)(cid:21)(cid:8) (cid:18)0,707 3(cid:17)3,20(cid:20) 2,(cid:17)(cid:20)(cid:18) 3(cid:17)(cid:17),7(cid:21)(cid:16) (cid:7)11(cid:16),(cid:16)71(cid:8) 10,2(cid:21)7 (cid:7)13(cid:21)(cid:8) (cid:7)10(cid:16),313(cid:8) (cid:7)(cid:16)11(cid:8) 2(cid:18),(cid:18)0(cid:18) (cid:7)7(cid:20),11(cid:20)(cid:8) (cid:7)13(cid:20),(cid:17)(cid:18)(cid:17)(cid:8) 21,0(cid:16)2 (cid:7)37,(cid:17)(cid:16)2(cid:8) (cid:7)(cid:21),3(cid:20)(cid:18)(cid:8) (cid:7)1(cid:18)(cid:16),(cid:16)(cid:17)1(cid:8) (cid:7)3(cid:20)(cid:8) (cid:7)1(cid:18)(cid:16),(cid:16)(cid:20)(cid:21)(cid:8) 1(cid:19)(cid:15),153 (cid:19),(cid:20)99 (cid:15),(cid:20)33 9,51(cid:17) (33,99(cid:19)) 59(cid:20),3(cid:13)3 ((cid:15)1(cid:15),(cid:20)(cid:15)(cid:13)) ((cid:15)(cid:13)5,(cid:17)19) 3(cid:17),(cid:15)(cid:13)(cid:19) (cid:15)13,3(cid:20)(cid:13) 3,5(cid:21)3 (cid:15)1(cid:19),953 ((cid:19)(cid:21),55(cid:15)) (cid:15)(cid:17),55(cid:20) (1(cid:19)(cid:20)) ((cid:17)(cid:17),1(cid:19)(cid:15)) (1(cid:20)1) (cid:78) ((cid:17)(cid:17),333) (1(cid:15)5,(cid:15)1(cid:13)) (cid:15)(cid:13),(cid:19)3(cid:15) ((cid:17)(cid:21),5(cid:13)(cid:15)) ((cid:21),93(cid:17)) (1(cid:19)(cid:15),(cid:13)1(cid:17)) (1(cid:17)5) (1(cid:19)(cid:15),159) (cid:7)210(cid:8) (cid:17)(cid:21)9 (cid:20)(cid:16),23(cid:16) 2(cid:20),7(cid:16)3 (cid:21)27,7(cid:20)0 1,0(cid:16)0,7(cid:17)7 $ (cid:3) (cid:20),(cid:19)(cid:21)3 3,(cid:15)(cid:19)(cid:20) 91(cid:19),(cid:21)3(cid:13) 9(cid:15)(cid:20),(cid:20)(cid:21)(cid:13) 62 Toromont Industries Ltd. Annual Report 2023 1(cid:13) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 1. DESCRIPTION OF (cid:24)(cid:43)SINESS Cor(cid:63)orate Informat(cid:56)on Toromont Industries Ltd. (the (cid:2)Company(cid:2) or (cid:2)Toromont(cid:2)) is a limited company incorporated and domiciled in Canada whose shares are publicly traded on the Toronto (cid:43)toc(cid:60) Exchange ((cid:2)T(cid:43)(cid:48)(cid:2)) under the symbol TI(cid:32). The registered office is located at 3131 (cid:32)ighway (cid:20) (cid:47)est, Concord, (cid:39)ntario, Canada. The Company operates through two business segments(cid:23) the Equipment Group and CI(cid:37)C(cid:39). The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory, spanning the Canadian provinces of (cid:38)ewfoundland and Labrador, (cid:38)ova (cid:43)cotia, (cid:38)ew (cid:26)runswic(cid:60), (cid:40)rince Edward Island, (cid:41)u(cid:76)bec, (cid:39)ntario and (cid:37)anitoba, in addition to most of the territory of (cid:38)unavut. The Equipment Group includes industry(cid:10)leading rental operations and a complementary material handling business. CI(cid:37)C(cid:39) is a mar(cid:60)et leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems. (cid:26)oth segments offer comprehensive product support capabilities. Toromont employs over (cid:20),(cid:13)(cid:13)(cid:13) people in more than 1(cid:19)(cid:13) locations. 2. MATERIAL ACCO(cid:43)NTIN(cid:29) POLICIES These consolidated financial statements are prepared in accordance with International (cid:30)inancial (cid:42)eporting (cid:43)tandards ((cid:2)I(cid:30)(cid:42)(cid:43)(cid:2)), as issued by the International (cid:25)ccounting (cid:43)tandards (cid:26)oard ((cid:2)I(cid:25)(cid:43)(cid:26)(cid:2)). These consolidated financial statements were authori(cid:75)ed for issue by the (cid:26)oard of Directors on (cid:30)ebruary 13, (cid:15)(cid:13)(cid:15)(cid:17) on the recommendation of the (cid:25)udit Committee. (cid:24)as(cid:56)s of Meas(cid:68)rement These consolidated financial statements were prepared on a historical cost basis, except for certain items recorded at fair value as detailed in the accounting policies disclosed below. Presentat(cid:56)on and F(cid:68)nct(cid:56)ona(cid:59) C(cid:68)rrency The consolidated financial statements are presented in Canadian dollars, which is Toromont(cid:6)s functional currency. (cid:25)ll values are rounded to the nearest thousand, except where otherwise indicated. (cid:24)as(cid:56)s of Conso(cid:59)(cid:56)dat(cid:56)on The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. (cid:43)ubsidiaries 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. (cid:25)ll intra-group balances, income and expenses and unreali(cid:75)ed gains and losses resulting from intra-group transactions are eliminated in full upon consolidation. (cid:24)(cid:68)s(cid:56)ness Comb(cid:56)nat(cid:56)ons and (cid:29)ood(cid:70)(cid:56)(cid:59)(cid:59) (cid:47)hen determining the nature of an acquisition, as either a business combination or an asset acquisition, management defines a business as (cid:2)an integrated set of activities and assets that is capable of being 11 Consolidated Financial Statements 63 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 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.(cid:2) (cid:25)n integrated set of activities and assets requires inputs and processes applied to those inputs, which together are or will be used to create outputs. (cid:32)owever, 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. (cid:26)usiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of consideration transferred, measured at the acquisition date fair value. (cid:25)cquisition costs are expensed as incurred. Goodwill is initially measured at cost, being the excess of the cost of the business combination over the Company(cid:6)s share in the net fair value of the acquiree(cid:6)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 recogni(cid:75)ed directly in the consolidated statements of income. (cid:25)fter initial recognition, goodwill is measured at cost less any accumulated impairment losses. (cid:30)or the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company(cid:6)s cash(cid:10)generating units ((cid:2)CG(cid:45)s(cid:2)) 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. (cid:47)here goodwill forms part of a CG(cid:45) 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 CG(cid:45) retained. D(cid:56)scont(cid:56)n(cid:68)ed O(cid:63)erat(cid:56)ons The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs when the disposal of a component or a group of components of the Company represents a strategic shift that will have an impact on the Company(cid:6)s operations and financial results, and where the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. The results of discontinued operations are excluded from both continuing operations and business segment information in the consolidated financial statements and the notes to the consolidated financial statements, unless otherwise noted, and are presented net of tax in the consolidated statements of income for the current and comparative year. (cid:42)efer to note (cid:17), (cid:2)Discontinued (cid:39)perations(cid:2) for further information. Cash and Cash E(cid:64)(cid:68)(cid:56)(cid:69)a(cid:59)ents Cash and cash equivalents include cash on hand, cash in ban(cid:60), and short(cid:10)term deposits with an original maturity of three months or less, readily convertible to (cid:60)nown amounts of cash, and which are subject to an insignificant ris(cid:60) of changes in value. 64 Toromont Industries Ltd. Annual Report 2023 1(cid:15) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) Acco(cid:68)nts Rece(cid:56)(cid:69)ab(cid:59)e Trade accounts receivable are amounts due from customers for products 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 recogni(cid:75)ed 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 statements of income. (cid:45)nbilled receivables represent contract assets related to the Company(cid:6)s rights to consideration for wor(cid:60) completed but not billed as at the reporting date on the sale of power and energy systems and refrigeration pac(cid:60)ages. These are transferred to accounts receivable when the entitlement to payment becomes unconditional. In(cid:69)entor(cid:56)es Inventories are valued at the lower of cost and net reali(cid:75)able 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. (cid:43)eriali(cid:75)ed inventory is determined on a specific-item basis. (cid:38)on(cid:10)seriali(cid:75)ed inventory is determined based on a weighted average actual cost. Cost of wor(cid:60)(cid:10)in(cid:10)process includes cost of direct materials, direct labour and an allocation of overhead costs, based on normal operating capacity. Cost of wor(cid:60)(cid:10)in(cid:10)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, recogni(cid:75)ed in other comprehensive (loss) income ((cid:2)(cid:39)CI(cid:2)), in respect of the purchase of inventory. (cid:38)et reali(cid:75)able value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to ma(cid:60)e the sale. Pro(cid:63)erty, P(cid:59)ant and E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:40)roperty, plant and equipment are recorded at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation is recogni(cid:75)ed principally on a straight(cid:10)line basis over the estimated useful lives of the assets. Estimated useful lives range from (cid:15)(cid:13) to 3(cid:13) years for buildings, 3 to 1(cid:13) years for equipment and (cid:15)(cid:13) years for power generation assets. Leasehold improvements are amorti(cid:75)ed on a straight(cid:10)line basis over the term of the lease. Land is not depreciated. The assets(cid:6) residual values, useful lives and methods of depreciation are reviewed at each financial year(cid:10)end and adjusted prospectively, if appropriate. 13 Consolidated Financial Statements 65 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) Renta(cid:59) E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:42)ental equipment is recorded at cost, net of accumulated depreciation and any impairment losses. Cost is determined on a specific(cid:10)item basis. (cid:42)ental equipment is depreciated to its estimated residual value over its estimated useful life on a straight(cid:10)line basis, which ranges from 1 to 1(cid:13) years. The assets(cid:6) residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate. Intan(cid:54)(cid:56)b(cid:59)e Assets Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets acquired as part of a business acquisition are initially recorded at the acquisition date fair value. (cid:30)ollowing initial recognition, intangible assets are carried at cost less any accumulated amorti(cid:75)ation and accumulated impairment losses, as applicable. Intangible assets with a finite useful life are amorti(cid:75)ed over their estimated useful lives and are assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amorti(cid:75)ation period and the amorti(cid:75)ation method for intangible assets with finite useful lives are reviewed at least at the end of each reporting period. (cid:25)morti(cid:75)ation is recorded as follows(cid:23) (cid:80) Customer relationships (cid:77) (cid:21) years, straight(cid:10)line (cid:80) E(cid:42)(cid:40) system (cid:77) 5 years, straight(cid:10)line (cid:80) Customer order bac(cid:60)log (cid:77) specific basis (cid:80) (cid:40)atents and licenses (cid:77) remaining life, straight(cid:10)line Intangible assets with indefinite useful lives are not amorti(cid:75)ed, but are tested for impairment annually or when indicators of impairment are present. Distribution networ(cid:60)s 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. (cid:29)o(cid:69)ernment (cid:29)rants Government grants are recogni(cid:75)ed when there is reasonable assurance that the grant will be received and all conditions associated with the grant are met. Claims under income(cid:10)related government grants are reported in the consolidated statements of income as other income included in selling and administrative expenses. Government grants receivable are recorded in accounts receivable on the consolidated statements of financial position. F(cid:56)nanc(cid:56)a(cid:59) Instr(cid:68)ments (cid:30)inancial assets and liabilities are recogni(cid:75)ed 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. (cid:30)inancial assets and liabilities are classified in the following measurement categories(cid:23) (i) amorti(cid:75)ed cost(cid:24) (ii) fair value through (cid:39)CI(cid:24) or (iii) fair value through profit or loss ((cid:2)(cid:30)(cid:46)T(cid:40)L(cid:2)). Initially, all financial assets and liabilities are recogni(cid:75)ed at fair value, net of transaction costs, except for financial instruments classified as (cid:30)(cid:46)T(cid:40)L, whereby transaction costs 66 Toromont Industries Ltd. Annual Report 2023 1(cid:17) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) are recogni(cid:75)ed immediately in profit or loss. (cid:42)egular-way trades of recogni(cid:75)ed on the trade date. financial assets and liabilities are (cid:30)inancial (cid:25)ssets (cid:43)ubsequent measurement of financial assets depends on the classification. The Company has made the following classifications(cid:23) (cid:80) Cash and cash equivalents, accounts receivable, unbilled receivables, supplier claims receivable, and installment and other notes receivable are classified as amorti(cid:75)ed cost and measured using the effective interest rate method less any impairment losses. (cid:80) (cid:25)ccounts receivable comprise amounts due from customers for goods or services transferred in the ordinary course of business and non(cid:10)trade accounts. (cid:45)nbilled receivables relate to the Company(cid:6)s right to consideration for goods or services transferred to a customer but not yet billed as at the reporting date. Installment notes receivable represent amounts due from customers relating to the financing of equipment and parts and services sold. 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. The carrying amount of accounts receivable is reduced through the use of provisions for doubtful accounts. (cid:30)inancial Liabilities (cid:25)ll financial liabilities are subsequently measured at amorti(cid:75)ed cost using the effective interest rate method or at (cid:30)(cid:46)T(cid:40)L. (cid:30)inancial liabilities are classified as (cid:30)(cid:46)T(cid:40)L when the financial liability is(cid:23) (i) contingent consideration of an acquirer in a business combination(cid:24) (ii) held for trading(cid:24) or (iii) it is designated as (cid:30)(cid:46)T(cid:40)L. (cid:30)or financial liabilities that are designated as (cid:30)(cid:46)T(cid:40)L, the amount of change in the fair value of the financial liability that is attributable to changes in the credit ris(cid:60) of that liability is recogni(cid:75)ed in (cid:39)CI, unless the recognition of the effects of changes in the liability(cid:6)s credit ris(cid:60) in (cid:39)CI would create or enlarge an accounting mismatch in the consolidated statements of income. The remaining amount of change in the fair value of the liability is recogni(cid:75)ed in the consolidated statements of income. Changes in fair value attributable to a financial liability(cid:6)s credit ris(cid:60) that are recogni(cid:75)ed in (cid:39)CI are not subsequently reclassified to the consolidated statements of income(cid:24) instead, they are transferred to retained earnings upon derecognition of the financial liability. (cid:30)inancial liabilities that are not(cid:23) (i) contingent consideration of an acquirer in a business combination(cid:24) (ii) held for trading(cid:24) or (iii) are designated as (cid:30)(cid:46)T(cid:40)L, are subsequently measured at amorti(cid:75)ed cost using the effective interest rate method. Derivatives Derivative assets and liabilities 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 (cid:39)CI. 15 Consolidated Financial Statements 67 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:30)air (cid:46)alue of (cid:30)inancial Instruments The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique(cid:23) (cid:80) (cid:80) (cid:80) Level 1 (cid:77) unadjusted quoted prices in active mar(cid:60)ets for identical assets or liabilities. Level (cid:15) (cid:77) other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3 (cid:77) techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable mar(cid:60)et data. Impairment of (cid:30)inancial (cid:25)ssets (cid:30)inancial assets classified as amorti(cid:75)ed 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. (cid:25) financial asset is considered in default when contractual payments are 9(cid:13) days past due. (cid:25) financial asset may also be considered to be in default if internal or external information indicates that the Company is unli(cid:60)ely to receive the outstanding contractual amounts in full before ta(cid:60)ing into account any credit enhancements held. (cid:25) financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Der(cid:56)(cid:69)at(cid:56)(cid:69)e F(cid:56)nanc(cid:56)a(cid:59) Instr(cid:68)ments and Hed(cid:54)e Acco(cid:68)nt(cid:56)n(cid:54) Derivative financial arrangements are used to hedge exposure to fluctuations in exchange rates. (cid:43)uch derivative financial instruments are initially recogni(cid:75)ed 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. (cid:25)t inception, the Company designates and documents the hedge relationship, including identification of the transaction and the ris(cid:60) management objectives and strategy for underta(cid:60)ing 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 recogni(cid:75)ed in (cid:39)CI. The gain or loss relating to the ineffective portion is recogni(cid:75)ed immediately in the consolidated statements of income. (cid:25)dditionally(cid:23) (cid:80) (cid:80) If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset, the associated gains or losses that were recogni(cid:75)ed in (cid:39)CI are included in the initial cost or other carrying amount of the asset(cid:24) (cid:30)or cash flow hedges other than those identified above, amounts accumulated in (cid:39)CI are recycled to the consolidated statements of income in the period when the hedged item will affect earnings (for instance, when the forecast sale that is hedged ta(cid:60)es place)(cid:24) (cid:80) (cid:47)hen 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 (cid:39)CI remains in (cid:39)CI and is recogni(cid:75)ed when the forecast transaction is ultimately recogni(cid:75)ed in the consolidated statements of income(cid:24) and Toromont Industries Ltd. Annual Report 2023 68 1(cid:19) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:80) (cid:47)hen a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in (cid:39)CI is immediately recogni(cid:75)ed in the consolidated statements of income. Im(cid:63)a(cid:56)rment of Non(cid:10)f(cid:56)nanc(cid:56)a(cid:59) 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. (cid:30)or the purpose of impairment testing, goodwill arising from acquisitions is allocated to each of the Company(cid:6)s CG(cid:45)s or group of CG(cid:45)s 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 CG(cid:45)s or a group of CG(cid:45)s. (cid:25)ny potential impairment of goodwill or intangible assets is identified by comparing the recoverable amount of a CG(cid:45) or a group of CG(cid:45)s to its carrying value. The recoverable amount is the higher of its fair value less costs to sell and its value(cid:10)in(cid:10)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(cid:10)rata on the basis of the carrying amount of each asset. In determining fair value less costs to sell, recent mar(cid:60)et transactions are ta(cid:60)en into account, if available. In assessing value(cid:10)in(cid:10)use, the estimated future cash flows are discounted to their present value using a pre(cid:10)tax discount rate that reflects current mar(cid:60)et assessments of the time value of money and the ris(cid:60)s specific to the asset. Impairment losses are recogni(cid:75)ed in the consolidated statements of income. (cid:30)or non(cid:10)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 recogni(cid:75)ed impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. (cid:25)n impairment loss is recogni(cid:75)ed for the amount by which the asset(cid:6)s carrying amount exceeds its recoverable amount. (cid:25) previously recogni(cid:75)ed 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 recogni(cid:75)ed. 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 recogni(cid:75)ed for the asset in prior years. (cid:43)uch reversal is recogni(cid:75)ed in the consolidated statements of income. Re(cid:69)en(cid:68)e from Contracts (cid:70)(cid:56)th C(cid:68)stomers (cid:42)evenue from contracts with customers is recogni(cid:75)ed 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. (cid:80) Sa(cid:41)e (cid:44)(cid:35) (cid:14)(cid:46)(cid:50)ipment (cid:77) (cid:42)evenue is recogni(cid:75)ed when control of the equipment has been transferred to the customer. This usually occurs when the equipment is delivered or pic(cid:60)ed up by the customer. The transaction price is documented on the sales invoice and agreed to by the customer. (cid:40)ayment is generally due at the time of delivery(cid:24) as such, a receivable is recogni(cid:75)ed 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(cid:23) (i) there is a substantive reason for the arrangement(cid:24) (ii) the equipment is separately identified as belonging to the customer(cid:24) (iii) Toromont is no longer able to use the equipment or direct it to another customer(cid:24) and (iv) the equipment is currently ready for physical transfer to the customer. (cid:80) Sa(cid:41)e (cid:44)(cid:35) (cid:14)(cid:46)(cid:50)ipment (cid:52)it(cid:37) a (cid:16)(cid:50)arantee(cid:33) (cid:23)esi(cid:33)(cid:50)a(cid:41) (cid:27)a(cid:41)(cid:50)e (cid:44)r (cid:23)ep(cid:50)r(cid:32)(cid:37)ase (cid:12)(cid:44)mmitment (cid:77) 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 1(cid:20) Consolidated Financial Statements 69 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) I(cid:30)(cid:42)(cid:43) 1(cid:19), (cid:19)eases ((cid:2)I(cid:30)(cid:42)(cid:43) 1(cid:19)(cid:2)). (cid:42)evenue is therefore recogni(cid:75)ed over the period extending to the date of the residual guarantee. in under two years. (cid:42)evenue the design, manufacture, refrigeration systems, which (cid:80) Sa(cid:41)e (cid:44)(cid:35) S(cid:54)stems (cid:77) The Company sells systems, including power and energy facilities and industrial and recreational installation and involve commissioning of longer(cid:10)term projects under the customer(cid:6)s control and typically construction is the completed percentage-of-completion method. This method is normally measured by reference to costs incurred to date as a percentage of the total estimated costs. (cid:40)ayment terms are usually based on set milestones outlined in the contract. (cid:40)eriodically(cid:23) (i) amounts are received in advance of the associated contract wor(cid:60) being performed (cid:77) these amounts are recorded as deferred revenue and contract liabilities(cid:24) and (ii) revenue is recogni(cid:75)ed without issuing an invoice (cid:77) this entitlement to consideration is recogni(cid:75)ed as unbilled receivables. (cid:25)ny foreseeable losses on such projects are recogni(cid:75)ed immediately in profit or loss as identified. recogni(cid:75)ed progressively based on is (cid:80) (cid:14)(cid:46)(cid:50)ipment (cid:23)enta(cid:41)s (cid:77) (cid:42)evenue is accounted for in accordance with I(cid:30)(cid:42)(cid:43) 1(cid:19). (cid:42)evenue is recogni(cid:75)ed on a straight(cid:10)line basis over the term of the agreement. (cid:40)ayment terms are generally 3(cid:13) days from invoicing. (cid:80) (cid:80) (cid:22)r(cid:44)(cid:33)(cid:50)(cid:32)t S(cid:50)pp(cid:44)rt Ser(cid:51)i(cid:32)es (cid:77) (cid:42)evenue from product support services includes the sale of parts and performance of service wor(cid:60) on equipment. (cid:30)or the sale of parts, revenue is recogni(cid:75)ed when the part is shipped or pic(cid:60)ed up by the customer. (cid:30)or the servicing of equipment, revenue on both the labour and parts used in performing the wor(cid:60) is recogni(cid:75)ed when the job is completed. (cid:40)ayment terms are generally 3(cid:13) days from invoicing. (cid:19)(cid:44)ng(cid:7)term (cid:20)aintenan(cid:32)e (cid:12)(cid:44)ntra(cid:32)ts (cid:77) Long(cid:10)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(cid:10)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 3(cid:13) days from invoicing. These amounts are recogni(cid:75)ed as deferred revenue and contract liabilities. (cid:42)evenue is recogni(cid:75)ed as wor(cid:60) is performed under the contract based on standard or contract rates. (cid:42)evenue from maintenance services is recogni(cid:75)ed over time, using an input method to measure progress towards complete satisfaction of the service. (cid:80) (cid:14)(cid:53)ten(cid:33)e(cid:33) (cid:28)arrant(cid:54) (cid:77) Extended warranty may be purchased by a customer at time of purchase of a machine to provide additional warranty coverage beyond the initial one(cid:10)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 revenue and contract liabilities. The Company recogni(cid:75)es revenue for extended warranty as wor(cid:60) is performed under the extended warranty contract using standard rates. (cid:80) (cid:22)(cid:44)(cid:52)er (cid:16)enerati(cid:44)n (cid:77) The Company owns and operates power generation plants that sell electricity and thermal power. (cid:42)evenue is recogni(cid:75)ed monthly based on set rates as power is consumed. (cid:40)ayment is due within 3(cid:13) 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(cid:10)cash consideration, and consideration payable to the customer (if any) are considered. 70 Toromont Industries Ltd. Annual Report 2023 1(cid:21) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 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 (cid:25) single recognition and measurement approach is applied for all leases, except for short(cid:10)term leases and leases of low(cid:10)value assets. (cid:42)ight(cid:10)of(cid:10)use assets representing the right to use the underlying assets and lease liabilities representing lease payments are recogni(cid:75)ed. (cid:23)ig(cid:37)t(cid:7)(cid:44)(cid:35)(cid:7)(cid:50)se assets (cid:42)ight(cid:10)of(cid:10)use assets are recogni(cid:75)ed 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(cid:10)of(cid:10)use assets includes the amount of lease liabilities recogni(cid:75)ed, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. (cid:45)nless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recogni(cid:75)ed right(cid:10)of(cid:10)use assets are depreciated on a straight(cid:10)line basis over the shorter of their estimated useful life and the lease term, which ranges from 3 to 5 years for vehicles and 1 to 15 years for properties. (cid:42)ight-of-use assets are subject to impairment. (cid:19)ease (cid:41)ia(cid:31)i(cid:41)ities (cid:25)t the commencement date of the lease, lease liabilities are recogni(cid:75)ed 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(cid:6)s incremental borrowing rate at the lease commencement date is used in the present value calculation. (cid:25)fter 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(cid:10)substance fixed lease payments or a change in the assessment to purchase the underlying asset. S(cid:37)(cid:44)rt(cid:7)term (cid:41)eases an(cid:33) (cid:41)eases (cid:44)(cid:35) (cid:41)(cid:44)(cid:52)(cid:7)(cid:51)a(cid:41)(cid:50)e assets The short(cid:10)term lease recognition exemption is applied to leases that have a lease term of 1(cid:15) 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 low value. Lease payments on short(cid:10)term leases and leases of low(cid:10)value assets are recogni(cid:75)ed as an expense on a straight(cid:10)line basis over the lease term. Toromont as Lessor Leases in which the Company does not transfer substantially all the ris(cid:60)s and rewards incidental to ownership of an asset are classified as operating leases. (cid:42)ental income arising is recogni(cid:75)ed on a straight(cid:10)line basis over the lease terms and is included in the consolidated statements of income. Initial direct costs incurred in 19 Consolidated Financial Statements 71 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recogni(cid:75)ed over the lease term on the same basis as rental income. Fore(cid:56)(cid:54)n C(cid:68)rrency Trans(cid:59)at(cid:56)on The functional and presentation currency of the Company is the Canadian dollar. Each of the Company(cid:6)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. (cid:37)onetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange as at the reporting date. (cid:25)ll differences are recorded directly in profit or loss. (cid:38)on(cid:10)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 statements of income are translated at the average exchange rate for the period. The exchange differences arising on translation are recogni(cid:75)ed in accumulated other comprehensive income (loss) in shareholders(cid:6) equity. (cid:39)n disposal of a foreign operation, the deferred cumulative amount recogni(cid:75)ed in equity is recogni(cid:75)ed in the consolidated statements of income. Share(cid:10)based Payment Transact(cid:56)ons The Company has a stoc(cid:60) option plan and other share(cid:10)based compensation plans. (cid:45)nits under such plans may be awarded to certain employees and directors as part of their compensation pac(cid:60)age for services performed (excluding options in the case of directors). St(cid:44)(cid:32)(cid:40) (cid:44)pti(cid:44)ns (cid:77) Expense is based on the fair value of the awards granted determined using the (cid:26)lac(cid:60)-(cid:43)choles option pricing model and the best estimate of the number of equity instruments that will ultimately vest. (cid:30)or 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 at the time of grant and is recogni(cid:75)ed as share-compensation expense, net of estimated forfeitures, over its respective vesting period with a credit to contributed surplus. (cid:47)hen options are exercised, the proceeds, together with the amount recorded in contributed surplus, are transferred to share capital. (cid:22)er(cid:35)(cid:44)rman(cid:32)e S(cid:37)are (cid:26)nits ((cid:2)(cid:40)(cid:43)(cid:45)s(cid:2)) (cid:77) (cid:40)(cid:43)(cid:45)s are awarded at no cost to the recipient and cliff vest over a three(cid:10) year performance period. (cid:46)esting level is subject to performance condition achievement with respect to relative total shareholder return performance compared to the T(cid:43)(cid:48) index (a mar(cid:60)et condition) or return on capital employed (a non(cid:10)mar(cid:60)et condition), and can range from (cid:13)(cid:4) to (cid:15)(cid:13)(cid:13)(cid:4). (cid:40)(cid:43)(cid:45)s are paid out in common shares or, if elected by the individual at time of grant, are transferred to an equity(cid:10)settled D(cid:43)(cid:45) account (see description below). (cid:25)dditional (cid:40)(cid:43)(cid:45)s are credited to the holder upon each dividend payment made by Toromont. The fair mar(cid:60)et value of the award is determined at date of grant. The fair value of grants with a mar(cid:60)et condition are based on the expected payout as of the grant date. The fair value of grants with a non(cid:10)mar(cid:60)et condition are initially based on the volume(cid:10)weighted average trading price of Toromont(cid:6)s common shares for five days preceding the date of the grant and the probability of achieving performance conditions at date of grant. The fair value of awards with non(cid:10)mar(cid:60)et conditions are adjusted over time based on actual performance and expected payout, while fair value of awards with mar(cid:60)et conditions are not adjusted. (cid:43)hare(cid:10)based compensation expense is recogni(cid:75)ed over the vesting period with a related credit to contributed surplus. Toromont Industries Ltd. Annual Report 2023 72 (cid:15)(cid:13) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:23)estri(cid:32)te(cid:33) S(cid:37)are (cid:26)nits ((cid:2)(cid:42)(cid:43)(cid:45)s(cid:2)) (cid:77) (cid:42)(cid:43)(cid:45)s are awarded at no cost to the recipient and cliff vest over a three(cid:10)year performance period. (cid:42)(cid:43)(cid:45)s are paid out in common shares or, if elected by the individual at time of grant, are transferred to an equity(cid:10)settled D(cid:43)(cid:45) account (see description below). (cid:25)dditional (cid:42)(cid:43)(cid:45)s are credited to the holder upon each dividend payment made by Toromont. The fair mar(cid:60)et value of the award is based on the volume(cid:10)weighted average trading price of Toromont(cid:6)s common shares for five days preceding the date of the grant and expected performance condition payout. (cid:43)hare(cid:10)based compensation expense is recogni(cid:75)ed over the vesting period with a related credit to contributed surplus. (cid:13)e(cid:35)erre(cid:33) S(cid:37)are (cid:26)nits (cid:4)(cid:2)(cid:13)S(cid:26)s(cid:2)(cid:5) (cid:55) (cid:25)(cid:37)e Company has two D(cid:43)(cid:45) plans(cid:23) (cid:80) Equity(cid:10)settled D(cid:43)(cid:45)s (cid:77) 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 mar(cid:60)et prices. (cid:80) Cash(cid:10)settled D(cid:43)(cid:45)s (cid:77) 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 mar(cid:60)et prices. Changes in fair value are recogni(cid:75)ed in the consolidated statements of income in selling and administrative expenses. This plan was closed to new grants(cid:12)elections in (cid:15)(cid:13)(cid:15)(cid:15). Em(cid:63)(cid:59)oyee F(cid:68)t(cid:68)re (cid:24)enef(cid:56)ts (cid:30)or defined contribution plans, the pension expense recorded in the consolidated statements of income is the amount of the contributions the Company is required to pay in accordance with the terms of the plans. (cid:30)or defined benefit pension plans and other post(cid:10)employment benefit plans, the expense is determined separately for each plan using the following policies(cid:23) (cid:80) The cost of future benefits earned by employees is actuarially determined using the projected unit credit method prorated on length of service and management(cid:6)s best estimate assumptions using a measurement date of December 31(cid:24) (cid:80) (cid:38)et interest is calculated by applying the discount rate to the net defined benefit liability or asset(cid:24) (cid:80) (cid:40)ast service costs from plan amendments are recogni(cid:75)ed immediately in net earnings to the extent that the benefits have vested(cid:24) otherwise, they are amorti(cid:75)ed on a straight(cid:10)line basis over the vesting period(cid:24) and (cid:80) (cid:25)ctuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and changes in the effect of the asset ceiling are recogni(cid:75)ed 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 recogni(cid:75)ed 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. (cid:15)1 Consolidated Financial Statements 73 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) Income Ta(cid:71)es 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 recogni(cid:75)ed in the consolidated statements of income 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 reali(cid:75)ed. Current and deferred income taxes, relating to items recogni(cid:75)ed directly in shareholders(cid:6) equity, are also recogni(cid:75)ed directly in shareholders(cid:6) equity. Standards Ado(cid:63)ted (cid:56)n 2023 The following amendments to accounting standards were adopted by the Company on (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)3(cid:23) I(cid:25)(cid:43) 1, (cid:22)resentati(cid:44)n (cid:44)(cid:35) (cid:15)inan(cid:32)ia(cid:41) Statements and (cid:17)(cid:15)(cid:23)S (cid:22)ra(cid:32)ti(cid:32)e Statement (cid:9)(cid:10) (cid:20)a(cid:40)ing materia(cid:41)it(cid:54) (cid:39)(cid:50)(cid:33)gements (cid:77) the I(cid:25)(cid:43)(cid:26) issued narrow(cid:10)scope amendments to I(cid:25)(cid:43) 1 in (cid:30)ebruary (cid:15)(cid:13)(cid:15)1, the amendments require the disclosure of material accounting policy information rather than significant accounting policies. The Company has adopted these amendments in its consolidated financial statements for the period ended on December 31, (cid:15)(cid:13)(cid:15)3. I(cid:25)(cid:43) (cid:21), (cid:11)(cid:32)(cid:32)(cid:44)(cid:50)nting (cid:22)(cid:44)(cid:41)i(cid:32)ies(cid:6) (cid:12)(cid:37)anges in (cid:11)(cid:32)(cid:32)(cid:44)(cid:50)nting (cid:14)stimates an(cid:33) (cid:14)rr(cid:44)rs (cid:77) these amendments introduce a definition of (cid:2)accounting estimates(cid:2) and clarify the difference between changes in accounting policies and changes in accounting estimates. I(cid:25)(cid:43) 1(cid:15), (cid:17)n(cid:32)(cid:44)me (cid:25)a(cid:53)es (cid:77) these amendments clarify how companies should account for deferred taxes related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments narrowed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. (cid:25)s a result, recognition of a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of the related asset and liability is required. The implementation of these standard amendments did not have a significant impact on the Company(cid:6)s consolidated financial statements. The Company has not early(cid:10)adopted any standard, interpretation or amendment that has been issued but is not yet effective. Amendments Iss(cid:68)ed b(cid:68)t Not (cid:47)et Effect(cid:56)(cid:69)e (cid:25) number of amendments to standards and interpretations have been issued but are not yet effective up to the date of authori(cid:75)ation of these consolidated financial statements, for the financial year ended December 31, (cid:15)(cid:13)(cid:15)3, and accordingly, have not been applied in preparing these consolidated financial statements. Information on new standards, amendments and interpretations that are expected to be relevant to the Company(cid:6)s consolidated financial statements is provided below. Certain other new standards, amendments and interpretations to existing standards may have been issued but are not expected to have a material impact to Toromont Industries Ltd. Annual Report 2023 74 (cid:15)(cid:15) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) the Company(cid:6)s consolidated financial statements. The Company is in the process of reviewing these amendments to determine the impact on the consolidated financial statements. (cid:26)ased upon the Company(cid:6)s current facts and circumstances, it does not expect its financial performance or disclosures to be materially affected by the application of the amended standards. (cid:25)mendments to I(cid:25)(cid:43) 1 (cid:77) (cid:22)resentati(cid:44)n (cid:44)(cid:35) (cid:15)inan(cid:32)ia(cid:41) Statements (effective (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:17))(cid:23) (cid:80) Clarify the classification of liabilities as current or non(cid:10)current based on contractual rights that are in existence at the end of the reporting period and are unaffected by expectations about whether an entity will exercise its right to defer or accelerate settlement. (cid:25) liability not due over the next 1(cid:15) months is classified as non(cid:10)current even if management intends or expects to settle the liability within twelve months. The amendments also introduce a definition of (cid:2)settlement(cid:2) to ma(cid:60)e clear that settlement refers to the transfer of cash, equity instruments, other assets, or services to the counterparty. (cid:80) Clarify that only covenants with which an entity is obliged to comply with on or before the reporting date will affect a liability(cid:6)s classification as current or non(cid:10)current. (cid:30)urther, disclosure is required for any information that enables users of financial statements to comprehend the possibility that non(cid:10)current liabilities with covenants may become payable within 1(cid:15) months. (cid:25)mendments to I(cid:30)(cid:42)(cid:43) 1(cid:19) (cid:77) (cid:19)ease (cid:19)ia(cid:31)i(cid:41)it(cid:54) in a Sa(cid:41)e an(cid:33) (cid:19)ease(cid:31)a(cid:32)(cid:40) (effective (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:17))(cid:23) (cid:80) (cid:43)pecifies the requirements that a seller(cid:10)lessee uses in measuring the lease liability arising in a sale and leasebac(cid:60) transaction, to ensure the seller(cid:10)lessee does not recogni(cid:75)e any amount of the gain or loss that relates to the right of use it retains. (cid:25)mendments to I(cid:25)(cid:43) (cid:20) and I(cid:30)(cid:42)(cid:43) (cid:20) (cid:10) S(cid:50)pp(cid:41)ier (cid:15)inan(cid:32)e (cid:11)rrangements (effective (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:17))(cid:23) (cid:80) (cid:43)pecific disclosure requirements should be presented to enhance current disclosure requirements, which are intended to assist users of the financial statements in understanding the effects of supplier finance arrangements on an entity(cid:6)s liabilities, cash flows and exposure to liquidity ris(cid:60). 3. (cid:43)SE OF SI(cid:29)NIFICANT ACCO(cid:43)NTIN(cid:29) ESTIMATES AND ASS(cid:43)MPTIONS The preparation of the consolidated financial statements in conformity with I(cid:30)(cid:42)(cid:43) requires management to ma(cid:60)e judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and accompanying disclosures as at the end of the reporting period, and the reported amounts of revenue and expenses during the reporting periods. (cid:45)ncertainty 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. (cid:37)anagement reviews its estimates and judgments on an ongoing basis, considering historical experience, external information and observable conditions where possible, supplemented by internal analysis as required. (cid:42)evisions to estimates are recogni(cid:75)ed prospectively. The consolidated financial statement areas that require significant estimates and judgments are as follows(cid:23) Sa(cid:59)e of Po(cid:70)er and Ener(cid:54)y Systems and Refr(cid:56)(cid:54)erat(cid:56)on Pac(cid:58)a(cid:54)es (cid:42)evenue is recogni(cid:75)ed over time for the sale of power and energy systems and refrigeration pac(cid:60)ages. (cid:26)ecause of the control transferring over time, revenue is recogni(cid:75)ed 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. (cid:15)3 Consolidated Financial Statements 75 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The percentage(cid:10)of(cid:10)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. (cid:45)nder the percentage(cid:10)of(cid:10)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. (cid:42)evenue is recorded proportionally as costs are incurred. Costs to fulfill include labour, materials and subcontractors(cid:6) costs, other direct costs, and an allocation of indirect costs. This method requires management to ma(cid:60)e a number of estimates and assumptions about the expected profitability of these contracts. These factors are routinely reviewed as part of the project management process. Lon(cid:54)(cid:10)term Ma(cid:56)ntenance Contracts These contracts typically have fixed prices based on machine hours, with provisions for inflationary and exchange adjustments. (cid:42)evenue is recogni(cid:75)ed as wor(cid:60) is performed under the contract based on standard or contract rates. (cid:42)evenue from maintenance services is recogni(cid:75)ed over time, using an input method to measure progress towards complete satisfaction of the service. (cid:37)anagement ma(cid:60)es a number of estimates and assumptions surrounding machine usage, machine performance, future parts and labour pricing, manufacturers(cid:6) warranty coverage and other detailed factors. These factors are routinely reviewed as part of the project management process. Pro(cid:63)erty, P(cid:59)ant and E(cid:64)(cid:68)(cid:56)(cid:63)ment and Renta(cid:59) E(cid:64)(cid:68)(cid:56)(cid:63)ment 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. (cid:25)ctual 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. Im(cid:63)a(cid:56)rment of Non(cid:10)f(cid:56)nanc(cid:56)a(cid:59) Assets (cid:34)udgment is used in identifying an appropriate discount rate and growth rate for the calculations required in assessing potential impairment of non(cid:10)financial assets. (cid:34)udgment is also used in identifying the CG(cid:45)s to which the intangible assets should be allocated, and the CG(cid:45) or group of CG(cid:45)s 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(cid:10)generating ability of the assets. Income Ta(cid:71)es 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. In(cid:69)entor(cid:56)es (cid:37)anagement is required to ma(cid:60)e an assessment of the net reali(cid:75)able value of inventory at each reporting period. These estimates are determined on the basis of age, stoc(cid:60) levels, current mar(cid:60)et prices, current economic trends and past experience in the measurement of net reali(cid:75)able value. 76 Toromont Industries Ltd. Annual Report 2023 (cid:15)(cid:17) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) A(cid:59)(cid:59)o(cid:70)ance for Do(cid:68)btf(cid:68)(cid:59) Acco(cid:68)nts The Company ma(cid:60)es 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(cid:6)s allowance is determined by historical experiences, and considers factors including the aging of the balances, the customer(cid:6)s creditworthiness, current economic conditions, expectation of ban(cid:60)ruptcies and the economic volatility in the mar(cid:60)ets(cid:12)locations of customers. The current economic environment has increased the measurement uncertainty with respect to the determination of the allowance for doubtful accounts. Share(cid:10)based Com(cid:63)ensat(cid:56)on The models used to determine the fair value of share(cid:10)based payments require various estimates relating to volatility, interest rates, dividend yields, expected life of the options granted and, in the case of (cid:40)(cid:43)(cid:45)s, expected share price performance. (cid:30)air value inputs are subject to mar(cid:60)et 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. (cid:43)eparate from the fair value calculation, the Company is required to estimate the expected forfeiture rate of equity(cid:10)settled share-based payments. Post(cid:10)em(cid:63)(cid:59)oyment (cid:24)enef(cid:56)t P(cid:59)ans The Company has defined benefit pension plans and other post(cid:10)employment benefit plans that provide certain benefits to its employees. (cid:25)ctuarial valuations of these plans are based on assumptions, which include discount rates, retail price inflation, mortality rates, employee turnover and salary escalation rates. (cid:34)udgment 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 recogni(cid:75)ed in (cid:39)CI. Leases The lease term is determined as the non(cid:10)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. (cid:25)ll relevant factors that create an economic incentive for the Company to exercise the renewal are considered. (cid:25)fter the commencement date, the lease term is reassessed if there is a significant event or change in circumstances that is within the Company(cid:6)s control and affects its ability to exercise (or not to exercise) the option to renew. If the Company cannot readily determine the interest rate implicit in the lease, the incremental borrowing rate ((cid:2)I(cid:26)(cid:42)(cid:2)) is used to measure lease liabilities. The I(cid:26)(cid:42) 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(cid:10)of(cid:10)use asset in a similar economic environment. The Company estimates the I(cid:26)(cid:42) using observable mar(cid:60)et interest rates and adjusts for entity(cid:10)specific estimates, such as credit rating. (cid:15)5 Consolidated Financial Statements 77 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:16). DISCONTIN(cid:43)ED OPERATIONS (cid:39)n (cid:37)ay 1, (cid:15)(cid:13)(cid:15)3, the Company completed the sale of (cid:25)g(cid:47)est Ltd., a wholly owned subsidiary, in a share and asset transaction. Total proceeds were paid in cash of approximately $(cid:17)1.(cid:19) million and are subject to customary post(cid:10)closing adjustments. (cid:25)g(cid:47)est Ltd. was reported in the Equipment Group. (cid:40)roceeds on sale of shares, net of transaction costs (cid:3) (cid:16)1,2(cid:18)1 Less assets and liabilities sold(cid:23) (cid:47)or(cid:60)ing capital (cid:40)roperty, plant and equipment Cash disposed of Gain on disposition Income taxes 1(cid:17),010 3,(cid:16)0(cid:16) 1(cid:20),(cid:16)1(cid:16) 1(cid:16),(cid:18)(cid:17)(cid:17) (cid:20),1(cid:21)2 2,(cid:20)0(cid:20) (cid:29)a(cid:56)n on d(cid:56)(cid:69)est(cid:56)t(cid:68)re, net of ta(cid:71) (cid:3) (cid:17),3(cid:20)(cid:16) Res(cid:68)(cid:59)ts of D(cid:56)scont(cid:56)n(cid:68)ed O(cid:63)erat(cid:56)ons The results of (cid:25)g(cid:47)est Ltd. for (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15) were as follows(cid:23) Re(cid:69)en(cid:68)e Net (cid:56)ncome, net of ta(cid:71) (cid:29)a(cid:56)n on d(cid:56)(cid:69)est(cid:56)t(cid:68)re, net of ta(cid:71) Income from d(cid:56)scont(cid:56)n(cid:68)ed o(cid:63)erat(cid:56)ons (cid:17). ACCO(cid:43)NTS RECEI(cid:44)A(cid:24)LE Trade receivables (cid:19)ess(cid:10) (cid:25)llowance for doubtful accounts Trade receivables, net (cid:45)nbilled receivables (cid:39)ther receivables 2023 20,(cid:20)(cid:18)(cid:18) $ 221 (cid:17),3(cid:20)(cid:16) (cid:17),(cid:18)0(cid:17) $ (cid:15)(cid:13)(cid:15)(cid:15) 115,3(cid:21)9 (cid:17),(cid:13)9(cid:21) (cid:78) (cid:17),(cid:13)9(cid:21) 2023 (cid:18)13,(cid:21)7(cid:18) $ (cid:7)2(cid:17),0(cid:20)2(cid:8) (cid:17)(cid:20)(cid:20),(cid:20)(cid:21)(cid:16) 21,(cid:16)33 1(cid:18),(cid:21)1(cid:18) (cid:18)27,2(cid:16)3 $ (cid:15)(cid:13)(cid:15)(cid:15) 55(cid:19),(cid:15)(cid:21)1 ((cid:15)5,5(cid:17)(cid:13)) 53(cid:13),(cid:20)(cid:17)1 3(cid:13),(cid:20)3(cid:21) 1(cid:21),(cid:15)(cid:13)3 5(cid:20)9,(cid:19)(cid:21)(cid:15) (cid:3) (cid:3) (cid:3) (cid:3) 78 Toromont Industries Ltd. Annual Report 2023 (cid:15)(cid:19) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The aging of gross trade receivables was as follows(cid:23) Current to 9(cid:13) days (cid:39)ver 9(cid:13) days Trade receivables 2023 (cid:17)(cid:20)3,0(cid:20)0 $ 30,(cid:20)(cid:21)(cid:18) (cid:18)13,(cid:21)7(cid:18) $ (cid:15)(cid:13)(cid:15)(cid:15) 5(cid:15)(cid:15),(cid:20)(cid:21)(cid:17) 33,(cid:17)9(cid:20) 55(cid:19),(cid:15)(cid:21)1 (cid:3) (cid:3) The movement in the Company(cid:6)s allowance for doubtful accounts was as follows(cid:23) (cid:26)alance, (cid:34)anuary 1 (cid:40)rovisions and revisions, net (cid:26)alance, December 31 The movement in the Company(cid:6)s unbilled receivables was as follows(cid:23) (cid:26)alance, (cid:34)anuary 1 (cid:25)mounts received or recogni(cid:75)ed in revenue (cid:25)dditions (cid:26)alance, December 31 (cid:18). IN(cid:44)ENTORIES Equipment (cid:42)epair and distribution parts Direct materials (cid:47)or(cid:60)(cid:10)in(cid:10)process (cid:47)or(cid:60)(cid:10)in(cid:10)process (contracts) 2023 2(cid:17),(cid:17)(cid:16)0 $ (cid:7)(cid:16)(cid:17)(cid:20)(cid:8) 2(cid:17),0(cid:20)2 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13),315 5,(cid:15)(cid:15)5 (cid:15)5,5(cid:17)(cid:13) 2023 30,73(cid:20) $ (cid:7)2(cid:18),(cid:18)(cid:16)(cid:18)(cid:8) 17,3(cid:16)1 21,(cid:16)33 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:17)9,51(cid:19) (3(cid:21),1(cid:19)(cid:15)) 19,3(cid:21)(cid:17) 3(cid:13),(cid:20)3(cid:21) 2023 (cid:18)3(cid:20),(cid:16)(cid:20)(cid:17) $ 32(cid:20),7(cid:21)(cid:17) (cid:18),1(cid:16)3 (cid:21)1,3(cid:18)(cid:17) (cid:17)(cid:16),2(cid:20)3 1,11(cid:21),071 $ (cid:15)(cid:13)(cid:15)(cid:15) 5(cid:19)5,(cid:13)(cid:20)3 333,91(cid:17) (cid:19),(cid:21)(cid:21)(cid:20) (cid:21)(cid:19),55(cid:19) 33,3(cid:15)9 1,(cid:13)(cid:15)5,(cid:20)59 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) The amount of inventory recogni(cid:75)ed as an expense in cost of goods sold (accounted for other than by the percentage(cid:10)of(cid:10)completion method) during (cid:15)(cid:13)(cid:15)3 was $(cid:15).(cid:21) billion ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:15).5 billion). In (cid:15)(cid:13)(cid:15)3, cost of goods sold included inventory write(cid:10)downs pertaining to obsolescence and aging, net of reversal of write(cid:10)downs, of $(cid:17).(cid:13) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $15.(cid:19) million). (cid:15)(cid:20) Consolidated Financial Statements 79 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 7. PROPERT(cid:47), PLANT AND E(cid:39)(cid:43)IPMENT AND RENTAL E(cid:39)(cid:43)IPMENT Cost (cid:32)an(cid:68)ary 1, 2023 (cid:25)dditions Disposals (cid:26)usiness disposition (cid:30)oreign currency translation adjustments December 31, 2023 Acc(cid:68)m(cid:68)(cid:59)ated de(cid:63)rec(cid:56)at(cid:56)on (cid:32)an(cid:68)ary 1, 2023 Depreciation expense Depreciation of disposals (cid:26)usiness disposition (cid:30)oreign currency translation adjustments December 31, 2023 Net boo(cid:58) (cid:69)a(cid:59)(cid:68)e (cid:77) December 31, 2023 Cost (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) (cid:25)dditions Disposals (cid:30)oreign currency translation adjustments December 31, (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) (cid:3) $ Pro(cid:63)erty, P(cid:59)ant and E(cid:64)(cid:68)(cid:56)(cid:63)ment Land (cid:24)(cid:68)(cid:56)(cid:59)d(cid:56)n(cid:54)s E(cid:64)(cid:68)(cid:56)(cid:63)ment Po(cid:70)er (cid:29)enerat(cid:56)on Tota(cid:59) Renta(cid:59) E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:3) 177,0(cid:21)(cid:21) (cid:3) 9,(cid:19)(cid:20)1 (3,(cid:19)93) (135) ((cid:17)) 327,0(cid:18)7 (cid:3) (cid:17)(cid:21),(cid:13)11 (35(cid:20)) ((cid:17),313) ((cid:20)(cid:17)) 31(cid:16),21(cid:16) (cid:3) (cid:19)(cid:17),515 (11,35(cid:21)) (5,(cid:17)(cid:19)3) ((cid:15)11) (cid:16)0,0(cid:21)(cid:16) (cid:3) (cid:17)(cid:17) (cid:78) (cid:78) (cid:78) (cid:3) 1(cid:20)2,(cid:21)3(cid:20) (cid:3) 370,33(cid:16) (cid:3) 3(cid:18)1,(cid:18)(cid:21)7 (cid:3) (cid:16)0,13(cid:20) (cid:3) (cid:20)(cid:17)(cid:20),(cid:16)7(cid:16) (cid:3) 1,133,0(cid:20)0 (cid:15)(cid:15)1,(cid:19)5(cid:13) 1(cid:15)(cid:15),(cid:15)(cid:17)1 (91,(cid:19)51) (15,(cid:17)(cid:13)(cid:21)) (cid:78) (9,911) (cid:78) ((cid:15)(cid:21)9) (cid:21)(cid:17)(cid:17),107 (cid:3) 1,2(cid:18)3,07(cid:21) (cid:75) (cid:3) (cid:78) (cid:78) (cid:78) (cid:78) (cid:75) (cid:3) 13(cid:20),322 (cid:3) 13,(cid:20)(cid:19)9 (35(cid:20)) (3,1(cid:20)(cid:21)) (1(cid:21)) 212,3(cid:16)(cid:17) (cid:3) 31,(cid:17)(cid:21)1 (11,13(cid:15)) (3,(cid:15)3(cid:20)) (1(cid:17)(cid:21)) 37,1(cid:20)3 (cid:3) 1,15(cid:21) (cid:78) (cid:78) (cid:78) 3(cid:20)7,(cid:20)(cid:17)0 (cid:3) (cid:17)(cid:19),(cid:17)(cid:13)(cid:21) (11,(cid:17)(cid:21)9) ((cid:19),(cid:17)15) (1(cid:19)(cid:19)) 1(cid:16)(cid:20),(cid:17)3(cid:20) (cid:3) 22(cid:21),30(cid:21) (cid:3) 3(cid:20),3(cid:16)1 (cid:3) (cid:16)1(cid:18),1(cid:20)(cid:20) (cid:3) (cid:17)1(cid:18),7(cid:21)1 1(cid:15)3,19(cid:17) (59,(cid:15)(cid:20)5) (cid:78) (cid:78) (cid:17)(cid:20)0,710 1(cid:20)2,(cid:21)3(cid:20) (cid:3) 221,7(cid:21)(cid:18) (cid:3) 132,3(cid:20)(cid:20) (cid:3) 1,7(cid:21)7 (cid:3) (cid:17)3(cid:20),(cid:21)1(cid:21) (cid:3) (cid:18)(cid:20)2,3(cid:18)(cid:21) Pro(cid:63)erty, P(cid:59)ant and E(cid:64)(cid:68)(cid:56)(cid:63)ment Land (cid:24)(cid:68)(cid:56)(cid:59)d(cid:56)n(cid:54)s E(cid:64)(cid:68)(cid:56)(cid:63)ment Po(cid:70)er (cid:29)enerat(cid:56)on Tota(cid:59) Renta(cid:59) E(cid:64)(cid:68)(cid:56)(cid:63)ment 1(cid:20)3,(cid:13)(cid:21)3 $ (cid:21),319 ((cid:17),313) 1(cid:13) 315,(cid:13)55 $ 1(cid:17),1(cid:19)(cid:13) ((cid:15),33(cid:15)) 1(cid:21)(cid:17) (cid:15)(cid:20)(cid:15),(cid:21)39 $ (cid:17)(cid:21),(cid:17)(cid:17)(cid:20) ((cid:20),5(cid:17)9) (cid:17)(cid:20)(cid:20) $ 1(cid:20)(cid:20),(cid:13)99 $ 3(cid:15)(cid:20),(cid:13)(cid:19)(cid:20) $ 31(cid:17),(cid:15)1(cid:17) $ 39,9(cid:17)(cid:17) $ 15(cid:13) (cid:78) (cid:78) (cid:17)(cid:13),(cid:13)9(cid:17) $ (cid:21)(cid:13)(cid:13),9(cid:15)1 $ (cid:20)1,(cid:13)(cid:20)(cid:19) (1(cid:17),19(cid:17)) (cid:19)(cid:20)1 9(cid:19)9,(cid:21)(cid:17)1 (cid:15)1(cid:17),(cid:19)93 (51,(cid:17)5(cid:17)) (cid:78) (cid:21)5(cid:21),(cid:17)(cid:20)(cid:17) $ 1,133,(cid:13)(cid:21)(cid:13) (cid:25)ccumulated depreciation (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) Depreciation expense Depreciation of disposals (cid:30)oreign currency translation adjustments December 31, (cid:15)(cid:13)(cid:15)(cid:15) (cid:38)et boo(cid:60) value (cid:77) December 31, (cid:15)(cid:13)(cid:15)(cid:15) $ $ $ (cid:78) $ (cid:78) (cid:78) (cid:78) (cid:78) $ 1(cid:15)5,3(cid:15)1 $ 13,(cid:17)35 ((cid:17)(cid:20)5) (cid:17)1 1(cid:21)(cid:21),(cid:20)5(cid:15) $ 3(cid:13),(cid:17)(cid:20)(cid:15) ((cid:20),(cid:15)(cid:17)(cid:20)) 3(cid:19)(cid:21) 3(cid:19),(cid:13)(cid:15)3 $ 1,1(cid:19)(cid:13) (cid:78) (cid:78) 35(cid:13),(cid:13)9(cid:19) $ (cid:17)5,(cid:13)(cid:19)(cid:20) ((cid:20),(cid:20)(cid:15)(cid:15)) (cid:17)(cid:13)9 13(cid:21),3(cid:15)(cid:15) $ (cid:15)1(cid:15),3(cid:17)5 $ 3(cid:20),1(cid:21)3 $ 3(cid:21)(cid:20),(cid:21)5(cid:13) $ (cid:17)(cid:17)(cid:17),3(cid:15)(cid:13) 1(cid:13)5,3(cid:21)5 (3(cid:15),91(cid:17)) (cid:78) 51(cid:19),(cid:20)91 1(cid:20)(cid:20),(cid:13)99 $ 1(cid:21)(cid:21),(cid:20)(cid:17)5 $ 1(cid:13)1,(cid:21)(cid:19)9 $ (cid:15),911 $ (cid:17)(cid:20)(cid:13),(cid:19)(cid:15)(cid:17) $ (cid:19)1(cid:19),(cid:15)(cid:21)9 During the year ended December 31, (cid:15)(cid:13)(cid:15)3, depreciation expense of $15(cid:15).(cid:20) million was charged to cost of goods sold ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $13(cid:15).5 million), and $1(cid:19).9 million was charged to selling and administrative expenses ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $1(cid:21).(cid:13) million). (cid:25)t December 31, (cid:15)(cid:13)(cid:15)3, the balance of assets under construction and not subject to depreciation was $3(cid:21).(cid:15) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $1.(cid:19) million). 80 Toromont Industries Ltd. Annual Report 2023 (cid:15)(cid:21) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:20). OTHER ASSETS AND LEASE LIA(cid:24)ILITIES (cid:42)ight(cid:10)of(cid:10)use assets (cid:40)ost(cid:10)employment obligations surplus (note (cid:15)1) Equipment sold with guaranteed residual values (cid:39)ther Other assets R(cid:56)(cid:54)ht(cid:10)of(cid:10)(cid:68)se Assets and Lease L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es (cid:3) (cid:3) 2023 32,(cid:20)(cid:21)2 $ 31,0(cid:20)1 1,03(cid:18) 3,2(cid:20)(cid:20) (cid:18)(cid:20),2(cid:21)7 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:15),91(cid:13) (cid:15)5,(cid:13)(cid:21)(cid:21) 1,(cid:15)3(cid:20) 3,(cid:15)9(cid:15) 5(cid:15),5(cid:15)(cid:20) (cid:25)ctivity within right(cid:10)of(cid:10)use assets and lease liabilities during the year was as follows(cid:23) (cid:32)an(cid:68)ary 1, 2023 (cid:25)dditions and remeasurements Depreciation Disposals and retirements (cid:30)oreign currency translation adjustments (cid:40)ayments (cid:26)usiness disposition December 31, 2023 (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) (cid:25)dditions and remeasurements Depreciation Disposals and retirements (cid:30)oreign currency translation adjustments (cid:40)ayments December 31, (cid:15)(cid:13)(cid:15)(cid:15) Pro(cid:63)ert(cid:56)es R(cid:56)(cid:54)ht(cid:10)of(cid:10)(cid:43)se Assets (cid:44)eh(cid:56)c(cid:59)es Tota(cid:59) Lease L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es 20,(cid:17)(cid:17)(cid:21) (cid:3) 20,1(cid:17)(cid:18) (cid:7)(cid:20),17(cid:20)(cid:8) (cid:7)1(cid:8) (cid:7)(cid:17)2(cid:8) (cid:75) (cid:7)1(cid:16)7(cid:8) 32,337 (cid:3) 2,3(cid:17)1 (cid:3) (cid:75) (cid:7)1,(cid:18)(cid:16)(cid:16)(cid:8) (cid:7)1(cid:21)(cid:8) (cid:75) (cid:75) (cid:7)133(cid:8) (cid:17)(cid:17)(cid:17) (cid:3) 22,(cid:21)10 (cid:3) 20,1(cid:17)(cid:18) (cid:7)(cid:21),(cid:20)22(cid:8) (cid:7)20(cid:8) (cid:7)(cid:17)2(cid:8) (cid:75) (cid:7)2(cid:20)0(cid:8) 32,(cid:20)(cid:21)2 (cid:3) 23,(cid:20)(cid:20)1 20,1(cid:17)(cid:18) (cid:75) (cid:7)23(cid:8) (cid:7)(cid:17)2(cid:8) (cid:7)(cid:21),3(cid:20)(cid:18)(cid:8) (cid:7)2(cid:20)7(cid:8) 3(cid:16),2(cid:20)(cid:21) Pro(cid:63)ert(cid:56)es R(cid:56)(cid:54)ht(cid:10)of(cid:10)(cid:43)se Assets (cid:44)eh(cid:56)c(cid:59)es Tota(cid:59) Lease L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es 13,5(cid:19)5 $ 13,5(cid:15)(cid:21) ((cid:19),(cid:17)(cid:20)(cid:21)) ((cid:21)(cid:17)) (cid:15)(cid:21) (cid:78) (cid:15)(cid:13),559 $ 5,1(cid:21)(cid:20) $ ((cid:19)3) ((cid:15),(cid:20)(cid:15)5) ((cid:17)(cid:21)) (cid:78) (cid:78) (cid:15),351 $ 1(cid:21),(cid:20)5(cid:15) $ 13,(cid:17)(cid:19)5 (9,(cid:15)(cid:13)3) (13(cid:15)) (cid:15)(cid:21) (cid:78) (cid:15)(cid:15),91(cid:13) $ 19,(cid:19)13 13,(cid:17)(cid:19)5 (cid:78) (1(cid:17)(cid:19)) (cid:15)(cid:21) (9,(cid:13)(cid:20)9) (cid:15)3,(cid:21)(cid:21)1 (cid:3) (cid:3) $ $ The current portion of lease liabilities as at December 31, (cid:15)(cid:13)(cid:15)3 of $9.(cid:15) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:20).(cid:20) million) is included in accounts payable and accrued liabilities on the consolidated statements of financial position. The following amounts were recogni(cid:75)ed in the consolidated statements of income during the year(cid:23) Depreciation expense of right(cid:10)of(cid:10)use assets Interest expense on lease liabilities Expense relating to short(cid:10)term leases and leases of low(cid:10)value assets Cash outflows for leases in (cid:15)(cid:13)(cid:15)3 were $9.(cid:17) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:21).9 million). The future cash outflows relating to leases are disclosed in note (cid:15)(cid:17). (cid:3) (cid:3) 2023 (cid:21),(cid:20)22 $ 1,13(cid:21) 31(cid:17) 11,27(cid:18) $ (cid:15)(cid:13)(cid:15)(cid:15) 9,(cid:13)5(cid:20) (cid:19)(cid:17)(cid:17) (cid:15)(cid:17)(cid:21) 9,9(cid:17)9 (cid:15)9 Consolidated Financial Statements 81 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:21). (cid:29)OOD(cid:45)ILL AND INTAN(cid:29)I(cid:24)LE ASSETS Patents and L(cid:56)censes C(cid:68)stomer Order (cid:24)ac(cid:58)(cid:59)o(cid:54) ERP System C(cid:68)stomer Re(cid:59)at(cid:56)onsh(cid:56)(cid:63)s D(cid:56)str(cid:56)b(cid:68)t(cid:56)on Net(cid:70)or(cid:58)s (cid:29)ood(cid:70)(cid:56)(cid:59)(cid:59) Tota(cid:59) Cost (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) Disposal December 31, (cid:15)(cid:13)(cid:15)(cid:15) December 31, 2023 Acc(cid:68)m(cid:68)(cid:59)ated amort(cid:56)(cid:73)at(cid:56)on (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) (cid:25)morti(cid:75)ation (cid:25)morti(cid:75)ation of disposal December 31, (cid:15)(cid:13)(cid:15)(cid:15) (cid:25)morti(cid:75)ation December 31, 2023 Net boo(cid:58) (cid:69)a(cid:59)(cid:68)e December 31, (cid:15)(cid:13)(cid:15)(cid:15) December 31, 2023 (cid:29)ood(cid:70)(cid:56)(cid:59)(cid:59) $ $ $ (cid:3) $ $ (cid:3) $ (cid:3) 5(cid:13)(cid:13) $ (cid:78) $ 5(cid:13)(cid:13) $ (cid:17)00 (cid:3) (cid:21),(cid:19)91 $ (cid:78) $ (cid:21),(cid:19)91 $ (cid:20),(cid:18)(cid:21)1 (cid:3) 5,(cid:13)(cid:13)(cid:13) $ (5,(cid:13)(cid:13)(cid:13)) $ (cid:78) $ (cid:75) (cid:3) 15,13(cid:20) $ (cid:78) $ 15,13(cid:20) $ 1(cid:17),137 (cid:3) 3(cid:20)1,551 $ (cid:78) $ 3(cid:20)1,551 $ 371,(cid:17)(cid:17)1 (cid:3) (cid:78) $ 93,(cid:20)(cid:21)(cid:13) $ (cid:17)9(cid:17),(cid:19)59 (5,(cid:13)(cid:13)(cid:13)) 93,(cid:20)(cid:21)(cid:13) $ (cid:17)(cid:21)9,(cid:19)59 (cid:21)3,7(cid:20)0 (cid:3) (cid:16)(cid:20)(cid:21),(cid:18)(cid:17)(cid:21) (cid:15)(cid:19)(cid:19) $ 3(cid:13) (cid:78) (cid:15)9(cid:19) $ 3(cid:13) 32(cid:18) (cid:3) (cid:19),(cid:17)(cid:20)5 $ 55(cid:19) (cid:78) (cid:20),(cid:13)31 $ 555 7,(cid:17)(cid:20)(cid:18) (cid:3) 5,(cid:13)(cid:13)(cid:13) $ (cid:78) (5,(cid:13)(cid:13)(cid:13)) (cid:78) $ (cid:78) (cid:75) (cid:3) (cid:20),(cid:21)(cid:20)5 $ 1,(cid:21)9(cid:15) (cid:78) 9,(cid:20)(cid:19)(cid:20) $ 1,(cid:21)9(cid:15) 11,(cid:18)(cid:17)(cid:21) (cid:3) (cid:78) $ (cid:78) (cid:78) (cid:78) $ (cid:78) (cid:75) (cid:3) (cid:78) $ (cid:78) (cid:78) (cid:78) $ (cid:78) (cid:75) (cid:3) 19,(cid:19)1(cid:19) (cid:15),(cid:17)(cid:20)(cid:21) (5,(cid:13)(cid:13)(cid:13)) 1(cid:20),(cid:13)9(cid:17) (cid:15),(cid:17)(cid:20)(cid:20) 1(cid:21),(cid:17)71 (cid:15)(cid:13)(cid:17) $ 17(cid:16) (cid:3) 1,(cid:19)(cid:19)(cid:13) $ 1,10(cid:17) (cid:3) (cid:78) $ (cid:75) (cid:3) 5,3(cid:20)(cid:13) $ 3,(cid:16)7(cid:20) (cid:3) 3(cid:20)1,551 $ 371,(cid:17)(cid:17)1 (cid:3) 93,(cid:20)(cid:21)(cid:13) $ (cid:17)(cid:20)(cid:15),5(cid:19)5 (cid:21)3,7(cid:20)0 (cid:3) (cid:16)70,0(cid:20)(cid:20) The carrying amount of goodwill has been allocated as follows(cid:23) E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:29)ro(cid:68)(cid:63) Toromont Cat (cid:26)attlefield Equipment (cid:42)entals CIMCO 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) (cid:20)(cid:21),270 $ (cid:16),0(cid:18)0 (cid:16)(cid:17)0 (cid:21)3,7(cid:20)0 $ (cid:21)9,(cid:15)(cid:20)(cid:13) (cid:17),(cid:13)(cid:19)(cid:13) (cid:17)5(cid:13) 93,(cid:20)(cid:21)(cid:13) The Company performed the annual impairment test as at December 31, (cid:15)(cid:13)(cid:15)3. The recoverable amounts have been determined based on the fair value less costs to sell ((cid:2)(cid:30)(cid:46)LC(cid:43)(cid:2)) based on a range of relevant historical company and current mar(cid:60)et multiples of earnings, applied to current earnings, adjusted for current economic conditions. (cid:25)s a result of the analysis, management determined there was no impairment of goodwill. Intan(cid:54)(cid:56)b(cid:59)e Assets (cid:70)(cid:56)th Indef(cid:56)n(cid:56)te L(cid:56)(cid:69)es (cid:74) D(cid:56)str(cid:56)b(cid:68)t(cid:56)on Net(cid:70)or(cid:58)s The carrying amount of distribution networ(cid:60)s has been allocated to the following CG(cid:45)s and(cid:12)or group of CG(cid:45)s(cid:23) E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:29)ro(cid:68)(cid:63) Toromont Cat (cid:77) (cid:41)uebec(cid:12)(cid:37)aritimes Toromont Cat (cid:77) all other locations (cid:26)attlefield Equipment (cid:42)entals (cid:77) (cid:41)uebec(cid:12)(cid:37)aritimes Toromont Industries Ltd. Annual Report 2023 82 3(cid:13) 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) 3(cid:17)2,(cid:16)3(cid:16) $ 13,(cid:18)(cid:18)(cid:21) (cid:17),(cid:16)(cid:16)(cid:20) 371,(cid:17)(cid:17)1 $ 35(cid:15),(cid:17)3(cid:17) 13,(cid:19)(cid:19)9 5,(cid:17)(cid:17)(cid:21) 3(cid:20)1,551 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The Company performed the annual impairment test of intangible assets as at December 31, (cid:15)(cid:13)(cid:15)3. The recoverable amounts have been determined based on (cid:30)(cid:46)LC(cid:43) based on a range of relevant historical company and current mar(cid:60)et multiples of earnings, applied to current earnings, adjusted for current economic conditions. (cid:26)ased on the analysis, management determined there was no impairment of indefinite(cid:10)lived intangible assets. These valuations are determined using Level (cid:15) inputs, which are observable inputs or inputs that can be corroborated by observable mar(cid:60)et data. The calculation of (cid:30)(cid:46)LC(cid:43) for impairment testing is most sensitive to the earnings multiplier. (cid:37)anagement believes that any reasonable change in the (cid:60)ey assumptions used to determine the recoverable amount would not cause the carrying amount of any CG(cid:45) or group of CG(cid:45)s to exceed its recoverable amount. 10. PRO(cid:44)ISIONS (cid:25)ctivities related to provisions were as follows(cid:23) (cid:26)alance, (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) (cid:38)ew provisions (cid:45)tili(cid:75)ed or released (cid:26)alance, December 31, (cid:15)(cid:13)(cid:15)(cid:15) (cid:38)ew provisions (cid:45)tili(cid:75)ed or released (cid:26)usiness disposition (cid:24)a(cid:59)ance, December 31, 2023 (cid:45)arranty (cid:45)arranty 13,9(cid:19)(cid:17) $ (cid:15)9,(cid:13)1(cid:17) ((cid:15)5,(cid:17)1(cid:17)) 1(cid:20),5(cid:19)(cid:17) $ 3(cid:20),(cid:21)(cid:18)7 (cid:7)37,(cid:16)(cid:21)3(cid:8) (cid:7)(cid:17)(cid:18)7(cid:8) 1(cid:20),(cid:16)71 (cid:3) $ $ (cid:3) Other 11,(cid:17)(cid:17)(cid:13) $ 1,(cid:21)(cid:19)(cid:17) (3,(cid:15)15) 1(cid:13),(cid:13)(cid:21)9 $ 3,(cid:20)0(cid:16) (cid:7)2,0(cid:21)(cid:17)(cid:8) (cid:75) 11,7(cid:21)(cid:20) (cid:3) Tota(cid:59) (cid:15)5,(cid:17)(cid:13)(cid:17) 3(cid:13),(cid:21)(cid:20)(cid:21) ((cid:15)(cid:21),(cid:19)(cid:15)9) (cid:15)(cid:20),(cid:19)53 (cid:16)2,771 (cid:7)3(cid:21),(cid:17)(cid:20)(cid:20)(cid:8) (cid:7)(cid:17)(cid:18)7(cid:8) 30,2(cid:18)(cid:21) (cid:25)t the time of sale, a provision is recogni(cid:75)ed for expected warranty claims on products and services, based on past experience and (cid:60)nown issues. It is expected that most of these costs will be incurred in the next financial year. Other (cid:39)ther provisions relate largely to open legal, insurance and potential environmental claims, and potential onerous contracts. (cid:38)o one claim is significant. 11. DEFERRED RE(cid:44)EN(cid:43)E AND CONTRACT LIA(cid:24)ILITIES Deferred revenue and contract liabilities represent billings to customers in excess of revenue recogni(cid:75)ed and arise on the sale of equipment with residual value guarantees, extended warranty contracts, long(cid:10)term maintenance agreements, and the sale of power and energy systems and refrigeration pac(cid:60)ages recorded using the percentage(cid:10)of(cid:10)completion method. 31 Consolidated Financial Statements 83 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The components of deferred revenue and contract liabilities were as follows(cid:23) Deposits from customers (cid:40)roduct support service agreements (cid:43)ale of systems (cid:77) contract liabilities Extended warranty C(cid:68)rrent 2023 Non(cid:10)c(cid:68)rrent (cid:3) (cid:3) 1(cid:17)7,(cid:17)02 (cid:3) 10(cid:17),(cid:16)32 (cid:20)(cid:18),(cid:20)(cid:21)(cid:20) 10,311 3(cid:18)0,1(cid:16)3 (cid:3) 1,(cid:20)(cid:17)7 (cid:3) (cid:75) (cid:75) 20,(cid:18)22 22,(cid:16)7(cid:21) (cid:3) Tota(cid:59) 1(cid:17)(cid:21),3(cid:17)(cid:21) $ 10(cid:17),(cid:16)32 (cid:20)(cid:18),(cid:20)(cid:21)(cid:20) 30,(cid:21)33 3(cid:20)2,(cid:18)22 $ Current (cid:15)(cid:13)(cid:15)(cid:15) (cid:38)on(cid:10)current 1(cid:17)(cid:19),(cid:21)(cid:21)9 $ (cid:21)(cid:21),3(cid:19)(cid:20) (cid:19)(cid:17),(cid:21)9(cid:15) 9,(cid:15)(cid:13)1 3(cid:13)9,3(cid:17)9 $ (cid:17),(cid:21)(cid:17)(cid:17) $ (cid:78) (cid:78) 1(cid:21),(cid:17)3(cid:15) (cid:15)3,(cid:15)(cid:20)(cid:19) $ Total 151,(cid:20)33 (cid:21)(cid:21),3(cid:19)(cid:20) (cid:19)(cid:17),(cid:21)9(cid:15) (cid:15)(cid:20),(cid:19)33 33(cid:15),(cid:19)(cid:15)5 During the year ended December 31, (cid:15)(cid:13)(cid:15)3, the Company recogni(cid:75)ed as revenue $(cid:15)(cid:21)5.(cid:19) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $1(cid:19)1.(cid:17) million) of the deferred revenue and contract liabilities balance as at (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)3. (cid:37)anagement expects that 9(cid:17)(cid:4) of the transaction price allocated to unsatisfied performance obligations as at December 31, (cid:15)(cid:13)(cid:15)3 will be recogni(cid:75)ed as revenue during the year ended December 31, (cid:15)(cid:13)(cid:15)(cid:17) and the remaining (cid:19)(cid:4) between the years ended December 31, (cid:15)(cid:13)(cid:15)5 and (cid:15)(cid:13)3(cid:13). 12. LON(cid:29)(cid:10)TERM DE(cid:24)T (cid:43)enior debentures 3.(cid:20)1(cid:4), $15(cid:13).(cid:13) million, due (cid:43)eptember 3(cid:13), (cid:15)(cid:13)(cid:15)5 (1) 3.(cid:21)(cid:17)(cid:4), $5(cid:13)(cid:13).(cid:13) million, due (cid:39)ctober (cid:15)(cid:20), (cid:15)(cid:13)(cid:15)(cid:20) (1) Debt issuance costs, net of amorti(cid:75)ation Tota(cid:59) (cid:59)on(cid:54)(cid:10)term debt (1) Interest payable semi(cid:10)annually, principal due on maturity. 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) 1(cid:17)0,000 $ (cid:17)00,000 (cid:18)(cid:17)0,000 (cid:7)2,21(cid:18)(cid:8) (cid:18)(cid:16)7,7(cid:20)(cid:16) $ 15(cid:13),(cid:13)(cid:13)(cid:13) 5(cid:13)(cid:13),(cid:13)(cid:13)(cid:13) (cid:19)5(cid:13),(cid:13)(cid:13)(cid:13) ((cid:15),9(cid:17)(cid:13)) (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) The Company has a $5(cid:13)(cid:13).(cid:13) million committed revolving credit facility, maturing in (cid:38)ovember (cid:15)(cid:13)(cid:15)(cid:19), with a syndicate of financial institutions. Debt under this facility is unsecured and ran(cid:60)s pari passu with debt outstanding under Toromont’s existing debentures. Interest is based on a floating rate, primarily ban(cid:60)ers(cid:6) acceptances and prime, plus applicable margins and fees based on the terms of the credit facility. (cid:38)o amounts were drawn on this revolving credit facility as at December 31, (cid:15)(cid:13)(cid:15)3 or (cid:15)(cid:13)(cid:15)(cid:15). (cid:43)tandby letters of credit issued utili(cid:75)ed $(cid:17)(cid:13).3 million of the facility as at December 31, (cid:15)(cid:13)(cid:15)3 ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:15)(cid:21).9 million). These credit arrangements include covenants, restrictions and events of default usually present in credit facilities of this nature, including requirements to meet certain financial tests periodically and restrictions on additional indebtedness and encumbrances. The Company was in compliance with all covenants as at December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15). 84 Toromont Industries Ltd. Annual Report 2023 3(cid:15) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:43)cheduled principal repayments and interest payments on long(cid:10)term debt are as follows(cid:23) (cid:15)(cid:13)(cid:15)(cid:17) (cid:15)(cid:13)(cid:15)5 (cid:15)(cid:13)(cid:15)(cid:19) (cid:15)(cid:13)(cid:15)(cid:20) Pr(cid:56)nc(cid:56)(cid:63)a(cid:59) (cid:78) $ 15(cid:13),(cid:13)(cid:13)(cid:13) (cid:78) 5(cid:13)(cid:13),(cid:13)(cid:13)(cid:13) (cid:19)5(cid:13),(cid:13)(cid:13)(cid:13) $ $ $ Interest (cid:15)(cid:17),(cid:20)(cid:19)5 (cid:15)3,3(cid:20)(cid:17) 19,(cid:15)(cid:13)(cid:13) 1(cid:19),(cid:13)(cid:13)(cid:13) (cid:21)3,339 Interest expense includes interest on debt initially incurred for a term of one year or greater and was $(cid:15)(cid:20).(cid:13) million in (cid:15)(cid:13)(cid:15)3 ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:15)(cid:19).(cid:20) million). 13. SHARE CAPITAL A(cid:68)thor(cid:56)(cid:73)ed The Company is authori(cid:75)ed to issue an unlimited number of common shares (no par value) and preferred shares. (cid:38)o preferred shares were issued or outstanding for the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15). (cid:25) continuity of the shares issued and outstanding for the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15) is presented in the consolidated statements of changes in shareholders’ equity. Shareho(cid:59)der R(cid:56)(cid:54)hts P(cid:59)an The Company has a shareholder rights plan, which is designed to encourage the fair treatment of shareholders in connection with any ta(cid:60)eover offer. (cid:42)ights issued under the plan become exercisable when a person, and any related parties, acquires or commences a ta(cid:60)eover bid to acquire (cid:15)(cid:13)(cid:4) 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(cid:6)s (cid:26)oard of Directors. (cid:43)hould 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 5(cid:13)(cid:4) discount to the mar(cid:60)et price at that time. Norma(cid:59) Co(cid:68)rse Iss(cid:68)er (cid:24)(cid:56)d (cid:7)(cid:2)NCI(cid:24)(cid:2)(cid:8) The Company(cid:6)s (cid:38)CI(cid:26) program was renewed in (cid:43)eptember (cid:15)(cid:13)(cid:15)3. The current issuer bid allows the Company to purchase up to (cid:21).(cid:15) million common shares during the 1(cid:15)-month period ending (cid:43)eptember 1(cid:21), (cid:15)(cid:13)(cid:15)(cid:17). (cid:25)ll shares purchased under the bid will be cancelled. The Company purchased and cancelled 353,(cid:13)(cid:13)(cid:13) common shares for $3(cid:20).5 million (average cost of $1(cid:13)(cid:19).35 per share, including transaction costs) during the year ended December 31, (cid:15)(cid:13)(cid:15)3. The Company maintains an (cid:25)utomatic (cid:43)hare (cid:40)urchase (cid:40)lan ((cid:2)(cid:25)(cid:43)(cid:40)(cid:40)(cid:2)) with a bro(cid:60)er to enable the purchase of common shares under the (cid:38)CI(cid:26) during regular trading blac(cid:60)out periods. The volume of the purchases are determined by the bro(cid:60)er based on share price and maximum volume parameters established by the Company prior to the commencement of each blac(cid:60)out period. (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)3, an obligation for the repurchase of shares of $1(cid:15).5 million was recogni(cid:75)ed under the (cid:25)(cid:43)(cid:40)(cid:40). 33 Consolidated Financial Statements 85 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The Company purchased and cancelled (cid:17)(cid:20)3,1(cid:13)(cid:13) common shares for $(cid:17)(cid:21).5 million (average cost of $1(cid:13)(cid:15).5(cid:15) per share, including transaction costs) during the year ended December 31, (cid:15)(cid:13)(cid:15)(cid:15). (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)(cid:15), there was no obligation for the repurchase of shares under the (cid:25)(cid:43)(cid:40)(cid:40). D(cid:56)(cid:69)(cid:56)dends Pa(cid:56)d The Company paid dividends of $13(cid:21).(cid:19) million ($1.(cid:19)(cid:21) per share) for the year ended December 31, (cid:15)(cid:13)(cid:15)3, and $1(cid:15)5.(cid:15) million ($1.5(cid:15) per share) for the year ended December 31, (cid:15)(cid:13)(cid:15)(cid:15). D(cid:56)(cid:69)(cid:56)dends Dec(cid:59)ared 2023 (cid:15)(cid:13)(cid:15)(cid:15) D(cid:56)(cid:69)(cid:56)dend (cid:41)uarter 1 (cid:41)uarter (cid:15) (cid:41)uarter 3 (cid:41)uarter (cid:17) Record Date D(cid:56)(cid:69)(cid:56)dend Amo(cid:68)nt Per Share Payment Date Tota(cid:59) D(cid:56)(cid:69)(cid:56)dends Dec(cid:59)ared (cid:7)(cid:3) m(cid:56)(cid:59)(cid:59)(cid:56)ons(cid:8) (cid:42)ecord Date Mar. (cid:21), 2023 (cid:3) (cid:32)(cid:68)n. (cid:21), 2023 Se(cid:63). (cid:20), 2023 Dec. (cid:20), 2023 (cid:3) 0.(cid:16)3 A(cid:63)r. (cid:16), 2023 (cid:3) 0.(cid:16)3 (cid:32)(cid:68)(cid:59). (cid:17), 2023 0.(cid:16)3 Oct. (cid:16), 2023 0.(cid:16)3 (cid:32)an. (cid:17), 202(cid:16) 1.72 (cid:3) 3(cid:17).(cid:16) (cid:37)ar. 9, (cid:15)(cid:13)(cid:15)(cid:15) $ 3(cid:17).(cid:18) 3(cid:17).(cid:16) 3(cid:17).(cid:16) 1(cid:16)1.(cid:20) (cid:34)un. 9, (cid:15)(cid:13)(cid:15)(cid:15) (cid:43)ep. (cid:21), (cid:15)(cid:13)(cid:15)(cid:15) Dec. (cid:21), (cid:15)(cid:13)(cid:15)(cid:15) $ Dividend (cid:25)mount (cid:40)er (cid:43)hare (cid:13).39 (cid:13).39 (cid:13).39 (cid:13).39 1.5(cid:19) Total Dividends Declared ($ millions) (cid:40)ayment Date (cid:25)pr. (cid:17), (cid:15)(cid:13)(cid:15)(cid:15) $ (cid:34)ul. 5, (cid:15)(cid:13)(cid:15)(cid:15) (cid:39)ct. (cid:17), (cid:15)(cid:13)(cid:15)(cid:15) (cid:34)an. 5, (cid:15)(cid:13)(cid:15)3 $ 3(cid:15).(cid:15) 3(cid:15).1 3(cid:15).1 3(cid:15).1 1(cid:15)(cid:21).5 (cid:39)n (cid:30)ebruary 13, (cid:15)(cid:13)(cid:15)(cid:17), the (cid:26)oard of Directors declared a quarterly dividend of $(cid:13).(cid:17)(cid:21) per common share, payable on (cid:25)pril (cid:17), (cid:15)(cid:13)(cid:15)(cid:17), to shareholders on record on (cid:37)arch (cid:21), (cid:15)(cid:13)(cid:15)(cid:17). 1(cid:16). FINANCIAL INSTR(cid:43)MENTS F(cid:56)nanc(cid:56)a(cid:59) Assets and L(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es (cid:74) C(cid:59)ass(cid:56)f(cid:56)cat(cid:56)on and Meas(cid:68)rement The following table highlights the carrying amounts and classifications of certain financial assets and liabilities(cid:23) Other f(cid:56)nanc(cid:56)a(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es(cid:22) Long(cid:10)term debt Der(cid:56)(cid:69)at(cid:56)(cid:69)e f(cid:56)nanc(cid:56)a(cid:59) (cid:56)nstr(cid:68)ments (cid:7)(cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es(cid:8) assets, net(cid:22) (cid:30)oreign exchange forward contracts Fa(cid:56)r (cid:44)a(cid:59)(cid:68)e of F(cid:56)nanc(cid:56)a(cid:59) Instr(cid:68)ments 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:18)(cid:16)7,7(cid:20)(cid:16) $ (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) (cid:7)13,(cid:21)(cid:16)(cid:18)(cid:8) $ 1(cid:21),53(cid:13) (cid:3) (cid:3) 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(cid:6)s value at maturity based on the comparable foreign exchange rate as at period-end under the same conditions. The financial institution(cid:6)s credit ris(cid:60) is also ta(cid:60)en into consideration in determining fair value. The valuation is determined using Level (cid:15) inputs, which are observable inputs or inputs that can be corroborated by observable mar(cid:60)et data for substantially the full term of the asset or liability, most significantly foreign exchange spot and forward rates. 86 Toromont Industries Ltd. Annual Report 2023 3(cid:17) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The fair value and carrying value of long(cid:10)term debt are as follows(cid:23) Lon(cid:54)(cid:10)term debt(cid:22) (cid:30)air value Carrying value 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) (cid:3) (cid:18)37,(cid:20)0(cid:20) $ (cid:18)(cid:17)0,000 $ (cid:19)(cid:15)(cid:19),5(cid:21)5 (cid:19)5(cid:13),(cid:13)(cid:13)(cid:13) The fair value was determined using the discounted cash flow method, a generally accepted valuation technique. The discounted factor is based on mar(cid:60)et rates for debt with similar terms and remaining maturities and based on Toromont’s credit ris(cid:60). The Company has no plans to prepay these instruments prior to maturity. During the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15), there were no transfers between Level 1 and Level (cid:15) fair value measurements. Der(cid:56)(cid:69)at(cid:56)(cid:69)e F(cid:56)nanc(cid:56)a(cid:59) Instr(cid:68)ments and Hed(cid:54)e Acco(cid:68)nt(cid:56)n(cid:54) (cid:30)oreign exchange contracts and options are transacted with financial institutions to hedge foreign inventory and sales of products. (cid:25)s at currency-denominated obligations related to purchases of December 31, (cid:15)(cid:13)(cid:15)3, the Company was committed to(cid:23) (i) (cid:45)(cid:43) dollar purchase contracts with a notional amount of $53(cid:21).(cid:20) million at an average exchange rate of $1.3(cid:17)95, maturing between (cid:34)anuary (cid:15)(cid:13)(cid:15)(cid:17) and December (cid:15)(cid:13)(cid:15)(cid:17)(cid:24) and (ii) (cid:45)(cid:43) dollar sale contracts with a notional amount of $(cid:19)(cid:19).5 million at an average exchange rate of $1.3(cid:17)(cid:15)(cid:13), maturing between (cid:34)anuary (cid:15)(cid:13)(cid:15)(cid:17) and December (cid:15)(cid:13)(cid:15)(cid:17). (cid:37)anagement estimates that a loss of $13.9 million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) gain of $1(cid:21).5 million) would be reali(cid:75)ed if the contracts were terminated on December 31, (cid:15)(cid:13)(cid:15)3. Certain of these forward contracts are designated as cash flow hedges and, accordingly, an unreali(cid:75)ed loss of $11.(cid:19) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) unreali(cid:75)ed gain of $13.3 million) has been included in (cid:39)CI. These gains will be reclassified to net earnings within the next 1(cid:15) months and will offset gains(cid:12)losses recorded on the underlying hedged items, namely foreign(cid:10)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. (cid:25) loss of $(cid:15).3 million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) gain of $5.(cid:15) million) on forward contracts not designated as hedges is included in net earnings, which offsets losses recorded on the associated foreign(cid:10)denominated items, namely accounts payable and accrued liabilities. (cid:25)ll hedging relationships are formally documented, including the ris(cid:60) management objective and strategy. (cid:39)n an ongoing basis, an assessment is made as to whether the designated derivative financial instruments continue to be effective in offsetting changes in cash flows of the hedged transactions. 1(cid:17). FINANCIAL INSTR(cid:43)MENTS (cid:74) RIS(cid:33) MANA(cid:29)EMENT In the normal course of business, Toromont is exposed to financial ris(cid:60)s that may potentially impact its operating results in one or all of its reportable segments. The Company employs ris(cid:60) management strategies with a view to mitigating these ris(cid:60)s on a cost(cid:10)effective basis. Derivative financial agreements are used to manage exposure to fluctuations in exchange rates. The Company does not enter into derivative financial agreements for speculative purposes. 35 Consolidated Financial Statements 87 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) C(cid:68)rrency R(cid:56)s(cid:58) The Canadian operations of the Company source the majority of its products and major components from the (cid:45)nited (cid:43)tates. 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 ris(cid:60) 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 (cid:45)(cid:43) currency. The Company mitigates exchange rate ris(cid:60) by entering into foreign currency contracts to fix the cash inflows where appropriate. The Company maintains a hedging policy whereby all significant transactional currency ris(cid:60)s are identified and hedged. (cid:43)ensitivity (cid:25)nalysis The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange rates on the Company(cid:6)s financial instruments and show the impact on net earnings and comprehensive income. It is provided as a reasonably possible change in currency in a volatile environment. (cid:30)inancial instruments affected by currency ris(cid:60) include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and derivative financial instruments. (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)3, a 5(cid:4) wea(cid:60)ening (strengthening) of the Canadian dollar against the (cid:45)(cid:43) dollar would result in a $1.(cid:15) million (decrease) increase in (cid:39)CI for financial instruments held in foreign operations, and a $(cid:13).(cid:20) million (decrease) increase in net earnings and $(cid:15)(cid:13).(cid:13) million (decrease) increase in (cid:39)CI for financial instruments held in Canadian operations. Cred(cid:56)t R(cid:56)s(cid:58) (cid:30)inancial instruments that potentially subject the Company to credit ris(cid:60) consist of cash and cash equivalents, accounts receivable and derivative financial instruments. The carrying amount of assets included on the consolidated statements of financial position represents the maximum credit exposure. The Company has deposited cash and cash equivalents with reputable financial institutions, from which management believes the ris(cid:60) of loss to be remote. The Company has accounts receivable from customers engaged in various industries including mining, construction, food and beverage, and governmental agencies. These specific customers may be affected by economic factors that may impact accounts receivable. Credit ris(cid:60) concentration with respect to trade receivables is mitigated by the Company’s large customer base. The credit ris(cid:60) associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimi(cid:75)e this ris(cid:60), the Company enters into derivative transactions only with highly rated financial institutions. Interest Rate R(cid:56)s(cid:58) The Company minimi(cid:75)es its interest rate ris(cid:60) by managing its portfolio of floating(cid:10) and fixed(cid:10)rate debt, as well as managing the term to maturity. The Company may use derivative instruments such as interest rate swap Toromont Industries Ltd. Annual Report 2023 88 3(cid:19) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) agreements to manage its current and anticipated exposure to interest rates. There were no interest rate swap agreements outstanding as at December 31, (cid:15)(cid:13)(cid:15)3 or (cid:15)(cid:13)(cid:15)(cid:15). The Company had no floating(cid:10)rate debt outstanding as at December 31, (cid:15)(cid:13)(cid:15)3 or (cid:15)(cid:13)(cid:15)(cid:15). L(cid:56)(cid:64)(cid:68)(cid:56)d(cid:56)ty R(cid:56)s(cid:58) Liquidity ris(cid:60) is the ris(cid:60) that the Company may encounter difficulties in meeting obligations associated with financial liabilities. (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)3, the Company had unutili(cid:75)ed lines of credit of $(cid:17)59.(cid:20) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:17)(cid:20)1.1 million). (cid:25)ccounts payable are primarily due within 9(cid:13) days and will be satisfied from current wor(cid:60)ing capital. The Company expects that continued cash flows from operations in (cid:15)(cid:13)(cid:15)(cid:17), together with currently available cash and cash equivalents on hand and credit facilities, will be more than sufficient to fund its requirements for investments in wor(cid:60)ing capital, capital assets and dividend payments through the next 1(cid:15) months, and that the Company(cid:6)s credit ratings provide reasonable access to capital mar(cid:60)ets to facilitate future debt issuance. 1(cid:18). INTEREST INCOME AND E(cid:46)PENSE The components of interest expense were as follows(cid:23) Credit facilities (cid:43)enior debentures Interest on lease liabilities The components of interest and investment income were as follows(cid:23) Interest on conversion of rental equipment Interest income 17. INCOME TA(cid:46)ES (cid:43)ignificant components of the provision for income tax expense were as follows(cid:23) Current income tax expense Deferred income tax expense Tota(cid:59) (cid:56)ncome ta(cid:71) e(cid:71)(cid:63)ense 3(cid:20) 2023 1,7(cid:16)3 $ 2(cid:17),21(cid:18) 1,13(cid:21) 2(cid:20),0(cid:21)(cid:20) $ 2023 3,3(cid:16)(cid:20) $ (cid:16)2,(cid:18)3(cid:16) (cid:16)(cid:17),(cid:21)(cid:20)2 $ (cid:15)(cid:13)(cid:15)(cid:15) 1,5(cid:15)1 (cid:15)5,1(cid:19)(cid:19) (cid:19)(cid:17)(cid:17) (cid:15)(cid:20),331 (cid:15)(cid:13)(cid:15)(cid:15) (cid:17),(cid:20)(cid:19)(cid:13) 1(cid:19),95(cid:20) (cid:15)1,(cid:20)1(cid:20) 2023 17(cid:16),(cid:16)(cid:16)(cid:18) $ 1(cid:20),(cid:17)(cid:17)(cid:21) 1(cid:21)3,00(cid:17) $ (cid:15)(cid:13)(cid:15)(cid:15) 153,(cid:20)(cid:20)(cid:15) 9,(cid:19)1(cid:15) 1(cid:19)3,3(cid:21)(cid:17) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Consolidated Financial Statements 89 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:25) reconciliation of income taxes at Canadian statutory rates with the reported income taxes was as follows(cid:23) (cid:43)tatutory Canadian federal and provincial income tax rates Expected taxes on income Increase (decrease) in income taxes resulting from(cid:23) (cid:32)igher effective tax rates in other jurisdictions (cid:37)anufacturing and processing rate reduction Expenses not deductible for tax purposes (cid:38)on(cid:10)taxable gains Effect of change in future income tax rate (cid:39)ther Pro(cid:69)(cid:56)s(cid:56)ons for (cid:56)ncome ta(cid:71)es Effect(cid:56)(cid:69)e (cid:56)ncome ta(cid:71) rate 2023 2(cid:18).(cid:17)(cid:4) 1(cid:21)1,3(cid:18)0 $ 1,(cid:17)32 (cid:7)(cid:17)(cid:21)(cid:8) 3,737 (cid:7)1,(cid:17)(cid:18)2(cid:8) 12(cid:17) (cid:7)2,12(cid:20)(cid:8) 1(cid:21)3,00(cid:17) $ 2(cid:18).7(cid:4) (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:19).5(cid:4) 1(cid:19)(cid:15),5(cid:20)3 1,(cid:15)95 ((cid:17)(cid:15)) (cid:15),(cid:17)3(cid:13) (3,(cid:13)5(cid:15)) ((cid:15)(cid:15)3) (cid:17)(cid:13)3 1(cid:19)3,3(cid:21)(cid:17) (cid:15)(cid:19).(cid:19)(cid:4) (cid:3) (cid:3) The statutory income tax rate represents the combined Canadian federal and (cid:39)ntario provincial income tax rates, which are the relevant tax jurisdictions for the Company. The sources of deferred income taxes were as follows(cid:23) (cid:25)ccrued liabilities Deferred revenue and contract liabilities (cid:25)ccounts receivable Inventories Capital assets Goodwill and intangible assets (cid:39)ther Cash flow hedges on (cid:39)CI (cid:40)ost(cid:10)employment obligations Net deferred ta(cid:71) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es The movement in net deferred income taxes was as follows(cid:23) (cid:26)alance, (cid:34)anuary 1 Tax expense recogni(cid:75)ed in income (cid:30)oreign exchange and other Discontinued operations (including business disposition) Tax recovery (expense) recogni(cid:75)ed in (cid:39)CI (cid:24)a(cid:59)ance, December 31 2023 3(cid:18),(cid:17)(cid:18)(cid:20) $ 3,(cid:18)(cid:16)(cid:16) (cid:18),(cid:16)(cid:17)(cid:21) 12,101 (cid:7)11(cid:17),277(cid:8) (cid:7)(cid:16)(cid:16),(cid:18)(cid:17)7(cid:8) 1,7(cid:18)(cid:18) 3,02(cid:21) (cid:7)1(cid:16)(cid:21)(cid:8) (cid:7)(cid:21)(cid:18),(cid:17)1(cid:18)(cid:8) $ 2023 (cid:7)(cid:20)2,01(cid:16)(cid:8) $ (cid:7)1(cid:20),(cid:17)(cid:17)(cid:21)(cid:8) (cid:7)13(cid:20)(cid:8) (cid:7)1,703(cid:8) (cid:17),(cid:20)(cid:21)(cid:20) (cid:7)(cid:21)(cid:18),(cid:17)1(cid:18)(cid:8) $ (cid:3) (cid:3) (cid:3) (cid:3) (cid:15)(cid:13)(cid:15)(cid:15) 3(cid:15),(cid:21)(cid:15)(cid:19) 5,(cid:21)(cid:15)(cid:15) (cid:19),33(cid:19) 1(cid:15),(cid:15)(cid:21)5 (9(cid:20),(cid:21)9(cid:20)) ((cid:17)1,(cid:17)(cid:21)(cid:19)) 1,39(cid:19) (3,(cid:19)(cid:17)1) (cid:15),3(cid:17)5 ((cid:21)(cid:15),(cid:13)1(cid:17)) (cid:15)(cid:13)(cid:15)(cid:15) ((cid:17)(cid:21),(cid:17)51) (9,(cid:19)1(cid:15)) 9(cid:21) ((cid:15)3(cid:19)) ((cid:15)3,(cid:21)13) ((cid:21)(cid:15),(cid:13)1(cid:17)) The aggregate amount of unremitted earnings in the Company(cid:6)s subsidiaries was $55.(cid:21) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:17)(cid:17).(cid:20) million). These earnings can be remitted with no tax consequences. 90 Toromont Industries Ltd. Annual Report 2023 3(cid:21) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 1(cid:20). EARNIN(cid:29)S PER SHARE Income from continuing operations Income from discontinued operations Net earn(cid:56)n(cid:54)s a(cid:69)a(cid:56)(cid:59)ab(cid:59)e to common shareho(cid:59)ders (cid:47)eighted average common shares outstanding Effect of dilutive securities (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e common shares o(cid:68)tstand(cid:56)n(cid:54) (cid:74) d(cid:56)(cid:59)(cid:68)ted (cid:24)as(cid:56)c earn(cid:56)n(cid:54)s (cid:63)er share Continuing operations Discontinued operations D(cid:56)(cid:59)(cid:68)ted earn(cid:56)n(cid:54)s (cid:63)er share Continuing operations Discontinued operations 2023 (cid:17)2(cid:21),107 $ (cid:17),(cid:18)0(cid:17) (cid:17)3(cid:16),712 $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:17)5(cid:13),1(cid:13)(cid:13) (cid:17),(cid:13)9(cid:21) (cid:17)5(cid:17),19(cid:21) (cid:20)2,30(cid:17),(cid:20)70 (cid:17)(cid:21)2,(cid:20)2(cid:18) (cid:21)(cid:15),339,(cid:17)(cid:21)(cid:13) (cid:19)3(cid:21),(cid:21)(cid:17)(cid:17) (cid:20)2,(cid:20)(cid:21)(cid:20),(cid:18)(cid:21)(cid:18) (cid:21)(cid:15),9(cid:20)(cid:21),3(cid:15)(cid:17) (cid:18).(cid:16)3 $ 0.07 (cid:18).(cid:17)0 $ (cid:18).3(cid:20) $ 0.07 (cid:18).(cid:16)(cid:17) $ 5.(cid:17)(cid:20) (cid:13).(cid:13)5 5.5(cid:15) 5.(cid:17)(cid:15) (cid:13).(cid:13)5 5.(cid:17)(cid:20) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:30)or the year ended December 31, (cid:15)(cid:13)(cid:15)3, 1(cid:19)(cid:17),3(cid:13)(cid:20) outstanding share options with a weighted average exercise price of $11(cid:15).(cid:17)(cid:21) were considered anti(cid:10)dilutive (exercise price in excess of average mar(cid:60)et price during the year) and, as such, were excluded from the calculation of diluted earnings per share. (cid:30)or the year ended December 31, (cid:15)(cid:13)(cid:15)(cid:15), 1(cid:19)(cid:19),5(cid:13)(cid:13) outstanding share options with a weighted average exercise price of $1(cid:13)(cid:20).3(cid:19) were considered anti(cid:10)dilutive. 1(cid:21). EMPLO(cid:47)EE (cid:24)ENEFITS E(cid:46)PENSE (cid:47)ages and salaries (cid:39)ther employment benefit expenses (cid:43)hare(cid:10)based compensation expense (cid:40)ension costs 20. SHARE(cid:10)(cid:24)ASED COMPENSATION Share O(cid:63)t(cid:56)on P(cid:59)an 2023 702,01(cid:21) $ 100,(cid:18)(cid:18)(cid:16) 10,(cid:20)(cid:17)0 2(cid:18),2(cid:17)2 (cid:20)3(cid:21),7(cid:20)(cid:17) $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:19)(cid:17)5,(cid:17)3(cid:13) (cid:21)3,(cid:19)5(cid:20) (cid:19),(cid:20)99 3(cid:15),(cid:15)5(cid:13) (cid:20)(cid:19)(cid:21),13(cid:19) (cid:3) (cid:3) The Company maintains a share option program for certain employees. (cid:45)nder the plan, up to (cid:20),(cid:13)(cid:13)(cid:13),(cid:13)(cid:13)(cid:13) options may be granted for subsequent exercise in exchange for common shares. It is the Company(cid:6)s policy that the aggregate number of options that may be granted in any one calendar year shall not exceed 1(cid:4) of the outstanding shares as of the beginning of the year in which a grant is made ((cid:15)(cid:13)(cid:15)3 (cid:77) (cid:21)(cid:15)3,1(cid:21)1(cid:24) (cid:15)(cid:13)(cid:15)(cid:15) (cid:77) (cid:21)(cid:15)(cid:17),(cid:17)39). (cid:43)hare options have a 1(cid:13)(cid:10)year life, vest (cid:15)(cid:13)(cid:4) per year on each anniversary date of the grant, and are exercisable at the designated common share price, which is fixed at prevailing mar(cid:60)et prices of the common 39 Consolidated Financial Statements 91 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) shares at the date the option is granted. Toromont accrues compensation cost over the vesting period based on the grant date fair value. (cid:25) reconciliation of the outstanding options for the years ended December 31, (cid:15)(cid:13)(cid:15)3 and December 31, (cid:15)(cid:13)(cid:15)(cid:15) was as follows(cid:23) (cid:39)ptions outstanding, (cid:34)anuary 1 Granted Exercised (1) (cid:30)orfeited O(cid:63)t(cid:56)ons o(cid:68)tstand(cid:56)n(cid:54), December 31 O(cid:63)t(cid:56)ons e(cid:71)erc(cid:56)sab(cid:59)e, December 31 2023 (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e e(cid:71)erc(cid:56)se (cid:63)r(cid:56)ce 73.21 112.(cid:16)(cid:20) (cid:18)3.3(cid:17) (cid:21)(cid:18).1(cid:16) 7(cid:20).(cid:17)0 (cid:18)(cid:17).(cid:18)(cid:16) N(cid:68)mber of o(cid:63)t(cid:56)ons 1,(cid:21)(cid:18)7,(cid:20)(cid:21)2 (cid:3) 1(cid:18)(cid:20),(cid:17)(cid:16)(cid:17) (cid:7)332,1(cid:20)2(cid:8) (cid:7)20,2(cid:18)2(cid:8) 1,7(cid:20)3,(cid:21)(cid:21)3 (cid:3) (cid:21)(cid:20)2,0(cid:16)(cid:16) (cid:3) (cid:15)(cid:13)(cid:15)(cid:15) (cid:47)eighted average exercise price (cid:19)(cid:21).(cid:17)(cid:17) 1(cid:13)(cid:20).3(cid:19) 59.(cid:17)1 (cid:21)(cid:13).(cid:20)5 (cid:20)3.(cid:15)1 59.3(cid:21) (cid:38)umber of options (cid:15),1(cid:19)(cid:20),(cid:13)(cid:15)5 $ 1(cid:19)(cid:19),5(cid:13)(cid:13) (3(cid:17)(cid:20),(cid:15)91) (1(cid:21),3(cid:17)(cid:15)) 1,9(cid:19)(cid:20),(cid:21)9(cid:15) $ 9(cid:15)(cid:15),(cid:19)(cid:21)1 $ (1) The weighted average share price at the date of exercise for the year ended December 31, (cid:15)(cid:13)(cid:15)3 was $11(cid:15).(cid:13)(cid:13) ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $1(cid:13)(cid:20).31). The following table summari(cid:75)es share options outstanding and exercisable as at December 31, (cid:15)(cid:13)(cid:15)3(cid:23) Ran(cid:54)e of e(cid:71)erc(cid:56)se (cid:63)r(cid:56)ces (cid:3)2(cid:18).(cid:17)2 (cid:74) (cid:3)3(cid:18).(cid:18)(cid:17) (cid:3)3(cid:21).7(cid:21) (cid:74) (cid:3)(cid:17)3.(cid:20)(cid:21) (cid:3)(cid:18)(cid:17).72 (cid:74) (cid:3)72.(cid:21)(cid:17) (cid:3)10(cid:16).(cid:21)1 (cid:74) (cid:3)112.(cid:16)(cid:20) O(cid:63)t(cid:56)ons o(cid:68)tstand(cid:56)n(cid:54) O(cid:63)t(cid:56)ons e(cid:71)erc(cid:56)sab(cid:59)e (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e rema(cid:56)n(cid:56)n(cid:54) (cid:59)(cid:56)fe (cid:7)years(cid:8) 1.(cid:16) (cid:3) 3.1 (cid:17).(cid:20) (cid:20).2 (cid:18).1 (cid:3) (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e e(cid:71)erc(cid:56)se (cid:63)r(cid:56)ce 3(cid:16).(cid:17)2 (cid:16)7.2(cid:16) (cid:18)(cid:21).27 107.(cid:16)(cid:16) 7(cid:20).(cid:17)0 (cid:45)e(cid:56)(cid:54)hted a(cid:69)era(cid:54)e e(cid:71)erc(cid:56)se (cid:63)r(cid:56)ce 3(cid:16).(cid:17)2 (cid:16)7.2(cid:16) (cid:18)(cid:20).(cid:16)(cid:18) 10(cid:17).3(cid:21) (cid:18)(cid:17).(cid:18)(cid:16) N(cid:68)mber 10(cid:18),7(cid:16)0 (cid:3) 1(cid:21)(cid:21),(cid:16)00 (cid:17)3(cid:20),231 137,(cid:18)73 (cid:21)(cid:20)2,0(cid:16)(cid:16) (cid:3) N(cid:68)mber 10(cid:18),7(cid:16)0 1(cid:21)(cid:21),(cid:16)00 (cid:20)3(cid:16),2(cid:16)(cid:20) (cid:18)(cid:16)3,(cid:18)0(cid:17) 1,7(cid:20)3,(cid:21)(cid:21)3 The fair values of the share options granted during (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15) were determined at the time of grant using the (cid:26)lac(cid:60)(cid:10)(cid:43)choles option pricing model with the following weighted average assumptions(cid:23) (cid:30)air value price per option (cid:43)hare price Expected life of options (years) Expected share price volatility Expected dividend yield (cid:42)is(cid:60)(cid:10)free interest rate Deferred Share (cid:43)n(cid:56)t P(cid:59)ans (cid:3) (cid:3) 2023 2(cid:16).20 $ 112.(cid:16)(cid:20) $ (cid:16).(cid:21)(cid:16) 22.0(cid:4) 1.(cid:17)3(cid:4) 3.(cid:16)0(cid:4) (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:15).(cid:15)(cid:20) 1(cid:13)(cid:20).3(cid:19) 5.3(cid:13) (cid:15)1.5(cid:13)(cid:4) 1.(cid:17)5(cid:4) (cid:15).(cid:20)(cid:20)(cid:4) The Company offers D(cid:43)(cid:45) plans for executives and non(cid:10)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 D(cid:43)(cid:45)s. In addition, the (cid:26)oard of Directors may grant discretionary D(cid:43)(cid:45)s. (cid:38)on(cid:10)employee directors also receive a portion of their compensation in D(cid:43)(cid:45)s. The equity(cid:10)settled D(cid:43)(cid:45) plan commenced in (cid:15)(cid:13)(cid:15)(cid:15), at which time the cash-settled D(cid:43)(cid:45) plan was closed for new grants(cid:12)elections. 92 Toromont Industries Ltd. Annual Report 2023 (cid:17)(cid:13) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:25) reconciliation of the cash(cid:10)settled D(cid:43)(cid:45) plan was as follows(cid:23) (cid:39)utstanding, (cid:34)anuary 1 (cid:45)nits ta(cid:60)en or ta(cid:60)en in lieu and dividends (cid:42)edemptions (cid:30)air mar(cid:60)et value adjustments O(cid:68)tstand(cid:56)n(cid:54), December 31 N(cid:68)mber of DS(cid:43)s 1(cid:21)0,12(cid:20) (cid:3) 3,021 (cid:7)1,(cid:20)2(cid:21)(cid:8) (cid:75) 1(cid:21)1,320 (cid:3) 2023 (cid:44)a(cid:59)(cid:68)e 1(cid:20),(cid:17)2(cid:20) 31(cid:21) (cid:7)1(cid:21)3(cid:8) 3,(cid:16)7(cid:21) 22,133 (cid:38)umber of D(cid:43)(cid:45)s (cid:15)(cid:13)(cid:15),9(cid:19)9 $ (cid:15)(cid:13),3(cid:13)(cid:20) (33,1(cid:17)(cid:21)) (cid:78) 19(cid:13),1(cid:15)(cid:21) $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:46)alue (cid:15)3,(cid:13)(cid:20)(cid:17) (cid:15),(cid:15)31 (3,535) (3,(cid:15)(cid:17)(cid:15)) 1(cid:21),5(cid:15)(cid:21) The liability for cash(cid:10)settled D(cid:43)(cid:45)s is recorded in accounts payable and accrued liabilities. (cid:25) reconciliation of the equity(cid:10)settled D(cid:43)(cid:45) plan was as follows(cid:23) (cid:39)utstanding, (cid:34)anuary 1 (cid:45)nits ta(cid:60)en or ta(cid:60)en in lieu and dividends O(cid:68)tstand(cid:56)n(cid:54), December 31 2023 N(cid:68)mber of DS(cid:43)s 7,(cid:17)3(cid:16) 2(cid:17),(cid:20)2(cid:18) 33,3(cid:18)0 (cid:15)(cid:13)(cid:15)(cid:15) (cid:38)umber of D(cid:43)(cid:45)s (cid:78) (cid:20),53(cid:17) (cid:20),53(cid:17) The cost of the equity(cid:10)settled D(cid:43)(cid:45) plan is recorded in selling and administrative expenses with a credit to contributed surplus. Lon(cid:54)(cid:10)term Incent(cid:56)(cid:69)e P(cid:59)an (cid:7)(cid:2)LTIP(cid:2)(cid:8) (cid:25)mendments to the LTI(cid:40) were effective in early (cid:15)(cid:13)(cid:15)(cid:15) and the Company introduced (cid:40)(cid:43)(cid:45)s, (cid:42)(cid:43)(cid:45)s and executive deferred share units ((cid:2)ED(cid:43)(cid:45)s(cid:2)). The Company has the ability to grant options and awards under each of these plans. Details of each grant will be determined at the date of grant, including performance requirements, vesting and settlement method. (cid:40)(cid:43)(cid:45)s and (cid:42)(cid:43)(cid:45)s will settle upon vesting, while ED(cid:43)(cid:45)s will settle upon cessation of service to the Company. (cid:40)(cid:43)(cid:45) vesting will be based upon the achievement of performance objectives established at the time of grant by the (cid:26)oard of Directors. The maximum number of common shares reserved for issuance under the LTI(cid:40) is in aggregate (cid:20)5(cid:13),(cid:13)(cid:13)(cid:13). (cid:17)1 Consolidated Financial Statements 93 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:25) reconciliation of the outstanding units of (cid:42)(cid:43)(cid:45)s and (cid:40)(cid:43)(cid:45)s for the years ended December 31, (cid:15)(cid:13)(cid:15)3 and December 31, (cid:15)(cid:13)(cid:15)(cid:15) was as follows(cid:23) (cid:45)nits outstanding, (cid:34)anuary 1 Granted (cid:30)orfeited (cid:42)einvested dividends (cid:43)n(cid:56)ts o(cid:68)tstand(cid:56)n(cid:54), December 31 RS(cid:43)s 7,1(cid:18)3 7,1(cid:17)3 (cid:7)11(cid:21)(cid:8) 1(cid:21)(cid:21) 1(cid:16),3(cid:21)(cid:18) 2023 PS(cid:43)s 2(cid:20),137 2(cid:21),71(cid:16) (cid:7)1,(cid:20)(cid:17)(cid:18)(cid:8) 7(cid:20)(cid:21) (cid:17)(cid:18),7(cid:20)(cid:16) (cid:42)(cid:43)(cid:45)s (cid:78) (cid:20),13(cid:17) (cid:78) (cid:15)9 (cid:20),1(cid:19)3 (cid:15)(cid:13)(cid:15)(cid:15) (cid:40)(cid:43)(cid:45)s (cid:78) (cid:15)(cid:21),(cid:13)(cid:15)(cid:17) (cid:78) 113 (cid:15)(cid:21),13(cid:20) LTI(cid:40) expense of $3.(cid:19) million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $(cid:13).(cid:19) million) was included in selling and administrative expenses with a credit to contributed surplus during the year. Em(cid:63)(cid:59)oyee Share O(cid:70)nersh(cid:56)(cid:63) P(cid:59)an (cid:7)(cid:2)ESOP(cid:2)(cid:8) The Company offers an E(cid:43)(cid:39)(cid:40) 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 (cid:15).5(cid:4) of an employee’s base salary per annum. Company contributions prior to (cid:15)(cid:13)19 vested to the employee immediately, while contributions in (cid:15)(cid:13)19 onwards will vest in five years from date of contribution. Company contributions amounting to $(cid:17).(cid:17) million in (cid:15)(cid:13)(cid:15)3 ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $3.(cid:21) million) were charged to selling and administrative expenses when paid. The E(cid:43)(cid:39)(cid:40) is administered by a third party. 21. POST(cid:10)EMPLO(cid:47)MENT O(cid:24)LI(cid:29)ATIONS Def(cid:56)ned Contr(cid:56)b(cid:68)t(cid:56)on P(cid:59)ans The Company sponsors pension arrangements for approximately (cid:17),(cid:19)(cid:13)(cid:13) employees, primarily through defined contribution plans in Canada and a (cid:17)(cid:13)1((cid:60)) matched savings plan in the (cid:45)nited (cid:43)tates. Certain unioni(cid:75)ed employees do not participate in Company(cid:10)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. (cid:40)re(cid:10)tax pension expenses recogni(cid:75)ed in net earnings were as follows(cid:23) Defined contribution plans (cid:17)(cid:13)1((cid:60)) matched savings plans Def(cid:56)ned (cid:24)enef(cid:56)t P(cid:59)ans (cid:3) (cid:3) 2023 1(cid:20),(cid:16)(cid:20)0 $ (cid:16)0(cid:17) 1(cid:20),(cid:20)(cid:20)(cid:17) $ (cid:15)(cid:13)(cid:15)(cid:15) 1(cid:20),11(cid:19) 3(cid:20)9 1(cid:20),(cid:17)95 The Company sponsors funded and unfunded defined benefit pension plans and post(cid:10)employment benefit plans as described below with approximately 1,1(cid:13)(cid:13) active employees. In late (cid:15)(cid:13)(cid:15)(cid:13), a plan merger of seven funded defined benefit pension plans was announced effective December 31, (cid:15)(cid:13)(cid:15)(cid:13). (cid:42)egulatory approval was received at various dates in (cid:15)(cid:13)(cid:15)1 and (cid:15)(cid:13)(cid:15)(cid:15), and as at December 31, (cid:15)(cid:13)(cid:15)(cid:15), the transfer of assets and defined benefit obligations has been completed. Toromont Industries Ltd. Annual Report 2023 94 (cid:17)(cid:15) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) In (cid:39)ctober (cid:15)(cid:13)(cid:15)1, an annuity purchase transaction was entered into in which the defined benefit obligations associated with retired plan members were assumed by a third(cid:10)party insurer. a) Defined (cid:26)enefit (cid:40)ension (cid:40)lans (cid:77) The Company sponsors both registered and non(cid:10)registered pension plans that provide pension benefits based on length of service and career average earnings. These plans are closed to new members. The one funded plan is registered with the (cid:39)ntario provincial regulators and is subject to provincial pension legislation as well as the (cid:17)n(cid:32)(cid:44)me (cid:25)a(cid:53) (cid:11)(cid:32)t (Canada). (cid:25)ssets are 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. (cid:25)ll plans are administered by the Toromont (cid:40)ension (cid:37)anagement Committee. (cid:25)n actuarial valuation was completed as of December 31, (cid:15)(cid:13)(cid:15)(cid:15), with the next valuation scheduled as at December 31, (cid:15)(cid:13)(cid:15)5. b) Executive (cid:40)ension (cid:40)lan (cid:77) This plan is a supplemental pension plan and is solely the obligation of the Company. (cid:25)ll 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. (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)3, the Company has posted letters of credit in the amount of $11.(cid:21) million to secure the obligations under this plan. The most recent actuarial valuation was completed as at December 31, (cid:15)(cid:13)(cid:15)3. The next valuation is scheduled as at December 31, (cid:15)(cid:13)(cid:15)(cid:17). c) (cid:40)ost(cid:10)employment (cid:26)enefit (cid:40)lans (cid:77) These plans provide supplementary post(cid:10)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 (cid:17)5(cid:13) retirees and no active employees will receive post(cid:10)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 (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)3, with the next valuation scheduled as at (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:19). R(cid:56)s(cid:58)s Defined benefit pension plans and other post(cid:10)employment benefit plans expose the Company to ris(cid:60)s as described below(cid:23) (cid:80) (cid:80) (cid:80) Investment ris(cid:60) (cid:77) The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high(cid:10)quality corporate bond yields(cid:24) 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 (cid:40)ension (cid:37)anagement Committee reviews the asset mix and performance of the plan assets on a quarterly basis with the balanced investment strategy intention. Interest rate ris(cid:60) (cid:77) (cid:25) decrease in the bond yields will increase the plan liability(cid:24) however, this will be partially offset by higher mar(cid:60)et values of the plan’s holdings in debt instruments. Longevity ris(cid:60) (cid:77) (cid:25)n increase in the life expectancy of the plan participants will increase the plan(cid:6)s liability by lengthening the period in which benefits are paid. (cid:80) (cid:43)alary ris(cid:60) (cid:77) The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. (cid:25)s such, an increase in the salary of the plan participants will increase the plan’s liability. (cid:17)3 Consolidated Financial Statements 95 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) Information about the Company(cid:6)s defined benefit plans as at December 31, in aggregate, is as follows(cid:23) Def(cid:56)ned benef(cid:56)t ob(cid:59)(cid:56)(cid:54)at(cid:56)ons(cid:22) (cid:26)alance, (cid:34)anuary 1 (cid:43)ettle due to buy(cid:10)out annuity transactions Current service cost Interest cost (cid:25)ctuarial remeasurement (gains) losses arising from(cid:23) Experience adjustments Demographic adjustments Changes in financial assumptions (cid:26)enefits paid Contributions by plan participants (cid:24)a(cid:59)ance, December 31 P(cid:59)an assets (cid:30)ar value, (cid:34)anuary 1 (cid:40)urchase of buy(cid:10)out annuities Interest income on plan assets (cid:42)eturn on plan assets (excluding amounts included in net interest) Contributions by the Company Contributions by plan participants (cid:26)enefits paid (cid:30)air value, December 31 Fa(cid:56)r (cid:69)a(cid:59)(cid:68)e, December 31, net of asset ce(cid:56)(cid:59)(cid:56)n(cid:54) (cid:59)(cid:56)m(cid:56)t Pens(cid:56)on (cid:24)enef(cid:56)t P(cid:59)ans Other Post(cid:10)em(cid:63)(cid:59)oyment (cid:24)enef(cid:56)t P(cid:59)ans 2023 (cid:15)(cid:13)(cid:15)(cid:15) 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:3) 2(cid:16)2,(cid:20)(cid:21)2 $ (cid:75) (cid:18),1(cid:16)3 11,7(cid:21)0 (cid:7)3,(cid:20)1(cid:18)(cid:8) (cid:7)(cid:16),2(cid:17)2(cid:8) 20,7(cid:18)(cid:16) (cid:7)(cid:18),1(cid:16)2(cid:8) 3,(cid:16)7(cid:20) 270,(cid:20)(cid:17)7 2(cid:17)3,(cid:21)(cid:20)7 (cid:75) 13,07(cid:16) 12,3(cid:21)7 11,213 3,(cid:16)7(cid:20) (cid:7)(cid:18),1(cid:16)2(cid:8) 2(cid:20)(cid:20),007 2(cid:20)(cid:20),007 3(cid:17)(cid:15),(cid:21)(cid:19)(cid:13) (cid:3) 1,5(cid:17)(cid:21) 1(cid:15),(cid:17)(cid:15)(cid:20) 1(cid:13),3(cid:17)3 (1,5(cid:21)(cid:15)) (cid:78) (11(cid:13),13(cid:13)) (15,9(cid:20)1) 3,39(cid:20) (cid:15)(cid:17)(cid:15),(cid:21)9(cid:15) (cid:15)(cid:21)(cid:19),(cid:19)(cid:15)(cid:15) 1,5(cid:17)(cid:21) (cid:21),(cid:20)13 ((cid:17)1,1(cid:17)(cid:13)) 1(cid:13),(cid:21)1(cid:21) 3,39(cid:20) (15,9(cid:20)1) (cid:15)53,9(cid:21)(cid:20) (cid:15)53,9(cid:21)(cid:20) 1(cid:18),(cid:17)(cid:21)(cid:21) $ (cid:75) 1,0(cid:20)1 (cid:18)(cid:16)7 (cid:7)3,00(cid:17)(cid:8) (cid:75) (cid:17)7(cid:17) (cid:7)1,12(cid:18)(cid:8) (cid:75) 1(cid:16),771 (cid:75) (cid:75) (cid:75) (cid:75) 1,12(cid:18) (cid:75) (cid:7)1,12(cid:18)(cid:8) (cid:75) (cid:75) (cid:15)(cid:13),(cid:17)(cid:20)5 (cid:78) 1,(cid:13)9(cid:21) 55(cid:13) ((cid:17)(cid:19)5) (cid:78) (3,(cid:21)5(cid:19)) (1,(cid:15)(cid:13)3) (cid:78) 1(cid:19),599 (cid:78) (cid:78) (cid:78) (cid:78) 1,(cid:15)(cid:13)3 (cid:78) (1,(cid:15)(cid:13)3) (cid:78) (cid:78) Net (cid:63)ost(cid:10)em(cid:63)(cid:59)oyment (cid:7)assets(cid:8) ob(cid:59)(cid:56)(cid:54)at(cid:56)ons (cid:3) (cid:7)17,1(cid:17)0(cid:8) $ (11,(cid:13)95) (cid:3) 1(cid:16),771 $ 1(cid:19),599 The funded status of the Company(cid:6)s defined benefit plans as at December 31 was as follows(cid:23) Defined benefit pension plans Executive pension plan (cid:40)ost(cid:10)employment benefit plans Post(cid:10)em(cid:63)(cid:59)oyment ob(cid:59)(cid:56)(cid:54)at(cid:56)ons, net Def(cid:56)ned (cid:24)enef(cid:56)t Ob(cid:59)(cid:56)(cid:54)at(cid:56)ons (cid:3) 2(cid:17)(cid:18),(cid:21)2(cid:18) (cid:3) 13,(cid:21)31 1(cid:16),771 2(cid:20)(cid:17),(cid:18)2(cid:20) (cid:3) (cid:3) 2023 P(cid:59)an Assets Net Post(cid:10) Em(cid:63)(cid:59)oyment Ob(cid:59)(cid:56)(cid:54)at(cid:56)ons Defined (cid:26)enefit (cid:39)bligations (cid:15)(cid:13)(cid:15)(cid:15) (cid:40)lan (cid:25)ssets (cid:38)et (cid:40)ost(cid:10) Employment (cid:39)bligations 2(cid:20)(cid:20),007 (cid:3) (cid:75) (cid:75) 2(cid:20)(cid:20),007 (cid:3) 31,0(cid:20)1 $ (cid:7)13,(cid:21)31(cid:8) (cid:7)1(cid:16),771(cid:8) 2,37(cid:21) $ (cid:15)(cid:15)(cid:21),(cid:21)99 $ 13,993 1(cid:19),599 (cid:15)59,(cid:17)91 $ (cid:15)53,9(cid:21)(cid:20) $ (cid:78) (cid:78) (cid:15)53,9(cid:21)(cid:20) $ (cid:15)5,(cid:13)(cid:21)(cid:21) (13,993) (1(cid:19),599) (5,5(cid:13)(cid:17)) The plans with a net retirement surplus have been classified as non(cid:10)current assets on the consolidated statements of financial position (note (cid:21)). 96 Toromont Industries Ltd. Annual Report 2023 (cid:17)(cid:17) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The significant weighted average actuarial assumptions adopted in measuring the Company(cid:6)s defined benefit obligations are noted below. The mortality assumption is based upon the (cid:15)(cid:13)1(cid:17) (cid:40)rivate (cid:43)ector Canadian (cid:40)ensioners(cid:6) (cid:37)ortality Table, developed by the Canadian Institute of (cid:25)ctuaries, projected generationally using scale (cid:37)I(cid:10)(cid:15)(cid:13)1(cid:20), and adjusted to reflect differences in each plan. Discount rate Expected rate of salary increase 2023 (cid:16).(cid:18)0 (cid:4) 3.00 (cid:4) (cid:15)(cid:13)(cid:15)(cid:15) 5.(cid:13)9 (cid:4) 3.(cid:13)(cid:13) (cid:4) (cid:40)re(cid:10)tax pension and other post(cid:10)retirement benefit expenses recogni(cid:75)ed in net earnings were as follows(cid:23) (cid:43)ervice cost (cid:38)et interest (income) expense (cid:42)emeasurements (cid:3) (cid:3) 2023 7,22(cid:16) $ (cid:7)(cid:18)37(cid:8) 7(cid:20)0 7,3(cid:18)7 $ (cid:15)(cid:13)(cid:15)(cid:15) 13,5(cid:15)5 (cid:15),1(cid:21)(cid:13) (95(cid:13)) 1(cid:17),(cid:20)55 In (cid:39)ctober (cid:15)(cid:13)(cid:15)1, an annuity purchase transaction was entered into in which the defined benefit obligations associated with retired plan members were assumed by a third(cid:10)party insurer, in exchange for a lump(cid:10)sum payment from plan assets. Toromont considers, for accounting purposes, that this buy(cid:10)out transaction essentially eliminates any further legal or constructive obligations for benefits, and that a settlement has occurred. In (cid:38)ovember (cid:15)(cid:13)(cid:15)(cid:15), there were premium adjustments with insurers to reflect data adjustments. (cid:30)ollowing the transaction, benefits for plan participants are protected under (cid:25)ssuris, the life insurance compensation association designated under the (cid:17)ns(cid:50)ran(cid:32)e (cid:12)(cid:44)mpanies (cid:11)(cid:32)t of Canada. Toromont considers the combined ris(cid:60) of a) the insurer going ban(cid:60)rupt and b) that Toromont would be responsible for paying the portion of pensions not covered by (cid:25)ssuris should the insurer go ban(cid:60)rupt, remote. (cid:40)re(cid:10)tax amounts recogni(cid:75)ed in (cid:39)CI were as follows(cid:23) (cid:25)ctuarial gains arising from experience adjustments (cid:25)ctuarial gains arising from demographic assumptions (cid:25)ctuarial losses (gains) arising from changes in financial assumptions (cid:42)eturn on plan assets (greater) less than net interest recogni(cid:75)ed Effect of asset ceiling limit 2023 (cid:7)7,(cid:16)01(cid:8) $ (cid:7)(cid:16),2(cid:17)2(cid:8) 21,13(cid:21) (cid:7)12,3(cid:21)7(cid:8) (cid:75) (cid:7)2,(cid:21)11(cid:8) $ (cid:15)(cid:13)(cid:15)(cid:15) ((cid:15),(cid:13)(cid:17)(cid:20)) (cid:78) (113,(cid:13)35) (cid:17)1,1(cid:17)(cid:13) (5,999) ((cid:20)9,9(cid:17)1) (cid:3) (cid:3) The Company(cid:6)s pension plans(cid:6) actual weighted average asset allocations by asset category were as follows(cid:23) Debt securities Equity securities (cid:42)eal estate assets Cash and cash equivalents (cid:17)5 2023 33.(cid:17) (cid:4) (cid:16)(cid:17).(cid:20) (cid:4) 17.(cid:21) (cid:4) 2.(cid:20) (cid:4) (cid:15)(cid:13)(cid:15)(cid:15) 3(cid:17).(cid:13) (cid:4) (cid:17)3.(cid:20) (cid:4) 19.(cid:19) (cid:4) (cid:15).(cid:20) (cid:4) Consolidated Financial Statements 97 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The fair values of the plan assets were determined based on the following methods(cid:23) (cid:80) Equity securities (cid:77) generally quoted mar(cid:60)et prices in active mar(cid:60)ets. (cid:80) Debt securities (cid:77) generally quoted mar(cid:60)et prices in active mar(cid:60)ets. (cid:80) (cid:42)eal estate assets (cid:77) infrastructure assets valued based on appraisals performed by a qualified external appraiser. (cid:80) Cash and cash equivalents (cid:77) generally recorded at cost, which approximates fair value. The actual return on plan assets for the year ended December 31, (cid:15)(cid:13)(cid:15)3 was a gain of $(cid:15)5.5 million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) loss of $3(cid:15).(cid:17) million). The Company expects to contribute $(cid:15)5.(cid:15) million to pension and other benefit plans in (cid:15)(cid:13)(cid:15)(cid:17), inclusive of defined contribution plans. The weighted average duration of the defined benefit plan obligations as at December 31, (cid:15)(cid:13)(cid:15)3 was 1(cid:19).1 years ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) 15.9 years). Sens(cid:56)t(cid:56)(cid:69)(cid:56)ty Ana(cid:59)ys(cid:56)s (cid:43)ignificant actuarial assumptions for the determination of the defined benefit obligations ((cid:2)D(cid:26)(cid:39)(cid:2)) 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. (cid:25)s at December 31, (cid:15)(cid:13)(cid:15)3, the following quantitative analysis shows changes to the significant actuarial assumptions and the corresponding impact to the D(cid:26)(cid:39)(cid:23) Act(cid:68)ar(cid:56)a(cid:59) Ass(cid:68)m(cid:63)t(cid:56)on (cid:40)eriod(cid:10)end discount rate (cid:37)ortality Trend rate Sens(cid:56)t(cid:56)(cid:69)(cid:56)ty 1(cid:4) increase 1(cid:4) decrease Increase of 1 year in expected lifetime of plan participants 1(cid:4) increase $ $ $ Increase (cid:7)Decrease(cid:8) (cid:56)n D(cid:24)O Pens(cid:56)on (cid:24)enef(cid:56)t P(cid:59)ans Other Post(cid:10) em(cid:63)(cid:59)oyment (cid:24)enef(cid:56)t P(cid:59)ans (3(cid:21),(cid:17)51) $ (cid:17)(cid:20),(cid:15)(cid:20)(cid:17) $ 3,(cid:15)(cid:21)9 $ (1,1(cid:19)(cid:20)) $ 1,335 $ 1,(cid:17)(cid:20)(cid:17) $ Tota(cid:59) (39,(cid:19)1(cid:21)) (cid:17)(cid:21),(cid:19)(cid:13)9 (cid:17),(cid:20)(cid:19)3 (cid:38)(cid:12)(cid:25) $ (cid:21)(cid:17)(cid:17) $ (cid:21)(cid:17)(cid:17) The sensitivity analysis presented above may not be representative of the actual change in the D(cid:26)(cid:39) as it is unli(cid:60)ely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. 22. CAPITAL MANA(cid:29)EMENT The Company defines capital as the aggregate of shareholders(cid:6) equity and long(cid:10)term debt, less cash and cash equivalents. The Company(cid:6)s capital management framewor(cid:60) is designed to maintain a flexible capital structure that allows for optimi(cid:75)ation of the cost of capital at acceptable ris(cid:60) while balancing the interests of both equity and debt holders. Toromont Industries Ltd. Annual Report 2023 98 (cid:17)(cid:19) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) The Company generally targets a net debt to total capitali(cid:75)ation ratio of 33(cid:4), although there is a degree of variability associated with the timing of cash flows. (cid:25)lso, if appropriate opportunities are identified, the Company is prepared to significantly increase this ratio depending upon the opportunity. The Company(cid:6)s capital management criteria can be illustrated as follows(cid:23) Long(cid:10)term debt (cid:19)ess(cid:10) Cash and cash equivalents (cid:38)et debt (cid:43)hareholders(cid:6) equity Tota(cid:59) ca(cid:63)(cid:56)ta(cid:59)(cid:56)(cid:73)at(cid:56)on Net debt as a (cid:4) of tota(cid:59) ca(cid:63)(cid:56)ta(cid:59)(cid:56)(cid:73)at(cid:56)on Net debt to e(cid:64)(cid:68)(cid:56)ty (cid:3) (cid:3) 2023 (cid:18)(cid:16)7,7(cid:20)(cid:16) $ 1,0(cid:16)0,7(cid:17)7 (cid:7)3(cid:21)2,(cid:21)73(cid:8) (cid:15)(cid:13)(cid:15)(cid:15) (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) 9(cid:15)(cid:20),(cid:20)(cid:21)(cid:13) ((cid:15)(cid:21)(cid:13),(cid:20)(cid:15)(cid:13)) 2,(cid:18)(cid:20)3,(cid:20)(cid:17)2 2,2(cid:21)0,(cid:20)7(cid:21) $ (cid:15),3(cid:15)5,359 (cid:15),(cid:13)(cid:17)(cid:17),(cid:19)39 (cid:7)17(cid:8)(cid:4) (cid:7)0.1(cid:17)(cid:8)(cid:22)1 (1(cid:17))(cid:4) ((cid:13).1(cid:15))(cid:23)1 The Company is subject to minimum capital requirements relating to ban(cid:60) credit facilities and senior debentures. The Company has met these minimum requirements during the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15). There were no changes in the Company(cid:6)s approach to capital management during the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15). 23. S(cid:43)PPLEMENTAL CASH FLO(cid:45) INFORMATION (cid:38)et change in non(cid:10)cash wor(cid:60)ing capital and other (cid:25)ccounts receivable Inventories (cid:25)ccounts payable and accrued liabilities (cid:40)rovisions Deferred revenue and contract liabilities Income taxes Derivative financial instruments (cid:39)ther Cash paid during the year for(cid:23) Interest Income taxes Cash received during the year for(cid:23) Interest Income taxes (cid:17)(cid:20) 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:7)(cid:16)(cid:21),7(cid:17)(cid:17)(cid:8) $ (cid:7)11(cid:17),1(cid:21)3(cid:8) (cid:7)(cid:16)7,1(cid:17)(cid:21)(cid:8) 3,1(cid:20)3 (cid:17)2,(cid:17)32 (cid:7)20,(cid:20)03(cid:8) (cid:18),(cid:20)30 (cid:7)(cid:18),(cid:18)(cid:17)(cid:18)(cid:8) (cid:7)177,021(cid:8) $ (1(cid:15)(cid:20),(cid:19)9(cid:19)) (315,1(cid:17)(cid:21)) 1(cid:13)9,1(cid:13)3 (cid:15),(cid:13)(cid:13)(cid:17) 1(cid:13)(cid:19),3(cid:21)(cid:21) 13,(cid:13)5(cid:13) (3,(cid:15)15) (cid:15),(cid:20)9(cid:17) ((cid:15)1(cid:15),(cid:20)(cid:15)(cid:13)) 2(cid:16),77(cid:17) $ 1(cid:21)(cid:20),2(cid:20)3 $ (cid:15)(cid:17),(cid:20)(cid:20)5 1(cid:17)(cid:17),(cid:17)(cid:17)(cid:19) 33,(cid:21)(cid:17)7 $ 1,203 $ 1(cid:21),(cid:21)(cid:13)(cid:17) (cid:15),(cid:20)(cid:13)(cid:21) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Consolidated Financial Statements 99 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:25) reconciliation of liabilities arising from financing activities was as follows(cid:23) (cid:26)alance, (cid:34)anuary 1, (cid:15)(cid:13)(cid:15)(cid:15) Deferred financing costs (cid:26)alance, December 31, (cid:15)(cid:13)(cid:15)(cid:15) Deferred financing costs (cid:24)a(cid:59)ance, December 31, 2023 2(cid:16). COMMITMENTS Lon(cid:54)(cid:10)term Debt (cid:19)(cid:17)(cid:19),33(cid:20) $ (cid:20)(cid:15)3 (cid:19)(cid:17)(cid:20),(cid:13)(cid:19)(cid:13) 72(cid:16) (cid:18)(cid:16)7,7(cid:20)(cid:16) $ (cid:3) (cid:30)uture minimum lease payments under non(cid:10)cancellable leases as at December 31, (cid:15)(cid:13)(cid:15)3 were $9.(cid:15) million within one year, $1(cid:20).3 million within two and five years and $(cid:20).(cid:21) million thereafter. 2(cid:17). SE(cid:29)MENTED INFORMATION The Company has two reportable segments(cid:23) the Equipment Group and CI(cid:37)C(cid:39), 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 material accounting policies described in note (cid:15). The operating segments are being reported based on the financial information provided to the Chief Executive (cid:39)fficer and Chief (cid:30)inancial (cid:39)fficer, who have been identified as the Chief (cid:39)perating Decision (cid:37)a(cid:60)ers ((cid:2)C(cid:39)D(cid:37)s(cid:2)) in monitoring segment performance and allocating resources between segments. The C(cid:39)D(cid:37)s 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 mar(cid:60)ets served and similar distribution models. (cid:38)o reportable segment is reliant on any single external customer. E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:29)ro(cid:68)(cid:63) The Equipment Group comprises the following(cid:23) (cid:80) Toromont Cat (cid:77) supplies, rents and provides product support services for speciali(cid:75)ed mobile equipment and industrial engines. 100 Toromont Industries Ltd. Annual Report 2023 (cid:17)(cid:21) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:80) (cid:26)attlefield Equipment (cid:42)entals (cid:77) The Cat (cid:42)ental (cid:43)tore (cid:77) supplies and rents speciali(cid:75)ed mobile (cid:80) equipment as well as specialty supplies and tools. Toromont (cid:37)aterial (cid:32)andling (cid:77) supplies, rents and provides product support services for material handling lift truc(cid:60)s. (cid:80) (cid:43)ITEC(cid:32) (cid:77) supplies control systems for speciali(cid:75)ed mobile equipment. (cid:80) Toromont Energy (cid:77) develops distributed generators and combined heat and power projects using Caterpillar engines. CIMCO (cid:40)rovides design, engineering, fabrication, installation, and product support services for industrial and recreational refrigeration systems. Cor(cid:63)orate Off(cid:56)ce The corporate office does not meet the definition of a reportable operating segment as defined in I(cid:30)(cid:42)(cid:43) (cid:21), Operating Segments, as it does not earn revenue The following table sets forth information by segment for the years ended December 31, (cid:15)(cid:13)(cid:15)3 and (cid:15)(cid:13)(cid:15)(cid:15)(cid:23) (cid:47)ears ended December 31 Equipment(cid:12)pac(cid:60)age sales (cid:42)entals (cid:40)roduct support (cid:40)ower generation Tota(cid:59) re(cid:69)en(cid:68)e CIMCO Conso(cid:59)(cid:56)dated E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:29)ro(cid:68)(cid:63) (cid:15)(cid:13)(cid:15)(cid:15) 2023 (cid:3) 1,(cid:21)(cid:17)1,30(cid:20) $ 1,(cid:19)9(cid:15),5(cid:21)5 (cid:3) (cid:16)(cid:20)7,17(cid:20) 1,77(cid:17),310 11,32(cid:18) (cid:17)5(cid:15),(cid:13)39 1,(cid:19)(cid:13)9,33(cid:13) 1(cid:13),(cid:17)1(cid:13) 2023 1(cid:20)7,(cid:17)73 $ (cid:75) 20(cid:21),(cid:18)0(cid:18) (cid:75) (cid:3) (cid:16),22(cid:17),122 $ 3,(cid:20)(cid:19)(cid:17),3(cid:19)(cid:17) (cid:3) 3(cid:21)7,17(cid:21) $ 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13)(cid:15)(cid:15) 1(cid:20)3,(cid:15)(cid:20)3 (cid:3) 2,13(cid:20),(cid:20)(cid:20)1 $ 1,(cid:21)(cid:19)5,(cid:21)5(cid:21) (cid:17)5(cid:15),(cid:13)39 (cid:16)(cid:20)7,17(cid:20) 1,(cid:20)(cid:21)(cid:20),(cid:13)(cid:17)(cid:13) 1,(cid:21)(cid:20)(cid:16),(cid:21)1(cid:18) 1(cid:13),(cid:17)1(cid:13) 11,32(cid:18) 35(cid:13),9(cid:21)3 (cid:3) (cid:16),(cid:18)22,301 $ (cid:17),115,3(cid:17)(cid:20) (cid:78) 1(cid:20)(cid:20),(cid:20)1(cid:13) (cid:78) O(cid:63)erat(cid:56)n(cid:54) (cid:56)ncome (cid:3) (cid:18)(cid:18)(cid:16),(cid:18)(cid:20)(cid:20) $ 59(cid:15),(cid:19)(cid:13)(cid:19) (cid:3) 3(cid:21),(cid:17)(cid:16)0 $ (cid:15)(cid:19),(cid:17)9(cid:15) (cid:3) 70(cid:16),22(cid:20) $ (cid:19)19,(cid:13)9(cid:21) Interest expense Interest and investment income Income taxes Income from cont(cid:56)n(cid:68)(cid:56)n(cid:54) o(cid:63)erat(cid:56)ons 2(cid:20),0(cid:21)(cid:20) (cid:7)(cid:16)(cid:17),(cid:21)(cid:20)2(cid:8) 1(cid:21)3,00(cid:17) (cid:17)2(cid:21),107 $ (cid:15)(cid:20),331 ((cid:15)1,(cid:20)1(cid:20)) 1(cid:19)3,3(cid:21)(cid:17) (cid:17)5(cid:13),1(cid:13)(cid:13) (cid:3) (cid:39)perating income from rental operations for the year ended December 31, (cid:15)(cid:13)(cid:15)3 was $9(cid:20).3 million ((cid:15)(cid:13)(cid:15)(cid:15) (cid:77) $9(cid:13).(cid:13) million). (cid:17)9 Consolidated Financial Statements 101 Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) (cid:43)elected consolidated statements of financial position information(cid:23) As at December 31 Identifiable assets Corporate assets Tota(cid:59) assets Identifiable liabilities Corporate liabilities Tota(cid:59) (cid:59)(cid:56)ab(cid:56)(cid:59)(cid:56)t(cid:56)es E(cid:64)(cid:68)(cid:56)(cid:63)ment (cid:29)ro(cid:68)(cid:63) (cid:15)(cid:13)(cid:15)(cid:15) 2023 (cid:3) 3,27(cid:18),(cid:17)37 $ 3,(cid:13)(cid:13)(cid:21),(cid:21)1(cid:21) (cid:3) CIMCO 2023 1(cid:18)0,1(cid:20)(cid:17) $ (cid:3) (cid:21)3(cid:21),(cid:16)(cid:18)1 $ 91(cid:19),(cid:19)3(cid:15) (cid:3) 103,0(cid:18)0 $ Conso(cid:59)(cid:56)dated 2023 (cid:15)(cid:13)(cid:15)(cid:15) (cid:15)(cid:13)(cid:15)(cid:15) 155,3(cid:20)1 (cid:3) 3,(cid:16)3(cid:18),722 $ 3,1(cid:19)(cid:17),1(cid:21)9 1,13(cid:17),12(cid:17) 1,(cid:13)1(cid:20),93(cid:19) (cid:3) (cid:16),(cid:17)71,(cid:20)(cid:16)7 $ (cid:17),1(cid:21)(cid:15),1(cid:15)5 (cid:21)3,3(cid:17)(cid:20) (cid:3) 1,0(cid:16)2,(cid:17)21 $ 999,9(cid:20)9 (cid:21)5(cid:19),(cid:20)(cid:21)(cid:20) (cid:3) 1,(cid:20)(cid:20)7,(cid:21)(cid:21)(cid:17) $ 1,(cid:21)5(cid:19),(cid:20)(cid:19)(cid:19) (cid:20)(cid:16)(cid:17),(cid:16)7(cid:16) Ca(cid:63)(cid:56)ta(cid:59) e(cid:71)(cid:63)end(cid:56)t(cid:68)res, net (cid:3) 2(cid:18)(cid:18),22(cid:21) $ (cid:15)1(cid:20),(cid:13)9(cid:17) (cid:3) (cid:18),2(cid:16)(cid:17) $ 9,131 (cid:3) 272,(cid:16)7(cid:16) $ (cid:15)(cid:15)(cid:19),(cid:15)(cid:15)5 De(cid:63)rec(cid:56)at(cid:56)on e(cid:71)(cid:63)ense (cid:3) 172,71(cid:16) $ 15(cid:15),(cid:15)(cid:15)(cid:20) (cid:3) (cid:18),(cid:17)30 $ (cid:19),(cid:20)(cid:15)5 (cid:3) 17(cid:21),2(cid:16)(cid:16) $ 15(cid:21),95(cid:15) (cid:39)perations are based in Canada and the (cid:45)nited (cid:43)tates. The following tables summari(cid:75)e the final destination of revenue to customers and the capital assets and goodwill held in each geographic segment(cid:23) (cid:47)ears ended December 31 Canada (cid:45)nited (cid:43)tates International Re(cid:69)en(cid:68)e As at December 31 Canada (cid:45)nited (cid:43)tates Ca(cid:63)(cid:56)ta(cid:59) assets and (cid:54)ood(cid:70)(cid:56)(cid:59)(cid:59) 2023 (cid:16),(cid:16)(cid:20)(cid:16),20(cid:17) $ 137,(cid:17)(cid:16)1 (cid:17)(cid:17)(cid:17) (cid:16),(cid:18)22,301 $ 2023 1,30(cid:21),322 $ (cid:17),7(cid:16)(cid:18) 1,31(cid:17),0(cid:18)(cid:20) $ (cid:15)(cid:13)(cid:15)(cid:15) (cid:17),(cid:13)(cid:13)(cid:21),(cid:19)5(cid:17) 1(cid:13)5,(cid:19)(cid:20)(cid:13) 1,(cid:13)(cid:15)3 (cid:17),115,3(cid:17)(cid:20) (cid:15)(cid:13)(cid:15)(cid:15) 1,1(cid:20)5,(cid:15)(cid:13)(cid:20) 5,(cid:17)(cid:21)(cid:19) 1,1(cid:21)(cid:13),(cid:19)93 (cid:3) (cid:3) (cid:3) (cid:3) 2(cid:18). RELATED PART(cid:47) DISCLOS(cid:43)RES (cid:33)ey Mana(cid:54)ement Personne(cid:59) Com(cid:63)ensat(cid:56)on (cid:35)ey management includes the Company(cid:6)s directors and named executive officers. The remuneration of (cid:60)ey management is determined by the (cid:32)uman (cid:42)esources and (cid:32)ealth and (cid:43)afety Committee, having regard to the performance of the individual and Company and mar(cid:60)et trends. The compensation paid or payable to (cid:60)ey management for employee and director services is shown below(cid:23) (cid:43)alaries (cid:43)hare options and D(cid:43)(cid:45) awards (cid:25)nnual non(cid:10)equity incentive(cid:10)based plan compensation (cid:40)ension costs (cid:25)ll other compensation 102 Toromont Industries Ltd. Annual Report 2023 (cid:3) (cid:3) 2023 3,(cid:17)13 $ 3,117 3,(cid:21)1(cid:18) (cid:20)02 13(cid:21) 11,(cid:16)(cid:20)7 $ (cid:15)(cid:13)(cid:15)(cid:15) 3,311 3,(cid:13)(cid:21)(cid:15) 3,(cid:17)95 (cid:20)5(cid:17) 131 1(cid:13),(cid:20)(cid:20)3 5(cid:13) Toromont Industries Ltd. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended December 31, 2023 ($ thousands, except where otherwise indicated) 27. 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. 51 Consolidated Financial Statements 103 Toromont Industries Ltd. Ten-Year Financial Review For the years ended D ecember 31 ($ thousands, ex cept ratios and share data) OPERATING RESULTS Revenues Net earnings Net interest (income) ex pense Capital ex penditures, net FINANCIAL POSITION ividends declared W ork ing capital Capital assets Total assets Shareholders' equity FINANCIAL RATIOS W ork ing capital Non-current portion of long-term debt Return on opening shareholders' equity (% ) Total debt, net of cash, to shareholders' equity PER SHARE DATA ($) B asic earnings per share iluted earnings per share ividends declared B ook value (shareholders' equity) Shares outstanding at year end Price range High Low Close Notes 534,712 (17,884) 272,474 141,845 1,744,739 1,221,288 4,571,847 2,683,852 647,784 (.15):1 2.6.1 23.1 6.50 6.45 1.72 32.61 117.13 116.10 97.06 226 128 ,19 ,6 14 ,225 ,4 6 3 1,5 12,4 1,08 ,9 13 ,18 2,125 4 7,06 0 2,325 ,35 332,710 19 ,134 136 ,38 2 112,34 1,29 ,739 3,5 8 3,79 9 76 ,34 ,337 1,9 5 3,329 1,6 3,34 (.12): 1 2.4 : 1 23.5 28 .25 1.5 .5 2 .4 7 124 .25 9 3.25 9 7.71 (.14 ): 1 2.6 : 1 19 .6 23.6 1.36 .03 .00 115 .23 .6 1 114 .36 82,297,341 8 2,318 ,15 8 2,4 4 3,9 doperations. Certain other k ey metrics for 2022 are restated to conform to current year presentation. partially fund the aforementioned acquisition. Refer to note 25 of the 2018 audited financial statements for more information. (3) I n 2015 , debentures totalling $125 .0 million matured and as such were shown as " Current portion of long-term debt" in wor k 4,622,301 ,115 ,34 7 3,8 ,5 37 3,4 78 25 2023 (1) 2022 (1) 2021 8 2,4 74 20,8 101,9 ividends declared 1,077,9 28 ,9 13 6 2,6 2020 2021 2020 2023 (1) 2022 (1) Ten-Year Financial Review For the years ended D ecember 31 ($ thousands, ex cept ratios and share data) OPERATING RESULTS Revenues Net earnings Net interest (income) ex pense Capital ex penditures, net ing capital FINANCIAL POSITION Work Capital assets Total assets Non-current portion of long-term debt Shareholders' equity FINANCIAL RATIOS 2.4 Work ing capital 16 Return on opening shareholders' equity (% Total debt, net of cash, to shareholders' equity PER SHARE DATA ($) B asic earnings per share ,8 ,34 7 ,9 15 ,19 ,6 14 ,225 ,4 9 7 3,4 78 4,622,301 25 534,712 20,8 (17,884) ,25 3 272,474 5 3 101,9 141,845 19 136 112,34 ,5 37 332,710 ,134 ,38 2 226 128 ,115 6 3 3,8 9 7 ,8 ,9 15 ,25 3 5 3 1,077,9 28 6 2,6 ,79 2 ,29 ,6 1,744,739 1,221,288 ,79 2 4,571,847 ,29 647,784 5 2 ,6 2,683,852 ,739 ,34 8 3,79 4 7,06 0 ,35 1,5 12,4 1,08 ,18 2,125 5 3,329 2,325 ,337 3,34 1,29 9 76 5 2 1,9 3,5 1,6 : 1 2.4 : 1 2.4 .6 .6 16 23.5 .03: 1 .03: 1 (.12): 1 2.6 19 (.14 ): 1 2.6.1 23.1 (.15):1 : 1 .6 : 1 ) ing capital in 2014 . 2019 2018 2017(2) 2016 2015 (3) 2014 2019 2018 2017(2) 2016 2015 (3) 2014 3,5 04 ,236 2,35 0,16 2 1,9 12,04 0 1,8 ,723 1,6 6 0,39 0 3,6 78 ,705 3,5 04 ,236 2,35 0,16 2 1,9 12,04 0 1,8 ,723 1,6 6 0,39 0 3,6 78 28 ,705 ,8 00 17,9 209 ,8 ,19 2 8 29 ,275 1,020,9 30 3,371,337 ,4 71 25 1,9 21,725 16 ,14 74 ,5 16 5 3,9 06 ,306 175 ,9 70 7,6 18 100,9 6 0,4 02 76 7,374 8 1,8 77 ,5 4 0 9 3,8 06 28 ,8 00 209 ,8 17,9 ,19 2 1,020,9 30 8 29 ,275 25 1,9 21,725 16 ,14 74 ,5 16 5 3,9 06 ,306 175 ,9 70 7,6 18 100,9 6 0,4 02 76 7,374 8 1,8 77 ,4 71 ,5 4 0 9 3,8 06 1,5 33,8 9 1 1,327,6 79 1,124 ,727 1,5 33,8 9 1 1,327,6 79 1,124 ,727 3,234 ,5 31 2,8 ,9 1,39 ,212 1,276 ,077 1,107,8 02 3,371,337 3,234 ,5 31 2,8 ,9 1,39 ,212 1,276 ,077 1,107,8 02 15 ,74 3,236 ,031 ,28 0 5 75 ,38 2 ,104 15 0,717 ,4 32 2.8 : 1 20.0 (.04 ): 1 1.9 1.9 0.72 11.29 .4 27.25 4 2.35 14 ,6 ,24 113,9 11 5 2,8 8 2 ,29 3 4 29 ,8 24 15 2,079 775 ,28 1 2.6 : 1 21.6 .11: 1 1.8 1.8 0.6 .9 37.6 1 26 .70 31.5 133,19 ,034 76 ,8 9 3 ,26 7 29 ,75 3 371,6 6 1 ,9 4 2 ,075 1.7: 1 23 .07: 1 1.73 1.71 0.6 0 .6 .4 28 24 28 .9 7 .5 1 1.8 : 1 21.4 .18 : 1 3.5 2 3.4 1.08 .70 1.6 : 1 22.3 .23: 1 3.10 3.07 0.9 2 16 .35 .11 .24 .26 2.1: 1 19 .6 .3 : 1 2.22 2.20 0.76 13.8 ,8 19 .4 4 1.10 .10 8 1,226 ,38 3 8 0,9 78 ,39 ,4 77,9 05 ,8 21 8 2,012,4 77,25 ,39 8 1,226 ,38 3 8 0,9 78 ,39 ,4 77,9 05 ,8 21 77,25 1.8 : 1 21.4 .18 : 1 3.5 2 3.4 1.08 18 .70 71.15 5 2.71 70.5 1.6 : 1 22.3 .23: 1 3.10 3.07 0.9 2 16 .35 .11 .24 .26 2.1: 1 19 .6 .3 : 1 2.22 2.20 0.76 13.8 ,8 19 4 1.10 .10 .4 15 ,74 3,236 ,031 ,28 0 5 75 ,38 2 ,104 15 0,717 ,4 32 (.04 ): 1 2.8 : 1 20.0 1.9 1.9 11.29 0.72 27.25 4 2.35 .4 14 ,6 ,24 113,9 11 5 2,8 8 2 4 29 ,8 24 ,29 3 15 2,079 775 ,28 1 2.6 : 1 21.6 .11: 1 1.8 1.8 0.6 .9 37.6 1 26 .70 31.5 133,19 76 ,8 9 3 ,26 7 ,034 29 ,75 3 371,6 6 1 ,9 4 2 ,075 1.7: 1 .07: 1 23 1.73 1.71 0.6 0 ,39 .6 28 24 28 .9 7 .4 .5 1 71.15 5 2.71 70.5 (1) The Company completed the sale of AgWest Ltd., a wholly owned subsidiary, on May 1, 2023. Revenues for 2023 and 2022 only are presented on a continuing operations basis. Earnings, EPS, ROE are reported inlcuding discontinue (2) 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 .5 2 .4 7 1.24 20.6 0 8 2,4 74 3.10 6.50 3.09 6.45 1.72 32.61 82,297,341 iluted earnings per share ividends declared .03 .00 3.10 3.09 1.24 20.6 0 8 2,318 4 3,9 8 2,4 1.36 1.5 ,15 .25 28 ,6 23.6 .8 .25 5 2.36 9 3.25 9 7.71 B ook value (shareholders' equity) ,6 Shares outstanding at year end Price range High Low Close Notes Notes (1) The Company completed the sale of AgWest Ltd., a wholly owned subsidiary, on May 1, 2023. Revenues for 2023 and 2022 only are presented on a continuing operations basis. Earnings, EPS, ROE are reported inlcuding discontinue (1) The Company completed the sale of AgWest Ltd., a wholly owned subsidiary, on May 1, 2023. Revenues for 2023 and 2022 only are doperations. Certain other k ey metrics for 2022 are restated to conform to current year presentation. presented on a continuing operations basis. Earnings, EPS and ROE are reported including discontinued operations for all years. For more information, please refer to the annual audited financial statements and Managements’ Discussion and Analysis for the year ended December 31, 2023 contained herein. Certain other key metrics for 2022 are restated to conform to current year presentation. (2) 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. (2) The Company completed the acquisition of the businesses and net operating assets of the Hewitt Group of Companies on October 27, 2017 (3) I n 2015 , debentures totalling $125 .0 million matured and as such were shown as " Current portion of long-term debt" 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. .20 117.13 97.06 116.10 18 8 2,012,4 ing capital in 2014 . .23 .6 1 .36 .8 5 2.36 in work .20 124 115 114 (3) In 2015, debentures totalling $125.0 million matured and as such were shown as “Current portion of long-term debt” in working capital in 2014. 104 Toromont Industries Ltd. Annual Report 2023 4 8 6 4 6 4 5 4 8 4 6 8 4 5 8 5 6 6 6 5 9 8 5 5 5 6 4 6 9 5 5 5 6 5 4 8 5 D 4 8 8 5 6 4 6 5 6 4 6 4 8 6 4 6 6 9 9 4 9 5 4 8 4 5 4 4 6 6 6 6 4 5 4 6 6 4 6 6 4 6 9 6 4 5 6 4 4 8 4 9 9 8 8 8 5 6 6 8 5 5 4 9 8 D 5 4 9 8 6 D 6 8 9 9 9 5 8 5 9 6 8 5 8 4 8 4 9 8 5 6 9 6 9 4 6 6 8 5 8 4 4 4 4 8 4 4 6 8 8 9 9 5 4 5 5 5 4 8 6 4 6 4 5 4 8 4 6 8 4 5 8 5 6 6 6 5 9 8 5 5 5 6 4 6 9 5 5 5 6 5 4 8 5 D 4 8 8 5 6 4 6 5 6 4 6 4 8 6 4 6 6 9 9 4 9 5 4 8 4 5 4 4 6 6 6 6 4 5 4 6 6 4 6 6 4 6 9 6 4 5 6 4 4 8 4 9 9 8 8 8 5 6 6 8 5 5 4 9 8 D 5 4 9 8 6 D 6 8 9 9 9 5 8 5 9 6 8 5 8 4 8 4 9 8 5 6 9 6 9 4 6 6 8 5 8 4 4 4 4 8 4 4 6 8 8 9 9 5 4 5 5 5 Ten-Year Financial Review For the years ended D ecember 31 ($ thousands, ex cept ratios and share data) OPERATING RESULTS Revenues Net earnings Net interest (income) ex pense Capital ex penditures, net FINANCIAL POSITION ividends declared W ork ing capital Capital assets Total assets Shareholders' equity FINANCIAL RATIOS W ork ing capital Non-current portion of long-term debt Return on opening shareholders' equity (% ) Total debt, net of cash, to shareholders' equity PER SHARE DATA ($) B asic earnings per share iluted earnings per share ividends declared B ook value (shareholders' equity) Shares outstanding at year end Price range High Low Close Notes 534,712 (17,884) 272,474 141,845 1,744,739 1,221,288 4,571,847 2,683,852 647,784 (.15):1 2.6.1 23.1 6.50 6.45 1.72 32.61 117.13 116.10 97.06 226 128 ,19 ,6 14 ,225 ,4 6 3 1,5 12,4 1,08 ,9 13 ,18 2,125 4 7,06 0 2,325 ,35 (.12): 1 2.4 : 1 23.5 28 .25 1.5 .5 2 .4 7 124 .25 9 3.25 9 7.71 332,710 19 ,134 136 ,38 2 112,34 1,29 ,739 3,5 8 3,79 9 76 ,34 ,337 (.14 ): 1 2.6 : 1 19 .6 23.6 1.36 .03 .00 115 .23 .6 1 114 .36 1,9 5 3,329 1,6 Ten-Year Financial Review For the years ended D ecember 31 OPERATING RESULTS 6 2,6 Capital assets FINANCIAL POSITION 1,744,739 1,221,288 1,5 12,4 1,08 ,9 13 23.1 6.45 1.72 117.13 97.06 2.4 : 1 23.5 (.12): 1 .5 2 .4 7 1.5 28 .25 124 .25 9 3.25 9 7.71 partially fund the aforementioned acquisition. Refer to note 25 of the 2018 audited financial statements for more information. (3) I n 2015 , debentures totalling $125 .0 million matured and as such were shown as " Current portion of long-term debt" in wor k 4,622,301 ,115 ,34 7 3,8 ,5 37 3,4 78 ,8 Revenues 9 7 4,622,301 ,115 ,34 7 25 ,9 15 Net earnings 20,8 Net interest (income) ex pense 101,9 ividends declared 5 3 141,845 ,25 3 Capital ex penditures, net 272,474 534,712 (17,884) ,19 ,6 14 ,225 ,4 6 3 226 128 3,8 ,5 37 332,710 ,134 ,38 2 19 136 112,34 ,29 Non-current portion of long-term debt 647,784 4 7,06 0 ,337 ,6 Shareholders' equity 5 2 2,683,852 2,325 ,35 1,9 5 3,329 1,6 FINANCIAL RATIOS 2.4 Work ing capital : 1 2.6.1 16 Return on opening shareholders' equity (% .6 ) .03: 1 Total debt, net of cash, to shareholders' equity (.15):1 PER SHARE DATA ($) 3.10 B asic earnings per share 6.50 3.09 iluted earnings per share 1.24 ividends declared 20.6 0 B ook value (shareholders' equity) 32.61 : 1 .6 2.6 19 (.14 ): 1 .03 .00 1.36 23.6 82,297,341 8 2,318 ,15 8 2,4 4 3,9 8 2,4 74 ,6 Shares outstanding at year end 82,297,341 8 2,318 ,15 8 2,4 4 3,9 8 2,4 74 ,6 3,34 ,79 2 Total assets 4,571,847 ,18 2,125 3,5 1,077,9 28 ing capital Work 1,29 5 2.36 Low Close .20 116.10 115 114 .23 .6 1 .36 .8 5 2.36 .20 71.15 5 2.71 70.5 Price range High .8 Notes 3,4 78 25 9 7 ,8 ,9 15 20,8 ,25 3 5 3 101,9 1,077,9 28 6 2,6 ,79 2 ,29 ,6 5 2 : 1 2.4 .6 16 .03: 1 3.10 3.09 1.24 20.6 0 ,739 ,34 8 3,79 1.8 21.4 .18 3,34 9 76 : 1 : 1 ing capital in 2014 . (3) I n 2015 , debentures totalling $125 .0 million matured and as such were shown as " Current portion of long-term debt" ing capital in 2014 . in work 3.5 2 3.4 1.08 .70 18 8 2,012,4 16 8 1,226 1.6 : 1 22.3 .23: 1 3.10 3.07 0.9 2 .35 ,38 3 .11 .24 .26 3,6 78 28 ,705 ,8 00 209 17,9 ,8 ,19 2 8 29 ,275 1,020,9 30 3,371,337 ,4 71 9 1 1,5 33,8 3,5 04 ,236 25 1,9 16 21,725 ,14 ,5 16 74 5 3,9 06 ,306 ,5 31 4 0 ,5 3,234 2,35 0,16 2 ,9 70 175 7,6 18 100,9 6 0,4 02 76 7,374 2,8 8 1,8 77 ,9 9 3,8 06 1,327,6 79 1,124 ,727 2.1: 1 .3 19 : 1 .6 2.22 2.20 0.76 13.8 15 ,74 3,236 ,031 ,28 0 1,39 5 75 ,38 2 ,104 ,212 15 0,717 ,4 32 2.8 : 1 20.0 (.04 ): 1 1.9 1.9 0.72 11.29 ,4 14 ,723 ,6 ,24 113,9 11 8 2 5 2,8 ,29 3 ,8 24 ,077 15 2,079 775 29 ,75 3 6 1 371,6 1,107,8 02 ,9 4 2 ,075 : 1 2.6 21.6 .11: 1 1.7: 1 23 .07: 1 1.8 1.8 0.6 .9 ,8 21 1.73 1.71 0.6 0 .6 ,39 1,9 12,04 0 3,6 78 6 0,39 0 1,8 1,6 133,19 28 ,8 00 76 ,034 9 3 ,8 ,26 7 209 ,8 17,9 ,19 2 1,020,9 30 3,371,337 4 29 1,276 8 29 ,275 1,5 33,8 ,28 1 ,705 3,5 04 ,236 2,35 0,16 2 1,9 12,04 0 1,8 ,723 1,6 6 0,39 0 ,4 71 9 1 1.8 : 1 21.4 .18 : 1 3.5 2 3.4 1.08 18 .70 3,234 ,5 31 2,8 ,9 1,39 ,212 1,276 ,077 1,107,8 02 25 1,9 21,725 16 ,14 74 ,5 16 5 3,9 06 ,306 175 ,9 70 7,6 18 100,9 6 0,4 02 76 7,374 8 1,8 77 1,327,6 79 1,124 ,727 ,5 4 0 9 3,8 06 1.6 : 1 22.3 .23: 1 3.10 3.07 0.9 2 16 .35 .11 .24 .26 2.1: 1 19 .6 .3 : 1 2.22 2.20 0.76 13.8 ,8 19 4 1.10 .10 .4 15 ,74 3,236 ,031 ,28 0 5 75 ,38 2 ,104 15 0,717 ,4 32 (.04 ): 1 2.8 : 1 20.0 1.9 1.9 11.29 0.72 27.25 4 2.35 .4 14 ,6 ,24 113,9 11 5 2,8 8 2 4 29 ,8 24 ,29 3 15 2,079 775 ,28 1 2.6 : 1 21.6 .11: 1 1.8 1.8 0.6 .9 37.6 1 26 .70 31.5 133,19 76 ,8 9 3 ,26 7 ,034 29 ,75 3 371,6 6 1 ,9 4 2 ,075 1.7: 1 .07: 1 23 1.73 1.71 0.6 0 ,39 .6 28 24 28 .9 7 .4 .5 1 8 1,226 ,38 3 8 0,9 78 ,39 ,4 77,9 05 ,8 21 77,25 8 2,012,4 8 0,9 77,9 05 77,25 ,8 19 ,39 78 .4 4 1.10 .10 .4 27.25 4 2.35 37.6 1 26 .70 31.5 28 24 28 .9 7 .4 .5 1 71.15 5 2.71 70.5 (1) The Company completed the sale of AgWest Ltd., a wholly owned subsidiary, on May 1, 2023. Revenues for 2023 and 2022 only are presented on a continuing operations basis. Earnings, EPS, ROE are reported inlcuding discontinue (1) The Company completed the sale of AgWest Ltd., a wholly owned subsidiary, on May 1, 2023. Revenues for 2023 and 2022 only are presented on a continuing operations basis. Earnings, EPS, ROE are reported inlcuding discontinue doperations. Certain other k ey metrics for 2022 are restated to conform to current year presentation. doperations. Certain other k ey metrics for 2022 are restated to conform to current year presentation. (2) 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 (2) The Company completed the acquisition of the businesses and net operating assets of the Hewitt Group of Companies on October 27, 2017 for $1.02 billion. Long-term debt and common shares were issued on October 27, 2017, to partially fund the aforementioned acquisition. Refer to note 25 of the 2018 audited financial statements for more information. 2023 (1) 2022 (1) 2021 2020 ($ thousands, ex cept ratios and share data) 2023 (1) 2022 (1) 2021 2020 2019 2018 2017(2) 2016 2015 (3) 2014 2019 2018 2017(2) 2016 2015 (3) 2014 Consolidated Financial Statements 105 4 8 6 4 6 4 5 4 8 4 6 8 4 5 8 5 6 6 6 5 9 8 5 5 5 6 4 6 9 5 5 5 6 5 4 8 5 D 4 8 8 5 6 4 6 5 6 4 6 4 8 6 4 6 6 9 9 4 9 5 4 8 4 5 4 4 6 6 6 6 4 5 4 6 6 4 6 6 4 6 9 6 4 5 6 4 4 8 4 9 9 8 8 8 5 6 6 8 5 5 4 9 8 D 5 4 9 8 6 D 6 8 9 9 9 5 8 5 9 6 8 5 8 4 8 4 9 8 5 6 9 6 9 4 6 6 8 5 8 4 4 4 4 8 4 4 6 8 8 9 9 5 4 5 5 5 4 8 6 4 6 4 5 4 8 4 6 8 4 5 8 5 6 6 6 5 9 8 5 5 5 6 4 6 9 5 5 5 6 5 4 8 5 D 4 8 8 5 6 4 6 5 6 4 6 4 8 6 4 6 6 9 9 4 9 5 4 8 4 5 4 4 6 6 6 6 4 5 4 6 6 4 6 6 4 6 9 6 4 5 6 4 4 8 4 9 9 8 8 8 5 6 6 8 5 5 4 9 8 D 5 4 9 8 6 D 6 8 9 9 9 5 8 5 9 6 8 5 8 4 8 4 9 8 5 6 9 6 9 4 6 6 8 5 8 4 4 4 4 8 4 4 6 8 8 9 9 5 4 5 5 5 Board of Directors Richard G. Roy Chair of the Board (Director since 2018) Jeffrey S. Chisholm‡ Corporate Director (since 2011), Vice Chair, Chair of Human Resources and Health and Safety Committee Peter J. Blake‡* Corporate Director (since 2019), Chair of Environmental, Social and Governance Committee Benjamin D. Cherniavsky* Corporate Director (since 2021) Cathryn E. Cranston*‡ Corporate Director (since 2013), Chair of Audit Committee Sharon L. Hodgson* Corporate Director (since 2019) Mike S. H. McMillan President and Chief Executive Officer (since October 2023) Frederick J. Mifflin* Corporate Director (since 2022) Katherine A. Rethy‡ Corporate Director (since 2013) * Member of Audit Committee  Member of Human Resources and Health and Safety Committee ‡ Member of Environmental, Social and Governance Committee Executive Team Corporate Executive Business Unit Leaders Mike S. H. McMillan President and Chief Executive Officer Joel Couture Chief Operating Officer, Toromont Cat John M. Doolittle Executive Vice President and Chief Financial Officer Colin Goheen President, Battleﬁeld Equipment Rentals Michael P. Cuddy Vice President and Chief Information Officer David A. Malinauskas President, CIMCO Refrigeration Jennifer J. Cochrane Vice President, Finance Lynn M. Korbak General Counsel and Corporate Secretary Stephanie A. Hardman Vice President, People and Culture 106 Toromont Industries Ltd. Annual Report 2023 Corporate Directory Annual and Special Meeting Thursday, May 2, 2024 at 10:00 a.m. (EDT) 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 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 CIMCO Refrigeration 1551 Corporate Drive Burlington, Ontario L7L 6E9 T: 416.465.7581 www.cimcorefrigeration.com Toromont’s 2023 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

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