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Toromont Announces Results for the Fourth Quarter and Full Year 2012 and Increases Quarterly Dividend

TORONTO, ONTARIO--(Marketwire - Feb 11, 2013) - Toromont Industries Ltd. (TIH.TO) today reported record financial results from continuing operations for the three and twelve-month periods ended December 31, 2012. 

  Three months ended December 31     Twelve months ended December 31  
millions, except per share amounts 2012 2011 % change     2012 2011 % change  
Continuing operations basis:                          
Revenues $ 431.1 $ 408.4 6 %   $ 1,507.2 $ 1,382.0 9 %
Operating income $ 61.8 $ 48.2 28 %   $ 170.3 $ 148.2 15 %
Net earnings $ 44.9 $ 34.2 31 %   $ 120.6 $ 102.7 17 %
Earnings per share - basic $ 0.59 $ 0.44 34 %   $ 1.57 $ 1.33 18 %
Discontinued operations:                          
Net earnings $ - $ - n/m     $ - $ 143.8 n/m  
Earnings per share - basic $ - $ - n/m     $ - $ 1.87 n/m  
Net earnings $ 44.9 $ 34.2 31 %   $ 120.6 $ 246.5 (51 %)
Earnings per share - basic $ 0.59 $ 0.44 34 %   $ 1.57 $ 3.20 (51 %)
Note - 2011 net earnings from discontinued operations includes a gain on disposition of $133.2 million, $1.73 per share basic.

Toromont reported strong results in the fourth quarter with net earnings from continuing operations increasing 31%, reflecting strong growth in product support, rental activities and improved margins due to sales mix. For the year, net earnings increased 17% on the same factors as well as higher new equipment deliveries.

"We are very pleased with our results for the quarter and year.  Revenues from equipment, product support and rentals were at record levels for the full year and were at or near record levels for the quarter," said Scott J. Medhurst, President and Chief Executive Officer of Toromont Industries Ltd.  "Each of our business units set records for the year.  Our increased installed base and focus on product support, combined with increased rental utilization, resulted in terrific growth in earnings of 17%."

Considering the success achieved in 2012, solid financial position and positive long-term outlook the Board of Directors increased the quarterly dividend to 13 cents per share.  This represents an 8% increase in Toromont''s regular quarterly cash dividend. The next dividend is payable April 1, 2013, to shareholders of record at the close of business on March 13, 2013.  The Company has paid dividends every year since going public in 1968 and has announced dividend increases in each of the past 24 years.


  • Net earnings from continuing operations were $44.9 million in the quarter ($0.59 per share basic), up 31% from $34.2 million reported in the same quarter last year. The improvement resulted from higher gross margins, an improved expense ratio, higher revenues and a lower statutory income tax rate.
  • For the full year, net earnings from continuing operations were $120.6 million ($1.57 per share basic), 17% higher than 2011. Higher revenues, an improved expense ratio, higher gross margins and a reduction in statutory income tax rates contributed to the improvement.
  • Equipment Group revenues of $367 million were down 1% in the fourth quarter versus the similar period of 2011 on lower new and used equipment sales. Product support and rental revenues were at record levels for the quarter, up 29% and 26% respectively from the fourth quarter of 2011. Operating income increased 23% in the quarter compared to last year on higher gross margins resulting from improved sales mix, with a higher proportion of product support activities in the current period, and higher heavy and light rental fleet utilization. Investments in the rental fleet continue to gain traction. Gross margin improvement was partially offset by higher expense levels and lower revenues.
  • Equipment Group revenues were $1.3 billion for 2012, 9% higher than last year with records in equipment sales, product support and rental. Revenue growth resulted largely from increased mining activity in our markets. Operating income increased 16% year-over-year on higher revenues, improved gross margin (largely on sales mix) and a lower expense ratio.
  • Equipment Group backlogs were $128 million at the end of 2012 compared to $224 million at this time last year. Significant mining deliveries in the year drew down the order backlog. Bookings of $156 million in the fourth quarter were 1% lower than the fourth quarter of 2011. Bookings in 2012 totalled $614 million compared to $635 million in the prior year.
  • CIMCO had excellent results for the fourth quarter with revenues of $64 million and operating income of $4.4 million, up from $37 million and $1.5 million in the fourth quarter of 2011. Significant industrial package sales revenues in the fourth quarter of 2012 exceeded the expected decline in recreational package sales. Product support sales were also strong, up 14%.
  • CIMCO revenues for the year were a record at $197 million, up 6% from 2011. Package sales and product support both reported increases. Higher industrial revenue exceeded the expected decline in recreational. Operating income increased 3% for the year, reaching $14.3 million or 7.2% of revenues. Increased income driven by higher revenues was partially offset by lower gross margins.
  • CIMCO bookings were $23 million in the fourth quarter of 2012 compared to $27 million for the same period last year. Bookings for the year were $162 million, 78% higher than 2011 on a significant order from Maple Leaf Foods. Even excluding this order, bookings for the year were up 25%. Backlogs were $99 million at December 31, 2012, up 94% over 2011.
  • Net earnings were $44.9 million in the quarter ($0.59 per share basic) and $120.6 million ($1.57 per share basic) for the year. Return on opening shareholders'' equity was 30.1% and return on capital employed was 28.7%.
  • The Company maintained a strong financial position. Total debt net of cash to total capitalization was 25%, well within stated capital targets.

"Toromont is well positioned entering 2013 with momentum in product support and rental activities, increased equipment populations including large mining units, record backlogs at CIMCO and a strong balance sheet," continued Mr. Medhurst. "We expect to see improved performance from our Power Systems Group, are cautiously optimistic that construction markets will be buoyed by several large projects and continue to see significant long-term opportunities in mining.  Our team is focused on improving market share by providing exceptional service to our customers."

Quarterly Conference Call and Webcast

Interested parties are invited to join the quarterly conference call with investment analysts, in listen-only mode, on Monday, February 11, 2013 at 5:00 p.m. (ET). The call may be accessed by telephone at 1-866-226-1792 (toll free) or 416-340-2216 (Toronto area). A replay of the conference call will be available until Monday, February 25, 2013 by calling 1-800-408-3053 or 416-694-9451 and quoting passcode 4173816.

Both the live webcast and the replay of the quarterly conference call can be accessed at www.toromont.com.


Information in this press release that is not a historical fact is "forward-looking information". Words such as "plans", "intends", "outlook", "expects", "anticipates", "estimates", "believes", "likely", "should", "could", "will", "may" and similar expressions are intended to identify statements containing forward-looking information. Forward-looking information in this press release is based on current objectives, strategies, expectations and assumptions which management considers appropriate and reasonable at the time including, but not limited to, general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and shareholder and regulatory approvals.

By its nature, forward-looking information is subject to risks and uncertainties which may be beyond the ability of Toromont to control or predict. The actual results, performance or achievements of Toromont could differ materially from those expressed or implied by forward-looking information. Factors that could cause actual results, performance, achievements or events to differ from current expectations include, among others, risks and uncertainties related to: business cycles, including general economic conditions in the countries in which Toromont operates; commodity price changes, including changes in the price of precious and base metals; changes in foreign exchange rates, including the Cdn$/US$ exchange rate; the termination of distribution or original equipment manufacturer agreements; equipment product acceptance and availability of supply; increased competition; credit of third parties; additional costs associated with warranties and maintenance contracts; changes in interest rates; the availability of financing; and, environmental regulation.

Any of the above mentioned risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied in the forward-looking information and statements included in this press release. For a further description of certain risks and uncertainties and other factors that could cause or contribute to actual results that are materially different, see the risks and uncertainties set out in the "Risks and Risk Management" and "Outlook" sections of Toromont''s most recent annual or interim Management Discussion and Analysis, as filed with Canadian securities regulators at www.sedar.com and may also be found at www.toromont.com. Other factors, risks and uncertainties not presently known to Toromont or that Toromont currently believes are not material could also cause actual results or events to differ materially from those expressed or implied by statements containing forward-looking information.

Readers are cautioned not to place undue reliance on statements containing forward-looking information that are included in this press release, which are made as of the date of this press release, and not to use such information for anything other than their intended purpose. Toromont disclaims any obligation or intention to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities legislation.

About Toromont

Toromont Industries Ltd. operates through two business segments: The Equipment Group and CIMCO. The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory in addition to industry leading rental operations. CIMCO is a market leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems. Both segments offer comprehensive product support capabilities. This press release and more information about Toromont Industries can be found at www.toromont.com.

Management''s Discussion and Analysis

This Management''s Discussion and Analysis ("MD&A") comments on the operations, performance and financial condition of Toromont Industries Ltd. ("Toromont" or the "Company") as at and for the three and twelve months ended December 31, 2012, compared to the preceding year. This MD&A should be read in conjunction with the attached unaudited consolidated financial statements and related notes for the twelve months ended December 31, 2012, the annual MD&A contained in the 2011 Annual Report and the audited annual consolidated financial statements for the year ended December 31, 2011.

The consolidated financial statements reported herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The information in this MD&A is current to February 11, 2013.

Additional information is contained in the Company''s filings with Canadian securities regulators, including the Company''s 2011 Annual Report and 2012 Annual Information Form. These filings are available on SEDAR at www.sedar.com and on the Company''s website at www.toromont.com.


As at December 31, 2012, Toromont employed approximately 3,200 people in 102 locations across Canada and the United States. Toromont is listed on the Toronto Stock Exchange under the symbol TIH. 

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

The Equipment Group is comprised of Toromont CAT, one of the world''s larger Caterpillar dealerships, and Battlefield - The CAT Rental Store, an industry-leading rental operation. Performance in the Equipment Group is driven by activity in several industries: road building and other infrastructure-related activities; mining; residential and commercial construction; power generation; aggregates; waste management; steel; forestry; and agriculture. Significant activities include the sale, rental and service of mobile equipment for Caterpillar and other manufacturers; sale, rental and service of engines used in a variety of applications including industrial, commercial, marine, on-highway trucks and power generation; and sale of complementary and related products, parts and service. Territories include Ontario, Manitoba, Newfoundland and most of Labrador and Nunavut.

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


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

Expand Markets

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

Strengthen Product Support

Toromont''s parts and service business is a significant contributor to overall profitability and serves to stabilize results through economic downturns. Product support activities also represent opportunities to develop closer relationships with customers and differentiate the Company''s product and service offering. The ability to consistently meet or exceed customers'' expectations for service efficiency and quality is critical, as after-market support is an integral part of the customer''s decision-making process when purchasing equipment.

Broaden Product Offerings

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

Invest in Resources

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

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

Maintain a Strong Financial Position

A strong, well-capitalized balance sheet creates security and financial flexibility, and has contributed to the Company''s long-term track record of profitable growth. It is also fundamental to the Company''s future success.


On June 1, 2011, Toromont completed the spinoff of its natural gas compression business, Enerflex Ltd. ("Enerflex"). The information presented herein reflects the spinoff, with Enerflex presented as discontinued operations in all periods. Results for 2011 include the results of Enerflex for the five months ended May 31, 2011, net of certain costs incurred related to the spinoff transaction, together with the gain on distribution of Enerflex.


  Twelve months ended December 31  
($ thousands, except per share amounts) 2012   2011   $ change   % change  
Revenues $ 1,507,173   $ 1,381,974   $ 125,199   9 %
Cost of goods sold   1,122,765     1,032,599     90,166   9 %
Gross profit   384,408     349,375     35,033   10 %
Selling and administrative expenses   214,130     201,190     12,940   6 %
Operating income   170,278     148,185     22,093   15 %
Interest expense   9,714     9,012     702   8 %
Interest and investment income   (3,974 )   (3,214 )   (760 ) 24 %
Income before income taxes   164,538     142,387     22,151   16 %
Income taxes   43,985     39,709     4,276   11 %
Earnings from continuing operations   120,553     102,678     17,875   17 %
Earnings from discontinued operations   -     143,781     (143,781 ) n/m  
Net earnings $ 120,553   $ 246,459   $ (125,906 ) (51 %)
Earnings per share (basic)                      
  Continuing operations $ 1.57   $ 1.33   $ 0.24   18 %
  Discontinued operations   -     1.87     (1.87 ) n/m  
  $ 1.57   $ 3.20   $ (1.63 ) (51 %)
Key ratios:                      
Gross profit as a % of revenues   25.5 %   25.3 %          
Selling and administrative expenses as a % of revenues   14.2 %   14.6 %          
Operating income as a % of revenues   11.3 %   10.7 %          
Income taxes as a % of income before income taxes   26.7 %   27.9 %          

Revenues increased on higher revenues in both operating groups.  Equipment Group revenues were up 9% with record new equipment sales, rental and product support activities.  CIMCO revenues were up 6% on higher industrial package sales and product support activities. 

Gross profit margin was 25.5% in 2012 compared with 25.3% in 2011.  Gross profit margins in the Equipment Group were up largely due to sales mix, with a higher proportion of product support in the current year offset somewhat by competitive market conditions and additional project costs incurred in the Power Systems Group.  Product support gross margins improved with volumes and better execution in many operations.  CIMCO gross profit margins were down from 2011 on lower average quoted margins while project execution remained very positive.

Selling and administrative expenses increased 6% from 2011, in part reflecting the 9% increase in revenues.  Compensation was $7.1 million (5%) higher in 2012 compared to 2011 on increased headcount, annual salary increases and higher annual performance incentives expense.  The remaining increase related largely to higher freight, training and travel costs, reflecting increased business levels.

Operating income increased on higher revenues, reduced expense levels and improved gross margins due to mix.

Interest expense increased on higher average debt balances carried to support increased inventories and rental fleet.  Interest income increased reflecting higher levels of interest on conversion of rental equipment.

The reduced effective income tax rate for 2012 reflects lower statutory rates.

Net earnings in 2012 were $120.6 million and basic earnings per share ("EPS") were $1.57 per share.  This was 17% and 18% higher respectively, than 2011 on a continuing operations basis.

Earnings from discontinued operations in 2011 included $10.6 million from Enerflex.  In addition, a net gain of $133.2 million, $1.73 per share basic, was recorded on the spinoff.  Including these elements, net earnings in 2011 were $246.5 million, or $3.20 basic EPS. 

Comprehensive income in 2012 was $115.7 million, comprised of net earnings of $120.6 million and other comprehensive loss of $4.8 million.  Other comprehensive loss included actuarial loss on employee pension plans of $4.2 million after tax. 


The accounting policies of the segments are the same as those of the consolidated entity. Management evaluates overall business segment performance based on revenue growth and operating income relative to revenues. Corporate expenses are allocated based on each segment''s revenue. Interest expense and interest and investment income are not allocated.

Equipment Group

  Twelve months ended December 31  
($ thousands) 2012   2011   $ change   % change  
Equipment sales and rentals                      
  New $ 564,435   $ 515,046   $ 49,389   10 %
  Used   144,367     153,326     (8,959 ) (6 %)
  Rental   183,777     164,953     18,824   11 %
Total equipment sales and rentals   892,579     833,325     59,254   7 %
Power generation   11,435     12,085     (650 ) (5 %)
Product support   405,880     350,977     54,903   16 %
Total revenues $ 1,309,894   $ 1,196,387   $ 113,507   9 %
Operating income $ 156,021   $ 134,314   $ 21,707   16 %
Capital expenditures $ 99,871   $ 82,287   $ 17,585   21 %
Key ratios:                      
Product support revenues as a % of total revenues   31.0 %   29.3 %          
Group total revenues as a % of consolidated revenues   86.9 %   86.6 %          
Operating income as a % of revenues   11.9 %   11.2 %          

Despite continued global economic uncertainly, demand for the Company''s products and services remained strong. 

New equipment sales increased largely due to increased sales of larger, higher value units.  Mobile equipment sales to mining customers increased 50% year-over-year on significant deliveries from the order backlog.  Revenues from power systems applications were 9% lower.  Road construction was strong, although down 5% from records set last year.  A broader product offering including new Caterpillar vocational truck and Sitech products increased revenues over $10 million.

Used equipment sales include sales of used equipment purchased for resale, equipment received on trade-in and sales of Company owned rental fleet.  Used tractor equipment sales were lower year-over-year mainly due to reduced sales from the Company''s rental fleet.  Tractor used purchased sales were flat to prior year.  Used equipment sales vary on factors such as product availability (both new and used), customer demands and the general pricing environment. 

Rental revenues were higher on increased investment and improved utilization.  The Company invested $55 million net of disposals in its rental fleet in 2012, compared to $35 million in the prior year.  Utilization of both light and heavy equipment was good.  Light equipment rentals increased 9% year-over-year while heavy equipment rental increased 28%.  Equipment on rent with a purchase option increased 25%.  Power rentals were 26% lower year-over-year.  Generally, rental rates were fairly consistent in both years with continuing competitive market conditions.  Same store sales were the significant contributor, with the new location in Bracebridge, Ontario, representing less than 10% the year-over-year increase.

Power generation revenues from Toromont-owned plants were lower, largely reflecting decreased operating hours at the Waterloo facility due to a reduced availability of landfill gas. 

Product support revenues were a record in 2012, 16% higher than the previous record set in 2011.  Product support revenues in 2012 benefited from an increased installed base of equipment in our territory coupled with higher utilization of equipment. Most markets have seen higher product support activity year-over-year.  The Equipment Group added a net 88 technicians in 2012.  Both service and parts revenues set new records in 2012.

Operating income was up, in part reflecting the 9% increase in revenues.  Gross margin as a percentage of revenues increased 40 basis points compared to 2011 on sales mix, with a larger proportion of product support revenues to total in the current year.  Equipment gross margin was lower in the year on competitive market conditions, offset by improved product support gross margins.  Selling and administrative expenses increased 7% on the 9% increase in revenues.  Higher costs were reported across a number of areas including compensation, freight, training and occupancy.  Operating income as a percentage of revenues was 11.9% in 2012 versus 11.2% in 2011.

Capital expenditures in the Equipment Group totalled $99.9 million in 2012. Replacement and expansion of the rental fleet accounted for $77.6 million of total investment in 2012. Expenditures of $3.7 million related to new and expanded facilities to meet current and future growth requirements. Other capital expenditures included $13.8 million on service and delivery vehicles.

Toromont secured the coterminous Buycrus distribution network from Caterpillar for $13.7 million.  The addition of the former Bucyrus products, now rebranded CAT, strengthens Toromont''s mining offering with a much broader product line addressing surface and underground mining requirements.  Total revenues associated with former Bucyrus products totalled $24.6 million for the year, of which $8.8 million was recognized after the acquisition.

($ millions) 2012 2011 $ change   % change  
Bookings - year ended December 31 $ 614 $ 635 $ (21 ) (3 %)
Backlogs - as at December 31 $ 128 $ 224 $ (96 ) (43 %)

Bookings in 2012 totalled $614 million, down 3% from 2011. Lower prime and back-up power systems bookings accounted for approximately half of the decrease year-over-year.

Backlogs were higher in 2011 due to a significant mining order that was delivered as scheduled prior to the end of 2012.  At December 31, 2012 approximately 30% of the backlog was comprised of mining orders (60% at December 31, 2011) while 34% were power systems projects.  Substantially all backlog is expected to be delivered in 2013.  Shortened delivery windows due to process improvements and increased capacity at Caterpillar have also contributed to reduced backlogs. 


  Twelve months ended December 31  
($ thousands) 2012   2011   $ change % change  
Package sales $ 113,586   $ 103,925   $ 9,661 9 %
Product support   83,693     81,662     2,031 2 %
Total revenues $ 197,279   $ 185,587   $ 11,692 6 %
Operating income $ 14,257   $ 13,871   $ 386 3 %
Capital expenditures $ 1,440   $ 590   $ 850 144 %
Key ratios:                    
Product support revenues as a % of total revenues   42.4 %   44.0 %        
Group total revenues as a % of consolidated revenues   13.1 %   13.4 %        
Operating income as a % of revenues   7.2 %   7.5 %        

CIMCO reported record results for the year on growth in industrial activity. 

Package revenues were up as increased industrial revenues more than compensated for declines in recreational activities.  Industrial revenues in Canada were strong, up 62%, with a number of jobs progressing including the previously announced Maple Leaf transformation projects.  Recreational revenues in Canada were down 45% from last year, as anticipated, due to the wind-up of a Canadian federal stimulus program.  US package activities in both recreational and industrial were lower year-over-year by 20%.  US bookings in the fourth quarter and backlog at year-end were strong.    

Product support revenues were up as activity in the US increased 12% while Canadian markets were steady year-over-year.

Operating income increased reflecting higher revenues and lower expense levels, partially offset by lower margins.  Gross margins were down 80 basis points on lower average quoted margins, while execution remained favourable.  Selling and administrative expenses increased 3%.

Capital expenditures totalled $1.4 million in 2012. Capital investment was directed largely at service vehicles to support higher volumes, information technology assets and branch renovations.

($ millions) 2012 2011 $ change % change  
Bookings - year ended December 31 $ 162 $ 91 $ 71 78 %
Backlogs - as at December 31 $ 99 $ 51 $ 48 94 %

Bookings increased substantially year-over-year.  Bookings in 2012 included $49.8 million in previously announced orders from Maple Leaf Foods, $23.6 million of which was revenued in 2012.  Excluding these record orders for CIMCO, bookings were $112 million, still up 25% compared to 2011, reflecting improved market activity.  Recreational bookings were up 34% year-over-year with increases in both Canada and the US. 

Backlogs were higher in all areas – recreational and industrial; Canada and the US.  This is the highest backlog ever at this time of year, and bodes well for CIMCO entering 2013.  Approximately 92% of the backlog is expected to revenue in 2013.


The Company has maintained a strong financial position for many years.  At December 31, 2012, the ratio of total debt net of cash to total capitalization was 25%. 

Working Capital

The Company''s investment in non-cash working capital was $300 million at December 31, 2012. The major components, along with the changes from December 31, 2011, are identified in the following table. 

$ thousands 2012   2011   $   %  
Accounts receivable $ 231,518   $ 209,243   $ 22,275   11 %
Inventories   327,785     301,937     25,848   9 %
Other current assets   4,086     4,718     (632 ) (13 %)
Accounts payable, accrued liabilities and provisions   (194,303 )   (272,302 )   77,998   (29 %)
Income taxes payable   (3,130 )   (8,352 )   5,222   n/m  
Derivative financial instruments   (219 )   (628 )   409   n/m  
Dividends payable   (9,165 )   (8,433 )   (731 ) 9 %
Deferred revenue   (54,664 )   (49,100 )   (5,564 ) 11 %
Current portion of long-term debt   (1,372 )   (1,280 )   (92 ) 7 %
Total non-cash working capital $ 300,536   $ 175,803   $ 124,733   71 %

Accounts receivable increased, largely reflecting the higher revenues and higher days sales outstanding (DSO). CIMCO accounts receivable increased $17 million or 66% on significant customer billings at the end of 2012.  Equipment Group accounts receivable increased $5 million or 3%.  DSO was 45 at December 31, 2012 compared to 40 at the same time last year.

Inventories at December 31, 2012 increased year-over-year, however were decreased $54.3 million in the fourth quarter of 2012.  Equipment Group inventories were $19 million or 7% higher than this time last year.  Higher inventory on rent with a purchase option (RPO) accounted for 54% of the increase.  Higher inventory levels of certain models of new equipment and higher parts inventories ($2.6 million) held to support increased demand, accounted for the remaining increase.  CIMCO inventories were $7 million or 65% higher than this time last year on higher work-in-process. 

Accounts payable and accrued liabilities at December 31, 2012 were down $78 million or 29% from this time last year. There was a reduction in order inflow from a key supplier in the last half of 2012 leading to a reduced outstanding payable. Payment terms from the key supplier were tightened in 2012, further reducing the balance. 

Income taxes payable reflects amounts owing for current corporate income taxes less instalments made to date. 

Higher dividends payable year-over-year reflect the higher dividend rate. In 2012, the quarterly dividend rate was increased from $0.11 per share to $0.12 per share, a 9% increase. 

Deferred revenues represent billings to customers in excess of revenue recognized. In the Equipment Group, deferred revenues arise on sales of equipment with residual value guarantees, extended warranty contracts and other long-term customer support agreements as well as on progress billings on long-term construction contracts. Equipment Group deferred revenues were 2% higher than this time last year. In CIMCO, deferred revenues arise on progress billings in advance of revenue recognition. CIMCO deferred revenues increased 52% on advance payments from customers related to increased industrial projects.

The current portion of long-term debt reflects scheduled principal repayments due in 2013. 

Goodwill and Intangibles

The Company performs impairment tests on its goodwill and intangibles on an annual basis or as warranted by events or circumstances. The assessment of goodwill entails estimating the fair value of operations to which the goodwill relates using the present value of expected discounted future cash flows. This assessment affirmed goodwill values as at December 31, 2012.

Employee Share Ownership

The Company employs a variety of stock-based compensation plans to align employees'' interests with corporate objectives.

The Company maintains an Executive Stock Option Plan for certain employees and directors. Stock options have a seven-year term, vest 20% cumulatively on each anniversary date of the grant and are exercisable at the designated common share price. At December 31, 2012, 2.6 million options to purchase common shares were outstanding, of which 1.0 million were exercisable.

The Company offers an Employee Share Ownership Plan whereby employees can purchase shares by way of payroll deductions. Under the terms of this plan, eligible employees may purchase common shares of the Company in the open market at the then current market price. The Company pays a portion of the purchase price, matching contributions at a rate of $1 for every $3 dollars contributed, to a maximum of $1,000 per annum per employee. Company contributions vest to the employee immediately. Company contributions amounting to $0.9 million in 2012 (2011 - $1.1 million) were charged to selling and administrative expense when paid. A third party administers the Plan.

The Company also offers a deferred share unit (DSU) plan for certain employees and non-employee directors, whereby they may elect, on an annual basis, to receive all or a portion of their performance incentive bonus or fees, respectively, in deferred share units. A DSU is a notional unit that reflects the market value of a single Toromont common share and generally vests immediately. DSUs will be redeemed on cessation of employment or directorship. DSUs have dividend equivalent rights, which are expensed as earned. The Company records the cost of the DSU Plan as compensation expense.

As at December 31, 2011, DSUs outstanding were 211,872 at a total value of $4.3 million (2011 - 193,728 units at a value of $4.1 million). The liability for DSUs is included in Accounts Payable and Accrued Liabilities.

Employee Future Benefits

The Company sponsors pension arrangements for substantially all of its employees, primarily through defined contribution plans in Canada and a 401(k) matched savings plan in the United States. Certain unionized employees do not participate in Company-sponsored plans, and contributions are made to these union-sponsored plans in accordance with respective collective bargaining agreements. In the case of the defined contribution plans, regular contributions are made to the employees'' individual accounts, which are administered by a plan trustee, in accordance with the plan document. Future expense for these plans will vary based on future participation rates.

Approximately 130 employees participate in one of two defined benefit plans:

  • Powell Plan - Consists of personnel of Powell Equipment (acquired by Toromont in 2001); and
  • Other plan assets and obligations - Provides for certain retirees and terminated vested employees of businesses previously acquired by the Company as well as for retired participants of the defined contribution plan who, in accordance with the plan provisions, have elected to receive a pension directly from the plan.

The Company also has a defined benefit pension arrangement for certain senior executives that provides for a supplementary retirement payout in excess of amounts provided for under the registered plan. This Executive Plan is a non-contributory pension arrangement and is solely the obligation of the Company. The Company is not obligated to fund this plan but is obligated to pay benefits under the terms of the plan as they come due. The Company has posted letters of credit to secure the obligations under this plan, which were $20.2 million as at December 31, 2012. As there are only nominal plan assets, the impact of volatility in financial markets on pension expense and contributions for this plan are insignificant.

Financial markets continued to be volatile in 2012. The return on plan assets was $4.3 million or 8%, improved from $1.7 million or 3% in 2011, and comparing favourably to the expected long-term average return of 7%. The present value of pension obligations increased $4,360 in 2012, partly due to a decline in long-term interest rates. As a result, the funded status of the plans declined slightly from a deficit of $26.2 million at December 31, 2011 to a deficit of $26.8 million at December 31, 2012. These deficits included $19.6 million and $20.3 million respectively relating to the Executive Plan, which as described above is essentially an unfunded arrangement. The Company expects pension expense and cash pension contributions for 2013 to be similar to 2012 levels.

The Company estimates a long-term return on plan assets of 7%. While there is no assurance that the plan will be able to generate this assumed rate of return each year, management believes that it is a reasonable longer-term estimate.

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

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations or financial condition.

Legal and Other Contingencies

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

Normal Course Issuer Bid

Toromont believes that, from time to time, the purchase of its common shares at prevailing market prices may be a worthwhile investment and in the best interests of both Toromont and its shareholders. As such, the normal course issuer bid with the TSX was renewed in 2012. This issuer bid allows the Company to purchase up to approximately 6.4 million of its common shares, representing 10% of common shares in the public float, in the year ending August 30, 2013. The actual number of shares purchased and the timing of any such purchases will be determined by Toromont. All shares purchased under the bid will be cancelled.

In 2012, the Company purchased and cancelled 666,039 shares for $14.1 million (average cost of $21.23 per share). In 2011, the Company purchased and cancelled 720,004 shares for $12.2 million (average cost of $16.96 per share). 

Outstanding Share Data

As at the date of this MD&A, the Company had 76,453,008 common shares and 2,519,005 share options outstanding. 


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

During 2012, the Company declared dividends of $0.48 per common share, $0.12 per quarter. In 2011, the Company also declared dividends of $0.41 per common share, adjusting for the allocation of dividends for the spinoff of Enerflex.


Sources of Liquidity

Toromont''s liquidity requirements can be met through a variety of sources, including cash generated from operations, long- and short-term borrowings and the issuance of common shares. Borrowings are obtained through a variety of senior debentures, notes payable and committed long-term credit facilities.

The Company amended its Canadian credit facility in conjunction with the spinoff of Enerflex and commensurate with anticipated future requirements.  Outstanding borrowings under the previous facility were repaid in part from funds received relating to inter-company borrowings on spinoff.  The committed amount was reduced from $600 million to $200 million while the maturity date was extended from June 2012 to June 2015.  The US credit facility of US $20 million was terminated coincident with the spinoff with no penalty.  The Canadian facility was further amended in September 2012 to extend the term of the facility to September 2017 at improved rates.

As at December 31, 2012, $26.5 million was drawn on the $200 million Canadian facility. Letters of credit utilized an additional $24.1 million of the facility.

Cash at December 31, 2012 was $2.4 million, compared to $75.3 million at December 31, 2011.  Cash balances were drawn down in 2012 on a number of factors, including higher investments in rental assets and working capital. 

The Company expects that continued cash flows from operations in 2013 and currently available credit facilities will be more than sufficient to fund requirements for investments in working capital and capital assets.

Principal Components of Cash Flow

Cash from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table: 

  Twelve months ended December 31  
$ thousands 2012   2011  
Cash, beginning of year $ 75,319   $ 174,089  
Cash, provided by (used in):            
Operating activities            
  Operations - continuing operations   161,830     136,546  
  Change in non-cash working capital and other   (124,475 )   (39,731 )
  Discontinued operations   -     57,433  
    37,355     154,248  
Investing activities            
  Continuing operations   (91,205 )   (55,941 )
  Discontinued operations   -     140,115  
    (91,205 )   84,174  
Financing activities   (19,033 )   (337,311 )
Effect of foreign exchange on cash balances   (53 )   119  
Decrease in cash in the year   (72,936 )   (98,770 )
Cash, end of year $ 2,383   $ 75,319  

Cash Flows from Operating Activities

Operating activities provided $37.4 million in 2012 compared to $96.8 million in 2011 on a continuing operations basis. Net earnings adjusted for items not requiring cash were 19% higher than last year on higher revenues and improved operating margins. Non-cash working capital and other used $124.5 million compared to $39.7 million in 2011.  Discontinued operations provided $57.4 million in cash flow in 2011.

The components and changes in working capital are discussed in more detail in this MD&A under the heading "Consolidated Financial Condition."

Cash Flows from Investing Activities

Investing activities at continuing operations used $91 million in 2012 compared to $56 million in 2010.

Net rental fleet additions (purchases less proceeds of disposition) totalled $55 million in 2012 compared to $34.8 million in 2011. Additional investments in the rental fleet were made in the current year in light of stronger demand on improved market conditions, the existing fleet age profile and the expansion of our heavy rental operations.

Investments in property, plant and equipment in 2012 totalled $23.7 million compared to $25.0 million in 2011. Additions in 2012 were largely made within the Equipment Group. Capital additions included $4.1 million for land and buildings for new and expanded branches, $14.3 million for service vehicles, and $3.2 million for machinery and equipment. Additions in 2011 included $10.4 million for land and buildings acquired for new branch locations, $7.8 million for service vehicles and $2.8 million for information technology assets. 

In 2012, Toromont acquired from Caterpillar the assets associated with the former coterminous Bucyrus distribution network for US $13.5 million ($13.7 million). 

Investing activities at discontinued operations in 2011 included cash received from Enerflex Ltd. in repayment of intercompany debt of $173.3 million owing to the Company on spinoff.

Cash Flows from Financing Activities

Financing activities used $19.0 million in 2012 and $337.3 million in 2011. 

Significant sources and uses of cash in 2012 included:

  • Drawings on the credit facility of $26.5 million
  • Dividends paid to common shareholders of $36 million or $0.47 cents per share;
  • Normal course purchase and cancellation of common shares of $14.1 million, 666,039 shares at an average cost of $21.23; and
  • Cash received on exercise of share options of $6.2 million.

Significant sources and uses of cash in 2011 included:

  • Decrease in long-term debt of $286.9 million. The acquisition financing from the purchase of Enerflex Systems Income Fund ("ESIF") was fully repaid, in conjunction with the spinoff. Repayment was funded principally with amounts received by the Company from Enerflex in repayment of its intercompany debt;
  • Dividends paid to common shareholders of $40.9 million or $0.53 cents per share;
  • Normal course purchase and cancellation of common shares of $12.2 million, 720,004 shares at an average cost of $16.96; and
  • Proceeds received on the exercise of stock options of $3.2 million.


The substantial growth in product support, fueled by the increased installed base in the Equipment Group, bodes well for the Company''s continued success.

Within the Equipment Group, although market conditions are increasingly competitive, we are cautiously optimistic that construction markets will be reasonably robust, driven by large construction projects.  Future prospects are linked to general economic conditions and governmental investment levels.  Management continues to track a number of large construction projects, which are expected to contribute to future results.  Improved performance in the Power Systems Group is also expected to further contribute to 2013 results.  In addition, we have invested in the rental business and believe that this will continue to contribute to growth.

Although market signals are mixed, engagement levels remain high with respect to mining projects in Toromont''s territories. The product support contribution and opportunity is expected to continue to grow, however it is not anticipated that 2013 will see a replication of the record 2012 equipment sales into mining projects. The opportunity is high for a resumption of significant deliveries into 2014 and beyond, dependent on projects advancing and Toromont''s success in winning the business. The timing of mining projects is expected to have an impact on the earnings pattern.

The parts and service business has seen significant growth and provides a measure of stability, driven by the larger installed base of equipment in the field. The number of technicians has increased, service shops are very active and work-in-process levels remain strong.

Toromont''s expanded product offering contributes to growth on multiple fronts. Firstly, the Equipment Group benefits from Caterpillar''s expanding product line-up including the former Bucyrus and MWM products, which the Company now represents.  In addition, the Equipment Group represents complementary product lines with recent and expanding opportunities including Sitech and Metso.  CIMCO has also expanded its product offering to include CO2-based solutions, which are expected to contribute to its growth. 

At CIMCO, strong industrial bookings in Canada are an encouraging sign with respect to future prospects. Canadian recreational bookings continue, albeit at lower levels due to recent significant spending. This is expected to ramp back up over time, due in part to a recently introduced Quebec provincial program to replace CFC and HFC refrigerants in recreational facilities. The product support business remains a focus for growth with encouraging results in the United States.

The Company has historically demonstrated its success in delivering good profitability through changing market conditions. We expect to continue to do so.


Contractual obligations are set out in the following table. Management believes that these obligations will be met comfortably through cash generated from operations and existing long-term financing facilities.

Payments due by period 2013 2014 2015 2013 2017 Thereafter Total
Long-term Debt                            
  - principal $ 1,372 $ 1,471 $ 126,576 $ 1,690 $ 28,358 $ 2,963 $ 162,430
  - interest   7,619   7,521   6,067   1,152   849   1,480   24,688
Accounts payable   203,468   -   -   -   -   -   203,468
Operating Leases   2,606   2,017   1,482   1,329   227   1,726   9,387
  $ 215,065 $ 11,009 $ 134,125 $ 4,171 $ 29,434 $ 6,169 $ 399,973


Management reviews and monitors its activities and the performance indicators it believes are critical to measuring success. Some of the key financial performance measures are summarized in the following table. Others include, but are not limited to, measures such as market share, fleet utilization, customer and employee satisfaction and employee health and safety.

Years ended December 31, 2012   2011   2010   2009 (3)   2008  
Expanding Markets and Broadening Product Offerings                              
  Revenue growth (1)   9.1 %   14.5 %   14.8 %   -18.7 %   0.7 %
  Revenue per employee (thousands) (1) $ 481   $ 465   $ 423   $ 364   $ 430  
Strengthening Product Support                              
  Product support revenue growth (1)   13.2 %   12.6 %   7.4 %   -3.0 %   4.2 %
Investing in Our Resources                              
  Investment in information technology (millions) (1) $ 12.6   $ 12.1   $ 10.1   $ 10.6   $ 10.9  
  Return on capital employed (2)   28.7 %   32.4 %   10.8 %   21.1 %   26.4 %
Strong Financial Position                              
  Non-cash working capital (millions) (1) $ 301   $ 176   $ 136   $ 172   $ 197  
  Total debt, net of cash to total capitalization   25 %   13 %   17 %   -6 %   4 %
  Book value (shareholders'' equity) per share $ 6.24   $ 5.27   $ 15.50   $ 13.17   $ 12.06  
Build Shareholder Value                              
  Basic earnings per share growth (1)   18.1 %   32.5 %   9.6 %   -18.3 %   -12.7 %
  Dividends per share growth (4)   17.0 %   16.1 %   3.3 %   7.1 %   16.7 %
  Return on equity (5)   30.1 %   28.9 %   9.1 %   15.5 %   21.5 %
(1) Metric presents results on a continuing operations basis.  
(2) Return on capital employed is defined in the section titled "Non-IFRS Financial Measures". 2011 ROCE was calculated excluding earnings and capital employed from discontinued operations.  
(3) Financial statements for 2009 and previous reflect Canadian GAAP. These were not restated to IFRS.  
(4) Dividends per share growth in 2011 reflects the announced increase in dividend subsequent to apportionment of dividend to Enerflex subsequent to spinoff.  
(5) Return on equity is defined in the section titled "Non-IFRS Financial Measures". 2011 ROE was calculated excluding earnings and equity from discontinued operations.   

While the global recession interrupted the steady string of growth across key performance measures, profitability endured and the balance sheet continued to strengthen. This has been discussed at length throughout this MD&A.

Measuring Toromont''s results against these strategies over the past five years illustrates that the Company has made significant progress.

Since 2008, revenues increased at an average annual rate of 4.1%. Product support revenue growth has averaged 6.9% annually. Revenue growth in continuing operations has been a result of:

  • Increased customer demand in certain market segments, most notably mining;
  • Additional product offerings over the years from Caterpillar and other suppliers;
  • Organic growth through increased rental fleet size and additional branches; ...