Toromont Industries Ltd. Logo

Print Print page   Email Email page   PDF Download PDF    Add to Briefcase
« Previous Release | Next Release »



Toromont Announces Record Revenues and Net Income in the First Quarter of 2009

TORONTO, ONTARIO, Apr 22, 2009 (Marketwire via COMTEX News Network) -- Toromont Industries Ltd. (TSX:TIH) today reported record financial results for the three months ended March 31, 2009. Revenues in the quarter increased 15% and operating income increased 56% versus the comparable period of 2008. Net earnings were $23.7 million or $0.37 per share, 44% higher than that reported in the first quarter of 2008.

----------------------------------------------------------------------------
                                              Three months ended March 31
                                           ---------------------------------
$ millions, except per share amounts            2009        2008   % change
----------------------------------------------------------------------------
Revenues                                   $   457.7     $ 397.1        15%
Operating income                           $    36.6     $  23.4        56%
Net earnings                               $    23.7     $  16.5        44%
Earnings per share - basic                 $    0.37     $  0.25        48%
----------------------------------------------------------------------------


Highlights:

- Compression Group revenues were up 36% in the quarter compared to the same period last year on growth in U.S. natural gas compression package sales. Operating income for the quarter was up on the higher revenues.

- Compression Group booking activity for the quarter was 56% lower compared to the first quarter of 2008, on lower demand for natural gas compression in the U.S. and Canada. Backlogs were down 11% from December 31, 2008.

- Equipment Group revenues were down 5% in the first quarter of 2009 versus the same period of 2008 on lower new and used machine sales, partially offset by higher product support revenues. Operating income increased over the same period last year on higher gross margins largely due to gains realized during a period of rapid devaluation of the Canadian dollar.

- Equipment Group bookings were 44% lower than the first quarter of 2008. Generally, order rates have slowed in most regions and for most products. Backlogs at March 31, 2009 were 8% lower than at December 31, 2008.

- The Company maintained a strong financial position and ended the quarter with $67 million of cash and cash equivalents and a net debt to shareholders' equity ratio at a very conservative 0.14:1.

- In February 2009, the Board of Directors approved a 7% increase in the regular quarterly cash dividend. This represented the twentieth consecutive annual increase. The quarterly dividend now stands at 15 cents per common share.

- During the quarter, 43,400 shares were purchased and cancelled under the normal course issuer bid. Total cash outlay was $0.9 million and average cost was $19.77 per share.

"We are on the down side of the natural gas cycle and this has impacted booking levels in the first quarter," stated Robert M. Ogilvie, Chairman and Chief Executive Officer of Toromont Industries Ltd. "Our Equipment Group is also experiencing reduced bookings due to the general economic slowdown. We expect that recently announced infrastructure programs will have some positive impact beginning later this year. I am very pleased with the actions taken by our managers and believe that we are well positioned to ride out this recession."

The Company will hold its Annual and Special Meeting of Shareholders tomorrow, April 23rd, in Toronto, Ontario at 10 a.m. (EDT). The meeting will also be available via live webcast of audio and slides at www.toromont.com.

Quarterly Conference Call and Webcast

Interested parties are invited to join the quarterly conference call with investment analysts, in listen-only mode, on Wednesday, April 22, 2009 at 4:30 p.m. (EDT). The call may be accessed by telephone at 1-877-240-9772 (toll free) or 416-340-8527 (Toronto area). A replay of the conference call will be available until Monday, May 6, 2009 by calling 1-800-408-3053 or 416-695-5800 and quoting passcode 7260104.

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

About Toromont

Toromont Industries Ltd. operates through two business segments: The Equipment Group and the Compression Group. The Equipment Group includes one of the world's largest Caterpillar dealerships by revenue and geographic territory in addition to industry leading rental operations. The Compression Group is a North American leader specializing in the design, engineering, fabrication, and installation of compression systems for natural gas, coal-bed methane, fuel gas and carbon dioxide in addition to process systems and industrial and recreational refrigeration systems. Both Groups offer comprehensive product support capabilities. Toromont employs approximately 4,500 people in more than 120 locations and is listed on the Toronto Stock Exchange under the symbol TIH. This press release and more information about Toromont Industries can be found on the Web 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 months ended March 31, 2009, compared to the preceding year. It also discusses factors that could affect future performance. This MD&A should be read in conjunction with the attached unaudited interim consolidated financial statements and related notes for the three months ended March 31, 2009, the annual MD&A contained in the 2008 Annual Report and the audited annual consolidated financial statements of the Company for the year ended December 31, 2008.

The consolidated financial statements reported herein have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and are reported in Canadian dollars. The information in this MD&A is current to April 22, 2009.

Additional information is contained in the Company's filings with Canadian securities regulators, including the Company's 2008 Annual Report and 2009 Annual Information Form. These are available on SEDAR at www.sedar.com and on the Company's website at www.toromont.com.

CONSOLIDATED RESULTS OF OPERATIONS

                                              Three months ended March 31
$ thousands, except per share amounts           2009        2008   % change
----------------------------------------------------------------------------

Revenues                                   $ 457,659   $ 397,059        15%
Cost of goods sold                           363,182     316,001        15%
----------------------------------------------------------------------------
Gross profit                                  94,477      81,058        17%
Selling and administrative expenses           57,857      57,633         0%
----------------------------------------------------------------------------
Operating income                              36,620      23,425        56%
Interest expense                               2,181       3,138       (30%)
Interest and investment income                  (880)     (4,235)      (79%)
----------------------------------------------------------------------------
Income before income taxes                    35,319      24,522        44%
Income taxes                                  11,601       8,105        43%
----------------------------------------------------------------------------
Earnings from continuing operations           23,718      16,417        44%
Earnings from discontinued operations              -          77         -
----------------------------------------------------------------------------
Net earnings                               $  23,718   $  16,494        44%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basic earnings per share                   $    0.37   $    0.25        48%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Key ratios:
Gross profit as a % of revenues                 20.6%       20.4%
Selling and administrative expenses as a
 % of revenues                                  12.6%       14.5%
Operating income as a % of revenues              8.0%        5.9%
Income taxes as a % of income before
 income taxes                                   32.8%       33.1%


Revenues of $457.7 million were 15% higher than the comparable quarter of 2008, representing a new record for the first quarter. Compression revenues were 36% higher on increases in U.S. natural gas compression. Equipment Group revenues were down 5% on lower new and used equipment revenues, partially offset by increased product support activity.

The Canadian/U.S. dollar exchange rate impacts reported revenues on the translation of the financial statements of the Compression Group's growing U.S. operations. The Canadian dollar was 19% weaker on average for the three months ended March 31, 2009 compared to the similar period last year. The impact in 2009 was to increase revenues by $25 million and net income by $1.5 million. In addition, the exchange rate impacts revenues in the Canadian operations of both the Equipment and Compression Groups, as pricing to customers typically reflects movements in the exchange rate on U.S. sourced equipment, components and spare parts.

Gross profit increased 17% in the quarter compared to the same period of 2008 on the 15% increase in revenues. Gross profit margin in the quarter was 20.6%, up slightly from 20.4% in the similar period of the prior year. Higher margins in the Equipment Group were largely offset by lower margins in the Compression Group.

Selling and administrative expenses of $57.9 million were largely unchanged from the first quarter of 2008. Selling and administrative expenses as a percentage of revenues were 12.6% for 2009 compared to 14.5% in the same period of 2008. Given current market conditions, there has been an increased focus on controlling or reducing discretionary spending. Foreign exchange translation on U.S. operations increased expenses in 2009 by $0.9 million.

Operating income in the quarter was $36.6 million, up $13.2 million or 56% from the prior year on higher revenues, higher gross margins and administrative expense control. Operating income as a percentage of revenues was 8.0% in the quarter, up from 5.9% in similar period of 2008.

Interest expense in 2009 was 30% lower in the quarter compared to the similar period last year. Average debt balances and interest rates in 2009 were lower than those reported in 2008.

Interest and investment income in 2008 included gains realized on sale of marketable securities of $2.4 million. Excluding this, interest income was down 53% on lower interest rates.

The effective income tax rate for the quarter was 32.8% compared to 33.1% for 2008. The lower rate reflects reductions in Canadian federal income tax rates.

Net earnings for the first quarter of 2009 were $23.7 million, up 44% from 2008. Basic earnings per share were $0.37, compared with $0.25 in 2008, an increase of 48%.

Comprehensive income for the quarter was $27.1 million, comprised of net earnings of $23.7 million and other comprehensive income of $3.4 million. The other comprehensive income resulted largely from an unrealized gain on translation of financial statements of self-sustaining foreign operations of $5.1 million.

BUSINESS SEGMENT OPERATING RESULTS

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

The shares of Aero Tech Manufacturing were sold to its management effective June 30, 2008. The Aero Tech operations were previously included with those of the Compression Group. The accompanying consolidated financial statements have been restated to reflect Aero Tech as a discontinued operation. This discussion and analysis has been prepared on a continuing operations basis. Additional disclosure has been provided in Note 3 to the unaudited interim consolidated financial statements.

Results of Operations in the Equipment Group

                                              Three months ended March 31
$ thousands                                     2009        2008   % change
----------------------------------------------------------------------------

Equipment sales and rentals
  New                                      $  64,684   $  77,218       (16%)
  Used                                        24,485      26,480        (8%)
  Rental                                      27,668      27,354         1%
----------------------------------------------------------------------------
Total equipment sales and rentals            116,837     131,052       (11%)
Power generation                               2,365       2,288         3%
Product support                               72,491      68,683         6%
----------------------------------------------------------------------------
Total revenues                             $ 191,693   $ 202,023        (5%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating income                           $  18,986   $  10,565        80%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Key ratios:
Product support revenues as a % of total
 revenues                                       37.8%      34.0%
Group total revenues as a % of
 consolidated revenues                          41.9%      50.9%
Operating income as a % of revenues              9.9%       5.2%


Revenues for the quarter were down 5% compared to the first quarter last year on lower new and used equipment unit sales, partially offset by increased product support activities.

New and used equipment sales were down 16% and 8% respectively. Mining and industrial power systems applications, including prime and backup power systems, recorded good deliveries in the quarter. Other market segments, most notably heavy and general construction, were lower.

Rental revenues were up 1% in the quarter on a new location in Sault Ste. Marie, Ontario. First quarter rental revenues were supported by seasonal equipment contracts and strength in Manitoba and Newfoundland. Rental activity in Ontario has declined on lower demand from steel, auto and construction markets.

Power generation revenues from Toromont-owned plants increased 3% in the quarter on increased operating hours.

Product support revenues were 6% higher in the quarter compared to the first quarter of the prior year. Product support revenues in 2009 benefited from higher parts pricing due to the weaker Canadian dollar and standard price increases implemented at the beginning of the year. Product support revenues in 2008 were lower due to a labour strike in Newfoundland. Excluding these two factors, product support revenues were down in the first quarter of 2009 on lower market activity in most markets.

Operating income in the quarter was $19.0 million, up $8.4 million or 80% over the prior year. Gross margins in the quarter were up 6.1 percentage points from the similar period last year. The gross margin increase was largely due to lagging costs associated with foreign currency hedges and inventories during a period of rapid devaluation of the Canadian dollar. Sales mix changes also increased gross margin, with a higher percentage of product support revenues to total. Selling and administrative expenses increased 3%. Operating income was 9.9% of revenues compared with 5.2% in the prior year, reflecting the higher gross margins.

Booking activity was down 44% in the quarter compared to the similar period in 2008. There were no significant order cancellations in the quarter. Booking activity declined in most markets. Backlogs at March 31, 2009 were down 43% from this time last year and 8% from December 31, 2008.

Results of Operations in the Compression Group

                                              Three months ended March 31
$ thousands                                     2009        2008   % change
----------------------------------------------------------------------------

Package sales and rentals
  Package sales                            $ 212,093   $ 146,943        44%
  Rentals                                      4,290       5,335       (20%)
----------------------------------------------------------------------------
Total package sales and rentals              216,383     152,278        42%
Product support                               49,583      42,758        16%
----------------------------------------------------------------------------
Total revenues                             $ 265,966   $ 195,036        36%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating income                           $  17,634   $  12,860        37%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Key ratios:
Product support revenues as a % of total
 revenues                                       18.6%       21.9%
Group total revenues as a % of
 consolidated revenues                          58.1%       49.1%
Operating income as a % of revenues              6.6%        6.6%


Package sales revenues were $65 million or 44% higher compared to the first quarter of 2008 on the following factors:

- The weaker Canadian dollar in 2009 resulted in an increase in package revenues on translation of foreign operations of $22 million, approximately one-third of the increase.

- The Company's U.S. operations have benefited from increased participation in the natural gas compression market, flowing from significant investment in facilities and people over the past several years. Natural gas compression revenues in the U.S. were up 30% on a constant dollar basis.

- Revenues from the sale of Canadian natural gas compression equipment were 18% lower period-over-period on continued market softness.

- Process compression revenues were more than double those reported in the similar quarter last year on project timing and increased activity. Process bookings were up 66% through March and backlog was 19% higher than at this time last year.

- Package revenues from refrigeration systems were 23% lower compared to the first quarter of 2008, with lower activity within the industrial markets.

Rental revenues were down 20% in the quarter compared to last year on lower rental fleet utilization in Canada and the U.S. Poor natural gas market fundamentals and tighter financial markets have reduced demand for rental equipment.

Product support revenues were up 16% in the quarter over the similar period in 2008, although half of this increase is due to translation of revenues generated in the U.S. Net of this factor, natural gas product support activities increased 7% while refrigeration increased 8%.

Operating income for the Compression Group increased 37% in the quarter, in line with the growth in revenue. Gross margins were 3.4 percentage points lower than in the similar period last year on lower gross margins in Canada partially offset by improved gross margins in the U.S. Gross margins in Canada were lower due to certain cost over-runs on U.S. sourced direct materials and labour inefficiencies related to recent shop rationalization moves in Calgary. Selling and administrative expenses decreased 3% in the quarter on focused efforts on cost containment in light of current market conditions. Operating income was 6.6% of revenues in the quarter, unchanged from the similar period last year.

Compression booking activity for the quarter was down 56% compared to the similar period of 2008. Natural gas bookings were 75% lower than the prior year on declines in both Canada and the U.S. Global economic conditions and weak natural gas market fundamentals have served to reduce demand for compression equipment. Order cancellations in the quarter represented less than 2% of opening backlog. Overall, backlogs at March 31, 2009 were up 3% from this time last year but down 11% from December 31, 2008, although backlogs benefited from the weaker Canadian dollar. Excluding foreign exchange impact, backlogs were down 12% from March 31, 2008 and down 21% from December 31, 2008.

CONSOLIDATED FINANCIAL CONDITION

The Company has maintained a strong financial position. At March 31, 2009, the ratio of total debt, net of cash, to equity was 0.14:1. Total assets were $1.5 billion.

Working Capital

The Company's investment in non-cash working capital was $475.5 million at March 31, 2009. The major components, along with the changes from March 31 and December 31, 2008 are identified in the following table. Working capital investment generally follows the seasonality of the business, with increases in working capital in the first half of the year in preparation for the busier summer season, although this may be different in periods of changing demand and/or supply conditions. In total, the Company's investment in non-cash working capital has increased significantly versus both year-end and March 31, 2008, as discussed below.

               March 31 December 31    Change        March 31   Change
$ thousands        2009        2008         $    %       2008        $     %
----------------------------------------------------------------------------

Accounts
 receivable   $ 313,064   $ 375,059 $ (61,995) -17% $ 302,220 $ 10,844    4%
Inventories     545,695     499,360    46,335    9%   462,288   83,407   18%
Future income
 tax assets      39,416      34,934     4,482   13%    23,539   15,877   67%
Derivative
 financial
 instruments      6,527      11,246    (4,719) -42%     2,597    3,930  n/m
Other current
 assets          12,860      11,381     1,479   13%    60,690  (47,830) -79%
Accounts
 payable and
 accrued
 liabilities   (266,528)   (337,073)   70,545  -21%  (224,382) (42,146)  19%
Dividends
 payable         (9,702)     (9,045)     (657)   7%    (9,113)    (589)   6%
Deferred
 revenue       (152,524)   (194,261)   41,737  -21%  (173,909)  21,385  -12%
Current
 portion of
 long-term
 debt           (15,584)    (15,363)     (221)   1%   (20,851)   5,267  -25%
Income taxes
 payable
 (receivable),
 net              2,265      (4,236)    6,501  n/m      9,218   (6,953) -75%
----------------------------------------------------------------------------
Total
 non-cash
 working
 capital      $ 475,489   $ 372,002 $ 103,487   28% $ 432,297   43,192   10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Accounts receivable were 17% lower than at December 31, 2008 reflecting seasonality of revenues in both operating segments, with lower revenues in the first quarter compared to the fourth quarter. Accounts receivable were 4% higher than at March 31, 2008. Equipment Group receivables were lower than at this time last year on lower revenues and improved collections. Compression Group receivables were higher than at this time last year on foreign exchange translation of U.S. subsidiaries' balances and higher revenues. Days sales outstanding (DSO) improved year-over-year in both Groups.

Inventories were 9% higher than at December 2008, driven by a 13% increase in the Equipment Group and a 5% increase in the Compression Group. Inventories in the Equipment Group reflect some building of inventory in advance of the typically busier summer season as well as higher new machine inventory cost (reflecting the weaker Canadian dollar and supplier price increases). Approximately 40% of the increase in Compression Group inventories relates to the foreign exchange translation of U.S. subsidiaries, while the remaining increases reflect higher activity levels in the U.S. Compared to this time last year, inventories were 18% higher. Compression Group inventories increased 13% on foreign exchange translation of balances at foreign subsidiaries and in support of higher volumes. Equipment Group inventories were up 23% on higher machine inventory cost related to the weaker Canadian dollar and weaker demand in the first quarter of 2009.

Future income tax assets reflect differences between income tax and accounting.

Derivative financial instruments represent fair market valuations of foreign exchange contracts. Given the recent volatility in the Canadian/U.S. dollar exchange rate, the Company's hedging practices have led to a cumulative opportunity gain of $6.5 million as at March 31, 2009. Foreign exchange contracts reduce volatility by fixing landed costs related to specific customer orders and establish a level of price stability for high volume goods such as spare parts. The Company does not enter into foreign exchange forward contracts for speculative purposes. The gains and losses on the foreign exchange forward contracts designated as cash flow hedges are intended to offset the translation losses and gains on the hedged foreign currency transactions when they occur.

Other current assets at March 31, 2008 included deposits made for equipment ordered for a significant project, which was completed and delivered later in the year.

Accounts payable and accrued liabilities were 21% lower than at December 31, 2008 and 19% higher than at March 31, 2008 on timing of payments for key suppliers and year-end bonuses.

Dividends payable were 7% and 6% higher than at December 31 and March 31, 2008 reflecting the higher dividend rate of $0.15 per share compared to $0.14 per share in the prior year.

Deferred revenues in the Compression Group represent payments received from customers in advance of revenue recognition and are used as a method of funding working capital requirements. Compression Group deferred revenues comprise approximately 80% of the total and have decreased 8% compared to March 2008 and 16% compared to December 2008, as a result of lower new order activity. Deferred revenues in the Equipment Group represent payments received in advance of revenue recognition on sales with residual value guarantees, long-term construction contracts, extended warranty and other long-term customer support agreements. Equipment Group deferred revenues decreased compared to March 2008 and December 2008 on completion of several long-term industrial projects.

Current portion of long-term debt reflects scheduled principal repayments due in the subsequent twelve-month period. This amount is lower in 2009 as a result of the maturity of senior debentures in September 2008.

Income taxes payable (receivable) reflect amounts owing for corporate income taxes less installments made to date. The amount payable increased in 2009 on higher income in the current period.

Legal and Other Contingencies

Typical of entities with the size, complexity and nature of the Company's operations, various legal matters are pending. Exposure to these claims is mitigated through 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

The Company purchased and cancelled 43,400 shares for $0.9 million (average cost of $19.77 per share) in the first quarter of 2009. The shares were purchased for an amount higher than their weighted average book value per share ($1.97 per share) resulting in a reduction of retained earnings of $0.8 million.

Approximately 4 million shares remain available for purchase and cancellation under the current normal course issuer bid that expires August 30, 2009.

Outstanding Share Data

As at the date of this MD&A, the Company had 64,691,437 common shares and 2,278,839 share options outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Toromont's liquidity requirements are 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.

Combined unsecured credit facilities amounted to $250 million at March 31, 2009, comprised of $225 million in Canada and US $20 million in the United States ($25 million Canadian equivalent). Of these combined credit facilities, $25 million matures in 2010 and the balance matures in 2011. At quarter-end, US $10.5 million ($13 million Canadian equivalent) was drawn against these facilities. Standby letters of credit utilized $64 million, leaving $173 million of the credit facilities unutilized.

The Company expects that cash flows from operations in 2009, together with cash and cash equivalents on hand and currently available credit facilities, will be more than sufficient to fund its requirements for investments in working capital, capital assets and dividend payments.

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:

                                                Three months ended March 31
$ thousands                                                 2009       2008
----------------------------------------------------------------------------

Cash, beginning of period                              $ 137,274  $ 103,514
Cash, provided by (used in):
  Operations                                              31,911     23,473
  Change in non-cash working capital and other           (85,947)   (28,218)
----------------------------------------------------------------------------
 Operating activities                                    (54,036)    (4,745)
 Investing activities                                    (14,484)   (13,616)
 Financing activities                                     (1,593)   (18,317)
----------------------------------------------------------------------------
Decrease in cash in the period                           (70,113)   (36,678)
Effect of foreign exchange on cash balances                    -        388
----------------------------------------------------------------------------
Cash, end of period                                     $ 67,161  $  67,224
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash Flows from Operating Activities

Operating activities used $54.0 million in the quarter compared to $4.7 million in 2008. Cash provided by operations (calculated as net earnings, adjusted for items not requiring cash) was 36% higher reflecting growth in continuing operations. Non-cash working capital and other used $85.9 million in 2009 compared to $28.2 million in 2008. 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 used $14.5 million in the quarter, up modestly from $13.6 million for the similar quarter last year.

In 2009, the there was a net disposition to the rental fleet as proceeds on disposal exceeded additions. Lower rental fleet additions reflect current economic conditions.

Gross investment in property, plant and equipment was $8.3 million for the first quarter of 2009. Capital investments were related to completion of the plant expansion in Casper, Wyoming.

Cash Flows from Financing Activities

Financing activities used $1.6 million in the quarter. The significant financing activities were as follows:

- Increase in term credit facility debt of $13 million to support growth of the Company's U.S. operations.

- Dividends paid to common shareholders in 2009 of $9.0 million, an increase of 16% over 2008 reflecting the higher dividend rate.

- Scheduled debt repayments of $6.3 million.

- Cash received on exercise of share options totalled $1.3 million.

OUTLOOK

We are currently in the down part of the natural gas cycle, exacerbated by tight credit conditions, and this impacted bookings levels in the first quarter. Fortunately, we entered the year with significant backlogs that will cushion the impact.

For the longer term, market fundamentals for natural gas in both Canada and the U.S. are positive. Process and international markets also provide opportunity. Industrial refrigeration markets are expected to be weaker in 2009 given general economic conditions, however, governmental spending stimulus is expected to be positive for recreational refrigeration markets.

Our Equipment Group is also experiencing reduced bookings related to the general economic slowdown. Some mining customers have significantly reduced activity and deferred new projects. We expect that recently announced infrastructure programs will have some positive impact beginning later this year.

Product support is a strong component of each of Toromont's business units and we believe this will continue to contribute to profitable performance.

Our empowered management teams have been adjusting to these new conditions since last fall. Our staffing levels are declining (down 6% in the first quarter), discretionary spending has been curtailed and normal compensation increases at the beginning of this year were deferred.

Toromont's financial position is strong, with a net debt to equity ratio of 0.14 to 1 at March 31, 2009. There are no significant debt maturities in the near term. Toromont has a history of performance at a high level for all stakeholders, resulting from consistent application of long-term strategies, a proven business model and a focus on asset management and progressive, profitable improvement. Toromont is well positioned in each of its diverse markets and both business segments have good growth prospects over the longer term.

SELECTED QUARTERLY INFORMATION

The following table summarizes unaudited quarterly consolidated financial data for the last two years. This quarterly information is unaudited but has been prepared on the same basis as the 2008 annual audited consolidated financial statements.

                                               2007
$ thousands, except per share
 amounts                             Q2          Q3          Q4
                              ---------------------------------
Revenues
 Equipment Group              $ 268,432   $ 284,928   $ 316,670
 Compression Group              197,116     214,338     219,560
                              ---------------------------------
 Total revenues               $ 465,548   $ 499,266   $ 536,230
                              ---------------------------------
                              ---------------------------------

Net earnings
 Continuing operations        $  38,094   $  30,597   $  38,984
 Discontinued operations            (24)         64         314
                              ---------------------------------
                              $  38,070   $  30,661   $  39,298
                              ---------------------------------
                              ---------------------------------

Per share information:

Basic earnings per share
 Continuing operations        $    0.59   $    0.47   $    0.61
 Discontinued operations              -           -           -
                              ---------------------------------
                              $    0.59   $    0.47   $    0.61
                              ---------------------------------
                              ---------------------------------
Diluted earnings per share
 Continuing operations        $    0.58   $    0.47   $    0.61
 Discontinued operations              -           -           -
                              ---------------------------------
                              $    0.58   $    0.47   $    0.61
                              ---------------------------------
                              ---------------------------------

Dividends per share           $    0.12   $    0.12   $    0.12
                              ---------------------------------
                              ---------------------------------



                                                      2008
$ thousands, except per share
 amounts                             Q1          Q2          Q3          Q4
                              ----------------------------------------------
Revenues
 Equipment Group              $ 202,023   $ 285,845   $ 307,441   $ 303,904
 Compression Group              195,036     250,632     270,528     305,800
                              ----------------------------------------------
 Total revenues               $ 397,059   $ 536,477   $ 577,969   $ 609,704
                              ----------------------------------------------
                              ----------------------------------------------

Net earnings
 Continuing operations        $  16,417   $  38,222   $  37,104   $  49,110
 Discontinued operations             77        (406)          -           -
                              ----------------------------------------------
                              $  16,494   $  37,816   $  37,104   $  49,110
                              ----------------------------------------------
                              ----------------------------------------------

Per share information:

Basic earnings per share
 Continuing operations        $    0.25   $    0.59   $    0.57   $    0.76
 Discontinued operations              -       (0.01)          -           -
                              ----------------------------------------------
                              $    0.25   $    0.58   $    0.57   $    0.76
                              ----------------------------------------------
                              ----------------------------------------------
Diluted earnings per share
 Continuing operations        $    0.25   $    0.59   $    0.56   $    0.76
 Discontinued operations              -       (0.01)          -           -
                              ----------------------------------------------
                              $    0.25   $    0.58   $    0.56   $    0.76
                              ----------------------------------------------
                              ----------------------------------------------

Dividends per share           $    0.14   $    0.14   $    0.14   $    0.14
                              ----------------------------------------------
                              ----------------------------------------------



                                   2009
$ thousands, except per share
 amounts                             Q1
                              ----------
Revenues
 Equipment Group              $ 191,693
 Compression Group              265,966
                              ----------
 Total revenues               $ 457,659
                              ----------
                              ----------

Net earnings
 Continuing operations        $  23,718
 Discontinued operations              -
                              ----------
                              $  23,718
                              ----------
                              ----------

Per share information:

Basic earnings per share
 Continuing operations        $     0.37
 Discontinued operations               -
                              -----------
                              $     0.37
                              -----------
                              -----------
Diluted earnings per share
 Continuing operations        $     0.37
 Discontinued operations               -
                              -----------
                              $     0.37
                              -----------
                              -----------

Dividends per share           $     0.15
                              -----------
                              -----------


Interim period revenues and earnings historically reflect some seasonality.

The Equipment Group has a distinct seasonal trend in activity levels. Lower revenues are typically recorded during the first quarter due to winter shutdowns in the construction industry. The fourth quarter has consistently been the strongest quarter due in part to the timing of customers' capital investment decisions, delivery of equipment from suppliers for customer specific orders and conversions of equipment on rent with a purchase option.

The Compression Group also has a distinct seasonal trend in activity levels due to well-site access and drilling patterns, which are adjusted to take advantage of weather conditions. Generally, higher revenues are reported in the fourth quarter of each year.

Management anticipates that the seasonality historically experienced will continue in the future, although it may be somewhat altered by continued product and geographic diversification. Variations from this trend may also occur when market fundamentals are either improving or deteriorating.

As a result of the historical seasonal sales trends, inventories increase through the year in order to meet the expected demand for delivery in the fourth quarter of the fiscal year, while accounts receivable are highest at year-end.

RISKS AND RISK MANAGEMENT

In the normal course of business, Toromont is exposed to operating and financial risks that may potentially impact its operating results in either or both of its business segments. The Company and each operating segment employ risk management strategies with a view to mitigating these risks on a cost effective basis. There have been no material changes to the operating and financial risk assessment and related risk management strategies as described in the Company's 2008 Annual Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting policies used in the preparation of the accompanying unaudited interim consolidated financial statements are consistent with those used in the Company's 2008 audited annual consolidated financial statements, and described in Note 1 therein, except for the changes in accounting policies described in the following section.

The preparation of financial statements in conformity with Canadian GAAP requires estimates and assumptions that affect the results of operation and financial position. By their nature, these judgments are subject to an inherent degree of uncertainty and are based upon historical experience, trends in the industry and information available from outside sources. Management reviews its estimates on an ongoing basis. Different accounting policies, or changes to estimates or assumptions could potentially have a material impact, positive or negative, on Toromont's financial position and results of operations. There have been no material changes to the critical accounting estimates as described in the Company's 2008 Annual Report.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064 Goodwill and Intangible Assets, which replaced previous guidance. The standard establishes guidelines for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to initial recognition. The standard had no impact on the Company's consolidated financial statements.

Effective January 1, 2009, the Company adopted CICA EIC 173 Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This guidance clarified that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities including derivative instruments. Adoption of this guidance had no impact on the Company's consolidated financial statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

International Financial Reporting Standards (IFRS) will be required in Canada for publicly accountable enterprises for fiscal years beginning on or after January 1, 2011. The Company will be required to report using IFRS beginning January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences on recognition, measurement and disclosures. Due to anticipated changes in Canadian GAAP and IFRS prior to the Company's transition to IFRS, the full impact of adopting IFRS on the Company's future financial position and results of operations cannot be reasonably determined at this time.

Our conversion project consists of four phases: diagnostic, design and planning, solution development and implementation. We will invest in training and resources throughout the transition period to facilitate a timely conversion.

Based on diagnostics completed to date, the areas identified with the most potential impact are as follows: property, plant and equipment; provisions; certain aspects of revenue recognition; and IFRS 1 First Time Adoption. The Company expects the transition to IFRS to impact financial reporting, business processes, internal controls and information systems.

We have initiated the design and planning phase that will involve establishing issue-specific work teams to focus on quantification of impact, generating options and making recommendations in the identified risk areas. During this phase, we will establish a staff communications plan, begin to develop our staff training programs, and evaluate the impacts of the IFRS transition on other business activities.

RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS

Management is responsible for the information disclosed in this MD&A and the accompanying unaudited interim consolidated financial statements, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Company's Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by the Company, and has reviewed and approved this MD&A and the accompanying unaudited interim consolidated financial statements.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chairman and Chief Executive Officer and the Chief Financial Officer, together with other members of management, have designed the Company's disclosure controls and procedures (DC&P) in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries, would have been known to them and others within those entities.

Additionally, they have designed internal controls over financial reporting (ICFR) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting in accordance with GAAP.

The control framework used in the design of both DC&P and ICFR is the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

There has been no change in the design of the Company's internal controls over financial reporting during the quarter ended March 31, 2009, that would materially affect, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

While the Officers of the Company have designed the Company's disclosure controls and procedures and internal controls over financial reporting, they expect that these controls and procedures may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

NON-GAAP FINANCIAL MEASURES

The success of the Company and business unit strategies is measured using a number of key performance indicators, which are outlined below. These measures are also used by management in its assessment of relative investments in operations. These key performance indicators are not measurements in accordance with Canadian GAAP. It is possible that these measures will not be comparable to similar measures prescribed by other companies. They should not be considered as an alternative to net income or any other measure of performance under Canadian GAAP.

Operating Income and Operating Margin

Each business segment assumes responsibility for its operating results as measured by, amongst other factors, operating income, which is defined as income before income taxes, interest income and interest expense. Financing and related interest charges cannot be attributed to business segments on a meaningful basis that is comparable to other companies. Business segments and income tax jurisdictions are not synonymous, and it is believed that the allocation of income taxes distorts the historical comparability of the performance of the business segments. Consolidated and segmented operating income is reconciled to net earnings in tables where used in this MD&A.

Operating income margin is calculated by dividing operating income by total revenue.

Working Capital and Non-Cash Working Capital

Working capital is defined as current assets less current liabilities. Non-cash working capital is defined as working capital less cash and equivalents.

ADVISORY

Certain statements contained herein constitute "forward-looking statements". Words such as "plans", "intends", "outlook", "expects", "anticipates", "estimates", "believes", "should" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and are influenced by management's historical experience, perception of trends and current business conditions, expected future developments and other factors which management considers appropriate. These statements entail various risks and uncertainties as more fully described in the "Risks and Risk Management" and the "Outlook" sections of this MD&A. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether the result of new information, future events or otherwise.

TOROMONT INDUSTRIES LTD.

CONSOLIDATED BALANCE SHEETS

(unaudited)

                                            March 31 December 31   March 31
($ thousands)                                   2009        2008       2008
----------------------------------------------------------------------------

Assets
  Current assets
  Cash and cash equivalents              $    67,161 $   137,274 $   67,224
  Accounts receivable                        313,064     375,059    302,220
  Inventories (note 4)                       545,695     499,360    462,288
  Income taxes receivable                     10,534       2,068     13,633
  Future income taxes                         39,416      34,934     25,115
  Derivative financial instruments             7,022      13,212      2,962
  Other current assets                        12,860      11,381     60,690
----------------------------------------------------------------------------
Total current assets                         995,752   1,073,288    934,132

Property, plant and equipment                203,111     199,370    179,697
Rental equipment                             196,460     203,277    163,303
Derivative financial instruments                 296       1,403        474
Other assets                                  26,954      21,312     18,552
Goodwill                                      34,800      34,800     34,800
----------------------------------------------------------------------------
Total assets                             $ 1,457,373 $ 1,533,450 $1,330,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current liabilities
  Accounts payable and accrued
   liabilities (note 5)                  $   276,230 $   346,118 $  233,495
  Deferred revenues                          152,524     194,261    173,909
  Current portion of long-term debt
   (note 6)                                   15,584      15,363     20,851
  Income taxes payable                         8,269       6,304      4,415
  Future income taxes                              -           -      1,576
  Derivative financial instruments               495       1,966        365
----------------------------------------------------------------------------
Total current liabilities                    453,102     564,012    434,611

Deferred revenues                             33,994      25,480     19,650
Long-term debt (note 6)                      164,875     158,112    197,141
Accrued pension liability                      2,385       2,322      3,315
Future income taxes                            5,426       4,421      1,806

Shareholders' equity
Share capital (note 7)                       129,441     127,704    126,566
Contributed surplus (note 8)                   9,075       8,978      7,626
Retained earnings                            644,766     631,522    546,420
Accumulated other comprehensive income
 (loss) (note 9)                              14,309      10,899     (6,177)
----------------------------------------------------------------------------
Total shareholders' equity                   797,591     779,103    674,435
----------------------------------------------------------------------------
Total liabilities and shareholders'
 equity                                  $ 1,457,373 $ 1,533,450 $1,330,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

                                                Three months ended March 31
$ thousands, except per share amounts                      2009        2008
----------------------------------------------------------------------------
                                                         (restated - note 3)

Revenues                                            $   457,659 $   397,059
Cost of goods sold                                      363,182     316,001
----------------------------------------------------------------------------
Gross profit                                             94,477      81,058
Selling and administrative expenses                      57,857      57,633
----------------------------------------------------------------------------
Operating income                                         36,620      23,425
Interest expense                                          2,181       3,138
Interest and investment income                             (880)     (4,235)
----------------------------------------------------------------------------
Income before income taxes                               35,319      24,522
Income taxes                                             11,601       8,105
----------------------------------------------------------------------------
Earnings from continuing operations                      23,718      16,417
Earnings from discontinued operations, net of tax
 (note 3)                                                     -          77
----------------------------------------------------------------------------
Net earnings                                        $    23,718 $    16,494
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per share (note 11)
  Basic and Diluted                                 $      0.37 $      0.25

Weighted average number of shares outstanding
  Basic                                              64,678,273  64,989,829
  Diluted                                            64,865,128  65,515,470

See accompanying notes


TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(Unaudited)

                                                Three months ended March 31
($ thousands)                                              2009        2008
----------------------------------------------------------------------------

Retained earnings, beginning of period                $ 631,522   $ 539,039
Net earnings                                             23,718      16,494
Dividends                                                (9,702)     (9,113)
Shares purchased for cancellation (note 7)                 (772)          -
----------------------------------------------------------------------------
Retained earnings, end of period                      $ 644,766   $ 546,420
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

                                                Three months ended March 31
($ thousands)                                              2009        2008
----------------------------------------------------------------------------

Net earnings                                           $ 23,718    $ 16,494

Other comprehensive income (loss):
    Change in fair value of derivatives
     designated as cash flow hedges, net of
     income taxes (2009 - ($156); 2008 - $1,543)           (290)      2,870

    Gains on derivatives designated as cash flow
     hedges transferred to net income in the
     current period, net of income taxes
     (2009 - ($862); 2008 - ($123))                      (1,601)       (228)

    Unrealized gain on translation of financial
     statements of self-sustaining foreign
     operations                                           5,053       2,373

    Unrealized gain on financial assets
     designated as available-for-sale, net of
     income taxes (2009 - $49; 2008 - $1,035)               248       4,948
----------------------------------------------------------------------------
Other comprehensive income                                3,410       9,963
----------------------------------------------------------------------------
Comprehensive income                                   $ 27,128    $ 26,457
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

                                                Three months ended March 31
($ thousands)                                              2009        2008
----------------------------------------------------------------------------

Operating activities
  Net earnings                                         $ 23,718    $ 16,494
  Items not requiring cash and cash equivalents
   Depreciation                                          12,137      10,818
   Stock-based compensation                                 595         579
   Accrued pension liability                                 63        (268)
   Future income taxes                                   (2,508)        (25)
   Gain on sale of:
    Rental equipment, property, plant and
     equipment                                           (2,094)     (1,763)
    Investments                                               -      (2,362)
----------------------------------------------------------------------------
                                                         31,911      23,473
 Net change in non-cash working capital and
  other (note 15)                                       (85,947)    (28,218)
----------------------------------------------------------------------------
Cash used in operating activities                       (54,036)     (4,745)
----------------------------------------------------------------------------

Investing activities
  Additions to:
   Rental equipment                                      (5,827)    (13,579)
   Property, plant and equipment                         (8,318)     (2,966)
 Proceeds on disposal of:
   Rental equipment                                       8,642       6,468
   Property, plant and equipment                            563         122
  Increase in other assets                               (9,544)     (3,661)
----------------------------------------------------------------------------
Cash used in investing activities                       (14,484)    (13,616)
----------------------------------------------------------------------------

Financing activities
  Increase in term credit facility debt                  13,291           -
  Repayment of other long-term debt                      (6,307)    (12,307)
  Dividends                                              (9,045)     (7,792)
  Shares purchased for cancellation                        (858)          -
  Cash received on exercise of stock options              1,326       1,782
----------------------------------------------------------------------------
Cash used in financing activities                        (1,593)    (18,317)
----------------------------------------------------------------------------
  Effect of exchange rate changes on cash
   denominated in foreign currency                            -         388
  Decrease in cash and cash equivalents                 (70,113)    (36,678)
  Cash and cash equivalents at beginning of
   period                                               137,274     103,514
----------------------------------------------------------------------------
  Cash and cash equivalents at end of period           $ 67,161    $ 67,224
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 15)

See accompanying notes


TOROMONT INDUSTRIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(unaudited)

($ thousands except where otherwise indicated)

(1) Significant accounting policies

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) for the preparation of interim financial statements. The accounting policies used in the preparation of these unaudited interim consolidated financial statements are consistent with those used in the Company's 2008 audited annual consolidated financial statements, except for the changes in accounting policies described in Note 2. These unaudited interim consolidated financial statements do not include all disclosures required by GAAP for annual financial statements, and accordingly should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2008.

(2) Changes in accounting policies

Goodwill and Intangible Assets

Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064 Goodwill and Intangible Assets, which replaced previous guidance. The standard establishes guidelines for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to initial recognition. The standard had no impact on the Company's consolidated financial statements.

Credit Risk and the Fair Value of Financial Instruments

Effective January 1, 2009, the Company adopted CICA EIC 173 Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This guidance clarified that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities including derivative instruments. Adoption of this guidance had no impact on the Company's consolidated financial statements.

(3) Discontinued operations

Effective June 30, 2008, the shares of Aero Tech Manufacturing Inc. were sold to its local management.

The results of discontinued operations in the first quarter of 2008 included revenues of $3,554 and income before income taxes of $122, and these results had previously been included in the Compression Group.

(4) Inventories

                                March 31   December 31    March 31
                                    2009          2008        2008
------------------------------------------------------------------

Equipment                      $ 282,994     $ 232,879   $ 253,713
Repair and distribution parts     89,628        80,261      80,554
Direct materials                  92,114        72,041      65,174
Work-in-process                   80,959       114,179      62,847
------------------------------------------------------------------
                               $ 545,695     $ 499,360   $ 462,288
------------------------------------------------------------------
------------------------------------------------------------------


The amount of inventory recognized as an expense and included in cost of goods sold accounted for other than by the percentage-of-completion method during the first quarter of 2009 was $160 million (2008 - $175 million). The amount recovered to the income statement and included in cost of goods sold for the reversal of inventory valuation issues during the first quarter of 2009 was ($1.1 million) (2008 - $2.4 million).

(6) Accounts payable and accrued liabilities

                                          March 31   December 31    March 31
                                              2009          2008        2008
----------------------------------------------------------------------------

Accounts payable and accrued liabilities $ 266,528     $ 337,073   $ 224,382
Dividends payable                            9,702         9,045       9,113
----------------------------------------------------------------------------
Total accounts payable and
 accrued liabilities                     $ 276,230     $ 346,118   $ 233,495
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(7) Long-term debt

                                March 31   December 31    March 31
                                    2009          2008        2008
------------------------------------------------------------------

Drawn on bank term facility  $    13,291     $       -   $  30,000
Senior debentures                161,678       166,659     175,368
Notes payable                      5,490         6,816      12,624
------------------------------------------------------------------
Total long-term debt             180,459       173,475     217,992
Less current portion              15,584        15,363      20,851
------------------------------------------------------------------
                             $   164,875    $  158,112   $ 197,141
------------------------------------------------------------------
------------------------------------------------------------------


All debt is unsecured.

The Company maintains $225 million in bank credit in Canada and US$20 million in bank credit in the United States, provided through committed credit facilities. Of this, US$20 million matures in July 2010 and $225 million matures in 2011. The amount drawn on the US facility at March 31, 2009 was US$10.5 million (December 31, 2008 - $nil; March 31, 2008 - $nil) and bears interest at prime. The US prime rate was 3.25% at March 31, 2009. The amount drawn on the Canadian facility at March 31, 2009 was $nil (December 31, 2008 - $nil; March 31, 2008 - $30 million).

(8) Share capital

The changes in the common shares issued and outstanding during the period were as follows:

                                   Three months ended     Three months ended
                                       March 31, 2009         March 31, 2008
                                 Number of     Common   Number of     Common
                                    Common      Share      Common      Share
                                    Shares    Capital      Shares    Capital
----------------------------------------------------------------------------

Balance, beginning of period    64,620,677  $ 127,704  64,943,497  $ 124,124
Exercise of stock options          114,160      1,823     149,760      2,442
Purchase of shares for
 cancellation                      (43,400)       (86)          -          -
----------------------------------------------------------------------------
Balance, end of period          64,691,437  $ 129,441  65,093,257  $ 126,566
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Normal Course Issuer Bid

The Company purchased and cancelled 43,400 shares for $858 (average cost of $19.77 per share) in the first quarter of 2009. The shares were purchased for an amount higher than their weighted average book value per share ($1.97 per share) resulting in a reduction of retained earnings of $772. The Company did not purchase any shares under the normal course issuer bid in the first quarter of 2008.

Approximately 4 million shares remain available for purchase and cancellation under the current normal course issuer bid that expires August 30, 2009.

(9) Contributed surplus

Contributed surplus consists of accumulated stock option expense less the fair value of the options at the grant date that have been exercised and reclassified to share capital. Changes in contributed surplus were as follows:

                                               Three months ended March 31
                                                            2009      2008
--------------------------------------------------------------------------

Contributed surplus, beginning of period                 $ 8,978   $ 7,707
Stock-based compensation                                     595       579
Value of compensation cost associated with
 exercised options                                          (498)     (660)
--------------------------------------------------------------------------
Contributed surplus, end of period                       $ 9,075   $ 7,626
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(10) Accumulated other comprehensive Income

The changes in accumulated other comprehensive income were as follows:

                               Three months ended March 31
                                       2009           2008
-----------------------------------------------------------

Balance, beginning of period       $ 10,899      $ (16,140)
Other comprehensive income            3,410          9,963
-----------------------------------------------------------
Balance, end of period             $ 14,309      $  (6,177)
-----------------------------------------------------------
-----------------------------------------------------------


Accumulated other comprehensive income was comprised of the following amounts.

                                     March 31   December 31   March 31
                                         2009          2008       2008
----------------------------------------------------------------------

Unrealized gains (losses) on
 translation of financial
 statements of self-sustaining
 foreign operations                  $ 12,408      $  7,355  $ (12,434)

Unrealized gain on financial assets
 designated as available-for-
 sale, net of income tax
 ($49; $0; $1,059)                        248             -      4,992

Gains on foreign exchange derivatives
 designated as cash flow
 hedges, net of income tax
 ($891; $1,909; $809)                   1,653         3,544      1,503

Loss on interest rate derivative
 designated as a cash flow hedge,
 net of income tax ($0; $0; -$127)          -             -       (238)
-----------------------------------------------------------------------
                                     $ 14,309      $ 10,899  $  (6,177)
-----------------------------------------------------------------------
-----------------------------------------------------------------------


(11) Financial instruments

Categories of financial assets and liabilities

The carrying values of the Company's financial instruments are classified into the following categories:

                                    March 31   December 31    March 31
                                        2009          2008        2008
----------------------------------------------------------------------

Held for trading (1)               $  67,161     $ 137,274   $  67,224
Loans and receivables (2)          $ 323,598     $ 377,127   $ 315,853
Available for sales assets (3)     $   8,887     $       -   $  33,347
Other financial liabilities (4)    $ 464,958     $ 525,897   $ 455,902
Derivatives designated as
 effective hedges (5) - gain       $   2,545     $   5,453   $   1,948
Derivatives designated as held
 for trading (6) - gain            $   4,278     $   7,196   $   1,123

(1) Comprised of cash and cash equivalents. All held for trading
    assets were designated as such upon initial recognition.
(2) Comprised of accounts receivable and income taxes receivables.
(3) Comprised of investments, reported in other assets.
(4) Comprised of accounts payable and accrued liabilities, income
    taxes payable and long-term debt.
(5) Comprised of the Company's foreign exchange forward contracts
    designated as hedges and the interest rate swap, all of
    which are effective hedges.
(6) Comprised of the Company's foreign exchange forward contracts that
    are not designated as hedges for accounting purposes.


The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, income taxes receivable/payable, borrowings under the bank term facility and notes payable approximate their respective carrying values. Derivative financial instruments are carried at fair value determined based on appropriate valuation methodologies. Investments are carried at fair value based on quoted market prices.

The fair values of the senior debentures are based on discounted cash flows using current interest rates for debt with similar terms and remaining maturities. The Company has no plans to prepay these instruments prior to maturity. The fair value and carrying amounts of the senior debentures as at March 31, 2009 were $152,181 and $161,678 respectively (December 31, 2008 - $155,640 and $166,659, respectively).

Derivative financial instruments and hedge accounting

Foreign exchange contracts and options are transacted with financial institutions to hedge foreign currency denominated obligations related to purchases of inventory and sales of products. The following table summarizes the Company's commitments to buy and sell foreign currencies as at March 31, 2009.

                                   Average
                       Notional   Exchange
                         Amount       Rate                          Maturity
----------------------------------------------------------------------------

Purchase contracts USD  107,825   $ 1.1899          April 2009 to March 2010
                   EUR   11,286   $ 1.5503             May 2009 to June 2010
                   GBP       16   $ 1.7964                        April 2009

Sales contracts    USD   15,912   $ 1.1494       April 2009 to December 2009
                   EUR    3,734   $ 1.5725       April 2009 to November 2009


Management estimates that a gain of $6,823 would be realized if the contracts were terminated on March 31, 2009. Certain of these forward contracts are designated as cash flow hedges, and accordingly, a gain of $2,545 has been included in other comprehensive income. These gains are not expected to affect net income as the gains will be reclassified to net income within the next twelve months and will offset losses recorded on the underlying hedged items, namely foreign denominated accounts payable and accounts receivable. A gain of $4,278 on forward contracts not designated as hedges is included in net income which offsets losses recorded on the foreign-denominated items, namely accounts payable and accounts receivable.

All hedging relationships are formally documented, including the risk management objective and strategy. On an ongoing basis, an assessment is made as to whether the designated derivative financial instruments continue to be effective in offsetting changes in cash flows of the hedged transactions.

Risks arising from financial instruments and risk management

In the normal course of business, Toromont is exposed to financial risks that may potentially impact its operating results in either or both of its business segments. The Company and each operating segment employ risk management strategies with a view to mitigating these risks on a cost-effective basis. Derivative financial agreements are used to manage exposure to fluctuations in exchange rates and interest rates. The Company does not enter into derivative financial agreements for speculative purposes.

Currency risk

The Company transacts business in multiple currencies, the most significant of which are the Canadian dollar and the U.S. dollar. As a result, the Company has foreign currency exposure with respect to items denominated in foreign currencies. The types of foreign exchange risk can be categorized as follows:

Transaction exposure

The Company sources the majority of its products and major components from the United States. Consequently, reported costs of inventory and the transaction prices charged to customers for equipment and parts are affected by the relative strength of the Canadian dollar. The Company mitigates exchange rate risk by entering into foreign currency contracts to fix the cost of imported inventory where appropriate. In addition, pricing to customers is customarily adjusted to reflect changes in the Canadian dollar landed cost of imported goods.

The Company also sells compression packages in foreign currencies, primarily the U.S. dollar, and enters into foreign currency contracts to reduce these exchange rate risks.

The Company maintains a conservative hedging policy whereby all significant transactional currency risks are identified and hedged. As such there is not a material transaction exposure.

Translation exposure

All of the Company's foreign operations are considered self-sustaining. Accordingly, assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the balance sheet dates. Unrealized translation gains and losses are deferred and included in accumulated other comprehensive income. The cumulative currency translation adjustments are recognized in income when there has been a reduction in the net investment in the foreign operations.

Foreign currency based earnings are translated into Canadian dollars each period. As a result, fluctuations in the value of the Canadian dollar relative to these other currencies will impact reported net income. Such exchange rate fluctuations have historically not been material year-over-year relative to the overall earnings or financial position of the Company. A fluctuation of +/- 5%, provided as an indicative range in a volatile currency environment, would, everything else being equal, have an effect on net income before tax for the quarter ended March 31, 2009 of approximately +/- $1.1 million.

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, accounts receivable, investments and derivative financial instruments. The carrying amount of assets included on the balance sheet represents the maximum credit exposure.

The cash equivalents consist mainly of short-term investments, such as money market deposits. No asset-backed commercial paper products were held. The Company has deposited the cash equivalents with highly rated financial institutions, from which management believes the risk of loss to be remote.

The Company has accounts receivable from clients engaged in various industries including mining, construction, natural gas production and transportation, food and beverage, and governmental agencies that are not concentrated in any specific geographic area. These specific industries may be affected by economic factors that may impact accounts receivable. Management does not believe that any single industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by the Company's large client base. As at March 31, 2009, $24.0 million, or 8.8% of trade accounts receivable, were more than 90 days overdue, which is consistent with historical aging profiles. The movement in the Company's allowance for doubtful accounts was as follows:

                                    Three months ended March 31
                                             2009          2008
---------------------------------------------------------------

Balance, beginning of period             $  9,774       $ 6,501
Change in foreign exchange rates              113            55
Provisions and revisions, net               1,435         1,418
---------------------------------------------------------------
Balance, end of period                   $ 11,322       $ 7,974
---------------------------------------------------------------
---------------------------------------------------------------


The Company minimizes the credit risk of investments by investing in securities that meet minimum requirements for quality and liquidity as allowed under the Company's treasury policy or as specifically approved by the Company's Board of Directors.

The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimize this risk, the Company enters into derivative transactions only with highly rated financial institutions.

Interest rate risk

In relation to its debt financing, the Company is exposed to changes in interest rates, which may impact on the Company's borrowing costs. Floating rate debt exposes the Company to fluctuations in short-term interest rates. As at March 31, $18.7 million or 10% of the Company's total debt portfolio is subject to movements in floating interest rates. A +/- 2.75% change in interest rates, which is indicative of the change in the prime lending rate over the preceding twelve-month period, would, all things being equal, have an insignificant impact on income before income taxes for the period.

The Company minimizes its interest rate risk by managing its portfolio of floating and fixed rate debt, as well as managing the term to maturity. The Company may use derivative instruments such as interest rate swap agreements to manage its current and anticipated exposure to interest rates.

Liquidity risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. As at March 31, 2009, the Company was holding cash and cash equivalents of $67,161 and had unutilized lines of credit of $173 million.

The contractual maturities of the Company's long-term debt were presented in the Company's audited consolidated financial statements for the year ended December 31, 2008.

Accounts payable are primarily due within 90 days and will be satisfied from current working capital.

The Company expects that continued cash flows from operations in 2009, together with cash and cash equivalents on hand and currently available credit facilities, will be more than sufficient to fund its requirements for investments in working capital, capital assets and dividend payments.

(12) Earnings per share

Basic earnings per share is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated to reflect the effect of exercising outstanding stock options applying the treasury stock method, which assumes that all outstanding stock option grants are exercised, if dilutive, and the assumed proceeds are used to purchase the Company's common shares at the average market price during the period.

                                                 Three months ended March 31
                                                           2009         2008
----------------------------------------------------------------------------

Net earnings available to common shareholders      $     23,718 $     16,494
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted average common shares outstanding           64,678,273   64,989,829
Dilutive effect of stock option conversion              186,855      525,641
----------------------------------------------------------------------------
Diluted weighted average common shares outstanding   64,865,128   65,515,470
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per share
 Basic and Diluted                                 $       0.37 $       0.25


Earnings per share from discontinued operations were $nil in both periods.

Excluded from the calculations for the quarter ended March 31, 2009 are 1,752,750 (2008 - nil) outstanding stock options with an exercise price range of $21.84 to $28.84 as they were anti-dilutive for the period presented.

(13) Stock based compensation

The Company maintains a stock option program for certain employees. Under the plan, up to 6,096,000 options may be granted for subsequent exercise in exchange for common shares. Stock options have a seven-year term, vest 20% per year on each anniversary date of the grant and are exercisable at the designated common share price, which is fixed at prevailing market prices of the common shares at the date the option is granted.

The following table is a reconciliation of outstanding options:

                                                 Three Months ended March 31
                                                  2009                  2008
----------------------------------------------------------------------------
                                              Weighted              Weighted
                                               Average               Average
                                  Number of   Exercise  Number of   Exercise
                                    Options      Price    Options      Price
----------------------------------------------------------------------------

Options outstanding, beginning
 of period                        1,917,599    $ 21.62  1,843,359    $ 18.78
Granted                             498,000      22.02    379,400      28.84
Exercised                          (114,160)     11.47   (149,760)     11.69
Forfeited                           (22,600)     23.55     (5,000)     22.93
----------------------------------------------------------------------------
Options outstanding,
 end of period                    2,278,839    $ 22.19  2,067,999    $ 21.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Options exercisable,
 end of period                    1,084,877    $ 19.44    997,003    $ 16.26
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes stock options outstanding and exercisable as at March 31, 2009:

                                 Options Outstanding    Options Exercisable
                                Weighted    Weighted               Weighted
Range of                         Average     Average                Average
Exercise             Number    Remaining    Exercise       Number  Exercise
Prices          Outstanding  Life (years)      Price  Outstanding     Price
---------------------------------------------------------------------------

$10.28 - $10.71     223,280          0.8     $ 10.69      223,280 $   10.69
$16.59 - $22.88   1,077,919          4.5       20.49      509,689     18.77
$24.58 - $28.84     977,640          5.0       26.70      351,908     25.97
---------------------------------------------------------------------------
Total             2,278,839          4.4     $ 22.19    1,084,877 $   19.44
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The fair value of the stock options granted during the period was determined at the time of grant using the Black-Scholes option pricing model with the following assumptions:

                                                Three Months ended March 31
                                                       2009            2008
---------------------------------------------------------------------------
Weighted average fair value price per option         $ 4.55          $ 6.90
Expected life of options (years)                       5.80            5.84
Expected stock price volatility                        25.0%           25.0%
Expected dividend yield                                 2.2%            1.9%
Risk-free interest rate                                 2.1%            3.3%
---------------------------------------------------------------------------


Deferred Share Unit Plan

The Company offers a deferred share unit (DSU) plan for executives and non-employee directors, whereby they may elect on an annual basis to receive all or a portion of their management incentive award or fees, respectively, in deferred share units. In addition, the Board may grant discretionary DSUs to executives. As at March 31, 2009, 109,910 units were outstanding at a value of $2,570 (December 31, 2008 - 79,476 units at a value of $1,671; March 31, 2008 - 70,594 units at a value of $2,084). The Company records the cost of the DSU Plan as compensation expense. No units were redeemed or cancelled in either fiscal year.

(14) 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 retirement programs in accordance with 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 document. The cost of pension benefits for defined contribution plans are expensed as the contributions are paid.

Approximately 5% of participating employees are included in defined benefit plans. Pension benefit obligations under the defined benefit plans are determined periodically by independent actuaries and are accounted for using the accrued benefit method using a measurement date of December 31.

The net pension expense recorded for the periods are presented below.

                               Three months ended March 31
                                2009                  2008
----------------------------------------------------------

Defined benefit plans        $   565               $   260
Defined contribution plans     2,428                 2,224
401(k) matched savings plans     388                   301
----------------------------------------------------------
Net pension expense          $ 3,381               $ 2,785
----------------------------------------------------------
----------------------------------------------------------


(15) Capital Management

The Company defines capital as the aggregate of shareholders' equity (excluding accumulated other comprehensive income) and long-term debt less cash and cash equivalents. The Company's capital management framework is designed to maintain a flexible capital structure that allows for optimization of the cost of capital at acceptable risk while balancing the interests of both equity and debt holders.

The Company generally targets a net debt to equity ratio of 0.5:1, although there is a degree of variability associated with the timing of cash flows. Also, if appropriate opportunities are identified, the Company is prepared to significantly increase this ratio depending upon the opportunity.

The capital management criteria can be illustrated as follows:

                                           March 31   December 31  March 31
                                               2009          2008      2008
---------------------------------------------------------------------------

Shareholder's equity excluding
 accumulated other comprehensive
 income                                   $ 783,282     $ 768,204 $ 680,612
Long-term debt                              180,459       173,475   217,992
Cash and cash equivalents                   (67,161)     (137,274)  (67,224)
---------------------------------------------------------------------------
Capital under management                  $ 896,580     $ 804,405 $ 831,380
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net debt as a % of capital under
 management                                      13%            5%       18%
Net debt to equity ratio                     0.14:1        0.05:1    0.22:1


The Company is subject to minimum capital requirements relating to bank credit facilities and senior debentures. The Company has comfortably met these minimum requirements during the period.

(16) Supplemental cash flow information

                                                Three months ended March 31
                                                           2009        2008
---------------------------------------------------------------------------

Net change in non-cash working capital and other
 Accounts receivable                                  $  61,995   $  37,161
 Inventories                                            (46,335)    (17,430)
 Accounts payable and accrued liabilities              (109,364)    (32,967)
 Other                                                    7,757     (14,982)
----------------------------------------------------------------------------
                                                      $ (85,947)  $ (28,218)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash paid during the period for:
 Interest                                             $   1,642   $   2,796
 Income taxes                                         $  20,245   $  22,386


(17) Segmented financial information

The Company has two reportable operating segments, each supported by the corporate office. The Equipment Group includes one of the world's largest Caterpillar dealerships by revenue and geographic territory in addition to industry leading rental operations. The Compression Group is a North American leader specializing in the design, engineering, fabrication, and installation of compression systems for natural gas, coal bed methane, fuel gas and carbon dioxide in addition to process systems and industrial and recreational refrigeration systems. Both groups offer comprehensive product support capabilities. The corporate office provides finance, treasury, legal, human resources and other administrative support to the business segments. Corporate overheads are allocated to the business segments based on operating income.

The accounting policies of the reportable operating segments are the same as those described in Note 1 - Significant Accounting Policies.

Three months        Equipment Group   Compression Group        Consolidated
 ended March 31      2009      2008      2009      2008      2009      2008
----------------------------------------------------------------------------

Equipment /
 package
 sales           $ 89,169 $ 103,698 $ 212,093 $ 146,943 $ 301,262 $ 250,641
Rentals            27,668    27,354     4,290     5,335    31,958    32,689
Product support    72,491    68,683    49,583    42,758   122,074   111,441
Power Generation    2,365     2,288         -         -     2,365     2,288
----------------------------------------------------------------------------
Revenues         $191,693 $ 202,023 $ 265,966 $ 195,036 $ 457,659 $ 397,059
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating Income $ 18,986 $  10,565 $  17,634 $  12,860 $  36,620 $  23,425
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating income
 as a % of
 revenues             9.9%      5.2%      6.6%      6.6%      8.0%      5.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Selected balance sheet information:

                     Equipment Group                Compression Group
             March 31  December 31  March 31 March 31 December 31   March 31
                 2009         2008      2008     2009        2008       2008
----------------------------------------------------------------------------

Goodwill     $ 13,000     $ 13,000  $ 13,000 $ 21,800    $ 21,800   $ 21,800
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Identifiable
 assets      $710,530     $731,553  $674,389 $637,017    $633,940   $520,461
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                                      Consolidated
                                             March 31 December 31   March 31
                                                 2009        2008       2008
----------------------------------------------------------------------------

Goodwill                                   $   34,800  $   34,800  $  34,800
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Identifiable
 assets                                    $1,347,547  $1,365,493 $1,194,850
------------------------------------------
------------------------------------------

Corporate assets                              109,826     167,957    136,108
                                          ----------------------------------
Total assets                               $1,457,373  $1,533,450 $1,330,958
                                          ----------------------------------
                                          ----------------------------------


Operating income from rental operations for the quarter ended March 31, 2009 was $3.1 million (2008 - $4.5 million).

(18) Seasonality of business

Interim period revenues and earnings historically reflect seasonality in both the Equipment and Compression Groups. Within the Equipment Group, the first quarter is typically the weakest due to winter shutdowns in the construction industry while the fourth quarter has consistently been the strongest quarter due to higher conversions at the Caterpillar dealership of equipment on rent with a purchase option. Within the Compression Group, the fourth quarter tends to be the strongest due to higher activity levels resulting from well-site access and drilling patterns. The second and third quarter impacts of seasonality in both Groups are relatively neutral.

SOURCE: Toromont Industries Ltd.

Toromont Industries 
Ltd.
Robert M. Ogilvie
Chairman and Chief Executive Officer
(416) 667-5554
Toromont Industries Ltd.
Paul R. Jewer
Vice President Finance and Chief Financial Officer
(416) 667-5638
www.toromont.com

 

Copyright © 2009 Marketwire. All rights reserved.

News Provided by COMTEX

Close window | Back to top