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Toromont Announces 2014 Results and 13% Increase in Quarterly Dividend

TORONTO, ONTARIO--(Marketwired - Feb. 5, 2015) - Toromont Industries Ltd. (TSX:TIH) today reported financial results for the three and twelve-month periods ended December 31, 2014.




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                            Three months ended  Twelve months ended December

                                   December 31                            31

                      ------------------------------------------------------

millions, except per

 share amounts          2014    2013  % change      2014      2013  % change

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Revenues             $ 465.7 $ 407.3       14% $ 1,660.4 $ 1,593.4        4%

Operating income     $  62.1 $  47.8       30% $   184.8 $   174.0        6%

Net earnings         $  45.7 $  34.4       33% $   133.2 $   123.0        8%

Earnings per share -

 basic               $  0.59 $  0.45       31% $    1.73 $    1.61        7%

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Toromont reported strong increases in revenues and earnings across both operating groups in the fourth quarter of 2014, rounding out excellent consolidated financial results for the year. Market activity and execution in the Equipment Group were solid across most segments. While CIMCO reported weaker results on reduced activity levels in Canada, record product support revenues reflect continued growth.

"Overall, we are pleased with our performance for the year. Conditions were mixed in the markets we serve, however, we continued to achieve organic growth, which along with a disciplined management culture served to mitigate the impact of current economic challenges," said Scott J. Medhurst, President and Chief Executive Officer of Toromont Industries Ltd. "Our Equipment Group demonstrated continued strength in product support, rental and equipment sales, especially in construction markets. CIMCO experienced weaker market conditions in central Canada, however, continued growth in product support is encouraging. The 8% increase in consolidated net earnings over strong results in 2013 is a testament to our employees' focus on delivering quality products and services."

Considering the Company's solid financial position, cash flows and balances, and positive long- term outlook, the Board of Directors today increased the quarterly dividend to 17 cents per share, representing a 13% increase. The next dividend is payable April 1, 2015 to shareholders of record at the close of business on March 13, 2015. The Company has paid dividends every year since going public in 1968 and this represents the 26th consecutive year of increases.

Highlights:




--  Net earnings for 2014 were $133.2 million ($1.73 per share basic) up 8%

    from $123.0 million reported last year, mainly attributable to higher

    revenues and improved gross margins partially offset by higher expenses.





--  Net earnings for the quarter were $45.7 million ($0.59 per share basic),

    up 33% from $34.4 million reported in the same quarter last year. The

    significant increase reflects higher revenues and improved gross profit

    margins within both operating groups.





--  Equipment Group revenues increased 6% in the year to $1.4 billion, with

    record equipment sales, rentals and product support. Strong year-over-

    year growth in product support (up 13%) and rental revenues (up 14%)

    surpassed the five-year average annual growth rate of 10%. Operating

    income again exceeded 10% of revenues and increased 9% year-over-year on

    higher revenues and a favorable sales mix.





--  Equipment Group revenues of $405 million were up 15% in the fourth

    quarter versus the similar period of 2013 with increases across all

    business lines. Operating income of $57.5 million was 29% higher, buoyed

    by improved gross margins and a favorable sales mix.





--  Equipment Group bookings in 2014 of $754 million set a new record, while

    fourth quarter bookings of $201 million were 16% higher than the fourth

    quarter of 2013 and represented the second highest level in the last

    five years. Backlogs were $102 million at the end of 2014 compared to

    $97 million at this time last year. Substantially all backlog is

    expected to be delivered in 2015.





--  CIMCO revenues for the year were $212 million, down 8% following a

    record year in 2013. Package sales declined on softer market conditions

    in central Canada while product support revenues continued to

    demonstrate solid growth in both Canada and the US. Operating income

    decreased 25% for the year, largely reflecting the lower revenues and

    increased expense levels partially offset by improved gross margins.





--  CIMCO revenues were strong in the fourth quarter after a relatively slow

    start to the year, with good increases in package sales and continued

    product support growth. Fourth quarter operating income increased 46%

    versus a year ago, significantly due to increased gross profit margins

    partially offset by higher expense levels.





--  CIMCO bookings were $30 million in the fourth quarter of 2014 compared

    to $21 million for the same period last year. Bookings for the year of

    $114 million were 6% higher than 2013 mainly on strong industrial

    activity in both Canada and the US. Backlogs were $67 million at

    December 31, 2014, up 3% from 2013 and represented a healthy level for

    this time of year.





--  The Company continued to produce superior shareholder returns,

    delivering increased dividends, a 23.0% return on opening shareholders'

    equity and a 26.0% pre-tax return on capital employed.





--  The Company maintained a strong financial position. Total debt, net of

    cash, to total capitalization was just 6%, well within stated capital

    targets.





--  On December 19, 2014, Toromont acquired Canpro Gator Centre, the

    Manitoba dealer of AGCO's spray-equipment lines. This follows the

    acquisition of Ag West Equipment Ltd. at the end of Q3 and further

    expands Toromont's Agricultural equipment dealership in Manitoba.

    Together with the Company's Toromont Cat Ag dealership, this combined

    business unit now represents $94 million revenue on a pro-forma 2014

    basis.



"Although our markets remain highly competitive, we expect the construction sector to be active with large infrastructure projects. Mining segments remain challenged by tight economic conditions, however, we believe there are significant opportunities in our territory over the longer-term. We were encouraged by CIMCO's continued product support growth and look to expand penetration in U.S. markets while improving operational practices and increasing efficiencies," continued Mr. Medhurst. "Continuing to deliver solid shareholder returns, while building strong customer relationships and investing in our people remain top priorities going forward."

Quarterly Conference Call and Webcast

Interested parties are invited to join the quarterly conference call with investment analysts, in listen-only mode, on Friday, February 6, 2015 at 8:00 a.m. (ET). The call may be accessed by telephone at 1-800-355-4959 (toll free) or 416-340-2218 (Toronto area). A replay of the conference call will be available until Friday, February 20, 2015 by calling 1-800-408-3053 or 905-694-9451 and quoting passcode 8756099.

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

Advisory

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

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

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

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

About Toromont

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

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") comments on the operations, performance and financial condition of Toromont Industries Ltd. ("Toromont" or the "Company") as at and for the three and twelve months ended December 31, 2014, compared to the preceding year. This MD&A should be read in conjunction with the attached unaudited consolidated financial statements and related notes for the twelve months ended December 31, 2014, the annual MD&A contained in the 2013 Annual Report and the audited annual consolidated financial statements for the year ended December 31, 2013.

The consolidated financial statements reported herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The information in this MD&A is current to February 5, 2015.

Additional information is contained in the Company's filings with Canadian securities regulators, including the Company's 2013 Annual Report and 2014 Annual Information Form. These filings are available on SEDAR at www.sedar.com and on the Company's website at www.toromont.com.

CORPORATE PROFILE AND BUSINESS SEGMENTATION

As at December 31, 2014, Toromont employed over 3,350 people in more than 100 locations across Canada and the United States. Toromont is listed on the Toronto Stock Exchange under the symbol TIH.

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

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

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

CORPORATE DEVELOPMENTS

During the year, the Company completed two acquisitions of agricultural equipment dealers. In September 2014, Ag West Equipment Ltd. was acquired for $6.7 million, including assumed debt. In December 2014, substantially all of the assets of Canpro Gator Centre were acquired for $6.4 million. Both based in Manitoba, these companies specialize in the sale and service of agricultural equipment as authorized dealers of AGCO and other products. These acquisitions provide broader market coverage, an expanded product portfolio and services, as well as additional cross-selling opportunities. Together with our existing agricultural equipment business in Manitoba, the combined company will continue as Ag West Equipment Ltd., headquartered in Elie, Manitoba with four store locations.

For further information on the accounting for the acquisition, refer to note 25 of the Notes to the Unaudited Consolidated Financial Statements.

PRIMARY OBJECTIVE AND MAJOR STRATEGIES

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

Expand Markets

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

Strengthen Product Support

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

Broaden Product Offerings

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

Invest in Resources

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

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

Maintain a Strong Financial Position

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




CONSOLIDATED ANNUAL OPERATING RESULTS



                                            Twelve months ended December 31

                          -------------

($ thousands, except per

 share amounts)                   2014         2013     $ change   % change

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REVENUES                   $ 1,660,390  $ 1,593,431  $    66,959         4%

Cost of goods sold           1,247,999    1,201,913       46,086         4%

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Gross profit                   412,391      391,518       20,873         5%

Selling and administrative

 expenses                      227,579      217,556       10,023         5%

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OPERATING INCOME               184,812      173,962       10,850         6%

Interest expense                 8,188        8,693         (505)       (6%)

Interest and investment

 income                         (4,154)      (3,793)        (361)       10%

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Income before income taxes     180,778      169,062       11,716         7%

Income taxes                    47,582       46,031        1,551         3%

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NET EARNINGS                   133,196      123,031       10,165         8%

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EARNINGS PER SHARE (BASIC) $      1.73  $      1.61  $      0.12         7%

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KEY RATIOS:

Gross profit as a % of

 revenues                        24.8%        24.6%

Selling and administrative

 expenses as a % of

 revenues                        13.7%        13.7%

Operating income as a % of

 revenues                        11.1%        10.9%

Income taxes as a % of

 income before income

 taxes                           26.3%        27.2%

Return on capital employed

 (1)                             26.0%        26.5%

Return on equity (2)             23.0%        25.7%

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(1) Return on capital employed is defined in the section titled "Non-IFRS

    Financial Measures".

(2) Return on equity is defined in the section titled "Non-IFRS Financial

    Measures".



Revenues increased 4% on growth from the Equipment Group, more than offsetting lower revenues at CIMCO.

Gross profit margin was 24.8% in 2014 compared to 24.6% in 2013 with increases in both operating groups. Improved sales mix, with a higher proportion of product support in both groups, accounted for a 70 basis point improvement in gross profit margin. Equipment margins were lower on competitive market conditions.

Selling and administrative expenses increased 5% from 2013, in part reflecting the 4% increase in revenues. Compensation was $7.0 million (5%) higher than 2013 on annual salary increases, additional personnel and increased incentive compensation on the higher income. The recently acquired Ag West business accounted for $0.9 million of the increase, in addition to an adverse foreign exchange impact on translation of US operations ($0.5 million) and lower insurance gains on the Mobile facility ($0.5 million). Certain other expense categories such as occupancy, legal, training, advertising and promotions, information technology, warranty and travel costs were higher, reflecting increased business levels. Bad debt expense decreased $2.0 million on specific exposures identified in 2013 and mark-to-market expense on deferred share units decreased $1.0 million.

Operating income increased on higher revenues and gross margins, partially offset by higher selling and administrative expenses.

Interest expense decreased on lower average debt balances.

Interest income increased reflecting higher levels of interest on conversion of rental equipment and increased investment income on higher average cash balances.

The effective income tax rate for 2014 was lower compared to 2013 due to final adjustments following routine reviews by tax authorities.

Net earnings in 2014 were $133.2 million and basic earnings per share ("EPS") were $1.73 per share, as compared to net earnings of $123.0 million and basic EPS of $1.61 per share in 2013. These represented 8% and 7% increases, respectively, over 2013.

Comprehensive income in 2014 was $129.0 million (2013 - $131.2 million), comprised of net earnings of $133.2 million (2013 - $123.0 million) and other comprehensive loss of $4.2 million (2013 - $8.2 million income). Other comprehensive income included actuarial losses on employee pension plans of $5.1 million (2013 - $7.3 million gain), net of tax.

BUSINESS SEGMENT ANNUAL OPERATING RESULTS

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




The Equipment Group



                                            Twelve months ended December 31

                            ------------

($ thousands)                       2014        2013   $ change    % change

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Equipment sales and rentals

  New                        $   566,552 $   590,796 $  (24,244)        (4%)

  Used                           186,360     155,210     31,150         20%

  Rental                         220,143     193,454     26,689         14%

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Total equipment sales and

 rentals                         973,055     939,460     33,595          4%

Power generation                  11,548      11,650       (102)        (1%)

Product support                  464,153     411,582     52,571         13%

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Total revenues               $ 1,448,756 $ 1,362,692 $   86,064          6%

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Operating income             $   172,727 $   157,924 $   14,803          9%

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Capital expenditures:

  Rental                     $    81,358 $    69,123 $   12,235         18%

  Other                           24,999      21,661      3,338         15%

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Total                        $   106,357 $    90,784 $   15,572         17%

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KEY RATIOS:

Product support revenues as

 a % of total revenues             32.0%       30.2%

Operating income as a % of

 revenues                          11.9%       11.6%

Group total revenues as a %

 of consolidated revenues          87.3%       85.5%

Return on capital employed         24.4%       24.0%

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Momentum from 2013 continued into 2014 as evidenced by the 6% revenue growth year-over- year. Rentals and product support revenues surpassed records set in 2013, reflecting strong market activity coupled with solid operational execution. While new equipment sales were lower, used equipment sales were higher, for an overall increase of 1% in total equipment sales.

New equipment sales were 4% lower than 2013. Mining equipment sales were down $58 million or 37% year-over-year. In 2013, substantial equipment deliveries were made in support of the initial stage of the Baffinland Iron Ore project, thereby making for a tough year-over-year comparator. Excluding mining, new equipment sales increased 8% over 2013. Given that new equipment is generally priced off of the US dollar, the 7.2% strengthening in the average US$/CDN$ rate would have been expected to deliver somewhat of a lift to new equipment sales, mitigated by hedged orders and deliveries from inventory. Construction markets were strong in 2014, increasing 8%, in part due to the equipment deliveries to support the Keeyask hydroelectric project in Manitoba. Power systems revenues were 10% lower than 2013 with decreases across all market segments served.

Used equipment sales include used equipment purchased for resale, equipment received on trade-in, rent with purchase option ("RPO") returns and sales of Company owned rental fleet. Used equipment sales increased 20% with contributions from all market segments. Construction (up 19%) and mining (up 8%) accounted for approximately 65% of the increase. Used equipment sales vary on factors such as product availability (both new and used), customer demands and the general pricing environment.

Rental revenues were higher across all categories on improved utilization and an expanded fleet as the Company invested $52 million, net of disposals, in 2014. Light equipment rentals increased 10%, heavy equipment 19% and power systems rentals 65% over last year. Revenue from equipment on RPO increased 12% on the higher RPO fleet ($43.5 million at December 31, 2014 compared to $34.7 million at December 31, 2013). Rental rates were fairly consistent in both years.

Power generation revenues from Toromont-owned and managed plants decreased marginally over last year on lower electricity sales from the Waterloo Landfill site partially offset by higher thermal revenue from the Sudbury Downtown plant.

Product support revenues were up 13%, benefiting from the larger installed base of equipment in our territory together with good equipment utilization levels. Parts revenues increased 15% over 2013 with substantial parts deliveries to mining and construction markets. Service revenues were up 6%, principally from strong mining (up 24%) and construction activity (up 3%).

Operating income increased 9% versus a year ago reflecting the higher revenues year-over- year.

Gross margin improved 10 basis points. A favorable sales mix of product support revenues to total (product support revenues represented 32% of total revenues versus 30.2% in 2013) accounted for 60 basis points. Equipment margins were lower (down 40 basis points) as the heightened competitive conditions continued to pressure margins.

Bad debt expenses decreased by $1.5 million mainly due to specific exposures identified in 2013 not repeated. Other selling and administrative expenses increased 6%, in part reflecting the 6% increase in revenues but decreased 10 basis points as a percentage of revenues. Operating income as a percentage of revenues was 11.9% in 2014 versus 11.6% in 2013.

Capital expenditures in the Equipment Group were $15.6 million (17%) higher year-over-year, on increased spending on land and building and rental assets. Replacement and expansion of the rental fleet accounted for $81.4 million of total investment in 2014. Expenditures of $10.6 million related to new and expanded facilities to meet current and future growth requirements. Other capital expenditures included $7.6 million for service and delivery vehicles and $2.5 million for upgrades and enhancements to the current information technology infrastructure.




                            ------------

($ millions)                        2014        2013    $ change    % change

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Bookings - year ended

 December 31                   $     754   $     714   $      40          6%

Backlogs - as at December 31   $     102   $      97   $       5          5%

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Bookings in 2014 totalled $754 million, up 6% from 2013, including activity for Keeyask booked and delivered in the year.

Backlogs increased 5% from 2013 on improved equipment availability and completed deliveries. At December 31, 2014, the majority of the backlog related to construction (44%), power systems (30%) and mining (17%). Substantially all backlog is expected to be delivered in 2015. Shortened delivery windows due to process improvements and increased capacity at Caterpillar, together with available equipment for construction orders, have also contributed to reduced backlogs.




CIMCO

                                            Twelve months ended December 31

                            ------------

($ thousands)                       2014        2013   $ change    % change

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Package sales                $   112,084 $   140,747 $  (28,663)       (20%)

Product support                   99,550      89,992      9,558         11%

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Total revenues               $   211,634 $   230,739 $  (19,105)        (8%)

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Operating income             $    12,085 $    16,038 $   (3,953)       (25%)

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Capital expenditures         $     1,458 $     4,019 $   (2,561)       (64%)

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KEY RATIOS:

Product support revenues as

 a % of total revenues             47.0%       39.0%

Operating income as a % of

 revenues                           5.7%        7.0%

Group total revenues as a %

 of consolidated revenues          12.7%       14.5%

Return on capital employed         41.7%       65.4%

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CIMCO reported lower revenues and operating income for the year after record results in 2013. Package sales declined on softer market conditions in Canada while product support revenues continued to demonstrate solid growth in both Canada and the US.

Package revenues decreased 20% compared to 2013. Canadian package revenues were 25% lower compared to 2013 with decreases in both recreational (down 26%) and industrial activity (down 24%). Approximately 41% of the total decrease in Canadian revenues is explained by the significant Maple Leaf project which was completed in the first quarter of 2014. US package revenues increased 6% compared to 2013 with higher recreational activity (up 38%), partially offset by lower industrial activity (down 24%). Product support revenues were once again strong in both Canada (up 8%) and the US (up 21%).

Operating income decreased 25% compared to 2013, largely reflecting the lower revenues and higher selling and administrative expenses partially offset by improved gross margins.

Gross margins increased 90 basis points mainly on an improved sales mix of product support revenues to total. Product support margins were 30 basis points higher while package margins were down 60 basis points. Lower package margins reflect project execution, the tight pricing environment and an unfavorable foreign exchange impact.

Selling and administrative expenses increased 5%, mainly due to higher compensation expense, legal fees associated with defending various patents and an unfavorable foreign exchange impact on translation of US operations, partially offset by lower bad debt expenses.

Capital expenditures decreased 64% to $1.5 million as significant expenditures were incurred in 2013 related to rebuilding the Mobile facility. Expenditures in 2014 mainly included additional service vehicles ($0.7 million) and information technology infrastructure enhancements and upgrades ($0.4 million).




                            ------------

($ millions)                        2014        2013    $ change    % change

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Bookings - year ended

 December 31                   $     114   $     108   $       6          6%

Backlogs - as at December 31   $      67   $      65   $       2          3%

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Bookings increased 6% and represented the second highest level over the last five years. Industrial bookings were strong in both Canada (up 31%) and the US (up 52%), while weaker recreational activity was reported in Canada (down 24%) and the US (down 41%). Canadian recreational activity reflected a slow-down in Ontario and Quebec.

Backlogs increased by a healthy 3% and were also at the second highest level over the last five years. Industrial backlogs increased 22% over 2013 with increases in both Canada (up 7%) and the US (up 175%). Recreational backlogs on the other hand were 27% lower with decreases in both Canada (down 14%) and the US (down 41%). Substantially all backlog is expected to revenue in 2015.

CONSOLIDATED FINANCIAL CONDITION

The Company has maintained a strong financial position for many years. At December 31, 2014, the ratio of total debt, net of cash, to total capitalization was 6%.

Working Capital

The Company's investment in non-cash working capital was $208.8 million at December 31, 2014. The major components, along with the changes from December 31, 2013, are identified in the following table.




                            ------------

                                           December

                            December 31          31

($ thousands)                      2014        2013    $ change    % change

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Accounts receivable          $  239,772  $  240,259  $     (487)         nm

Inventories                     367,193     332,123      35,070         11%

Other current assets              4,228       4,585        (357)        (8%)

Accounts payable, accrued

 liabilities and provisions    (227,186)   (238,474)     11,288         (5%)

Income taxes (payable)

 receivable                      (3,886)      6,135     (10,021)         nm

Derivative financial

 instruments                      1,683       1,331         352         26%

Dividends payable               (11,585)     (9,987)     (1,598)        16%

Deferred revenue                (34,852)    (48,924)     14,072        (29%)

Current portion of long-term

 debt                          (126,576)     (1,470)   (125,106)         nm

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Total non-cash working

 capital                     $  208,791  $  285,578  $  (76,787)       (27%)

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Accounts receivable were relatively flat despite the 14% increase in revenues in the fourth quarter due to improved collection efforts. CIMCO accounts receivable increased $3.7 million or 9% on the increase in revenues in the fourth quarter of 2014. Equipment Group accounts receivable decreased $1.1 million or 1% despite higher invoicing with some significant cash collections. Days sales outstanding (DSO) was 42 at December 31, 2014 compared to 48 at the same time last year with improvements in both operating groups.

Inventories at December 31, 2014 increased 11% to $367.2 million compared to December 31, 2013. Equipment Group inventories were $37.6 million (12%) higher than this time last year reflecting higher used equipment inventory levels (up $15.9 million) and inventory at Ag West ($9.6 million) and Canpro ($5.8 million). Parts inventories increased $2.3 million, also largely due to inventory levels acquired from Ag West and Canpro. CIMCO inventories were lower by $2.6 million or 17% versus a year ago mainly on lower work-in-process ($1.9 million) and replacement parts ($0.5 million).

Accounts payable and accrued liabilities at December 31, 2014 decreased $11.3 million or 5% from this time last year. The decrease was primarily due to the timing of payments related to inventory purchases and other supplies.

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

Higher dividends payable year over year reflect the higher dividend rate. In 2014, the quarterly dividend rate was increased from $0.13 per share to $0.15 per share, a 15% increase.

Deferred revenues represent billings to customers in excess of revenue recognized. In the Equipment Group, deferred revenues arise on sales of equipment with residual value guarantees, extended warranty contracts and other long-term customer support agreements as well as on progress billings on long-term construction contracts. Equipment Group deferred revenues were 24% lower than this time last year. In CIMCO, deferred revenues arise on progress billings in advance of revenue recognition. CIMCO deferred revenues were 44% lower than this time last year.

The current portion of long-term debt reflects scheduled principal repayments due in 2015. Senior debentures of $125 million are due on October 13, 2015 as scheduled. The Company is currently assessing its longer-term financing needs and overall market conditions.

Goodwill and Intangibles

The Company performs impairment tests on its goodwill and intangibles with indefinite lives on an annual basis or as warranted by events or circumstances. The assessment entails estimating the fair value of operations to which the goodwill and intangibles relate, using the present value of expected discounted future cash flows. This assessment affirmed goodwill and intangibles values as at December 31, 2014.

Employee Share Ownership

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

The Company maintains an Executive Stock Option Plan for its senior employees. Effective 2013, non-employee directors no longer receive grants under this plan. Stock options 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. Effective 2013, stock options granted have a ten year term while those granted prior to 2013 have a seven year term. At December 31, 2014, 2.7 million options to purchase common shares were outstanding, of which 1.1 million were exercisable.

The Company offers an Employee Share Ownership Plan whereby employees can purchase shares by way of payroll deductions. Under the terms of this plan, eligible employees may purchase common shares of the Company in the open market at the then current market price. The Company pays a portion of the purchase price, matching contributions at a rate of $1 for every $3 dollars contributed, to a maximum of $1,000 per annum per employee. Company contributions vest to the employee immediately. Company contributions amounting to $1.0 million in 2014 (2013 - $0.9 million) were charged to selling and administrative expense when paid. Approximately 50% (2013 - 48%) of employees participate in this plan.

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

As at December 31, 2014, 334,709 DSUs were outstanding with a total value of $9.5 million (2013 - 288,920 units at a value of $7.7 million). The liability for DSUs is included in accounts payable, accrued liabilities and provisions on the consolidated statement of financial position.

Employee Future Benefits

Defined Contribution Plans

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 the respective collective bargaining agreements. In the case of defined contribution plans, regular contributions are made to the individual employee accounts, which are administered by a plan trustee in accordance with the plan documents.

Defined Benefit Plans

The Company sponsors three defined benefit plans (Powell Plan, Executive Plan and Toromont Plan) for approximately 109 qualifying employees. These defined benefit plans are administered by a separate Fund that is legally separated from the Company and are described fully in note 19 to the consolidated financial statements.

The funded status of these plans changed by $7.7 million (an increase in the accrued pension liability) as at December 31, 2014. The change largely reflects a net actuarial loss of $9.6 million (2013 - net actuarial gain of $3.5 million), on the change in the discount rate (3.8% in 2014 vs. 4.6% in 2013).

The Executive Plan is a supplemental plan, whose members are largely retirees with only one active member remaining, and is solely the obligation of the Company. The Company is not obligated to fund the plan but is obligated to pay benefits under the terms of the plan as they come due. The Company has posted letters of credit to secure the obligations under this plan, which were $18.3 million as at December 31, 2014. As there are only nominal plan assets, the impact of volatility in financial markets on pension expense and contributions for this plan are insignificant.

The Company expects pension expense and cash pension contributions for 2015 to be similar to 2014 levels.

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

Off-Balance Sheet Arrangements

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

Legal and Other Contingencies

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

Normal Course Issuer Bid

Toromont believes that, from time to time, the purchase of its common shares at prevailing market prices may be a worthwhile investment and in the best interests of both Toromont and its shareholders. As such, the normal course issuer bid with the TSX was renewed in 2014. This issuer bid allows the Company to purchase up to approximately 5.7 million of its common shares, representing 10% of common shares in the public float, in the year ending August 30, 2015. The actual number of shares purchased and the timing of any such purchases will be determined by Toromont. All shares purchased under the bid will be cancelled.

No shares were purchased in the years ended December 31, 2014 and 2013.

Outstanding Share Data

As at the date of this MD&A, the Company had 77,381,896 common shares and 2,593,375 share options outstanding.

Dividends

Toromont pays a quarterly dividend on its outstanding common shares and has historically targeted a dividend rate that approximates 30 - 40% of trailing earnings from continuing operations.

During 2014, the Company declared dividends of $0.60 per common share, $0.15 per quarter (2013 - $0.52 per common share or $0.13 per quarter).

Considering the Company's solid financial position, cash flows and balances, and positive long- term outlook, the Board of Directors announced it is increasing the quarterly dividend to 17 cents per share effective with the dividend payable on April 1, 2015. This represents a 13% increase in Toromont's regular quarterly cash dividend. The Company has paid dividends every year since going public in 1968 and this represents the 26th consecutive year of increases.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

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

The Company maintains a $200 million committed credit facility. The facility matures in September 2017. Debt incurred under the facility is unsecured and ranks on par with debt outstanding under Toromont's existing debentures. Interest is based on a floating rate, primarily bankers' acceptances and prime, plus applicable margins and fees based on the terms of the credit facility.

As at December 31, 2014, no amounts were drawn on the facility (2013 - $nil). Letters of credit utilized $22.6 million (2013 - $26.6 million) of the facility.

Cash at December 31, 2014 was $86.0 million, compared to $70.8 million at December 31, 2013.

The Company expects that continued cash flows from operations in 2015 and currently available credit facilities will be more than sufficient to fund requirements for the senior debenture maturity in 2015 as well as investments in working capital and capital assets.

Principal Components of Cash Flow

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




                                            Twelve months ended December 31

                                                    ------------

($ thousands)                                              2014        2013

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Cash, beginning of year                              $   70,769  $    2,383

Cash, provided by (used in):

Operating activities

  Operations                                            186,081     178,873

  Change in non-cash working capital and other          (42,571)     21,665

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                                                        143,510     200,538



Investing activities                                    (85,762)    (72,032)

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Financing activities                                    (42,696)    (60,285)

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Effect of foreign exchange on cash balances                 141         165

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Increase in cash in the year                             15,193      68,386

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Cash, end of year                                    $   85,962  $   70,769

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Cash Flows from Operating Activities

Operating activities provided $143.5 million in 2014 compared to $200.5 million in 2013. Net earnings adjusted for items not requiring cash were 4% higher than last year on higher revenues. Non-cash working capital and other used $42.6 million compared to $21.7 million provided in 2013.

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 $85.8 million in 2014 compared to $72.0 million in 2013.

Net rental fleet additions (purchases less proceeds of disposition) totalled $52.1 million in 2014 compared to $47.0 million in 2013. Investments in the rental fleet continued in light of stronger demand on improved market conditions, the existing fleet age profile and the continued expansion of our heavy rental operations.

Investments in property, plant and equipment in 2014 totalled $26.5 million compared to $25.7 million in 2013. Additions in 2014 and 2013 were largely made within the Equipment Group and included $10.8 million for land and buildings as well as for new and expanded branches (2013 - $5.8 million), $8.3 million for service vehicles (2013 - $8.6 million), $3.8 million for machinery and equipment (2013 - $4.2 million) and $3.0 million for IT equipment (2013 - $1.9 million).

Additionally, during the year ended December 31, 2014, $8.6 million was used for business acquisitions. Refer to note 25 to the Notes to the Unaudited Consolidated Financial Statements for further information.

Cash Flows from Financing Activities

Financing activities used $42.7 million in 2014 compared to $60.3 million in 2013.

Significant sources and uses of cash in 2014 included:




--  Repayment of the loans assumed on business acquisitions of $3.0 million;

--  Dividends paid to common shareholders of $44.7 million or $0.58 per

    share; and

--  Cash received on exercise of share options of $6.4 million.



Significant sources and uses of cash in 2013 included:




--  Repayments on the credit facility of $26.5 million;

--  Dividends paid to common shareholders of $39.0 million or $0.51 per

    share; and

--  Cash received on exercise of share options of $6.7 million.



OUTLOOK

Competitive pressure in the Equipment market continues. The weaker Canadian dollar will further challenge end markets as resultant price adjustments impact overall purchasing power. We will continue to closely monitor market conditions and assess opportunities as they arise. Longer term, large infrastructure investment is expected to continue and we remain committed to working with our customers to meet and exceed their requirements without compromising service delivery. The acquisition of Ag West and Canpro expands the Company's coverage of the important agricultural equipment market.

Market conditions in mining remain tight, however, mine production continues and opportunities for sales in support of new mine development, mine expansion and equipment replacement continue to exist. The Company remains engaged on a variety of mining projects at various stages of development within its territory. With the substantially increased base of installed equipment, product support activity should continue to grow so long as mines remain active.

The parts and service business has experienced significant growth, driven by the larger installed base of equipment in the field, and provides a measure of stability. Service shops remain busy and the Company continues to hire new technicians to address the increased demand. Broader product lines and investment in the rental business will also contribute to future growth.

Activity at CIMCO reflects general economic activity, governmental investment levels and focus, as well as specific customer decisions and construction schedules. Canadian markets have generally been at good levels, although somewhat lower than last year. US markets have also shown improvement as the economy strengthens. The product support business remains a focus for development and continued growth in this area is encouraging. CIMCO has a wide product offering using natural refrigerants including innovative CO2 solutions, which are expected to contribute to growth in the future replacement of CFC, HCFC and HFC refrigerants in both recreational and industrial applications.

The diversity of the business, expanding product offering and capabilities, financial strength and disciplined operating culture positions the Company well for what is generally expected to be another year of modest economic growth in Canada.

CONTRACTUAL OBLIGATIONS

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




Payments due

 by period         2015    2016    2017    2018    2019 Thereafter     Total

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Long-term

 debt

 - principal  $ 126,576 $ 1,690 $ 1,811 $ 1,941 $ 1,022$         - $ 133,040

 - interest       5,342     427     306     176      36          -     6,287

Accounts

 payable        238,771       -       -       -       -          -   238,771

Operating

 leases           2,841   2,557   2,016   1,478   1,145      1,254    11,291

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              $ 373,530 $ 4,674 $ 4,133 $ 3,595 $ 2,203$     1,254 $ 389,389

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KEY PERFORMANCE MEASURES

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




                          ----------

Years ended December 31,        2014      2013      2012      2011      2010

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EXPANDING MARKETS AND

 BROADENING PRODUCT

OFFERINGS

  Revenue growth (1)            4.2%      5.7%      9.1%     14.5%     14.8%

  Revenue per employee

   (thousands) (1)         $     501 $     491 $     481 $     465 $     423



STRENGTHENING PRODUCT

 SUPPORT

  Product support revenue

   growth (1)                  12.4%      2.5%     13.2%     12.6%      7.4%



INVESTING IN OUR RESOURCES

  Investment in

   information technology

   (millions) (1)          $    13.4 $    12.0 $    12.6 $    12.1 $    10.1

  Return on capital

   employed (2)                26.0%     26.5%     28.5%     32.4%     10.8%



STRONG FINANCIAL POSITION

  Non-cash working capital

   (millions) (1)          $     209 $     281 $     301 $     176 $     136

  Total debt, net of cash,

   to total capitalization        6%       10%       25%       13%       17%

  Book value

   (shareholders' equity)

   per share               $    8.65 $    7.50 $    6.24 $    5.27 $   15.50



BUILD SHAREHOLDER VALUE

  Basic earnings per share

   growth (1)                   7.6%      2.9%     17.1%     32.5%      9.6%

  Dividends per share

   growth (3)                  15.4%      8.3%     17.0%     16.1%      3.3%

  Return on equity (4)         23.0%     25.7%     29.9%     28.9%      9.1%

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(1) Metric presents results on a continuing operations basis.



(2) Return on capital employed is defined in the section titled "Non-IFRS

    Financial Measures". 2011 ROCE w as calculated excluding earnings and

    capital employed from discontinued operations.



(3) Dividends per share grow th in 2011 reflects the announced increase in

    dividend subsequent to apportionment of dividend to Enerflex subsequent

    to spinoff.



(4) Return on equity is defined in the section titled "Non-IFRS Financial

    Measures". 2011 ROE w as calculated excluding earnings and equity from

    discontinued operations.



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

Since 2010, revenues increased at an average annual rate of 9.7%. Product support revenue growth has averaged 9.6% annually. Revenue growth in continuing operations has been a result of:




--  Increased customer demand in certain market segments, most notably

    construction and mining;

--  Additional product offerings over the years from Caterpillar and other

    suppliers;

--  Organic growth through increased rental fleet size and additional

    branches;

--  Increased customer demand for formal product support agreements;

--  Governmental funding programs such as the RinC program which provided

    support for recreational spending; and

--  Acquisitions, primarily within the Equipment Group's rental operations.



Over the same five-year period, revenue growth has been constrained at times by a number of factors including:




--  General economic weakness and uncertainty in specific sectors;

--  Inability to source equipment from suppliers to meet customer demand or

    delivery schedules; and

--  Declines in underlying market conditions such as depressed US industrial

    markets.



Changes in the Canadian/U.S. exchange rate also impacts reported revenues as the exchange rate impacts the purchase price of equipment that in turn is reflected in selling prices. Since 2010 there has been fluctuations in the average yearly exchange rate of Canadian dollar against the US dollar -2010 - $0.97, 2011 - $1.01, 2012 - on par, 2013 - $0.97 and 2014 - $0.91.

Toromont has generated a significant competitive advantage over the past years by investing in its resources, in part to increase productivity levels, and we will continue this into the future as it is a crucial element to our continued success in the marketplace.

Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of total debt, net of cash, to total capitalization (net debt plus shareholders' equity), was 6%, well within targeted levels.

Toromont has a history of progressive earnings per share growth as evidenced by the results of the past five years, including 2014. In 2010, earnings per share growth were dampened by the issuance of shares in the year for the acquisition of Enerflex Systems Income Fund ("ESIF"). In 2011, on a continuing operations basis, earnings per share increased 32.5%, in line with earnings growth and a further 17.1% increase on a continuing operations basis in 2012. In 2013 and 2014, despite a challenged economy, EPS increased 2.9% and 7.6%, respectively.

Toromont has paid dividends consistently since 1968, and has increased the dividend in each of the last 26 years, including 2015. In 2014, the regular quarterly dividend rate was increased 15% from $0.13 to $0.15 per share, evidencing our commitment to building exceptional shareholder value.




CONSOLIDATED FOURTH QUARTER OPERATING RESULTS



Three months ended December 31

                            ------------

($ thousands, except per

 share amounts)                    2014        2013    $ change    % change

----------------------------------------------------------------------------

REVENUES                     $  465,651  $  407,264  $   58,387         14%

Cost of goods sold              340,113     303,410      36,703         12%

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Gross profit                    125,538     103,854      21,684         21%

Selling and administrative

 expenses                        63,394      56,043       7,351         13%

----------------------------------------------------------------------------

OPERATING INCOME                 62,144      47,811      14,333         30%

Interest expense                  1,971       2,174        (203)        (9%)

Interest and investment

 income                          (1,748)       (934)       (814)        87%

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Income before income taxes       61,921      46,571      15,350         33%

Income taxes                     16,251      12,157       4,094         34%

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NET EARNINGS                 $   45,670  $   34,414  $   11,256         33%

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EARNINGS PER SHARE (BASIC)   $     0.59  $     0.45  $     0.14         31%

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KEY RATIOS:

Gross profit as a % of

 revenues                         27.0%       25.5%

Selling and administrative

 expenses as a % of revenues      13.6%       13.8%

Operating income as a % of

 revenues                         13.3%       11.7%

Income taxes as a % of

 income before income taxes       26.2%       26.1%

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Revenues were 14% higher in the fourth quarter of 2014 compared to the same period last year with strong increases in both the Equipment Group (up 15%) and CIMCO (up 9%).

Gross profit increased 21% in the quarter versus last year on the higher revenues and improved margins in both operating groups. Gross profit as a percentage of revenues increased 150 basis points compared to 2013 buoyed by a 120 basis points increase in the Equipment Group and a 30 basis points increase in CIMCO. Higher margins in the Equipment Group were mainly due to improved rental margins and a favorable sales mix of product support revenues to total. CIMCO margins were higher on improved product support and package margins as well as a favorable sales mix of product support revenues to total.

Selling and administrative expenses increased 13%, in part reflecting the 14% increase in revenues. Higher compensation costs accounted for the majority of this increase (up $5.3 million or 14%) largely due to annual increases, higher staffing levels, increased commissions and increased incentive compensation on the higher income. Selling and administrative expenses decreased 20 basis points period-over-period to 13.6% as a percentage of revenues.

Interest expense was $2.0 million in the fourth quarter of 2014, down $0.2 million from the similar period last year on lower debt balances.

Interest income was $1.7 million in the fourth quarter of 2014, up $0.8 million from last year on higher interest on conversions of rental equipment with purchase options.

The effective income tax rate for 2014 was 26.2% compared to 26.1% in the same period last year and largely reflects the mix of income by tax jurisdiction.

Net earnings in the quarter were $45.7 million and basic EPS were $0.59 per share, as compared to net earnings of $34.4 million and basic EPS of $0.45 per share in 2013. These represented 33% and 31% increases, respectively, over 2013.

BUSINESS SEGMENT FOURTH QUARTER OPERATING RESULTS




The Equipment Group



Three months ended December 31

                            ------------

($ thousands)                       2014        2013   $ change     % change

----------------------------------------------------------------------------

Equipment sales and rentals

  New                        $   154,904 $   153,719 $     1,185          1%

  Used                            58,825      38,357      20,468         53%

  Rental                          63,046      54,200       8,846         16%

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Total equipment sales and

 rentals                         276,775     246,276      30,499         12%

Power generation                   2,880       2,842          38          1%

Product support                  125,539     102,595      22,944         22%

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Total revenues               $   405,194 $   351,713 $    53,481         15%

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Operating income             $    57,522 $    44,646 $    12,876         29%

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Bookings ($ millions)        $       201 $       173 $        28         16%

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KEY RATIOS:

Product support revenues as

 a % of total revenues             31.0%       29.2%

Operating income as a % of

 revenues                          14.2%       12.7%

Group total revenues as a %

 of consolidated revenues          87.0%       86.4%

----------------------------------------------------------------------------



New equipment sales increased 1% compared to 2013, mainly on increases in construction markets (up 27%), partially offset by mining (down 57%) and agriculture (down 35%). Excluding mining, new equipment sales increased 19% over 2013.

Used equipment sales increased significantly in the quarter and represent a new fourth quarter record. Driving the increase were excellent mining, construction and forestry sales.

Rental revenues were higher across all categories on improved utilization and a larger fleet. Light equipment rentals increased 16% over 2013, heavy equipment 18%, power rentals 59% and equipment on RPO 5%. Rental rates were fairly consistent in both years with continuing competitive market conditions.

Product support revenues were up 22% over 2013 with increases in both parts (up 25%) and service (up 14%). Activity was strong across most markets.

Operating income increased 29% on the higher revenue and gross margins. Operating income as a percentage of revenues was 14.2% compared to 12.7% in the fourth quarter of 2013.

Gross profit margins increased 140 basis points in the quarter largely due to a favorable sales mix (up 50 points) with a higher proportion of product support revenues to total and improved rental margins (up 70 points).

Selling and administrative expenses were 14% higher than the comparable quarter last year mainly due to higher compensation and profit sharing, warranty expenses and occupancy costs. As a percentage of revenues, selling and administrative expenses decreased 10 basis points to 13.1%, compared to 13.2% in 2013.

Bookings in the fourth quarter of 2014 were $200.8 million, up 16% from the similar period last year.




CIMCO



Three months ended December 31

                            ------------

($ thousands)                       2014        2013    $ change    % change

----------------------------------------------------------------------------

Package sales                $    33,441 $    31,428 $     2,013          6%

Product support                   27,016      24,123       2,893         12%

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Total revenues               $    60,457 $    55,551 $     4,906          9%

----------------------------------------------------------------------------

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Operating income             $     4,622 $     3,165 $     1,457         46%

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Bookings ($ millions)        $        30 $        21 $         9         43%

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KEY RATIOS:

Product support revenues as

 a % of total revenues             44.7%       43.4%

Operating income as a % of

 revenues                           7.6%        5.7%

Group total revenues as a %

 of consolidated revenues          13.0%       13.6%

----------------------------------------------------------------------------



Results in the fourth quarter were strong after a weaker start to the year. The momentum is encouraging. Revenues increased 9% with strong package sales and continued product support growth while operating income set a new fourth quarter record.

Canadian package revenues in the fourth quarter of 2013 were buoyed by the MLF project, which was completed in the first quarter of 2014. Excluding this order in both years, Canadian revenues were up 28% with strong increases in industrial (up 54%) partially offset by a decline in recreational activity (down 16%). US package revenues were largely unchanged from last year as increased industrial activity (up 22%) was largely offset by lower recreational activity (down 18%).

Product support revenues set a new record for the fourth quarter with increased activity in both Canada and the US.

Operating income increased 46% on higher revenues and improved gross profit margins. Operating income as a percentage of revenues was 7.6% compared to 5.7% in 2013.

Gross margins increased 230 basis points on improved product support (up 120 basis points) and packages margins (up 80 basis points) as well as a favorable sales mix (up 30 basis points) with a higher proportion of product support revenues to total.

Selling and administrative expenses increased 12%, mainly due to higher compensation expense, legal fees associated with defending various patents, bad debt expenses and an unfavorable foreign exchange impact. As a percentage of revenues, selling and administrative expenses increased 50 basis points to 17.0% compared to 16.5% in 2013.

Bookings in the quarter totalled $30.0 million, up 45% from the comparable period last year. Canadian bookings were up 87% with strong industrial activity (up 122%) and a modest recreational growth (up 2%). US bookings were down 32% as higher industrial activity (up 67%) were more than offset by lower recreational activity (down 110%).

QUARTERLY RESULTS

The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters. This quarterly information is unaudited but has been prepared on the same basis as the 2014 annual unaudited consolidated financial statements.




($ thousands, except per

 share amounts)                  Q1 2014     Q2 2014     Q3 2014     Q4 2014

----------------------------------------------------------------------------

REVENUES

   Equipment Group           $   263,834 $   368,650 $   411,077 $   405,194

   CIMCO                          47,914      46,909      56,355      60,457

----------------------------------------------------------------------------

 Total revenues              $   311,748 $   415,559 $   467,432 $   465,651

----------------------------------------------------------------------------

----------------------------------------------------------------------------



NET EARNINGS                 $    18,629 $    28,859 $    40,038 $    45,670

----------------------------------------------------------------------------



PER SHARE INFORMATION:

Earnings per share - basic   $      0.24 $      0.37 $      0.52 $      0.59

Earnings per share - diluted $      0.24 $      0.37 $      0.51 $      0.59

Dividends paid per share     $      0.13 $      0.15 $      0.15 $      0.15

Weighted average common

 shares outstanding -

Basic (in thousands)              76,895      77,032      77,117      77,195

----------------------------------------------------------------------------

----------------------------------------------------------------------------



($ thousands, except per

 share amounts)                  Q1 2013     Q2 2013     Q3 2013     Q4 2013

----------------------------------------------------------------------------

REVENUES

   Equipment Group           $   266,816 $   317,052 $   427,111 $   351,713

   CIMCO                          46,316      57,686      71,186      55,551

----------------------------------------------------------------------------

 Total revenues              $   313,132 $   374,738 $   498,297 $   407,264

----------------------------------------------------------------------------

----------------------------------------------------------------------------



NET EARNINGS                 $    17,848 $    27,284 $    43,485 $    34,414

----------------------------------------------------------------------------



PER SHARE INFORMATION:

Earnings per share - basic   $      0.23 $      0.36 $      0.57 $      0.45

Earnings per share - diluted        0.23        0.35        0.56        0.44

Dividends paid per share     $      0.12 $      0.13 $      0.13 $      0.13

Weighted average common

 shares outstanding -

Basic (in thousands)              76,495      76,589      76,625      76,737

----------------------------------------------------------------------------

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Interim period revenues and earnings historically reflect significant variability from quarter to quarter.

The Equipment Group has historically had a distinct seasonal trend in activity levels. Lower revenues are recorded during the first quarter due to winter shutdowns in the construction industry. The fourth quarter had typically been the strongest due in part to the timing of customers' capital investment decisions, delivery of equipment from suppliers for customer- specific orders and conversions of equipment on rent with a purchase option. This pattern has been interrupted by the timing of significant sales to mining and other customers, which can be variable due to the timing of mine site development and access, and construction project schedules. We expect this historical seasonal trend to continue for non-mining related business.

CIMCO has also had a distinct seasonal trend in results historically, due to timing of construction activity. CIMCO had traditionally posted a loss in the first quarter on lower construction activity. Revenues increase in subsequent quarters as activity levels increase. This trend can and has been interrupted somewhat by significant governmental funding initiatives and significant industrial projects.

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.




SELECTED ANNUAL INFORMATION



                                        ------------

(in thousands, except per share amounts)        2014        2013        2012

----------------------------------------------------------------------------

Revenues                                 $ 1,660,390 $ 1,593,431 $ 1,507,173

Net earnings                             $   133,196 $   123,031 $   119,473

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Earnings per share

- Basic                                  $      1.73 $      1.61 $      1.56

- Diluted                                $      1.71 $      1.59 $      1.55

----------------------------------------------------------------------------

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Dividends declared per share             $      0.60 $      0.52 $      0.48

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Total assets                             $ 1,107,802 $ 1,030,555 $   936,170

Total long-term debt                     $   131,518 $   132,418 $   159,767

Weighted average common shares

 outstanding, basic (millions)                  77.1        76.6        76.5

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Revenues grew 4% in 2014, despite competitive market conditions and an uncertain economic environment, mainly through strong performance in the Equipment Group and continued product support growth at CIMCO. In 2013, revenues grew 6% through excellent delivery and execution across all lines of business.

Net earnings improved 8% in 2014 and 3% in 2013 on the higher revenues, generally improving margins and a relatively flat selling and administrative expenses ratio.

Earnings per share have generally followed earnings.

Dividends have generally increased in proportion to trailing earnings growth. The quarterly dividend rate was increased in 2012 by 9% to $0.12 per share, in 2013 by 8% to $0.13 per share and in 2014 by 15% to $0.15 per share. The Company has announced dividend increases in each of the past 25 years.

Total assets increased in 2014 by 7% mainly due to the continued investment in the rental fleet on strong demand and improved market conditions and assets acquired on business acquisitions.

Long-term debt decreased in 2014 mainly due to principal repayments made on the senior debenture due in March 2019, net of the amortization of debt issuance costs. Total debt, net of cash, to total capitalization was 6% at December 31, 2014, well within targeted levels.

RISKS AND RISK MANAGEMENT

In the normal course of business, Toromont is exposed to risks that may potentially impact its financial results in any or all of its business segments. The Company and each operating segment employ risk management strategies with a view to mitigating these risks on a cost- effective basis.

Business Cycle

Expenditures on capital goods have historically been cyclical, reflecting a variety of factors including interest rates, foreign exchange rates, consumer and business confidence, commodity prices, corporate profits, credit conditions and the availability of capital to finance purchases. Toromont's customers are typically affected, to varying degrees, by these factors and trends in the general business cycle within their respective markets. As a result, Toromont's financial performance is affected by the impact of such business cycles on the Company's customer base.

Commodities prices, and, in particular, changes in the view on long-term trends, affect demand for the Company's products and services in the Equipment Group. Commodity price movements in base and precious metals sectors in particular can have an impact on customers' demands for equipment and customer service. With lower commodity prices, demand is reduced as development of new projects is often stopped and existing projects can be curtailed, both leading to less demand for heavy equipment.

The business of the Company is diversified across a wide range of industry market segments, serving to temper the effects of business cycles on consolidated results. Continued diversification strategies such as expanding the Company's customer base, broadening product offerings and geographic diversification are designed to moderate business cycle impacts. The Company has focused on the sale of specialized equipment and ongoing support through parts distribution and skilled service. Product support growth has been, and will continue to be, fundamental to the mitigation of downturns in the business cycle. The product support business contributes significantly higher profit margins and is typically subject to less volatility than equipment supply activities.

Product and Supply

The Equipment Group purchases most of its equipment inventories and parts from Caterpillar under a dealership agreement that dates back to 1993. As is customary in distribution arrangements of this type, the agreement with Caterpillar can be terminated by either party upon 90 days' notice. In the event Caterpillar terminates, it must repurchase substantially all inventories of new equipment and parts at cost. Toromont has maintained an excellent relationship with Caterpillar for 22 years and management expects this will continue going forward.

Toromont is dependent on the continued market acceptance of Caterpillar's products. It is believed that Caterpillar has a solid reputation as a high-quality manufacturer, with excellent brand recognition and customer support as well as leading market shares in many of the markets it serves. However, there can be no assurance that Caterpillar will be able to maintain its reputation and market position in the future. Any resulting decrease in the demand for Caterpillar products could have a material adverse impact on the Company's business, results of operations and future prospects.

Toromont is also dependent on Caterpillar for timely supply of equipment and parts. From time to time during periods of intense demand, Caterpillar may find it necessary to allocate its supply of particular products among its dealers. Such allocations of supply have not, in the past, proven to be a significant impediment in the conduct of business. However, there can be no assurance that Caterpillar will continue to supply its products in the quantities and timeframes required by customers.

Competition

The Company competes with a large number of international, national, regional and local suppliers in each of its markets. Although price competition can be strong, there are a number of factors that have enhanced the Company's ability to compete throughout its market areas including: the range and quality of products and services; ability to meet sophisticated customer requirements; distribution capabilities including number and proximity of locations; financing offered by Caterpillar Finance; e-commerce solutions; reputation and financial strength.

Increased competitive pressures or the inability of the Company to maintain the factors that have enhanced its competitive position to date could adversely affect the Company's business, results of operations or financial condition.

The Company relies on the skills and availability of trained and experienced tradesmen and technicians in order to provide efficient and appropriate services to customers. Hiring and retaining such individuals is critical to the success of these businesses. Demographic trends are reducing the number of individuals entering the trades, making access to skilled individuals more difficult. The Company has several remote locations which make attracting and retaining skilled individuals more difficult.

Credit Risk

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

When the Company has cash on hand it may be invested in short-term instruments, such as money market deposits. The Company manages its credit exposure associated with cash equivalents by ensuring there is no significant concentration of credit risk with a single counterparty, and by dealing only with highly rated financial institutions as counterparties.

The Company has accounts receivable from a large diversified customer base, and is not dependent on any single customer or industry. The Company has accounts receivable from customers engaged in various industries including construction, mining, food and beverage, and governmental agencies. Management does not believe that any single industry represents significant credit risk. These customers are based predominately in Canada.

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

Warranties and Maintenance Contracts

Warranties are provided for most of the equipment sold, typically for a one-year period following sale. The warranty claim risk is generally shared jointly with the equipment manufacturer. Accordingly, liability is generally limited to the service component of the warranty claim, while the manufacturer is responsible for providing the required parts.

The Company also enters into long-term maintenance and repair contracts, whereby it is obligated to maintain equipment for its customers. The length of these contracts varies generally from two to five years. The contracts are typically fixed price on either machine hours or cost per hour, with provisions for inflationary and exchange adjustments. Due to the long-term nature of these contracts, there is a risk that maintenance costs may exceed the estimate, thereby resulting in a loss on the contract. These contracts are closely monitored for early warning signs of cost overruns. In addition, the manufacturer may, in certain circumstances, share in the cost overruns if profitability falls below a certain threshold.

Foreign Exchange

The Company transacts business in multiple currencies, the most significant of which are the Canadian dollar and the U.S. dollar. As a result, the Company has foreign currency exposure with respect to items denominated in foreign currencies.

The rate of exchange between the Canadian and U.S. dollar has an impact on revenue trends. The Canadian dollar averaged US$0.91 in 2014 compared to US$0.97 in 2013, a 6% decrease. As substantially all of the equipment and parts sold in the Equipment Group are sourced in U.S. dollars, and Canadian dollar sales prices generally reflect changes in the rate of exchange, a stronger Canadian dollar can adversely affect revenues. The impact is not readily estimable as it is largely dependent on when customers order the equipment versus when it was sold. Bookings in a given period would more closely follow period-over-period changes in exchange rates. Sales of parts come from inventories maintained to service customer requirements. As a result, constant parts replenishment means that there is a lagging impact of changes in exchange rates. In CIMCO, sales are largely affected by the same factors. In addition, revenues from CIMCO's US subsidiary reflect changes in exchange rates on the translation of results, although this is not significant.

In addition, pricing to customers is customarily adjusted to reflect changes in the Canadian dollar landed cost of imported goods. Foreign exchange contracts reduce volatility by fixing landed costs related to specific customer orders and establishing a level of price stability for high-volume goods such as spare parts.

The Company does not enter into foreign exchange forward contracts for speculative purposes. The gains and losses on the foreign exchange forward contracts designated as cash flow hedges are intended to offset the translation losses and gains on the hedged foreign currency transactions when they occur.

As a result, the foreign exchange impact on earnings with respect to transactional activity is not significant.

Interest Rate

The Company minimizes its interest rate risk by managing its portfolio of floating and fixed rate debt, as well as managing the term to maturity.

At December 31, 2014, 100% of the Company's debt portfolio was comprised of fixed rate debt (2013 - 100%), maturing between 2015 and 2019. Fixed rate debt exposes the Company to future interest rate movements upon refinancing the debt at maturity.

Floating rate debt exposes the Company to fluctuations in short-term interest rates by causing related interest payments and finance expense to vary.

Further, the fair value of the Company's fixed rate debt obligations may be negatively affected by declines in interest rates, thereby exposing the Company to potential losses on early settlements or refinancing. The Company does not intend to settle or refinance any existing debt before maturity.

Financing Arrangements

The Company requires capital to finance its growth and to refinance its outstanding debt obligations as they come due for repayment. If the cash generated from the Company's business, together with the credit available under existing bank facilities, is not sufficient to fund future capital requirements, the Company will require additional debt or equity financing in the capital markets. The Company's ability to access capital markets, on terms that are acceptable, will be dependent upon prevailing market conditions, as well as the Company's future financial condition. Further, the Company's ability to increase its debt financing may be limited by its financial covenants or its credit rating objectives. The Company maintains a conservative leverage structure and although it does not anticipate difficulties, there can be no assurance that capital will be available on suitable terms and conditions, or that borrowing costs and credit ratings will not be adversely affected.

Environmental Regulation

Toromont's customers are subject to significant and ever-increasing environmental legislation and regulation. This legislation can impact Toromont in two ways. First, it may increase the technical difficulty in meeting environmental requirements in product design, which could increase the cost of these businesses' products. Second, it may result in a reduction in activity by Toromont's customers in environmentally sensitive areas, in turn reducing the sales opportunities available to Toromont.

Toromont is also subject to a broad range of environmental laws and regulations. These may, in certain circumstances, impose strict liability for environmental contamination, which may render Toromont liable for remediation costs, natural resource damages and other damages as a result of conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners, operators or other third parties. In addition, where contamination may be present, it is not uncommon for neighbouring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact Toromont's business, results of operations or financial condition.

Spinoff Transaction Risk

Although the spinoff of Enerflex in 2011, as a separate, publicly traded company is complete, the transaction exposes Toromont to certain ongoing risks. The spinoff was structured to comply with all the requirements of the public company "butterfly rules" in the Income Tax Act. However, there are certain requirements of these rules that depend on events occurring after completion of the spinoff or that may not be within the control of Toromont and/or Enerflex. If these requirements are not met, Toromont could be exposed to significant tax liabilities which could have a material effect on the financial position of Toromont. In addition, Toromont has agreed to indemnify Enerflex for certain liabilities and obligations related to its business at the time of the spinoff. These indemnification obligations could be significant. These risks are more fully described in the Management Information Circular relating to the Plan of Arrangement dated April 11, 2011 which is available at www.sedar.com.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's significant accounting policies are described in Note 1 to the unaudited consolidated financial statements.

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

In making estimates and judgments, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. Management reviews its estimates and judgments on an ongoing basis.

In the process of applying the Company's accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements. The critical accounting policies and estimates described below affect the operating segments similarly, and therefore are not discussed on a segmented basis.

Property, Plant and Equipment

Fixed assets are stated at cost less accumulated depreciation, including asset impairment losses. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of fixed assets are reviewed on an annual basis. Assessing the reasonableness of the estimated useful lives of fixed assets requires judgment and is based on currently available information.

Fixed assets are also reviewed for potential impairment on a regular basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In cases where the undiscounted expected future cash flows are less than the carrying amount, an impairment loss is recognized. Impairment losses on long-lived assets are measured as the amount by which the carrying value of an asset or asset group exceeds its fair value, as determined by the discounted future cash flows of the asset or asset group. In estimating future cash flows, the Company uses its best estimates based on internal plans that incorporate management's judgments as to the remaining service potential of the fixed assets. Changes in circumstances, such as technological advances and changes to business strategy can result in actual useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated useful lives of fixed assets or future cash flows constitute a change in accounting estimate and are applied prospectively.

Income Taxes

Income tax rules and regulations in the countries in which the Company operates and income tax treaties between these countries are subject to interpretation and require estimates and assumptions in determining the Company's consolidated income tax provision that may be challenged by the taxation authorities.

Estimates and judgments are made for uncertainties which exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Changes or differences in these estimates or assumptions may result in changes to the current or deferred tax balances on the consolidated statement of financial position, a charge or credit to income tax expense in the income statement and may result in cash payments or receipts.

Impairment of Non-financial Assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next three years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Revenue Recognition

The Company generates revenue from the assembly and manufacture of equipment using the percentage-of-completion method. This method requires management to make a number of estimates and assumptions surrounding: the expected profitability of the contract; the estimated degree of completion based on cost progression; and other detailed factors. Although these factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions could lead to changes in the revenues recognized in a given period.

The Company also generates revenue from long-term maintenance and repair contracts whereby it is obligated to maintain equipment for its customers. The contracts are typically fixed price on either machine hours or cost per hour, with provisions for inflationary and exchange adjustments. Revenue is recognized using the percentage-of-completion method based on work completed. This method requires management to make a number of estimates and assumptions surrounding: machine usage; machine performance; future parts and labour pricing; manufacturers' warranty coverage; and other detailed factors. These factors are routinely reviewed as part of the contract management process; however changes in these estimates or assumptions could lead to changes in the revenues and cost of goods sold recognized in a given period.

Inventories

Management is required to make an assessment of the net realizable value of inventory at each reporting period. Management incorporates estimates and judgments that take into account current market prices, current economic trends and past experiences in the measurement of net realizable value.

Employee Future Benefits Expense

The net obligations associated with the defined benefit pension plans are actuarially valued using: the projected unit credit method; the current market discount rate, salary escalation, life expectancy and future pension increases. All assumptions are reviewed at each reporting date.

Share-based Compensation

Estimating the fair value for share-based payment transactions requires determining the most appropriate inputs to the valuation model including: the expected life of the share option; expected stock price volatility; and expected dividend yield.

FUTURE ACCOUNTING STANDARDS

A number of new standards and amendments to standards have been issued but are not yet effective for the financial year ending December 31, 2014, and accordingly, have not been applied in preparing these consolidated financial statements.

Revenue Recognition - In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers, which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted.

Financial Instruments - In July 2014, the IASB issued the final version of IFRS 9 - Financial Instruments, which replaces all phases of the financial instruments project, IAS 39 - Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. The new standard is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.

Employee Benefits - The amendments to IAS 19 - Employee Benefits, require an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July 2014.

The Company is currently assessing the impact of these new standards and amendments on its financial statements.

RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS

Management is responsible for the information disclosed in this MD&A and the accompanying 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 consolidated financial statements. The Audit Committee is also responsible for determining that management fulfills its responsibilities in the financial control of operations, including disclosure controls and procedures and internal control over financial reporting.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer, together with other members of management, have evaluated the effectiveness of the Company's disclosure controls and procedures and internal controls over financial reporting as at December 31, 2014, using the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2013. Based on that evaluation, they have concluded that the design and operation of the Company's disclosure controls and procedures were adequate and effective as at December 31, 2014, to provide reasonable assurance that a) material information relating to the Company and its consolidated subsidiaries would have been known to them and by others within those entities, and b) information required to be disclosed is recorded, processed, summarized and reported within required time periods. They have also concluded that the design and operation of internal controls over financial reporting were adequate and effective as at December 31, 2014, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting in accordance with IFRS.

There have been no changes in the design of the Company's internal controls over financial reporting during 2014 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 evaluated the effectiveness of disclosure controls and procedures and internal control over financial reporting as at December 31, 2014 and have concluded that these controls and procedures are being maintained as designed, they expect that the disclosure controls and procedures and internal controls over financial reporting may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

NON-IFRS 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 IFRS. 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 IFRS.

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.

Return on Equity and Return on Capital Employed

Return on equity ("ROE") is monitored to assess the profitability of the consolidated Company. ROE is calculated by dividing net earnings by opening shareholders' equity (adjusted for shares issued and redeemed during the year).

Return on capital employed ("ROCE") is a key performance indicator that is utilized to assess both current operating performance and prospective investments. The numerator used for the calculation is income before income taxes, interest expense and interest income (excluding interest on rental conversions). The denominator in the calculation is the monthly average capital employed, which is defined as net debt plus shareholders' equity.

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.

Net Debt to Total Capitalization

Net debt is defined as total long-term debt less cash and cash equivalents. Total capitalization is defined as net debt plus shareholders' equity. The ratio of net debt to total capitalization is determined by dividing net debt by total capitalization.

Free Cash Flow

Free cash flow is defined as cash provided by operating activities (as per the Consolidated Statement of Cash Flows), less cash used in investing activities, other than business acquisitions.




TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

                                                    ------------

                                                        December    December

                                                              31          31

($ thousands)                                   Note        2014        2013

----------------------------------------------------------------------------

Assets

Current assets

  Cash                                               $    85,962 $    70,769

  Accounts receivable                              3     239,772     240,259

  Inventories                                      4     367,193     332,123

  Income taxes receivable                                      -       6,135

  Derivative financial instruments                12       1,683       1,331

  Other current assets                                     4,228       4,585

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Total current assets                                     698,838     655,202



Property, plant and equipment                      5     176,398     166,440

Rental equipment                                   5     195,263     174,712

Other assets                                       6       3,546       4,177

Deferred tax assets                               15       5,784       2,435

Goodwill and intangible assets                     7      27,973      27,589

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Total assets                                         $ 1,107,802 $ 1,030,555

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Liabilities

Current liabilities

  Accounts payable, accrued liabilities and

   provisions                                      8 $   238,771 $   248,461

  Deferred revenues                                       34,852      48,924

  Current portion of long-term debt                9     126,576       1,470

  Income taxes payable                                     3,886           -

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Total current liabilities                                404,085     298,855



Deferred revenues                                          9,910      11,060

Long-term debt                                     9       4,942     130,948

Accrued pension liability                         19      20,790      13,135



Shareholders' equity

Share capital                                     10     287,002     279,149

Contributed surplus                               11       7,212       6,329

Retained earnings                                        371,781     289,979

Accumulated other comprehensive income                     2,080       1,100

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Shareholders' equity                                     668,075     576,557

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Total liabilities and shareholders' equity           $ 1,107,802 $ 1,030,555

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See accompanying notes





TOROMONT INDUSTRIES LTD.

CONSOLIDATED INCOME STATEMENTS

(Unaudited)



                                                  -------------

Years ended December 31 ($ thousands, except

 share amounts)                               Note        2014         2013

----------------------------------------------------------------------------

Revenues                                        23 $ 1,660,390  $ 1,593,431

Cost of goods sold                             4,5   1,247,999    1,201,913

----------------------------------------------------------------------------

Gross profit                                           412,391      391,518

Selling and administrative expenses              5     227,579      217,556

----------------------------------------------------------------------------

Operating income                                       184,812      173,962

Interest expense                                14       8,188        8,693

Interest and investment income                  14      (4,154)      (3,793)

----------------------------------------------------------------------------

Income before income taxes                             180,778      169,062

Income taxes                                    15      47,582       46,031

----------------------------------------------------------------------------

Net earnings                                       $   133,196  $   123,031

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Earnings per share

  Basic                                         16 $      1.73  $      1.61

  Diluted                                       16 $      1.71  $      1.59

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Weighted average number of shares outstanding

  Basic                                         16  77,061,455   76,612,204

  Diluted                                       16  77,675,711   77,155,151

----------------------------------------------------------------------------



See accompanying notes





TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



                                                    ------------

Years ended December 31 ($ thousands)                      2014        2013

----------------------------------------------------------------------------

Net earnings                                         $  133,196  $  123,031

Other comprehensive (loss) income:



Items that may be reclassified subsequently to net

 earnings:

  Unrealized gain on translation of financial

   statements of foreign operations                         602         407

  Change in fair value of derivatives designated as

   cash flow hedges, net of income tax expense (2014

   - $938; 2013 - $1,084)                                 2,663       3,089

  (Gain) on derivatives designated as cash flow

   hedges transferred to net earnings,net of income

   tax expense (2014 - $803; 2013 - $925)                (2,285)     (2,628)



Items that will not be reclassified subsequently to

 net earnings:

  Actuarial (losses) gains on pension plans, net of

   income tax (recovery) expense (2014 - ($1,849);

   2013 - $2,637)                                        (5,127)      7,316

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Other comprehensive (loss) income                        (4,147)      8,184

----------------------------------------------------------------------------



Comprehensive income                                 $  129,049  $  131,215

----------------------------------------------------------------------------

----------------------------------------------------------------------------



See accompanying notes





TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



                                                    ------------

Years ended December 31 ($ thousands)           Note       2014        2013

----------------------------------------------------------------------------

Operating activities

  Net earnings                                       $  133,196  $  123,031

  Items not requiring cash:

    Depreciation and amortization              5,7,9     65,456      59,246

    Stock-based compensation                      11      2,330       1,957

    Accrued pension liability                               680      (3,752)

    Deferred income taxes                                (1,633)      8,462

    Gain on sale of rental equipment and

     property, plant and equipment                      (13,948)    (10,071)

----------------------------------------------------------------------------

                                                        186,081     178,873

   Net change in non-cash working capital and

   other                                          21    (42,571)     21,665

----------------------------------------------------------------------------

Cash provided by operating activities                   143,510     200,538

----------------------------------------------------------------------------



Investing activities

  Additions to:

    Rental equipment                                    (81,358)    (69,123)

    Property, plant and equipment                       (26,457)    (25,680)

  Proceeds on disposal of:

    Rental equipment                                     29,265      22,143

    Property, plant and equipment                         1,657       1,393

  Increase in other assets                                 (235)       (265)

  Increase in intangible assets                               -        (500)

  Business acquisitions                                  (8,634)          -

----------------------------------------------------------------------------

Cash used in investing activities                       (85,762)    (72,032)

----------------------------------------------------------------------------



Financing activities

  Decrease in term credit facility debt                       -     (26,547)

  Repayment of long-term debt                            (1,471)     (1,372)

  Repayment of loans assumed on business

   acquisitions                                   25     (2,960)

  Dividends                                       10    (44,663)    (39,026)

  Cash received on exercise of stock options              6,398       6,660

----------------------------------------------------------------------------

Cash used in financing activities                       (42,696)    (60,285)

----------------------------------------------------------------------------



Effect of exchange rate changes on cash

 denominated

    in foreign currency                                     141         165

----------------------------------------------------------------------------

  Increase in cash                                       15,193      68,386

  Cash at beginning of year                              70,769       2,383

  Cash at end of year                                $   85,962  $   70,769

----------------------------------------------------------------------------

----------------------------------------------------------------------------

Supplemental cash flow information (note 21)



See accompanying notes





TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)









                                          Share      Contributed   Retained

($ thousands)                  Notes     capital         surplus   earnings

----------------------------------------------------------------------------

At January 1, 2014                       $ 279,149  $      6,329  $ 289,979

Net earnings                           -                       -    133,196

Other comprehensive income             -                       -     (5,127)

Effect of stock

 compensation plans            10,11         7,853           883          -

Dividends                              -                       -    (46,267)

----------------------------------------------------------------------------

At December 31, 2014                     $ 287,002  $      7,212  $ 371,781

----------------------------------------------------------------------------

----------------------------------------------------------------------------













                                          Share      Contributed   Retained

($ thousands)                  Notes     capital         surplus   earnings

----------------------------------------------------------------------------

At January 1, 2013                       $ 270,900  $      5,957  $ 199,486

Net earnings                           -                       -    123,031

Other comprehensive income             -                       -      7,316

Effect of stock

 compensation plans            10,11         8,271           372          -

Other adjustments                              (22)            -          -

Dividends                              -                       -    (39,854)

----------------------------------------------------------------------------

At December 31, 2013                     $ 279,149  $      6,329  $ 289,979

----------------------------------------------------------------------------

----------------------------------------------------------------------------



TOROMONT INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

                                 Accumulated other comprehensive

                                                          income

                           -------------------------------------

                                 Foreign

                                currency

                             translation  Cash flow

($ thousands)                adjustments     hedges        Total      Total

----------------------------------------------------------------------------

At January 1, 2014          $        831 $      269  $     1,100 $  576,557

Net earnings                           -          -            -    133,196

Other comprehensive income           602        378          980     (4,147)

Effect of stock

 compensation plans                    -          -            -      8,736

Dividends                              -          -            -    (46,267)

----------------------------------------------------------------------------

At December 31, 2014        $      1,433 $      647  $     2,080 $  668,075

----------------------------------------------------------------------------

----------------------------------------------------------------------------





                                 Accumulated other comprehensive

                                                          income

                           -------------------------------------

                                 Foreign

                                currency

                             translation  Cash flow

($ thousands)                adjustments     hedges        Total      Total

----------------------------------------------------------------------------

At January 1, 2013          $        424 $     (192) $       232 $  476,575

Net earnings                           -          -            -    123,031

Other comprehensive income           407        461          868      8,184

Effect of stock

 compensation plans                    -          -            -      8,643

Other adjustments                      -          -            -        (22)

Dividends                              -          -            -    (39,854)

----------------------------------------------------------------------------

At December 31, 2013        $        831 $      269  $     1,100 $  576,557

----------------------------------------------------------------------------

----------------------------------------------------------------------------



See accompanying notes



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2014

($ thousands except where otherwise indicated)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Corporate Information

Toromont Industries Ltd. (the "Company" or "Toromont") is a limited company incorporated and domiciled in Canada whose shares are publicly traded on the Toronto Stock Exchange under the symbol TIH. The registered office is located at 3131 Highway 7 West, Concord, Ontario, Canada.

Toromont operates through two reportable segments: The Equipment Group and CIMCO. The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory, industry-leading rental operations and a growing agricultural dealership in Manitoba. CIMCO is a market leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems. Both segments offer comprehensive product support capabilities. Toromont employs over 3,350 people in more than 100 locations.

Statement of Compliance

These unaudited consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

These consolidated unaudited financial statements were authorized for issue by the Audit Committee of the Board of the Directors on February 5, 2015.

Basis of Preparation

These consolidated financial statements were prepared on a historical cost basis, except for derivative instruments that have been measured at fair value. The consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest thousands, except where otherwise indicated.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealized gains and losses resulting from intra-group transactions are eliminated in full.

Business Combinations and Goodwill

When determining the nature of an acquisition, as either a business combination or an asset acquisition, management defines a business as 'an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants'. An integrated set of activities and assets requires two essential elements - inputs and processes applied to those inputs, which together are or will be used to create outputs. However, a business need not include all of the inputs or processes that the seller used in operating that business if the Company is capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and processes. If the transaction does not meet the criteria of a business, it is accounted for as an asset acquisition.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of consideration transferred, measured at acquisition date fair value. Acquisition costs are expensed as incurred.

Goodwill is initially measured at cost, being the excess of the cost of the business combination over the Company's share in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statements.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company's cash-generating units ("CGUs") that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operation disposed of and the portion of the CGU retained.

Cash and Cash Equivalents

Cash consists of petty cash and demand deposits. Cash equivalents, when applicable, consist of short-term deposits with an original maturity of three months or less.

Accounts Receivable

Accounts receivable are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer), they are classified as current assets. If not, they are presented as non-current assets.

Accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

The Company maintains an allowance for doubtful accounts to provide for impairment of trade receivables. The expense relating to doubtful accounts is included within "Selling and administrative expenses" in the consolidated income statements.

Inventories

Inventories are valued at the lower of cost and net realizable value.

Cost of equipment, repair and distribution parts and direct materials include purchase cost and costs incurred in bringing each product to its present location and condition. Serialized inventory is determined on a specific-item basis. Non-serialized inventory is determined based on a weighted average actual cost.

Cost of work-in-process includes cost of direct materials, labour and an allocation of manufacturing overheads, excluding borrowing costs, based on normal operating capacity.

Cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognized in other comprehensive income, in respect of the purchase of inventory.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated depreciation and accumulated impairment losses, if any.

Depreciation is recognized principally on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives range from 20 to 30 years for buildings, three to 10 years for equipment and 20 years for power generation assets. Leasehold improvements and lease inducements are amortized on a straight-line basis over the term of the lease. Land is not depreciated.

The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

Rental Equipment

Rental equipment is recorded at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation is recognized principally on a straight-line basis over the estimated useful lives of the assets, which range from one to 10 years.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually. Intangible assets with a definite useful life are amortized over a period of 17 years on a straight-line basis.

Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions for warranty costs are recognized when the product is sold or service provided. Initial recognition is based on historical experience.

Financial Instruments

The Company determines the classification of its financial assets and liabilities at initial recognition. Initially, all financial assets and liabilities are recognized at fair value. Regular-way trades of financial assets and liabilities are recognized on the trade date. Transaction costs are expensed as incurred except for loans and receivables and loans and borrowings, in which case transaction costs are included in initial cost.

Financial Assets

Subsequent measurement of financial assets depends on the classification. The Company has made the following classifications:




--  Cash and cash equivalents are classified as held for trading and as such

    are measured at fair value, with changes in fair value being included in

    profit or loss.

--  Accounts receivable are classified as loans and receivables and are

    recorded at amortized cost using the effective interest rate method,

    less provisions for doubtful accounts.

--  Derivatives are classified as held for trading and are measured at fair

    value with changes in fair value being included in profit or loss,

    unless they are designated as hedging instruments, in which case changes

    in fair value are included in other comprehensive income.



The Company assesses at each statement of financial position date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Financial Liabilities

Subsequent measurement of financial liabilities depends on the classification. The Company has made the following classifications:




--  Accounts payable and accrued liabilities are classified as financial

    liabilities held for trading and as such are measured at fair value,

    with changes in fair value being included in profit or loss.

--  Long-term debt is classified as loans and borrowings and as such is

    subsequently measured at amortized cost using the effective interest

    rate method. Discounts, premiums and fees on acquisition are taken into

    account in determining amortized cost.

--  Derivatives are classified as held for trading and are measured at fair

    value with changes in fair value being included in profit or loss,

    unless they are designated as effective hedging instruments, in which

    case changes in fair value are included in other comprehensive income.



Fair Value of Financial Instruments

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:




--  Level 1 - unadjusted quoted prices in active markets for identical

    assets or liabilities.

--  Level 2 - other techniques for which all inputs that have a significant

    effect on the recorded fair value are observable, either directly or

    indirectly.

--  Level 3 - techniques that use inputs that have a significant effect on

    the recorded fair value that are not based on observable market data.



Derivative Financial Instruments and Hedge Accounting

Derivative financial arrangements are used to hedge exposure to fluctuations in exchange rates. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to the income statement, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income.

At inception, the Company designates and documents the hedge relationship including identification of the transaction and the risk management objectives and strategy for undertaking the hedge. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Company has designated certain derivatives as cash flow hedges. These are hedges of firm commitments and highly probable forecast transactions. The effective portion of changes in the fair value of derivatives that are designated as a cash flow hedge is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Additionally:




--  If a hedge of a forecast transaction subsequently results in the

    recognition of a non- financial asset, the associated gains or losses

    that were recognized in other comprehensive income are included in the

    initial cost or other carrying amount of the asset;

--  For cash flow hedges other than those identified above, amounts

    accumulated in other comprehensive income are recycled to the income

    statement in the period when the hedged item will affect earnings (for

    instance, when the forecast sale that is hedged takes place);

--  When a hedging instrument expires or is sold, or when a hedge no longer

    meets the criteria for hedge accounting, any cumulative gain or loss in

    other comprehensive income remains in other comprehensive income and is

    recognized when the forecast transaction is ultimately recognized in the

    income statement; and

--  When a forecast transaction is no longer expected to occur, the

    cumulative gain or loss that was reported in other comprehensive income

    is immediately recognized in the income statement.



Impairment of Non-financial Assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). In determining fair value less costs to sell, recent market transactions are taken into account, if available. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. Impairment losses are recognized in the income statement.

The Company bases its impairment calculation on detailed budgets which are prepared for each of the CGUs and generally cover a period of three years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the third year.

For assets other than goodwill, an assessment is made at each reporting date whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement.

Goodwill is tested for impairment annually during the fourth quarter of the year and when circumstances indicate that the carrying value may be impaired.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, sales taxes and duty. The following specific recognition criteria must also be met before revenue is recognized:




--  Revenues from the sale of equipment are recognized when the significant

    risks and rewards of ownership of the goods have passed to the buyer,

    usually on shipment of the goods and/or invoicing.

--  The sale of equipment for which the Company has provided a guarantee to

    repurchase the equipment at predetermined residual values and dates are

    accounted for as operating leases. Revenues are recognized over the

    period extending to the date of the residual value guarantee.

--  Revenues from the sale of equipment systems involving design,

    manufacture, installation and start-up are recorded using the

    percentage-of-completion method. Percentage-of- completion is normally

    measured by reference to costs incurred to date as a percentage of total

    estimated cost for each contract. Any foreseeable losses on such

    projects are recognized immediately in profit or loss as identified.

--  Revenues from equipment rentals are recognized in accordance with the

    terms of the relevant agreement with the customer, generally on a

    straight-line basis over the term of the agreement.

--  Product support services include sales of parts and servicing of

    equipment. For the sale of parts, revenues are recognized when the part

    is shipped to the customer. For servicing of equipment, revenues are

    recognized on completion of the service work.

--  Revenues from long-term maintenance contracts and separately priced

    extended warranty contracts are recognized on a percentage-of-completion

    basis proportionate to the service work that has been performed based on

    the parts and labour service provided. Any losses estimated during the

    term of the contract are recognized when identified. At the completion

    of the contract, any remaining profit on the contract is recognized as

    revenue.

--  Interest income is recognized using the effective interest method.



Foreign Currency Translation

The functional and presentation currency of the Company is the Canadian dollar. Each of the Company's subsidiaries determines its functional currency and items included in the financial statements of each subsidiary are measured using that functional currency.

Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction or at the average rate for the period when this is a reasonable approximation. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange as at the reporting date. All differences are taken directly to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

The assets and liabilities of foreign operations (having a functional currency other than the Canadian dollar) are translated into Canadian dollars at the rate of exchange prevailing at the statement of financial position date and the income statement are translated at the average exchange rate for the period. The exchange differences arising on translation are recognized in accumulated other comprehensive income in shareholders' equity. On disposal of a foreign operation, the deferred cumulative amount recognized in equity is recognized in the income statement.

Share-based Payment Transactions

The Company operates both equity-settled and cash-settled share-based compensation plans under which the Company receives services from employees, including senior executives and directors, as consideration for equity instruments of the Company.

For equity-settled plans, which are no longer available to non-employee directors, expense is based on the fair value of the awards granted determined using the Black-Scholes option pricing model and the best estimate of the number of equity instruments that will ultimately vest. For awards with graded vesting, each tranche is considered to be a separate grant based on its respective vesting period. The fair value of each tranche is determined separately on the date of grant and is recognized as stock-based compensation expense, net of forfeiture estimate, over the term of its respective vesting period.

For cash-settled plans, the expense is determined based on the fair value of the liability incurred at each award date and at each subsequent statement of financial position date until the award is settled. The fair value of the liability is measured by applying quoted market prices. Changes in fair value are recognized in the income statement in selling and administrative expenses.

Employee Future Benefits

For defined contribution plans, the pension expense recorded in the income statement is the amount of the contributions the Company is required to pay in accordance with the terms of the plans.

For defined benefit plans, the pension expense is determined separately for each plan using the following policies:




--  The cost of pensions earned by employees is actuarially determined using

    the projected unit credit method pro-rated on length of service and

    management's best estimate assumptions to value its pensions using a

    measurement date of December 31;

--  Net interest is calculated by applying the discount rate to the net

    defined benefit liability or asset;

--  Past service costs from plan amendments are recognized immediately in

    net earnings to the extent that the benefits have vested; otherwise,

    they are amortized on a straight-line basis over the vesting period; and

--  Actuarial gains and losses arising from experience adjustments and

    changes in actuarial assumptions are recognized in retained earnings and

    included in the statement of comprehensive income in the period in which

    they occur.



Income Taxes

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred taxes are provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets and liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the income statement in the period that includes the date of substantive enactment. The Company assesses recoverability of deferred tax assets based on the Company's estimates and assumptions. Deferred tax assets are recorded at an amount that the Company considers probable to be realized.

Current and deferred income taxes relating to items recognized directly in shareholders' equity are also recognized directly in shareholders' equity.

Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. Leases which transfer substantially all of the benefits and risks of ownership of the property to the lessee are classified as finance leases; all other leases are classified as operating leases. Classification is re-assessed if the terms of the lease are changed.

Toromont as Lessee

Operating lease payments are recognized as an operating expense in the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are deferred and amortized on a straight-line basis over the term of the lease.

Toromont as Lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

Standards Adopted in 2014

Certain amendments to standards and a new interpretation that were adopted on January 1, 2014 are noted below.

a. IAS 36 - Impairment of Assets

The amendment reverses the unintended requirement in IFRS 13 - Fair Value Measurement, to disclose the recoverable amount of each CGU to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendment, recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed. The amendment affects presentation only and had no impact on the Company's financial position or performance.

b. IAS 32 - Financial Instruments: Presentation

These amendments clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of 'currently has a legally enforceable right to set-off' and 'simultaneous realization and settlement'. These amendments had no impact on the Company's financial position or performance.

c. International Financial Reporting Interpretations Committee ("IFRIC") 21 - Levies

IFRIC 21 provides guidance on when to recognize a liability to pay a levy imposed by the government that is accounted for in accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets. The application of IFRIC 21 had no impact on the Company's financial position or performance.

Standards Issued But Not Yet Effective

A number of new standards and amendments to standards have been issued but are not yet effective for the financial year ended December 31, 2014, and accordingly, have not been applied in preparing these consolidated financial statements.

a. Revenue Recognition

In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers, which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017, with early adoption permitted. The Company is currently assessing the impact of adopting this interpretation on its consolidated financial statements.

b. Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 - Financial Instruments, which replaces all phases of the financial instruments project, IAS 39 - Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.

The new standard is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company is currently assessing the impact of adopting this interpretation on its consolidated financial statements.

c. Employee Benefits

The amendments to IAS 19 - Employee Benefits, require an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service.

This amendment is effective for annual periods beginning on or after 1 July 2014. The Company is currently assessing the impact of these amendments on its consolidated financial statements.

2. Significant Accounting Estimates and Assumptions

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

In making estimates and judgments, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. Management reviews its estimates and judgments on an ongoing basis.

In the process of applying the Company's accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements.

Acquisitions - Management applied judgment relating to its acquisitions with respect to whether the acquisitions were a business combination or an asset acquisition. Management applied a three-element process to determine whether a business or an asset was purchased, considering inputs, processes and outputs of the respective acquisitions in order to reach a conclusion.

Property, Plant and Equipment and Rental Equipment - Depreciation is calculated based on the estimated useful lives of the assets and estimated residual values.

Impairment of Non-financial Assets - Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm's length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow ("DCF") model. The cash flows are derived from the budget for the next three years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset's performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note 7.

Changes in circumstances, such as technological advances and changes to business strategy, can result in actual useful lives, residual values and future cash flows differing significantly from estimates. The assumptions used are reviewed on an ongoing basis to ensure they continue to be appropriate.

Income Taxes - Estimates and judgments are made for uncertainties which exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income.

Revenue Recognition - The Company generates revenue from the assembly and manufacture of equipment using the percentage-of-completion method. This method requires management to make a number of estimates and assumptions surrounding: the expected profitability of the contract; the estimated degree of completion based on cost progression; and other detailed factors. Although these factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions could lead to changes in revenues recognized in a given period.

The Company also generates revenue from long-term maintenance and repair contracts whereby it is obligated to maintain equipment for its customers. The contracts are typically fixed price on either machine hours or cost per hour, with provisions for inflationary and exchange adjustments. Revenue is recognized using the percentage-of-completion method based on work completed. This method requires management to make a number of estimates and assumptions surrounding: machine usage, machine performance, future parts and labour pricing, manufacturers' warranty coverage and other detailed factors. These factors are routinely reviewed as part of the contract management process; however, changes in these estimates or assumptions could lead to changes in the revenues and cost of goods sold recognized in a given period.

Inventories - Management is required to make an assessment of the net realizable value of inventory at each reporting period. Management incorporates estimates and judgments that take into account current market prices, current economic trends and past experience in the measurement of net realizable value.

Employee Future Benefits Expense - The net obligations associated with the defined benefit pension plans are actuarially valued using: the projected unit credit method; the current market discount rate, salary escalation, life expectancy and future pension increases. All assumptions are reviewed at each reporting date.

Share-based Compensation - Estimating the fair value for share-based payment transactions requires determining the most appropriate inputs to the valuation model including: the expected life of the share option; volatility; and dividend yield.

3. ACCOUNTS RECEIVABLE




                                            ----------------

                                                December 31     December 31

                                                       2014            2013

----------------------------------------------------------------------------

Trade receivables                            $      224,880  $      223,672

Less: allowance for doubtful accounts                (7,845)         (9,242)

----------------------------------------------------------------------------

Trade receivables - net                             217,035         214,430

Other receivables                                    22,737          25,829

----------------------------------------------------------------------------

Trade and other receivables                  $      239,772  $      240,259

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The aging of gross trade receivables at each reporting date was as follows:



                                            ----------------

                                                 December 31     December 31

                                                        2014            2013

----------------------------------------------------------------------------

Current to 90 days                           $       211,497   $     210,055

Over 90 days                                          13,383          13,617

----------------------------------------------------------------------------

                                             $       224,880   $     223,672

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The following table presents the movement in the Company's allowance for doubtful accounts:




                                            ----------------

                                                December 31      December 31

                                                       2014             2013

----------------------------------------------------------------------------

Balance, beginning of year                     $      9,242    $       5,496

Provisions and revisions, net                        (1,397)           3,746

----------------------------------------------------------------------------

Balance, end of year                           $      7,845    $       9,242

----------------------------------------------------------------------------

----------------------------------------------------------------------------



4. INVENTORIES








                                            ----------------

                                                 December 31     December 31

                                                        2014            2013

----------------------------------------------------------------------------

Equipment                                      $     249,932   $     219,330

Repair and distribution parts                         86,878          85,001

Direct materials                                       3,881           2,789

Work-in-process                                       26,502          25,002

----------------------------------------------------------------------------

                                               $     367,193   $     332,123

----------------------------------------------------------------------------

----------------------------------------------------------------------------



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 2014 was $993 million (2013 - $933 million). The cost of goods sold includes inventory write-downs pertaining to obsolescence and aging together with recoveries of past write-downs upon disposition. The amounts charged to the consolidated income statement and included in cost of goods sold on a net basis for inventory valuation issues during 2014 was $2.1 million (2013 - $1.0 million).

5. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT




                                                       ---------------------

                                                  Power              Rental

                 Land   Buildings  Equipment Generation    Total  Equipment

----------------------------------------------------------------------------



Cost

January 1,

 2014          46,069     123,988    129,611     38,639  338,307 $  333,390

Additions       2,305       8,990     15,979        105   27,379     81,173

Acquisitions      959       1,680        859          -    3,498          -

Disposals        (500)        (31)    (5,059)         -   (5,590)   (46,522)

Currency

 translation       12         191        160          -      363          -

 effects

----------------------------------------------------------------------------

December 31,

 2014        $ 48,845  $  134,818 $  141,550 $   38,744 $363,957 $  368,041



Accumulated

 depreciation

January 1,

 2014               -      58,625     89,946     23,296  171,867 $  158,678

Depreciation

 charge             -       5,279     13,737      1,559   20,575     44,281

Depreciation

 of disposals       -         (29)    (4,932)         -   (4,961)   (30,181)

Currency

 translation        -           7         71          -       78          -

 effects

----------------------------------------------------------------------------

December 31,

 2014        $      -  $   63,882 $   98,822 $   24,855 $187,559 $  172,778

----------------------------------------------------------------------------

Net book

 value -

 December 31,

 2014        $ 48,845  $   70,936 $   42,728 $   13,889 $176,398 $  195,263

----------------------------------------------------------------------------

----------------------------------------------------------------------------





                                                      ----------------------

                                                 Power               Rental

                 Land  Buildings  Equipment Generation     Total  Equipment

----------------------------------------------------------------------------



Cost

January 1,

 2013        $ 46,017 $  113,200 $  118,440 $   38,291 $ 315,948 $  299,412

Additions          55     10,835     15,565        348    26,803     69,494

Disposals         (12)       (52)    (4,449)         -    (4,513)   (35,516)

Currency

 translation

 effects            9          5         55          -        69          -

----------------------------------------------------------------------------

December 31,

 2013        $ 46,069 $  123,988 $  129,611 $   38,639 $ 338,307 $  333,390



Accumulated

 depreciation

January 1,

 2013        $      - $   53,835 $   82,361 $   21,759 $ 157,955 $  140,480

Depreciation

 charge             -      4,836     11,838      1,537    18,211     40,436

Depreciation

 of disposals       -        (48)    (4,280)         -    (4,328)   (22,238)

Currency

 translation

 effects            -          2         27          -        29          -

----------------------------------------------------------------------------

December 31,

 2013        $      - $   58,625 $   89,946 $   23,296 $ 171,867 $  158,678

----------------------------------------------------------------------------

Net book

 value -

 December 31,

 2013        $ 46,069 $   65,363 $   39,665 $   15,343 $ 166,440 $  174,712

----------------------------------------------------------------------------



During 2014, depreciation expense of $59.6 million was charged in cost of goods sold (2013 - $53.9 million) and $5.2 million was charged to selling and administrative expenses (2013 - $4.8 million).

Operating income from rental operations for the year ended December 31, 2014 was $37.0 million (2013 - $29.4 million).

6. OTHER ASSETS




                                            ----------------

                                                 December 31     December 31

                                                        2014            2013

----------------------------------------------------------------------------

Equipment sold with guaranteed residual

 values                                      $         1,888 $         2,753

Other                                                  1,658           1,424

----------------------------------------------------------------------------

                                             $         3,546 $         4,177

----------------------------------------------------------------------------

----------------------------------------------------------------------------



                                            ----------------



7. GOODWILL AND INTANGIBLE ASSETS








                                      -------------------

                                              December 31        December 31

                                                     2014               2013

----------------------------------------------------------------------------

Goodwill

                                            $      13,450      $      13,450

Intangible Assets:

  Distribution Network (indefinite

   life)                                           13,669             13,669

  Patents & licences (definite life):

    Cost                                500                500

    Accumulated amortization            (59)               (30)

                                      ------             ------

  Net book value                                      441                470

Other                                                 413                  -

----------------------------------------------------------------------------

Total Goodwill and Intangible Assets

                                            $      27,973      $      27,589

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The distribution network (former Bucyrus) is considered to have an indefinite useful life as the agreement does not have a termination date. Intangible assets with an indefinite useful life are not amortized but are tested for impairment annually, or when conditions suggest that there may be an impairment.

As part of a business combination (refer to note 25), the Company recorded goodwill and intangibles of $0.4 million based on preliminary fair value of assets acquired.

Impairment testing of Goodwill and Intangible Assets with indefinite lives

Goodwill and intangible assets with indefinite lives have been allocated to two CGUs for impairment testing as follows:




--  Toromont CAT, included within the Equipment Group

--  CIMCO, which is also an operating and reportable segment



The respective carrying amounts have been allocated to the two CGUs below:



                           Goodwill   Intangible Assets               Total

               ------------------------------------------------------------

                     2014      2013      2014      2013      2014      2013

               ------------------------------------------------------------

Toromont CAT   $   13,000 $  13,000 $  13,669 $  13,669 $  26,669 $  26,669

CIMCO                 450       450         -         -       450       450

---------------------------------------------------------------------------

Total          $   13,450 $  13,450 $  13,669 $  13,669 $  27,119 $  27,119

---------------------------------------------------------------------------

---------------------------------------------------------------------------



The Company performed the annual impairment test of goodwill and intangible assets allocated to Toromont CAT as at December 31, 2014. The recoverable amount of Toromont CAT has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a three-year period. Cash flow beyond the three-year period was extrapolated using a 2% growth rate which represents the expected growth in the Canadian economy. The pre-tax discount rate applied to future cash flows was 11%. As a result of the analysis, management determined there was no impairment for this CGU.

The Company performed the annual impairment test of goodwill allocated to CIMCO as at December 31, 2014. The recoverable amount of CIMCO has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a three-year period. Cash flow beyond the three-year period was extrapolated using a 2% growth rate which represents the expected growth in the Canadian economy. The pre-tax discount rate applied to future cash flows was 12.9%. As a result of the analysis, management determined there was no impairment for this CGU.

Key Assumptions to Value-in-Use Calculations

The calculation of value in use for Toromont CAT and CIMCO are most sensitive to the following assumptions:




--  Discount rates

--  Growth rate to extrapolate cash flows beyond the budget period



Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate is derived from the CGU's weighted average cost of capital, taking into account both debt and equity. The cost of equity is derived from the expected return on investment by the Company's shareholders. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service. Segment-specific risk is incorporated by applying different debt to equity ratios.

Growth rate estimates are based on published data, historical experiences and management's best estimate.

Sensitivity to Changes in Assumptions

Management believes that within reasonably plausible changes to any of the above key assumptions, recoverable amounts exceed carrying values.

8. PAYABLES, ACCRUALS AND PROVISIONS




                                             ---------------

                                                 December 31    December 31

                                                        2014           2013

---------------------------------------------------------------------------

Accounts payable and accrued liabilities      $      213,328 $      224,073

Dividends payable                                     11,584          9,987

Provisions                                            13,859         14,401

---------------------------------------------------------------------------

                                              $      238,771 $      248,461

---------------------------------------------------------------------------

---------------------------------------------------------------------------



Activities related to provisions were as follows:




                                        ------------------------------------

                                           Warranty       Other       Total

----------------------------------------------------------------------------

Balance as at January 1, 2014            $    8,354  $    6,047  $   14,401

New provisions                                8,042       1,584       9,626

Charges/credits against provisions           (8,619)     (1,549)    (10,168)

----------------------------------------------------------------------------

Balance as at December 31, 2014          $    7,777  $    6,082  $   13,859

----------------------------------------------------------------------------

----------------------------------------------------------------------------






                                           Warranty       Other       Total

----------------------------------------------------------------------------

Balance as at January 1, 2013            $    6,577  $    4,365  $   10,942

New provisions                                8,279       3,445      11,724

Charges/credits against provisions           (6,502)     (1,763)     (8,265)

----------------------------------------------------------------------------

Balance as at December 31, 2013          $    8,354  $    6,047  $   14,401

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Warranty

At the time of sale, a provision is recognized for expected warranty claims on products and services, based on past experience and known issues. It is expected that most of these costs will be incurred in the next financial year.

Other

Other provisions relate largely to open legal and insurance claims and potential onerous contracts. No one claim is significant.

9. LONG-TERM DEBT




                                                --------------

                                                  December 31   December 31

                                                         2014          2013

----------------------------------------------------------------------------

Senior debentures                                $    133,040  $    134,511

Debt issuance costs, net of amortization               (1,522)       (2,093)

----------------------------------------------------------------------------

Total long-term debt                                  131,518       132,418

Less current portion                                  126,576         1,470

----------------------------------------------------------------------------

                                                 $      4,942  $    130,948

----------------------------------------------------------------------------

----------------------------------------------------------------------------



All debt is unsecured.

The Company maintains a $200 million committed credit facility. The facility matures in September 2017. Debt incurred under the facility is unsecured and ranks pari passu with debt outstanding under Toromont's existing debentures. Interest is based on a floating rate, primarily bankers' acceptances and prime, plus applicable margins and fees based on the terms of the credit facility.

At December 31, 2014, standby letters of credit issued utilized $22.6 million of the credit lines (2013 - $26.6 million).

Terms of the senior debentures are:




--  $125,000, 4.92% senior debentures due October 13, 2015, interest payable

    semi- annually, principal due on maturity; and

--  $8,040, 7.06% senior debentures due March 29, 2019, interest payable

    semi-annually through September 29, 2009; thereafter, blended principal

    and interest payments through to maturity.



It is the Company's intention to refinance all or a portion of the October 2015 maturity prior to the due date, with any remaining balance funded through existing cash and facilities.

These credit arrangements include covenants, restrictions and events of default usually present in credit facilities of this nature, including requirements to meet certain financial tests periodically and restrictions on additional indebtedness and encumbrances.

Scheduled principal repayments and interest payments on long-term debt are as follows:




                                                        Principal   Interest

----------------------------------------------------------------------------

2015                                                  $   126,576 $    5,342

2016                                                        1,690        427

2017                                                        1,811        306

2018                                                        1,941        176

2019                                                        1,022         36

----------------------------------------------------------------------------

                                                      $   133,040 $    6,287

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Interest expense includes interest on debt initially incurred for a term greater than one year of $7.9 million (2013 - $8.0 million).

10. SHARE CAPITAL

Authorized

The Company is authorized to issue an unlimited number of common shares (no par value) and preferred shares. No preferred shares have been issued.

Issued

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




                    ----------------------------

                                            2014                       2013

----------------------------------------------------------------------------

                         Number of        Common    Number of        Common

                            Common         Share       Common         Share

                            Shares       Capital       Shares       Capital

----------------------------------------------------------------------------

Balance, beginning

 of year                76,844,897 $     279,149   76,407,658  $    270,900

Exercise of stock

 options                   414,499         7,853      443,371         8,271

Other adjustments                -             -       (6,132)          (22)

----------------------------------------------------------------------------

Balance, end of year    77,259,396 $     287,002   76,844,897  $    279,149

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Shareholder Rights Plan

The Shareholder Rights Plan is designed to encourage the fair treatment of shareholders in connection with any takeover offer for the Company. Rights issued under the plan become exercisable when a person, and any related parties, acquires or commences a take-over bid to acquire 20% or more of the Company's outstanding common shares without complying with certain provisions set out in the plan or without approval of the Company's Board of Directors. Should such an acquisition occur, each rights holder, other than the acquiring person and related parties, will have the right to purchase common shares of the Company at a 50% discount to the market price at that time. The plan expires in April 2015.

Normal Course Issuer Bid ("NCIB")

Toromont renewed its NCIB program in 2014. The current issuer bid allows the Company to purchase up to approximately 5.7 million of its common shares in the 12-month period ending August 30, 2015, representing 10% of common shares in the public float, as estimated at the time of renewal. The actual number of shares purchased and the timing of any such purchases will be determined by Toromont. All shares purchased under the bid will be cancelled.

The Company did not purchase any shares under the normal course issuer bid during the years ended December 31, 2014 or 2013.

Dividends

The Company paid dividends of $44.7 million ($0.58 per share) for the year ended December 31, 2014 and $39.0 million ($0.51 per share) for the year ended December 31, 2013.

For the year ended December 31, 2014, the Board of Directors of the Company declared dividends of $0.60 per common share or $0.15 per quarter (2013 - $0.52 ($0.13 per quarter)). The fourth quarter dividend of $0.15 per share was declared on October 27, 2014, payable on January 2, 2015, to all shareholders on record at December 11, 2014. As such, at December 31, 2014, the Company accrued $11.6 million in accounts payable and accrued liabilities on the consolidated statement of financial position. Subsequent to the year ended December 31, 2014, this amount was paid.

11. 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:




                                                        ----------

                                                             2014      2013

----------------------------------------------------------------------------

Contributed surplus, beginning of year                   $  6,329  $  5,957

Stock-based compensation, net of forfeitures                2,330     1,957

Value of compensation cost associated with exercised

 options                                                   (1,447)   (1,585)

----------------------------------------------------------------------------

Contributed surplus, end of year                         $  7,212  $  6,329

----------------------------------------------------------------------------

----------------------------------------------------------------------------



12. FINANCIAL INSTRUMENTS

Financial Assets and Liabilities - Classification and Measurement

Financial assets and financial liabilities are measured on an ongoing basis at cost, fair value or amortized cost, depending on the classification. The following table highlights the carrying amounts and classifications of financial assets and liabilities:

Fair value of Financial Instruments




                                --------------------------------------------

                                                        Other

                                                   financial

As at December 31, 2014            Derivatives    liabilities         Total

----------------------------------------------------------------------------

Current portion of long-term

 debt                            $           - $     (126,576) $   (126,576)

Derivative financial instruments         1,683              -         1,683

Long-term debt                               -         (4,942)       (4,942)

----------------------------------------------------------------------------

Total                            $       1,683 $     (131,518) $   (129,835)

----------------------------------------------------------------------------

----------------------------------------------------------------------------








                                                        Other

                                                    financial

As at December 31, 2013            Derivatives    liabilities         Total

----------------------------------------------------------------------------

Current portion of long-term

 debt                            $           - $       (1,470) $     (1,470)

Derivative financial instruments         1,331              -         1,331

Long-term debt                               -       (130,948)     (130,948)

----------------------------------------------------------------------------

Total                            $       1,331 $     (132,418) $   (131,087)

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The fair value of derivative financial instruments is measured using the discounted value of the difference between the contract's value at maturity based on the contracted foreign exchange rate and the contract's value at maturity based on the comparable foreign exchange rate at period end under the same conditions. The financial institution's credit risk is also taken into consideration in determining fair value. The valuation is determined using Level 2 inputs which are observable inputs or inputs which can be corroborated by observable market data for substantially the full term of the asset or liability, most significantly foreign exchange spot and forward rates.

The fair value of senior debentures as at December 31, 2014 was $137,040 (carrying value of $133,040) (2013 - $141,800 (carrying value of $134,511)). The fair value was determined using the discounted cash flow method, a generally accepted valuation technique. The discounted factor is based on market rates for debt with similar terms and remaining maturities and based on Toromont's credit risk. The Company has no plans to prepay these instruments prior to maturity. The valuation is determined using Level 2 inputs which are observable inputs or inputs which can be corroborated by observable market data for substantially the full term of the asset or liability.

During the year ended December 31, 2014, there were no transfers between Level 1 and Level 2 fair value measurements.

Derivative Financial Instruments and Hedge Accounting

Foreign exchange contracts are transacted with financial institutions to hedge foreign currency denominated obligations related to purchases of inventory and sales of products. As at December 31, 2014, the Company was committed to USD purchase contracts with a notional amount of $115.8 million at an average exchange rate of $1.1481, maturing between January 2015 and October 2015.

Management estimates that a gain of $1.7 million (2013 - $1.3 million) would be realized if the contracts were terminated on December 31, 2014. Certain of these forward contracts are designated as cash flow hedges, and accordingly, an unrealized gain of $0.9 million (2013 - $0.4 million) has been included in OCI. These gains are not expected to affect net earnings as the gains will be reclassified to net earnings within the next 12 months and will offset losses recorded on the underlying hedged items, namely foreign denominated accounts payable. Certain of these forward contracts are not designated as cash flow hedges but are entered into for periods consistent with foreign currency exposure of the underlying transactions. A gain of $0.8 million (2013 - $1.0 million) on these forward contracts is included in net earnings, which offsets losses recorded on the foreign-denominated items, namely accounts payable.

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

13. FINANCIAL INSTRUMENTS - RISK MANAGEMENT

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

Currency Risk

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

The Company maintains a hedging policy whereby all significant transactional currency risks are identified and hedged.

Sensitivity Analysis

The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign exchange rates on the Company's financial instruments and show the impact on net earnings and comprehensive income. It is provided as a reasonably possibly change in currency in a volatile environment. Financial instruments affected by currency risk include cash, accounts receivable, accounts payable and derivative financial instruments.

As at December 31, 2014, a 5% weakening (strengthening) of the Canadian dollar against the US dollar would result in a $0.1 million increase (decrease) in OCI for financial instruments held in foreign operations and a $0.4 million increase (decrease) in net earnings and $3.6 million increase (decrease) in OCI for financial instruments held in Canadian operations.

The movement in OCI in foreign operations reflects the change in the fair value of financial instruments. Gains or losses on translation of foreign subsidiaries are deferred in OCI. Accumulated currency translation adjustments are recognized in income when there is a reduction in the net investment in the foreign operation.

The movement in net earnings in Canadian operations is a result of a change in the fair values of financial instruments. The majority of these financial instruments are hedged.

The movement in OCI in Canadian operations reflects the change in the fair value of derivative financial instruments that are designated as cash flow hedges. The gains or losses on these instruments are not expected to affect net earnings as the gains or losses will offset losses or gains on the underlying hedged items.

Credit Risk

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

The Company has deposited cash with reputable financial institutions, from which management believes the risk of loss to be remote.

The Company has accounts receivable from customers engaged in various industries including mining, construction, food and beverage, and governmental agencies. These specific industries may be affected by economic factors that may impact accounts receivable. Management does not believe that any single industry represents significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by the Company's large customer base.

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

Interest Rate Risk

The Company minimizes its interest rate risk by managing its portfolio of floating and fixed rate debt, as well as managing the term to maturity. The Company may use derivative instruments such as interest rate swap agreements to manage its current and anticipated exposure to interest rates. There were no interest rate swap agreements outstanding as at December 31, 2014 or 2013.

The Company did not have any floating rate debt at December 31, 2014 or 2013.

Liquidity Risk

Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. As at December 31, 2014, the Company had unutilized lines of credit of $177.4 million (2013 - $173.4 million).

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

The Company expects that continued cash flows from operations in 2015, together with currently available credit facilities, will be more than sufficient to fund its requirements for the senior debenture repayment and investments in working capital, capital assets and dividend payments through the next 12 months, and that the Company's credit ratings provide reasonable access to capital markets to facilitate future debt issuance.

14. INTEREST INCOME AND EXPENSE

The components of interest expense were as follows:




                                             Twelve months ended December 31

                                     --------------------

                                                     2014               2013

----------------------------------------------------------------------------

Term loan facility                     $            1,478  $           1,894

Senior debentures                                   6,710              6,799

----------------------------------------------------------------------------

                                       $            8,188  $           8,693

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The components of interest and investment income were as follows:








                                              Twelve monthsended December 31

                                     --------------------

                                                     2014               2013

----------------------------------------------------------------------------

Interest income - rental conversions  $             3,270 $            3,036

Other                                                 884                757

----------------------------------------------------------------------------

                                      $             4,154 $            3,793

----------------------------------------------------------------------------

----------------------------------------------------------------------------



15. INCOME TAXES

Significant components of the provision for income tax expense were as follows:




                                     --------------------

                                                     2014               2013

----------------------------------------------------------------------------

Current income tax expense            $            49,204 $           37,565

Deferred income tax (recovery)

 expense                                          (1,622)              8,466

----------------------------------------------------------------------------

Total income tax expense              $            47,582 $           46,031

----------------------------------------------------------------------------

----------------------------------------------------------------------------



A reconciliation of income taxes at Canadian statutory rates with the reported income taxes was as follows:




                                                        ----------



                                                             2014      2013

----------------------------------------------------------------------------

Statutory Canadian federal and provincial income tax

 rates                                                     26.50%    26.50%

----------------------------------------------------------------------------



Expected taxes on income                                $  47,906  $ 44,801

Increase (decrease) in income taxes resulting from:

    Higher effective tax rates in other jurisdictions         119       291

    Manufacturing and processing rate reduction              (258)     (270)

    Expenses not deductible for tax purposes                1,116       993

    Non-taxable gains                                        (197)     (270)

    Effect of future income tax rate (reductions)

     increases                                               (138)      283

    Other                                                    (966)      203

----------------------------------------------------------------------------

Provision for income taxes                              $  47,582  $ 46,031

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Effective income tax rate                                   26.3%     27.2%

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The statutory income tax rate represents the combined Canadian federal and Ontario provincial income tax rates which are the relevant tax jurisdictions for the Company.

The source of deferred income taxes was as follows:




                                                      -----------



                                                            2014       2013

----------------------------------------------------------------------------

Accrued liabilities                                   $   11,856  $  10,315

Deferred revenue                                           1,921      1,988

Accounts receivable                                        1,619      1,389

Inventories                                                3,562      2,861

Capital assets                                           (18,848)   (18,000)

Pension                                                    5,017      3,274

Other                                                        885        700

Cash flow hedges in other comprehensive income              (228)       (92)

----------------------------------------------------------------------------

Deferred tax assets                                   $    5,784  $   2,435

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The movement in net deferred tax assets was as follows:




                                                      -----------

                                                             2014      2013

----------------------------------------------------------------------------

Balance, January 1                                    $     2,435 $  13,697

Tax recovery (expense) recognized in income                 1,622    (8,466)

Tax recovery (expense) recognized in other

 comprehensive income                                       1,727    (2,796)

----------------------------------------------------------------------------

Balance, December 31                                  $     5,784 $   2,435

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The aggregate amount of unremitted earnings in the Company's subsidiaries was $57.3 million (2013 - $50.1 million). These earnings can be remitted with no tax consequences.

16. EARNINGS PER SHARE

Basic earnings per share ("EPS") are calculated by dividing net earnings for the year by the weighted average number of common shares outstanding during the year.

Diluted EPS is calculated by dividing net earnings by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all dilutive stock options to common shares.




                                              ---------------

                                                         2014           2013

----------------------------------------------------------------------------

Net earnings available to common shareholders  $      133,196 $      123,031

----------------------------------------------------------------------------

----------------------------------------------------------------------------

Weighted average common shares outstanding         77,061,455     76,612,204

Dilutive effect of stock option conversion            614,256        542,947

Diluted weighted average common shares

 outstanding                                       77,675,711     77,155,151

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Earnings per share

Basic                                          $         1.73 $         1.61

Diluted                                        $         1.71 $         1.59

----------------------------------------------------------------------------



For the calculation of diluted earnings per share for the year ended December 31, 2014, 522,000 (2013 - 507,200) outstanding stock options with a weighted average exercise price of $26.52 (2013 - $23.50) were considered anti-dilutive (exercise price in excess of average market price during the year) and as such were excluded from the calculation.

17. EMPLOYEE BENEFITS EXPENSE




                                                  -------------

                                                           2014         2013

----------------------------------------------------------------------------

Wages and salaries                                $     283,471 $    274,601

Other employment benefit expenses                        45,962       44,218

Share options granted to directors and employees          2,330        1,957

Pension costs                                            11,543       11,590

----------------------------------------------------------------------------

                                                  $     343,306 $    332,366

----------------------------------------------------------------------------

----------------------------------------------------------------------------



18. STOCK-BASED COMPENSATION

The Company maintains a stock option program for certain employees. Under the plan, up to 7,000,000 options may be granted for subsequent exercise in exchange for common shares. It is the Company's policy that no more than 1% of outstanding shares or 768,449 share options may be granted in any one year. Stock options 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. Effective 2013, stock options granted have a ten-year term while those granted prior to 2013 have a seven-year term. Toromont accrues compensation cost over the vesting period based on the grant date fair value.

A reconciliation of the outstanding options for the years ended December 31, 2014 and 2013 was as follows:




                            ------------------------

                                 Twelve months ended     Twelve months ended

                                   December 31, 2014       December 31, 2013

----------------------------------------------------------------------------

                                            Weighted                Weighted

                                             Average                 Average

                              Number of     Exercise  Number of     Exercise

                                Options        Price    Options        Price

----------------------------------------------------------------------------

Options outstanding,

 beginning of year            2,610,274  $     18.49  2,564,355  $     16.92

Granted                         522,500        26.52    516,200        23.40

Exercised (1)                  (414,499)       15.43   (443,371)       15.07

Forfeited                        (2,400)       18.79    (26,910)       19.68

----------------------------------------------------------------------------

Options outstanding, end of

 year                         2,715,875  $     20.50  2,610,274  $     18.49

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Options exercisable, end of

 year                         1,108,790  $     17.56  1,006,224  $     16.20

----------------------------------------------------------------------------

----------------------------------------------------------------------------

 (1)The weighted average share price at date of exercise for the twelve-

    month period ended December 31, 2014 was $26.12 (2013 - $23.78).







The following table summarizes stock options outstanding and exercisable as at December 31, 2014.









                                  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

----------------------------------------------------------------------------

$12.42 - $14.75       169,100          1.1 $    12.44     169,100 $    12.44

$14.76 - $17.10       942,110          2.8 $    16.90     615,650 $    16.85

$17.11 - $23.40     1,082,665          6.4 $    21.98     324,040 $    21.56

$23.41 - $26.79       522,000          9.6 $    26.52           - $        -

----------------------------------------------------------------------------

Total               2,715,875          5.4 $    20.50   1,108,790 $    17.56

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The fair value of the stock options granted during 2014 and 2013 were determined at the time of grant using the Black-Scholes option pricing model with the following weighted average assumptions:




                                                  -------------

                                                           2014         2013

----------------------------------------------------------------------------

Fair value price per option                        $       5.50 $       5.49

Expected life of options (years)                           8.45         8.29

Expected stock price volatility                           23.0%        25.0%

Expected dividend yield                                   2.26%        2.22%

Risk-free interest rate                                   1.92%        2.28%

----------------------------------------------------------------------------



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 performance incentive bonus or fees, respectively, in DSUs. In addition, the Board may grant discretionary DSUs. Non-employee directors also receive a portion of their compensation in DSUs.

The following table summarizes information related to DSU activity:




                                ------------------------

                                    Twelve months ended  Twelve months ended

                                      December 31, 2014    December 31, 2013

----------------------------------------------------------------------------

                                  Number of              Number of

                                       DSUs       Value       DSUs     Value

----------------------------------------------------------------------------

Outstanding, beginning of year      288,920  $    7,696    211,872 $   4,297

Units taken in lieu of

 performance incentive awards,

 director fees and dividends         53,575       1,420     77,048     1,743

Redemptions                          (7,786)       (197)         -         -

Fair market value adjustment              -         608          -     1,656

----------------------------------------------------------------------------

Outstanding, end of year            334,709  $    9,527    288,920 $   7,696

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The liability for DSUs is recorded in accounts payable and accrued liabilities.

Employee Share Ownership Plan

The Company offers an Employee Share Ownership Plan (the "Plan") whereby employees who meet the eligibility criteria can purchase shares by way of payroll deductions. There is a Company match of up to $1,000 per employee per annum based on contributions by the Company of $1 for every $3 contributed by the employee. Company contributions vest to the employee immediately. Company contributions amounting to $1.0 million in 2014 (2013 - $0.9 million) were charged to selling and administrative expenses when paid. The Plan is administered by a third party.

19. EMPLOYEE FUTURE BENEFITS

Defined Contribution Plans

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 the respective collective bargaining agreements. In the case of defined contribution plans, regular contributions are made to the individual employee accounts, which are administered by a plan trustee in accordance with the plan documents.

Included in the net pension expense for the years ended December 31, were the following components of the defined contribution plans:




                                                    ------------

                                                            2014        2013

----------------------------------------------------------------------------

Defined contribution plans                           $     9,504 $     9,075

401(k) matched savings plans                                 158         128

----------------------------------------------------------------------------



Net pension expense                                  $     9,662 $     9,203

----------------------------------------------------------------------------



Defined Benefit Plans

The Company sponsors funded defined benefit plans for approximately 109 qualifying employees. The defined benefit plans are administered by a separate Fund that is legally separated from the Company.

Outlined below is a summary of the plans in effect at December 31, 2014 and 2013:

a) Powell Plan - This is a legacy plan whose members were employees of Powell Equipment when it was acquired by Toromont in 2001. The plan is a contributory plan that provides pension benefits based on length of service and career average earnings. The plan is administered by the Toromont Pension Management Committee with assets held in a pension fund that is legally separate from the Company and cannot be used for any purpose other than payment of pension benefits and related administrative fees. The plan is registered with the province of Manitoba. Manitoba's minimum funding regulations require special payments for Toromont to amortize any shortfalls of plan assets relative to the cost of settling all accrued benefit entitlements through the purchase of annuities or payments of an equivalent lump sum value (solvency funding basis). Security in the form of letters of credit is permitted in lieu of some or all of these solvency special payments. If the fair value of defined benefit assets were to exceed 105% of this solvency funding target, the excess can be applied to the cost of the defined benefits and defined contributions in future periods. The most recent actuarial valuation was completed as at December 31, 2013, with the next valuation scheduled for December 31, 2016.

b) Executive Plan - This is a non-contributory pension arrangement for certain senior executives that provides for a supplementary retirement payout in excess of amounts provided for under the registered plan. The plan is a supplemental pension plan and is solely the obligation of the Company. The Company is not obligated to fund the plan but pay benefits under the terms of the plan as they come due. At December 31, 2014, the Company has posted letters of credit in the amount of $18.3 million to secure the obligations under this plan. The most recent actuarial valuation was completed as at December 31, 2014, with the next valuation scheduled for December 31, 2015.

c) Other plan assets and obligations - This provides for certain retirees and terminated vested employees of businesses previously acquired by the Company as well as for retired participants of the defined contribution plan that, in accordance with the plan provisions, have elected to receive a pension directly from the plan. The most recent actuarial valuation was completed on January 1, 2014, with the next valuation scheduled for January 1, 2017.

Risks

The plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.




---------------------------------------------------------------------------

Investment risk     The present value of the defined benefit plan liability

                    is calculated using a discount rate determined by

                    reference to high quality corporate bond yields; if the

                    return on plan asset is below this rate, it will create

                    a plan deficit. Currently, the plan has a relatively

                    balanced investment in equity securities, debt

                    instruments and real estates. The Toromont Pension

                    Management Committee reviews the asset mix and

                    performance of the plan assets on a quarterly basis

                    with the balanced investment strategy intention.

---------------------------------------------------------------------------

Interest risk       A decrease in the bond interest rates will increase the

                    plan liability; however, this will be partially offset

                    by an increase in the plan's holdings in debt

                    instruments.

---------------------------------------------------------------------------

Longevity risk      The present value of the defined benefit plan liability

                    is calculated by reference to the best estimate of the

                    mortality of plan participants both during and after

                    their employment. An increase in the life expectancy of

                    the plan participants will increase the plan's

                    liability.

---------------------------------------------------------------------------

Salary risk         The present value of the defined benefit plan liability

                    is calculated by reference to the future salaries of

                    plan participants. As such, an increase in the salary

                    of the plan participants will increase the plan's

                    liability.

---------------------------------------------------------------------------



The principal assumptions used for the purpose of the actuarial valuations were as follows:




                                                        ----------

                                                              2014      2013

----------------------------------------------------------------------------

Discount rate(s)                                             3.80%     4.60%

Expected rate(s) of salary increase                          4.00%     4.00%

----------------------------------------------------------------------------



Amounts are recognized in comprehensive income in respect to these defined benefit plans as follows:




                                                        ----------

                                                             2014      2013

                                                        --------------------

Service cost                                             $  1,162  $  1,394

Net interest expense                                          719       993

----------------------------------------------------------------------------



Components of defined benefit costs recognized in net

 earnings                                                   1,881     2,387

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Remeasurement on the net defined benefit liability:

  Actuarial losses arising from experience adjustments   $  1,302  $    992

  Actuarial losses arising from changes in demographic

   assumptions                                                441     2,589

  Actuarial losses/(gains) arising from changes in

   financial assumptions                                    7,828    (7,043)

  Return on plan assets (excluding amounts included in

   net interest expense)                                   (2,595)   (6,491)

----------------------------------------------------------------------------



Components of defined benefit costs recognized in other

 comprehensive income                                    $  6,976  $ (9,953)

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The changes in the fair value of assets and the pension obligations of the defined benefit plans at year end were as follows:




                                                    ------------

                                                           2014        2013

Accrued defined benefit obligations:

----------------------------------------------------------------------------

  Balance, beginning of year                         $   79,791  $   83,733

  Current service cost                                    1,162       1,394

  Interest cost                                           3,714       3,212

  Remeasurement losses/(gains):

    Actuarial losses arising from experience

     adjustments                                          1,302         992

    Actuarial losses arising from changes in

     demographic assumptions                                441       2,589

    Actuarial losses/(gains) arising from changes in

     financial assumptions                                7,828      (7,043)

  Benefits paid                                          (8,036)     (5,496)

  Voluntary contributions by plan participants              353         410

----------------------------------------------------------------------------

  Balance, end of year                                   86,555      79,791

----------------------------------------------------------------------------



Plan assets:

  Fair value, beginning of year                          66,656      56,893

  Interest income on plan assets                          2,995       2,219

  Remeasurement gain:

    Return on plan assets (excluding amounts

     included in net interest expense)                    2,595       6,491

  Contributions from the Company                          2,669       6,139

  Contributions from the plan participants                  353         410

  Benefits paid                                          (8,036)     (5,496)

  Transfer to Company defined contribution plan          (1,467)          -

----------------------------------------------------------------------------

  Fair value, end of year                                65,765      66,656

----------------------------------------------------------------------------



Accrued pension liability                            $   20,790  $   13,135

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The funded status of the of the Company's defined benefit pension plans at year end was as follows:




                     ------------------------------------------------------

                                                                      2014

---------------------------------------------------------------------------

                         Accrued defined

                                 benefit                   Accrued pension

                              obligation      Plan assets      (liability)

---------------------------------------------------------------------------

Powell Plan           $           56,521 $         56,185 $           (336)

Executive Plan                    20,849            2,089          (18,760)

Other plan assets and

 obligations                       9,185            7,491           (1,694)

---------------------------------------------------------------------------

Accrued pension

 (liability) asset    $           86,555 $         65,765 $        (20,790)

---------------------------------------------------------------------------

---------------------------------------------------------------------------





                                                                       2013

----------------------------------------------------------------------------

                           Accrued defined                  Accrued pension

                        benefit obligation   Plan assets  asset (liability)

----------------------------------------------------------------------------

Powell Plan           $             51,431 $      55,408 $            3,977

Executive Plan                      20,965         1,888            (19,077)

Other plan assets and

 obligations                         7,395         9,360              1,965

----------------------------------------------------------------------------

Accrued pension

 (liability) asset    $             79,791 $      66,656 $          (13,135)

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The allocation of the fair value of the plan assets at the end of the reporting period for each category was as follows:




                                                    ------------

                                                            2014        2013

----------------------------------------------------------------------------

Equity securities                                          43.6%       49.0%

Debt securities                                            38.2%       33.6%

Real estate                                                17.3%       16.9%

Cash and cash equivalents                                   0.9%        0.5%

----------------------------------------------------------------------------



The fair values of the above plan assets are determined based on the following methods:




--  Equity securities - generally quoted market prices in active markets.

--  Debt securities - generally quoted market prices in active markets.

--  Real estate - are valued based on appraisals performed by a qualified

    external real estate appraiser. Real estate assets are located primarily

    in Canada.

--  Cash and cash equivalents - generally recorded at cost which

    approximates fair value.



The actual return on plan assets was $5.6 million (2013 - $8.7 million).

Sensitivity Analysis

Significant actuarial assumptions for the determination of the defined obligation are the discount rate and the life expectancy. The sensitivity analyses have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

As at December 31, 2014, the following quantitative analysis shows changes to the significant actuarial assumptions and the corresponding impact to the defined benefit obligation:




                    ------------------------------------------------------

                             Discount Rate                 Life expectancy

                    ------------------------------------------------------

                            1%          1%     Increase          Decrease

                      Increase    Decrease    by 1 year         by 1 year

--------------------------------------------------------------------------

Powell Plan          $  (7,310) $    8,403 $      1,520  $         (1,520)

Executive Plan       $  (1,849) $    2,029 $        549  $           (549)

Other Plan           $    (523) $      563 $        356  $           (356)

--------------------------------------------------------------------------



The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

The Company expects to contribute $2.1 million to the defined benefit plans during 2015.

The weighted average duration of the defined benefit plan obligation at December 31, 2014 was 13.1 years (2013 - 13.8 years).

20. CAPITAL MANAGEMENT

The Company defines capital as the aggregate of shareholders' equity and long-term debt less cash.

The Company's capital management framework is designed to maintain a flexible capital structure that allows for optimization of the cost of capital at acceptable risk while balancing the interests of both equity and debt holders.

The Company generally targets a net debt to total capitalization ratio of 33%, although there is a degree of variability associated with the timing of cash flows. Also, if appropriate opportunities are identified, the Company is prepared to significantly increase this ratio depending upon the opportunity.

The Company's capital management criteria can be illustrated as follows:




                                                --------------

                                                  December 31   December 31

                                                         2014          2013

----------------------------------------------------------------------------

Shareholders' equity                             $    668,075  $    576,557

Long-term debt                                        131,518       132,418

Less cash                                             (85,962)      (70,769)

----------------------------------------------------------------------------

Total capitalization                             $    713,631  $    638,206

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Net debt as a % of total capitalization                    6%           10%

Net debt to equity ratio                               0.07:1        0.11:1

----------------------------------------------------------------------------



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 year.

There were no changes in the Company's approach to capital management during the year.

21. SUPPLEMENTAL CASH FLOW INFORMATION




                                                       -----------

                                                             2014      2013

----------------------------------------------------------------------------

Net change in non-cash working capital and other

     Accounts receivable                                $   1,174  $ (8,741)

     Inventories                                          (17,886)      346

     Accounts payable, accrued liabilities and

     provisions                                           (22,127)   42,806

     Deferred revenues                                    (15,222)   (6,017)

     Other                                                 11,490    (6,729)

----------------------------------------------------------------------------

                                                        $ (42,571) $ 21,665

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Cash paid during the year for:

  Interest                                              $   7,463  $  7,961

  Income taxes                                          $  43,547  $ 47,804



Cash received during the year for:

  Interest                                              $   3,629  $  3,309

  Income taxes                                          $   5,748  $  2,120

----------------------------------------------------------------------------



22. COMMITMENTS

The Company has entered into leases on buildings, vehicles and office equipment. The vehicle and office equipment leases generally have an average life between three and five years with no renewal options. The building leases have a maximum lease term of 20 years including renewal options. Some of the contracts include a lease escalation clause, which is usually based on the Consumer Price Index.

Future minimum lease payments under non-cancellable operating leases as at December 31, 2014 were as follows:




2015                                                             $     2,841

2016                                                                   2,557

2017                                                                   2,016

2018                                                                   1,478

2019                                                                   1,145

2020 and thereafter                                                    1,254

----------------------------------------------------------------------------

                                                                 $    11,291

----------------------------------------------------------------------------

----------------------------------------------------------------------------



23. SEGMENTED INFORMATION

The Company has two reportable segments, each supported by the corporate office. These segments are strategic business units that offer different products and services, and each is managed separately. The corporate office provides finance, treasury, legal, human resources and other administrative support to the segments. Corporate overheads are allocated to the segments based on revenue.

The accounting policies of the reportable segments are the same as those described in Note 1 -

Significant Accounting Policies. Each reportable segment's performance is measured based on operating income. No reportable segment is reliant on any single external customer.




                                  ------------------------------------------

                                               Equipment Group         CIMCO

----------------------------------------------------------------------------

                                            2014          2013          2014

----------------------------------------------------------------------------

Equipment/package sales            $     752,912 $     746,006 $     112,084

Rentals                                  220,143       193,454             -

Product support                          464,153       411,582        99,550

Power generation                          11,548        11,650             -

----------------------------------------------------------------------------

Total revenues                     $   1,448,756 $   1,362,692 $     211,634

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Operating Income                   $     172,727 $     157,924 $      12,085

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Interest expense

Interest and investment income

Income taxes

----------------------------------------------------------------------------



Net earnings

----------------------------------------------------------------------------

----------------------------------------------------------------------------



                                  ------------------------------------------

                                           CIMCO               Consolidated

----------------------------------------------------------------------------

                                            2013         2014          2013

----------------------------------------------------------------------------

Equipment/package sales            $     140,747 $    864,996  $    886,753

Rentals                                        -      220,143       193,454

Product support                           89,992      563,703       501,574

Power generation                               -       11,548        11,650

----------------------------------------------------------------------------

Total revenues                     $     230,739 $  1,660,390  $  1,593,431

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Operating Income                   $      16,038 $    184,812  $    173,962

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Interest expense                                        8,188         8,693

Interest and investment income                         (4,154)       (3,793)

Income taxes                                           47,582        46,031

----------------------------------------------------------------------------



Net earnings                                     $    133,196  $    123,031

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Selected statement of financial position information:




                                   -----------------------------------------

As at December 31, 2014               Equipment Group    CIMCO  Consolidated

----------------------------------------------------------------------------

Identifiable assets                 $         933,393 $ 64,087 $     997,480

Corporate assets                                                     110,322

----------------------------------------------------------------------------

Total assets                                                   $   1,107,802

----------------------------------------------------------------------------



Identifiable liabilities            $         222,309 $ 34,883 $     257,192

Corporate liabilities                                                182,535

----------------------------------------------------------------------------

Total liabilities                                              $     439,727

----------------------------------------------------------------------------



Capital expenditures                $         106,357 $  1,458 $     107,815

----------------------------------------------------------------------------



Depreciation                        $          63,416 $  1,440 $      64,856

----------------------------------------------------------------------------

----------------------------------------------------------------------------

                                        ------------------------------------

As at December 31, 2013                    Equipment              Consolidat

                                               Group       CIMCO          ed

----------------------------------------------------------------------------

Identifiable assets                      $   868,145 $    62,725 $   930,870

Corporate assets                                                      99,685

----------------------------------------------------------------------------

Total assets                                                     $ 1,030,555

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Identifiable liabilities                 $   247,990 $    39,081 $   287,071

Corporate liabilities                                                166,927

Total liabilities                                                $   453,998

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Capital expenditures                     $    90,784 $     4,019 $    94,803

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Depreciation                             $    57,489 $     1,157 $    58,646

----------------------------------------------------------------------------

----------------------------------------------------------------------------



Operations are based primarily in Canada and the United States. The following summarizes the final destination of revenues to customers and the capital assets held in each geographic segment:




                                                  -------------

                                                           2014         2013

----------------------------------------------------------------------------

Revenues

  Canada                                           $  1,609,909 $  1,542,504

  United States                                          49,217       43,895

  International                                           1,264        7,032

----------------------------------------------------------------------------

                                                   $  1,660,390 $  1,593,431

----------------------------------------------------------------------------

----------------------------------------------------------------------------





                                                  -------------

                                                           2014         2013

----------------------------------------------------------------------------

Capital Assets and Goodwill

  Canada                                           $    381,064 $    351,016

  United States                                           4,047        3,586

----------------------------------------------------------------------------

                                                   $    385,111 $    354,602

----------------------------------------------------------------------------

----------------------------------------------------------------------------



24. RELATED PARTY DISCLOSURES

Key management personnel and director compensation comprised:




                                                    ------------------------

                                                            2014        2013

----------------------------------------------------------------------------

Salaries                                             $     2,850 $     2,962

Stock options and DSU awards                               1,954       1,847

Annual non-equity incentive based plan compensation        2,875       2,785

Pension                                                      508         494

All other compensation                                       147         174

----------------------------------------------------------------------------

                                                     $     8,334 $     8,262

----------------------------------------------------------------------------

----------------------------------------------------------------------------



The remuneration of directors and key management is determined by the Human Resources Committee having regard to the performance of the individual and Company and market trends.




25. BUSINESS COMBINATIONS



Ag West Equipment Limited



On September 30, 2014, the Company acquired 100% of the voting shares of Ag West Equipment Limited ("Ag West"), for total cash consideration of $3.7 million, plus assumed debt of $3.0 million for a total transaction value of $6.7 million. Subsequent to the acquisition, the assumed debt was settled in full. The transaction was accounted for as a business combination under IFRS 3.

Based in Manitoba, Ag West specialised in the sale and service of agricultural equipment as an authorized dealer of AGCO and other manufacturers' products for over twenty years. With this acquisition, Toromont will further expand its cross-selling opportunities and strengthen its presence in the agricultural sector.

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon the fair market value at the date of acquisition.

The final allocation of the purchase price was as follows:




Assets

  Cash                                                          $        577

  Trade receivables                                                      261

  Inventories                                                         11,819

  Other current assets                                                   350

  Property, plant and equipment                                        2,971

  Deferred tax assets                                                      5

----------------------------------------------------------------------------

                                                                $     15,983

----------------------------------------------------------------------------



Liabilities

  Current liabilities                                           $     12,320

----------------------------------------------------------------------------

Net identifiable assets acquired                                $      3,663

----------------------------------------------------------------------------

----------------------------------------------------------------------------



From the date of acquisition, Ag West contributed $5.7 million of revenues. If the acquisition had occurred on January 1, 2014, Ag West would have contributed approximately $22.3 million in total revenues.

Canpro Gator Centre

On December 19, 2014, Ag West acquired substantially all of the assets of Canpro Gator Centre ("Canpro"), for approximately $6.4 million (subject to closing adjustments), representing their assessed fair value. At the close of the transaction, $5.8 million was paid with the balance due within 30 days. The transaction was accounted for as a business combination in accordance with IFRS 3.

Based in Manitoba, Canpro also specialised in the sale and service of agricultural equipment as an authorized AGCO dealer. Additionally, Canpro is the licensed distributor for various state of the art agricultural precision devices that increase productivity and efficiency. This acquisition will provide broader market coverage with an expanded portfolio of products and services.

The purchase price was allocated to the underlying assets acquired based on preliminary fair value assessments as at the purchase date.

The following table provides a summary of the preliminary assessed fair value of assets acquired as reflected in the consolidated statement of financial position at December 31, 2014.




Assets

  Trade receivables                                            $         124

  Inventories                                                          5,365

  Property, plant and equipment                                          527

  Goodwill and Intangible assets                                         413

----------------------------------------------------------------------------

                                                               $       6,429

----------------------------------------------------------------------------

----------------------------------------------------------------------------



From the date of acquisition, Canpro contributed no revenues due to timing. If the acquisition had taken place on January 1, 2014, Canpro would have contributed approximately $20.0 million in total revenues.

26. ECONOMIC RELATIONSHIP

The Company, through its Equipment Group, sells and services heavy equipment and related parts. Distribution agreements are maintained with several equipment manufacturers, of which the most significant are with subsidiaries of Caterpillar Inc. The distribution and servicing of Caterpillar products account for the major portion of the Equipment Group's operations. Toromont has had a strong relationship with Caterpillar since inception in 1993.




FOR FURTHER INFORMATION PLEASE CONTACT:

Toromont Industries Ltd.

Paul R. Jewer

Executive Vice President and Chief Financial Officer

(416) 667-5638

www.toromont.com









Source: Toromont Industries Ltd.

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