@ your service worldwide 2 0 0 0 A n n u a l R e p o r t The Finning Commitment To o u r C u s t o m e r s We will be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty. To o u r S h a r e h o l d e r s Industry leadership through: • Continuous growth in shareholder value. • The best solutions and value for our customers. • Competitive advantage through innovation. • Continuous growth in market share. To o u r E m p l o y e e s WE CARE. WE EMPOWER. • We depend on ourselves and each • We expect the best of each other. other for our safety and well being. • We encourage and value learning, WE COMMUNICATE. innovation, and personal growth. • We rely on open, honest, and effective WE TRUST. communication to work together. • We work at building honest, • All contributions have value. constructive relationships with WE TAKE RESPONSIBILITY. customers, suppliers, and colleagues. • Responsibility and accountability are WE DO OUR BEST. rewarded. • We continuously strive to make • Together, we shape the Finning Finning the best place to work. of tomorrow. Employee Commitment “My job is to make our customers and our company successful” Basic EPS Cashflow from Operations ($ in millions) Return on Equity $ 1.32 $ 1.13 $ 0.95 $ 0.75 16.0% 16.2% 240.62 221.3 10.5% 8.7% 71.3 $ 0.04 (63.2) (46.6) 0.5% 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 12 Months Ended - Dec. 31 ($ in millions, except EPS data) 2000 1999 EBIT Net Income Revenue 2,460.0 165.3 73.4 Operating Cash Flow 240.6 0.95 Basic EPS 0.94 Diluted EPS 2,229.9 148.9 59.6 221.3 0.75 0.74 Revenue & EBIT Contribution by Operation 74% 49% 28% 19% 4% 17% 18% Revenue EBIT -9% Canada U.K. Chile Other Glasgow Head Office Hewden Stuart Plc Cannock Head Office Finning (UK) Ltd. Year 2000 Highlights • Strong revenues and earnings • Global expansion • Growing customer satisfaction • Increased employee productivity • Major improvements in safety • Ongoing asset reduction On the Cover Finning International’s global capabilities in providing Caterpillar equipment and related services is illustrated in this montage. From top left: a lifeboat powered by twin engines in the United Kingdom; a 797 truck at work in a Chile copper mine; new generator sets power a diamond mine in the Northwest Territories; a rentals center for machines and other products in Britain. Vancouver Headquarters Finning International Inc. Edmonton Head Office Finning (Canada) Santiago Head Office Finning Chile S.A. Finning International Inc. Annual Report 2000 Table of Contents 3 4 10 11 14 20 28 Corporate Profile President’s Report to the Shareholders Financial Highlights Review of Operations – Customer Support Services Review of Operations – Canada Review of Operations – United Kingdom Review of Operations – Chile 38 Management Discussion and Analysis 51 Management’s Report to the Shareholders 51 52 70 72 74 Auditors’ Report Consolidated Financial Statements Ten-Year Financial Summary Corporate Information Shareholder Information Corporate Profile FINNING INTERNATIONAL INC. IS A CANADA-BASED INTERNATIONAL CORPORATION WITH EXTENSIVE OPERATIONS IN WESTERN CANADA, THE UNITED KINGDOM AND CHILE. FINNING INTERNATIONAL IS ONE OF THE WORLD’S LARGEST DEALERS FOR NEW CATERPILLAR PRODUCTS AND ALSO SELLS USED EQUIPMENT DOMESTICALLY AND WORLD-WIDE. Canada United Kingdom There are 15 branches and eight Finning (Canada) sells, rents, leases Finning (UK) Ltd. sells and rents depots throughout the United and finances Caterpillar and Caterpillar and complementary Kingdom. Finning UK has 1,404 complementary equipment and equipment and provides customer employees. provides customer support services support services throughout England, On January 26, 2001, Finning throughout British Columbia, Alberta, Wales, Scotland and the Channel International acquired Hewden Stuart the Yukon and most of the Northwest Islands. The dealership territory also Plc., an equipment rental company Territories. includes the Falkland Islands for sale with 370 locations and more than The major emphasis is on the of Caterpillar equipment and parts. 4,300 employees throughout England, complete line of Caterpillar products. Associated product lines include: Scotland, Wales and Northern Ireland. 3 Complementary equipment includes: Caterpillar-branded materials Caterpillar and Mitsubishi-branded lift handling equipment manufactured by Chile trucks, Svedala Reedrill rock drills, Mitsubishi Caterpillar Forklift Europe Finning Chile S.A. sells and rents CompAir LeROI air compressors, B.V., Caterpillar-branded warehouse Caterpillar and complementary Finning mobile rock drills, JLG aerial equipment manufactured by Rocla of equipment and provides customer work platforms, Kaldnes Scandlog log Finland and Caterpillar Olympian support services throughout Chile. handlers, Risley feller bunchers, power generating systems Complementary product lines include: Wagner log stackers and chip dozers, manufactured by F.G. Wilson, Ireland. Ingersoll Rand air compressors and LeeBoy motor graders and paving Effective December 22, 2000, drills and Denharco forestry products, Amida light towers and Finning (UK) became the distributor equipment. John Henry rock drills. for Sabre Perkins power systems in There are seven branches, 19 Finning (Canada), headquartered England and Wales and on December depots and two residences in Edmonton, Alberta, is represented 31, 2000, acquired the MaK marine throughout the country. Finning Chile by 32 branches, nine depots and 43 engine distributorship for the U.K. has 1,390 employees. residences. There are 2,326 employees and Ireland. in Canadian operations. < Finning International Inc. Board of Directors: (front left) Donald O’Sullivan, Douglas Whitehead, Monica Sloan, Conrad Pinette, Andrew Simon, Ricardo Bacarreza; (rear) John Willson, Jefferson Mooney, John Cleghorn, Norman Anderson, James Dinning, Nicholas Lloyd and Timothy Howden. President’s Report to the Shareholders COMPANIES WITH A SHARP CUSTOMER FOCUS, ENGAGED EMPLOYEES, STRICT FINANCIAL DISCIPLINE AND THE SUPPORT OF A WORLD CLASS SUPPLIER CREATE EXCELLENT VALUE FOR THEIR SHAREHOLDERS. FINNING INTERNATIONAL IS SUCH AN ORGANIZATION. Douglas W.G. Whitehead, President & Chief Executive Officer, Finning International Inc. (left) and Conrad A. Pinette, Chairman, look back on a year of major accomplishments. After a brief setback in 1998, when 10.3 percent to $2.5 billion and improved 46 percent and Canada’s all our markets were hammered by earnings growth of 23.1 percent to operating earnings climbed by 20 the Asian crisis, Finning has resumed $73.4 million. percent over the previous year. its earnings and revenue growth We continued our concentration These improved results for our trajectory. With our successful bid for on asset productivity, spending only shareholders, which makes the Hewden Stuart in late 2000, we are $15 million on capital expenditures company profitable for the 68th 4 confident that we will set new records and lowering our operating consecutive year, were reached in 2001. debt/equity ratio to 0.20:1. despite market challenges in all our At Finning, our commitment is to In fact, excluding the initial operations. achieve maximum shareholder value investment in Hewden Stuart, we Many of our customers in natural by being Caterpillar’s best global have reduced assets by $412 million resource industries coped with business partner while, in turn, over the past three years. uncertain economies in 2000. Lumber, providing unrivalled services that earn Finning (Canada)’s revenue reached coal and gold prices remained weak our customers’ loyalty. record levels in 2000 with an 18 through most of the year while pulp, In 2000, our financial performance percent increase, while revenue in newsprint and copper prices were showed significant improvement Chile grew by 26 percent. Operating stronger, but far from their historical over 1999, with revenue growth of earnings in the United Kingdom highs. Our greatest opportunities Cat’s new 535 mid-sized skidder was introduced to forestry markets last year. Bee Hooker, of Echofar Enterprises at Big Lake, BC, nearly doubled production over a smaller machine while working in difficult logging conditions in the BC interior. President’s Repor t to the Shareholders came from the surging oil and natural a new, vibrant community will to the cyclical natural resource gas markets, where Caterpillar emerge to create up to 9,000 new industries. equipment and a full range of power jobs. In another strategic move, Finning systems products are valued by our The Company accelerated its shift (UK) acquired the distribution rights customers. from a selling business that provides for two power systems operations; We continued to improve asset product support to a customer MaK and Sabre Perkins, both performance through a $40 million support business that sells. Customer subsidiaries of Caterpillar. These cost reduction program. We call centres, regional parts centres, acquisitions complement Caterpillar’s rationalized facilities and reduced component rebuild centres, and strategy for its engine business and parts and equipment inventories, Internet based customer links are just enable Finning to be the world’s first while divesting non-core businesses in a few of the new initiatives that were Cat dealer capable of supplying the Chile and British Columbia. launched in 2000. entire range of marine engines We implemented our strategy to manufactured by Caterpillar. New, vibrant community enter the profitable small equipment Launched in 2000, our Internet In mid-year, we listed for sale our rental market in the United Kingdom auction site has been steadily gaining 26.5 acre property on Great Northern with the addition of Hewden Stuart customer acceptance. This site Way, which has served as corporate which has 370 branches, 4,300 provides us with another excellent headquarters since 1964. The property employees, and generated revenues channel to market our used was earlier rezoned to a more of $612 million and operating profits equipment inventory around the community-compatible designation of $102 million in its last reporting world. 5 embracing a broad range of year. This $700 million acquisition is Our positive financial results in technological, retail, office, hotel and the largest in Finning’s history. 2000 are due in large part to the residential uses. The change will also accommodate the rapid light rail expansion. Since 1997, a number of operations on the property, including the Finning (Canada) head office, have been relocated. As we accelerate plans to move our remaining business units in 2001, we are pleased that Better balance of earnings Hewden Stuart is the U.K.’s leading rental company and will provide Finning with a better balance and more predictable level of earnings, offsetting to some extent, Finning’s historical reliance on equipment sales contribution of all employees, who increased productivity and improved customer service. Our employees’ focus on safety resulted in numerous innovative improvements and a 32 percent reduction in lost time accidents. Our employees have truly lived up to their commitment of Mining exploration and development has led to demand for Caterpillar’s largest tractors. The D10R is among some 40 pieces of mostly Cat mobile equipment and power systems products working at the Diavik diamond mine in the Northwest Territories. President’s Repor t to the Shareholders making both our customers and our heavy-duty equipment in the world, Governance Committee. His advice company successful. and is recognized for its innovative and insight will be missed, and we A number of changes in senior design, reliability and productivity. thank him for his service to the management responsibilities took Caterpillar’s continued investment Company. place during the year as we matched in research and development and We are pleased to welcome Paul individual talent with job expansion of its product line and Jarvis and 4,300 Hewden Stuart specifications to strengthen our support services promises a bright employees to the Finning leadership in all operations. We have future for Finning and our customers. organization and are proud of our a talented group of internationally I appreciate the support from the association with U.K.’s leading trained managers and executives. Caterpillar team and the Finning equipment rental company. Our pledge to customers to Board during my first year as Overall, 2000 was a very successful provide the best solutions for their President and Chief Executive Officer. and eventful year, and I am confident equipment needs by reducing their At our last annual meeting, Jim that we have strategically costs was reinforced through strategic Shepard stepped down as Chairman repositioned the Company for future alliances, customer service agreements and Chief Executive Officer after 31 success. and other supply contracts. years of service and Michael Koerner and Bob Wyman retired as directors. 2001 outlook positive Partnerships with customers We are grateful for their The outlook for 2001 remains This report highlights some of contributions to the Company’s positive. Finning (Canada) should 6 those partnerships in all three country growth. Also at the meeting, the continue to benefit from activity in operations, and for the first time, shareholders elected Canadian the energy sector; Finning (Chile) sections of the report appear in business leaders John Cleghorn, from stabilized copper prices, and Spanish, a further reflection that we Jefferson Mooney, Monica Sloan, and Finning (UK) and Hewden Stuart from are at our customers’ service John Willson to the board of the greatly increased government worldwide. directors. spending on infrastructure. Our customer commitment could Norm Anderson, who has served as This bright economic outlook, not be achieved without the a director for 12 years, is retiring in together with continued productivity cooperation and support of 2001. Norm was chair of the Human improvements and the contribution of Caterpillar Inc. As our business Resources and Compensation Hewden Stuart, should ensure that we partner, Caterpillar provides the best Committee and a member of the have a rewarding year in 2001. Finning expands into new product lines with the addition of Hewden Stuart, the U.K. leader for equipment rental and related services. Hire centres similar to this one in Northampton operate from 370 locations throughout Britain and Northern Ireland. Paul Jarvis is Chief Executive of Hewden Stuart. Reporte del presidente para los accionistas President’s Repor t to the Shareholders LAS EMPRESAS QUE CENTRAN SU ATENCIÓN EN SU CLIENTELA, TIENEN EMPLEADOS COMPROMETIDOS, UNA ESTRICTA DISCIPLINA FINANCIERA Y CUENTAN CON EL APOYO DE UN FABRICANTE DE CLASE MUNDIAL, CREAN UN EXCELENTE VALOR PARA SUS ACCIONISTAS. FINNING INTERNATIONAL ES UNA DE ESTAS ORGANIZACIONES. Luego de un pequeño retraso en En realidad, excluyendo la Muchos de nuestros clientes en 1998, cuando todos nuestros inversion original en la adquisición de industrias de recursos naturales mercados fueron afectados por la Hewden Stuart hemos reducido los hicieron frente a economías inseguras crisis asiática, Finning recobró su activos la hoja de balance en $412 en 2000. Los precios de la madera, el trayectoria de ganancias y de millones en los últimos tres años. carbón y el oro se mantuvieron expansión de ingresos. Con nuestra Los ingresos de Finning (Canadá) débiles durante la mayor parte del propuesta ganadora la adquisición de alcanzaron niveles récord en 2000 con año, mientras que los precios del 7 Hewden Stuart a finales de 2000, un aumento del 18%, mientras que en papel de prensa y del cobre se tenemos confianza de que Chile aumentaron un 26%. Las mantuvieron más fuertes, aunque asentaremos nuevos récords en 2001. utilidades operacionales en el Reino lejos de sus altos niveles históricos. En Finning nos comprometemos a Unido mejoraron en 46% y en Canadá Nuestras mejores oportunidades lograr valores máximos para nuestros subieron un 20% en comparación al provinieron de los repentinos accionistas, al ser el mejor socio año anterior. mercados de petróleo y de gas mundial de Caterpillar y a la vez Esta mejora en los resultados para natural, donde los equipos Caterpillar proveer servicios incomparables que nuestros accionistas hizo que la y una amplia gama de productos de atraigan la lealtad de nuestros compañía se encontrara en una sistemas de energía, son valorados por clientes. posición lucrativa durante 68 años nuestros clientes. En 2000, nuestro rendimiento consecutivos, y fue lograda a pesar de Continuamos mejorando el financiero tuvo una mejora de los retos del mercado en todas rendimiento del activo a través de un importancia en comparación a 1999, nuestras operaciones. programa de reducción de costos de con un crecimiento de ingresos del 10,3%, alcanzando los $2.500 millones y un incremento de utilidades del 23,1%, alcanzando los $73,4 millones. Continuamos concentrándonos en la productividad del activo, invirtiendo solamente $15 millones en gastos de capital y reduciendo nuestra proporción deuda/patrimonio a 0.20:1. $40 millones. Hemos racionalizado emplazamientos y reducido inventarios de partes y equipos, mientras nos despojamos de negocios no básicos en Chile y en la Columbia Británica. Repor te del presidente para los accionistas A mediados del año, pusimos a la Implementamos nuestra estrategia Nuestros resultados financieros venta nuestra propiedad de 26,5 acres de penetrar en el redituable mercado positivos en 2000 se debieron en gran en Great Northern Way, la cual ha de arriendo de equipos pequeños en parte a la contribución de todos los servido de sede corporativa desde el Reino Unido mediante la empleados, quienes aumentaron la 1964. La propiedad había sido Incorporacion Hewden Stuart cuenta productividad y mejoraron el servicio anteriormente reclasificada a una con 370 sucursales y 4.300 empleados, al cliente. El enfoque de nuestros designación más compatible con la y generó ingresos de $612 millones y empleados en la seguridad dio como comunidad, dentro de la cual cabe ganancias operativas de $102 millones resultado numerosas mejoras una amplia gama de usos tecnológicos, comerciales, en el último año reportado. Esta innovativas y una reducción de un adquisición, valorada en $864 32% de accidentes que ocasionaran residenciales, de oficinas y hotelería. millones, es la más grande de la pérdidas de horas laborales. Sin duda El cambio proporcionará espacio historia de Finning. alguna, nuestros empleados han también para la expansión del sistema Hewden Stuart es la compañía de cumplido con su compromiso de de transporte público. Desde 1997 se arriendos de mayor importancia del lograr el éxito tanto de nuestros han trasladado un número de Reino Unido y le dará a Finning un clientes como de nuestra empresa. operaciones, incluyendo la oficina mejor balance y más predecible nivel Durante el año se realizó un central de Finning (Canadá). A medida de ingresos, compensando en alguna número de cambios dentro de las que avanzamos en nuestros planes de manera la venta de equipos a las responsabilidades gerenciales al reubicar las unidades restantes en industrias cíclicas de recursos ajustar el talento individual con las 8 2001, nos complace saber que surgirá naturales. especificaciones del trabajo para una nueva y vibrante comunidad y Como movimiento estratégico, fortalecer nuestro liderazgo en todas que la misma creará hasta 9.000 Finning (Reino Unido) adquirió los las operaciones contamos con un empleos nuevos. derechos de distribución de dos grupo talentoso de gerentes y de La Compañía apresuró su cambio operaciones de sistemas de energía; ejecutivos con capacitación de ser un negocio dedicado a la venta MaK y Sabre Perking, ambas internacional. Nuestra promesa a los de servicios de apoyo de los subsidiarias de Caterpillar. Estas clientes de proveerles las mejores productos, a ser un negocio de apoyo adquisiciones complementan la soluciones para sus requerimientos de al cliente, que vende. Centros de estrategia de Caterpillar de su equipos reduciendo sus costos, fue contactos para el cliente, centros negocio de motores, permitiendo que reforzada a través de alianzas regionales de partes y de reparación Finning se convierta en el primer estratégicas, acuerdos de servicio al de componentes, además de enlaces abastecedor mundial de Cat capaz de cliente y otros contratos de de Internet para el cliente, son apenas abastecer la gama completa de abastecimiento. algunas de las iniciativas que motores marinos manufacturados por Este reporte resalta algunas de las lanzamos en 2000. Caterpillar. asociaciones en las operaciones de los Nuestro sitio en Internet para tres países, y por primera vez, remates de maquinarias y productos, secciones del reporte aparecen en lanzado en 2000, ha ido logrando castellano, una muestra más de que incesantemente la aceptación del estamos mundialmente al servicio del cliente. Este sitio nos provee otra cliente. excelente oportunidad para comercializar nuestro inventario de equipos usados alrededor del mundo. Repor te del presidente para los accionistas El compromiso con nuestros Estamos encantados de darle la clientes no podría lograrse sin la bienvenida a Paul Jarvis y a los 4.300 cooperación y el apoyo de Caterpillar, empleados de Hewden Stuart a la Inc. Como socio nuestro, Caterpillar organización Finning. Es un orgullo provee el mejor equipo de maquinaria para nosotros estar asociados con la industrial del mundo, reconocida por empresa líder en arriendos de equipos sus diseños innovadores, su fiabilidad del Reino Unido. y productividad. En general, 2000 fue un año muy La constante inversión en exitoso y cargado de acontecimientos, investigación y desarrollo y la y tengo la seguridad de que hemos expansión de su línea de productos y estratégicamente reposicionado la servicios de apoyo de Caterpillar, compañía para el éxito futuro. promete un futuro brillante para El panorama para 2001 continúa Finning y para sus clientes. siendo positivo. Finning (Canadá) Aprecio el apoyo del equipo continuará beneficiándose de la Caterpillar y de la directiva de Finning actividad del sector de energía; durante mi primer año como Finning (Chile), de los precios presidente y director ejecutivo. estabilizados del cobre, y Finning En nuestra reunión anual, Jim (Reino Unido), junto a Hewden Stuart, Shepard entregó su cargo de del gran aumento en la inversión por presidente y director ejecutivo parte del gobierno, en infraestructura. después de 31 años de servicio y Este brillante panorama económico, Michael Koerner y Bob Wyman se junto con las continuas mejoras de retiraron de sus puestos como productividad, y la contribucion de directores. Agradecemos sus Hewden Stuart, debieran asegurarnos contribuciones para el crecimiento de un año provechoso en 2001. la compañía. Durante la reunión, los accionistas eligieron también a John Cleghorn, Jefferson Mooney, Monica Sloan y John Willson , prominentes líderes de negocios canadienses, como miembros de la junta directiva. Norm Anderson, director durante 12 años, se retirará en 2001. Norm fue el Presidente del Comité de Recursos Humanos y Compensacion miembro del Comité Administrativo. Echaremos de menos sus consejos y su perspicacia y le damos las gracias por su servicio a la compañía. 9 Financial Highlights ACQUISITIONS AND ASSET REDUCTION HIGHLIGHT A REWARDING FINANCIAL YEAR. Richard T. Mahler, Executive Vice President & Chief Financial Officer, Finning International Inc. Finning International’s financial publicly listed company, let alone in all of its operations. Since December performance for the year ending an overseas jurisdiction. This 1997, Finning International had December 31, 2000, was significantly transaction involved the use of several reduced its assets by $412 million, improved compared with the same sophisticated financial products, which has resulted in an operating period a year earlier. In 2000, including a non-controlling interest by debt/equity ratio of 0.20 to 1 as of revenues were higher by 10.3% to a group of investors. This structure December, 2000. This is the strongest 10 $2.5 billion, with Canada achieving enabled Finning to finance the ratio in the Company’s history. record revenues of $1.2 billion. EBIT purchase without issuing equity, while Cash flow from operations was was higher by 11.0% to $165.3 million at the same time maintaining the $240.6 million, an 8.7% improvement and net income increased by 23.1% to strength of the Company’s balance compared with 1999. $73.4 million. Earnings per share were sheet. As a result of the improvement in up 26.7% to $0.95 compared with Another important highlight was its financial position, Finning $0.75 in 1999. the Company’s continued focus on International instituted, for the first The major highlight in 2000 was improved asset utilization. During the time, a share repurchase program on the successful bid for Hewden Stuart year, Finning International reduced its February 1, 2000. During the year, the Plc., the U.K. leader in small machine debt (excluding the purchase of rentals. This was the first time that Hewden Stuart shares) by $174 Company repurchased 4.1 million shares in its continuing effort to Finning International had acquired a million, despite increased activity in increase value for its shareholders. Low ground pressure tracks on the Cat D6M mid-sized tractor minimize ground disturbance in environmentally sensitive areas. MacMillan Construction’s machine treads gently while cutting a seismic line. Last year Finning sold 40 units to oil patch contractors. Review of Operations – Customer Support Services RESTRUCTURING, CONSOLIDATION AND NEW STRATEGIC INITIATIVES HIGHLIGHTED AN ACTIVE YEAR FOR CUSTOMER SUPPORT SERVICES. Brian C. Bell, Executive Vice President, Customer Support Services, Finning International Inc. Major goals for improving These objectives were met while In response to changing market customer satisfaction were reached as overall parts and service revenues conditions, the used equipment product support sales teams were increased by 5.6 percent, asset section of our international sales increased, component rebuild centres reductions were made in all country division, Universal Machinery Services, formed into stand-alone operations, operations, and lost time accidents was realigned into Finning’s existing information technology expanded, decreased by 32 percent. country operations. Finning (Canada) redistribution of used equipment and The challenges of global now has responsibility for used 11 parts reorganized, and a used information technology facing the equipment sales in North American equipment Internet auction site Company resulted in strategic action and the Pacific Rim; Finning (UK) for launched as part of the Company’s plans, which included the Europe, Africa, India and the Middle e-business initiative. appointment of a new international East; and Finning Chile for South and IT director responsible for outsourcing Central America. proposals, staff skills and standardizing network infrastructure for all country operations. Auction action is monitored by Finning International sales representative Henry Peters during online bidding for used equipment. Review of Operations – C u s t o m e r S u p p o r t S e r v i c e s The Company believes this E-business unit formed At Finning (Canada), parts and decentralized approach will allow In support of this new direction, service revenues increased by 9.6 Finning to provide improved customer an e-business unit was formed to percent as restructuring of parts service. integrate and coordinate each operations, formation of a centralized These organizational changes will country’s electronic commerce customer call centre, installation of an improve operating efficiency, reduce strategy. automated warehouse program, and costs and target new market growth Finning’s auction web site, Finning- a positive response to a customer worldwide. In short, they will Auctions.com, is an integral part of satisfaction survey highlighted strengthen Finning’s position in the this new e-business unit. the year. international used equipment This new online service for heavy The move to a regional parts marketplace. equipment buyers and sellers was model will result in one parts Universal Machinery Services will launched in May 2000 and is devoted distribution centre serving Finning continue as our international used to auctioning quality, used machines (Canada) from Edmonton. The parts and attachments division, and attachments on the Internet. Langley Parts Distribution Centre will helping to ensure the Company’s Finning-Auctions.com has hosted be closed and regional parts centres in continuing success in this expanding eight successful online auctions, Surrey and Prince George will improve business. registered 1,000 users, and sold 23 customer service and further reduce A new Vice President of machines resulting in gross sales of supply chain costs, which decreased by Redistribution was appointed and is approximately $3.0 million. 10 percent last year. 12 responsible for the used equipment Finning’s used equipment selection inventory and market intelligence for is unmatched, since customers get all country operations. access to the company’s extensive equipment inventories and large customer base. The site will continue to implement new services and features to best serve customers online. Automated carousels deliver selected parts to a centralized workstation in the Parts Distribution Centre in Edmonton, resulting in an improved ordering and shipping process. Review of Operations – C u s t o m e r S u p p o r t S e r v i c e s 20,000 calls a month Service agreements popular The international outlook for The customer service centre is Customer service agreements, customer support services for 2001 responding to some 20,000 calls a which help reduce customers’ machine remains positive as continued asset month as an integrated phone and downtime and increase productivity, performance, ongoing parts system streamlines service and were sold on 35 percent of all new implementation of new technologies deliveries. equipment, including 53 percent on and growth of parts and sales A customer satisfaction survey, general line machines. business should prove beneficial for which will be rolled out in Finning A new business intelligence both customers and shareholders. Chile and Finning (UK) in 2001, software package to assist Finning revealed that 86 percent of the employees make improved business respondents were either satisfied or decisions reduced service work in very satisfied with Finning (Canada)’s progress billings from 45 percent to services. 28 percent. As part of the customer satisfaction In Chile, parts and service revenues strategy in the United Kingdom, four increased by 11.3 percent as the operations were restructured and Company refocused on customer parts and service consolidated. A satisfaction through the appointment centralized call centre was of a Vice President of Customer implemented, which currently Support Services. Re-engineering of dispatches 40 computer-equipped the Component Rebuild Centre field service engineers to customer resulted in customer turnaround of job sites. major components being reduced from 45 to 20 days. 13 New customer service centre located in Edmonton provides round-the-clock telephone service to customers throughout Western Canada. This centralized support service is now integrated with Finning’s parts operation to ensure fast, efficient response to customer requests. A similar centre services U.K. customers. Review of Operations – Canada INCREASED SALES OF CATERPILLAR CORE PRODUCTS, STRONG RESULTS IN KEY MARKETS, IMPROVED ASSET PERFORMANCE, AND GREATER EMPLOYEE PRODUCTIVITY COMBINED TO GENERATE RECORD REVENUE AND HIGHER EARNINGS FOR FINNING (CANADA). UNIT DELIVERIES OF NEW EQUIPMENT GREW BY OVER 20 PERCENT AND USED MACHINES BY 18 PERCENT, WHICH RESULTED IN THE COMPANY MAINTAINING ITS OVERALL MARKET SHARE IN A CHALLENGING Ian M. Reid, President & Chief Operating Officer, Finning (Canada). ECONOMIC CLIMATE. High energy prices and an upsurge Development of the Diavik landscapers and contractors engaged in pipeline activity in Alberta resulted diamond mine in the Northwest in subdivision and utility work. in record sales of petroleum-based Territories led to the $18 million sale Machine replacement and equipment and power systems of five of Caterpillar’s largest maintenance by highway privatization products. Unit deliveries of mobile generator sets, the 3500 and 3600 contractors and strong demand for machines to this industry more than series, for emergency and main Cat paving products helped increase 14 doubled while generation units grew power. construction industry unit sales by 15 by over 60 percent. The Power Systems Division percent. Demand for Caterpillar’s large generated another $7 million through tractors and trucks, engines, electric the sale of a 16-megawatt power Forestry sales increase sets and rental equipment increased plant comprising ten 3500-series Forestry unit deliveries increased dramatically as oil companies made generator sets to a Calgary-based by 10 percent, sparked by a 46- record capital investments in the oil company contracted to provide power machine package that was part of a fields. Diamond mine exploration and in Cambodia. strategic alliance between Canfor and development accelerated and copper Deliveries of heavy-duty and mid- Finning (Canada). The alliance is prices increased worldwide. range Caterpillar truck engines aimed at minimizing equipment fleet reached record levels, gaining the costs through coordinated machine Big tractors, big trucks highest market share of any purchase and maintenance programs. Sale of D10R and D11R tractors to Caterpillar dealer in Canada. The Caterpillar 535 skidder, a mid- the mining industry tripled and Other markets — construction, sized machine that improves doubled respectively over the previous forestry and agriculture — remained production while working difficult year while deliveries of Caterpillar’s relatively flat, but new products and terrain, was successfully introduced to largest truck, the 380 ton 797, strategic alliances with major B.C. interior markets. remained strong. customers increased unit sales and Fourteen of Caterpillar’s 400 series Finning (Canada) supplied 40 mid- laid the groundwork for future Lexion combines were delivered to size D6M tractors equipped with low business. Alberta farmers, helping Finning ground pressure tracks to oil patch The entry of Caterpillar’s new (Canada) increase agricultural market contractors. The machine’s wide tracks compact equipment line helped boost share. The Lexions provide increased minimize ground disturbance in building construction product sales to speed and efficiency in harvesting environmentally sensitive areas. 260 units, double the previous year’s crops. level. Over 140 new skid steer loaders were delivered to rental houses, Review of Operations – C a n a d a New centre opens Scheduled performance training Customer service agreements Finning (Canada) reinforced its for managers and greater employee exceeded growth expectations as long-term commitment to Caterpillar productivity helped improve asset machine users took advantage of agricultural products and market performance as Finning (Canada) trained service people and potential by opening a new sales and reduced its costs of parts and sophisticated diagnostic tools to service centre in Edmonton dedicated equipment inventories and facilities. minimize repair and maintenance to serving this industry. Under utilized facilities in Port costs of their equipment. Finning (Canada) entered the Hardy and Nelson were sold and rental services market to help grow customer service centralized, parts Safety record improved our compact equipment products distribution operations were Finning (Canada) reported a 35 business with traditional customers, as consolidated and the attachment percent reduction in lost time well as offer a full range of rental services business was sold. accidents, attributed to a strong supplies. Further expansion into rental effort by all employees. Finning services is planned for 2001. Support services grow (Canada) is committed to further The Materials Handling Division Customer support services showed improvement by achieving and increased its revenues, although profit strong growth as parts and service sustaining health and safety margins were eroded by competition revenue increased by 9.6 percent. excellence in all operations. in the rental and used equipment Focus on customer satisfaction was The electronic commerce business, markets. reaffirmed through such initiatives as introduced in 2000, is aimed at Revenue from external training the centralized service centre that making it easier and more efficient 15 grew by 33 percent as customers, provides phone support 24 hours a for customers to do business with us. many representing First Nations and day, seven days a week. This service is For example, Finning’s corporate municipalities, took advantage of now fully integrated with all parts website allows customers to easily maintenance and operator training operations to ensure fast, efficient access their current and historical oil programs. response to customer requirements. sampling results and check fluid levels Finning (Canada) continues to face a shortage of mechanics, but through its worldwide recruitment program was able to add 40 service people to support oil sands customers. to determine wear of machine engines and other components. Finning’s new agricultural centre in Edmonton is dedicated to Caterpillar farm products and support services. @ your service worldwide Canadian Operations “We are pleased with our strategic alliance with Finning.” David Emerson, President and CEO Canfor Number of Caterpillar Machines: 120 Canada’s top lumber producer, Canadian Forest Products Ltd., has been changing ageing yard machines at 14 of its northern BC and Alberta mills and switching to “Our goal was to incorporate Finning’s expertise with our own to lower operating costs, increase uptime and add efficiencies wherever possible. 17 “Our Power by the Hour agreement includes four Finning’s Power by the Hour, whereby all machine costs components: a machine lease — as opposed to (the initial purchase or lease, operating costs, and purchase — in order to reduce our initial capital outlay; shared management) are reduced to a single fixed a Finning maintenance program designed to increase hourly cost, based on expected operating hours. uptime and optionally including planned component Canfor is looking at replacing about 160 machines replacement schedules for major components; at these mills, each with a customized Finning guaranteed machine operating costs through the lease maintenance plan, tailored to individual mill term to stabilize our budgeting process at Canfor; and requirements. Canfor expects ultimately to expand the guaranteed buyback at the end of the lease term to Power by the Hour program company-wide. ensure a “no surprise” passage to new units. “In summary, we are pleased with our strategic alliance with Finning.” < < Non enim si alii ad alia propensiores sunt propter causas Cat 938G loader equipped with forks at Canfor’s Polar naturales et antecedentes. Idciro etiam division is among machines on customized Finning nostrarum voluntatum atque appetitionum. maintenance program as part of strategic alliance. BHP owns and operates Canada’s first diamond mine, Ekati, which is located 300 km northeast of Yellowknife in the Northwest Territories. BHP’s close alliance with Finning at Ekati goes well beyond what has been attempted in the mining industry anywhere in the world. It’s a partnership in total management of the on-site machines, from initial sale, through operation and maintenance, to residual values. < Cat 793C and 777D trucks haul overburden from the pit at BHP’s Ekati diamond mine. Finning has its own full-service branch operation on site, using BHP facilities, to maintain the Cat fleet. “What we have achieved is a winning partnership.” “We have a unique concept at Ekati: that we and Finning are in business here together. “Finning and BHP mutually agree on cost and operating targets for the Cat equipment, rather than demanding set-in-stone-guarantees. What we’re achieving is a winning partnership based on the cost and production results achieved with the equipment.” Ian Goodwin, Maintenance and Supply Manager BHP’s Ekati Diamond Mine Number of Caterpillar machines: 80 Lafarge has found that its strategic alliance with Finning, formed five years ago, offers the best solutions for its various construction materials operations across Western Canada Lafarge has an all Cat fleet of 250 construction and mining machines, including graders, excavators, loaders, trucks and paving products at work in its aggregate, paving, quarrying and landfill operations. @ your ser vice – C a n a d a “Our cost of doing business has been reduced.” Mike Smith, President Construction Materials Group - Western Canada Lafarge Canada Inc. Number of Caterpillar machines: 250 A new Cat 980G wheel loader loads out sand at Lafarge asphalt plant in Edmonton. Machine is part of extensive fleet covered by strategic alliance betwen Lafarge and Finning. < “Through best practice specifications recommended by Finning, our cost of doing business has been reduced due to extended machine life, durability and productivity of our Caterpillar equipment fleet. “The product reliability, flexible finance options, combined with the operator and machine maintenance training provided by Finning, has given us the supplier support to help meet our growth objectives. “This three-way partnership between Finning, Caterpillar and Lafarge has resulted in an excellent working relationship based on trust.” 19 Review of Operations – United Kingdom TOTAL REVENUE FOR FINNING (UK) IN POUNDS STERLING SHOWED YEAR-OVER-YEAR IMPROVEMENT OF 2.3 PERCENT. THIS CAME AFTER TWO SUCCESSIVE YEARS OF YEAR-OVER-YEAR DECLINES. Jack A. Carthy, Managing Director, Finning (UK) Ltd. The operating environment during A new Strategic Business Plan was In addition, the Construction 2000 was an extension of trends developed for the overall U.K. Equipment, Power Systems and established in previous years. The markets. This Plan emphasizes the Materials Handling Divisions within overall British economy grew at the sustainable opportunities available to Finning (UK) developed and rate of three percent but there was a Finning (UK) as the Caterpillar implemented plans to maximize lack of demand for equipment in the representative in a country with a growth in the high-density population 20 traditional markets of coal mining, population of almost 60 million. markets that they serve. production of aggregates and major infrastructure development. Emphasis on rentals During the year, two important The addition of Hewden Stuart by changes took place that should Finning International will assist provide Finning with more sustainable Finning (UK) and Hewden in gaining earnings and vibrant growth in future share of expanding markets for sales years. and rentals of equipment and other products. A mid-sized MaK marine diesel engine on a test bed at Caterpillar facilities in Germany. Finning is the MaK distributor for the United Kingdom and Ireland. Review of Operations – U. K . The second important change was New approaches needed Finning (UK) developed alliances in the Labour Government’s policy on The Construction Equipment the quarrying and mining sectors, and infrastructure. In July, 2000, the Division maintained leadership in the load and haul contracts presented government announced its intention heavy construction, mining and long-term opportunities that provide to invest more than $400 billion on quarrying markets despite a decline of our customers with a “One-Stop roads and railways over the next 10 12 percent in unit terms. Gains were Shop” for equipment parts and years. The long-anticipated made in the small equipment market services. Birmingham Northern Relief Road as Caterpillar continued to introduce Focus on sales and maintenance project was fast tracked and contracts new products. The launch of the new and repair contracts throughout 2000 were finalized in the fourth quarter. compact machines has driven the has resulted in an increased Large projects involving new bypasses, need to find new and innovative ways percentage of equipment being sold road improvements and heavy and to reach a whole new customer with a service contract. light railway schemes have also been group. Predicted increased spending on announced. Customer relationship road and rail infrastructure provides a These include a major move for management, telemarketing and healthy outlook for the heavy urban regeneration and renewal of web-based communication are all construction sector with growing “Brownfield” sites. These sites, being incorporated into a new opportunities in the aggregate and previously occupied by industry, are channel of distribution. surfacing industries. now being upgraded to current The introduction of Caterpillar’s environmental standards. full range of compact equipment 21 products provided an excellent opportunity for Finning (UK) to take advantage of a market that grew 14 percent over 1999. Caterpillar’s new line of compact construction equipment is proving ideal for subdivision and utility work. Two small rubber- tracked excavators, owned by G. Farrell Ltd., work on a residential site near Lymington, England. Review of Operations – U. K . Power Systems product sales rose With the acquisition of Sabre Market share increased by 13.8 percent. Sales to the Internet/ Perkins and MaK products, Finning The Materials Handling business telecommunications sector increased (UK) can now supply and service the remained active and our market share by 300 percent and gains were made entire Caterpillar marine engine range improved to 7.5 percent. The Division in market share. Pleasure craft and from 65 horsepower to 22,030 performed better in all areas over the industrial market sectors showed horsepower. Finning (UK) can also previous year as gross margins good growth. Rentals of power supply the complete line of increased and costs were maintained generation units continued to propulsion engines and generator sets at or below 1999 levels, giving a improve with volumes up by 74 on a wide-variety of vessels, from dramatic improvement in overall percent over two years. The Ministry small pleasure craft to large ocean- results. of Defence awarded Finning (UK) a going freighters. preferred-supplier contract for power generation rental. During the year, Finning (UK) became the distributor for Sabre Perkins and also the MaK distributor for the U.K. and Ireland. This closely follows Caterpillar’s growth plans and makes Finning (UK) the first dealer to 22 represent all three Caterpillar marine engine brands. The economic outlook is positive and it is anticipated that market activity will continue at a similar pace in 2001. Natural purified water is used at the Finning (UK) branch in Leeds where a bed of reeds and wild grasses filter the wash water used for cleaning equipment. Leeds employee Paul Storey shows where the water is sufficiently clean to return to the city’s storm water system. The U.K. environmental agency may adopt this Finning piloted technology. Review of Operations – U. K . London storeman Rob Mayers checks out a long- stroke cylinder liner from one of the mid-sized marine diesel engines offered by MaK. Finning has acquired the U.K. business operations of the German diesel engine manufacturer. @ your service worldwide U.K. Operations “We’ve got one source for our equipment and one business relationship.” George Crompton, Managing Director, AMPL Limited Number of Caterpillar Machines: 204 W ith links back to Roman times, Penrhyn slate quarry in North Wales is still producing high-grade slate. But the seams are getting harder to reach, “I’m more than pleased with the way our business relationship has developed. Through people and trust, we share the understanding that at the end 25 of the day both companies, AMPL and Finning, have requiring the removal of massive amounts of rock got to achieve profit and shareholder value. overburden. “The 5080 and 775 team was introduced after Working closely with Finning (UK), AMPL Limited Finning and we carefully studied the quarry operation — an autonomous business unit of the U.K.’s $1.8 and realized greater efficiencies could be achieved by billion Alfred McAlpine Group — supplies and widening the benches to accommodate the larger maintains the quarry’s equipment. Recently, AMPL took machines. over the complete operation of a fleet of Cat machines “One of the things I particularly like about (a 5080 front shovel paired with three 775D haul trucks) dealing with Finning is the fact Caterpillar offers a to remove up to 1.5 million tonnes of overburden per complete family of equipment, so whatever we need year. it’s there. We’ve got one source for our equipment and one business relationship.” < Fleet of Cat equipment removes overburden at the Penrhyn slate quarry at Bethesda in North Wales. Here, a Cat excavator loads out Cat articulated trucks. TNT Express and TNT Newsfast — two divisions of U.K.’s largest courier and parcel delivery service TNT Limited — are in the process of upgrading their 170-plus rental fleet of Caterpillar lift trucks. The solution is to reduce running expenses and increase residual values through the use of Finning’s satellite- based Transmond information system that will give TNT real-time < A blur of activity at TNT Newsfast’s Wellingborough warehouse is normal at this newspaper and magazine distribution arm of TNT UK Ltd. Along with its sister division, TNT Express, TNT Newsfast runs about 170 Cat DP18 lift trucks, in both diesel and natural gas control over truck operating conditions, provide notification of configurations, at their 52 locations. any accidents, and send regular updates of all operating statistics. All these functions will be handled by remote satellite, which will also limit truck speed to 7 mph, shut off an engine if it idles for more than three minutes or has an operation failure. Sensors on the machine will even log any accidents. “When it comes to cost competition, you can only drive the rental price down so far, so we were looking for other ways to improve efficiency and to make cost savings. “Finning has shown great flexibility and willingness to find solutions beyond normal business response. Because of that and the real-time information flow via satellite, we’ve been able to find several other ways to improve efficiency with the machines and increase residual values by taking better care of the equipment. “Finning has shown great flexibility.” Andrew Stace Senior Buyer, National Services TNT UK Ltd. This helps control costs and drive down our lift truck expenses.” Number of Caterpillar Machines: 170 The RNLI (Royal National Lifeboat Institution) is a U.K. search and rescue organization. It conducts rescues of up to 50 miles offshore and covers the shorelines of England, Scotland, Wales and Ireland. The RNLI utilizes 306 lifeboats stationed in 223 lifeboat stations and has another 114 boats on standby. The organization is completely funded through private donations with no government assistance. Virtually all of its 5,000 crew members are volunteers, as well as its army of fund raisers. Customer Solutions – U. K . “We’ve built up a very good relationship.” Bob Cripps, Engineering Manager RNLI (Royal National Lifeboat Institution) Number of Caterpillar-powered boats: 75% of 306-boat fleet With a top speed of 25 knots, the RNLI’s Severn Class lifeboat is the fastest and most robust of the fleet, “What we demand from an organization is 24-hours backup, 365 days a year. And that’s what Finning and Caterpillar provide. We handle all our own boat design and development and first started using Cat engines in the late 1960s in the development of the first capable of going out in almost any weather, up to “fast” lifeboat that was capable of 18 knots. Since then, we’ve built up Beaufort 12 (beyond gale force). The 17 metre vessels a very good relationship with Finning and Caterpillar. I appreciate the are powered with twin Cat 3412 engines, each good technical support we receive from Finning and the Caterpillar developing 1,250 hp at 2,300 rpm. marine development team, particularly at the design stage.” 27 < Review of Operations – Chile THE CHILEAN ECONOMY GREW 5.4 PERCENT IN 2000 COMPARED TO NEGATIVE GROWTH IN 1999 AS THE NEWLY ELECTED GOVERNMENT LED BY PRESIDENT RICARDO LAGOS TOOK OFFICE. THE PRIVATE SECTOR BECAME INCREASINGLY RESPONSIBLE FOR THE MAJORITY OF CHILE’S EXTERNAL DEBT, TAKING ON 85 PERCENT OF NEW FOREIGN LOANS DURING THE YEAR. THIS REFLECTED THE INCREASING IMPORTANCE OF THE PRIVATE SECTOR IN THE CHILEAN ECONOMY AS THE GOVERNMENT CONTINUES ITS PROGRAM OF PRIVATIZATION. Nicholas B. Lloyd, President & Chief Executive Officer, Finning Chile S.A. Finning Chile’s revenue increased Finning Chile took advantage of The Power Systems Division had a by 26 percent in 2000 to $474.1 Minexpo 2000 in Las Vegas and challenging year as weakness in key million. This improvement came via Caterpillar’s Demonstration Centre markets resulted in a 31 percent higher sales activity in mining, near Tucson, Arizona to host 42 decline in revenues. A service construction and customer support executives from 30 leading companies. agreement was reached with the Ariel services. 28 These events allowed customers to Corporation for compressors within view firsthand the latest in Chile as demand for gas compression Copper production up Caterpillar’s technological advances, is forecast to increase significantly in Production of copper, the country’s which position Finning to provide 2001 and onward. leading commodity, increased by 4.3 unique solutions for customers, percent to 4.6 million tons with prices including the latest mine site Energy projects increased ending the year at 83.9 cents per management system - Minestar. Success in the last quarter of the pound. Packages of loading, hauling Although the overall construction year saw a large increase in electric and drilling equipment were sold market remained weak, as indicated power generation projects in the both for fleet replacement and new by a 25 percent reduction in housing telecommunications/gas industry. mine expansions. activity, sales revenue increased as the Orders worth $13.5 million were The year also saw the introduction new series of Caterpillar compact received for installation in 2001. of the 380-ton 797, Caterpillar’s products, including skid steer loaders The decision to exit the Kenworth largest mining truck. The first and mini excavators, was introduced. truck business in 1999 was concluded deliveries in South America took place Success with mid-sized hydraulic in 2000 with the priority of in Chile. Orders for 18 were received excavators, backhoe loaders and guaranteeing that customers did not with 12 shipped in 2000 and the wheel loaders continued. suffer any disruption in service during remainder to be delivered in 2001. the transition process. Exploration and development by Market share regained A strategic review of the crane major mining companies at new sites Forest exports from Chile rose by market resulted in Finning Chile will provide further sales 20 percent for the year with relinquishing its distribution opportunities for this truck. international pulp prices averaging agreement with Grove Crane. $600 (USD) per ton. With Caterpillar’s specific-designed forestry products line continuing to expand, market share was regained in this industry. Customer services revenue rose by In conjunction with Caterpillar, a 11 percent over the previous year, comprehensive ongoing skill reflecting continued growth in development program has been machine population and Finning initiated. This ServicePro program will Chile’s emphasis on providing focused, enable Finning technicians to handle segmented services to customers in all the growing complexities of the industries served. Finning believes equipment. It will also ensure we that customer satisfaction is directly continue to deliver the world-class linked with technical competence of services that customers demand. its employees. Safety for employees remains a priority. Continued benchmarking with customers helped reduce lost- time accidents during the year by 68 percent versus 1999. Review of Operations – C h i l e 29 Employee focus on safety at Finning International operations in Chile, Canada and the United Kingdom reduced lost time accidents by 32 percent. Welder used approved safety protection while operating grinding equipment. Empleados de Finning International, concentrados en la seguridad, logran reducir en un 32% el tiempo perdido por accidentes en sus operaciones en Chile, Canada y el Reino Unido. El soldador usa equipos de proteccion autorizados durante la operacion de la maquinaria. Reseña de Chile LA ECONOMÍA CHILENA CRECIÓ EN UN 5.4 % EN 2000 COMPARADO CON UN CRECIMIENTO NEGATIVO EN 1999 DURANTE EL GOBIERNO RECIENTEMENTE ELECTO PRESIDENTE RICARDO LAGOS. EL SECTOR PRIVADO COMENZÓ A RESPONSABILIZARSE CADA VEZ MÁS DE LA MAYORÍA DE LA DEUDA EXTERNA CHILENA, ADQUIRIENDO UN 85% DE LOS NUEVOS CRÉDITOS EXTRANJEROS DURANTE EL AÑO. ESTO REFLEJÓ LA CRECIENTE IMPORTANCIA DEL SECTOR PRIVADO EN LA ECONOMÍA CHILENA MIENTRAS EL GOBIERNO CONTINÚA SU PROGRAMA DE PRIVATIZACIÓN. Las ganancias de Finning Chile Finning Chile aprovechó la feria Las exportaciones forestales aumentaron un 26% en 2000, Minexpo 2000 en Las Vegas y en el chilenas subieron un 20% anual, con alcanzando los $474.1 millones de Centro de Demostración de precios internacionales de pulpa de dólares. Esta mejora se debe al Caterpillar, cerca de Tucson, Arizona papel que promediaron los U$S 600 aumento en las ventas en la minería, para recibir a 42 ejecutivos de 30 por tonelada. Con la constante en la construcción y en los servicios de empresas líderes. Estos eventos expansión de productos Caterpillar 30 apoyo al cliente. hicieron posible que nuestros clientes diseñados especialmente para la La producción de cobre, la materia observaran en primera plana los industria forestal se ha logrado la prima de mayor importancia del país, últimos avances tecnológicos de recuperación de la cuota del mercado aumentó un 4,3 %, alcanzando Caterpillar, los cuales colocan a en esta industria. 4,6 millones de toneladas, con precios Finning como el proveedor de La Division de Sistemas Energeticos al cierre del año de $1,85/kg. Paquetes soluciones únicas para sus clientes, tuvieron un año desafiante debido a de equipos de carga, de transporte y incluyendo ‘Minestar’, el más reciente la debilidad de los mercados perforadoras fueron vendidas tanto sistema de administración de minas. principales, lo cual resultó en una para la renovación de flotas como A pesar de que el mercado general disminución de 31% en los ingresos. para nuevas expansiones mineras. de la construcción ha permanecido Se logró un acuerdo de servicios con El año 2000 fue testigo también de débil, como lo indica una reducción Ariel Corporation para compresores la introducción del camión minero de un 25% en el movimiento de dentro de Chile, mientras se espera un más grande de Caterpillar: el 797, de viviendas, las ganancias provenientes aumento importante en la demanda 380 toneladas de capacidad de carga. de las ventas han aumentado con la de compresión de gas en 2001 y en Las primeras entregas en América del introducción de la nueva serie de adelante. Sur se hicieron en Chile. Se recibieron productos compactos de Caterpillar, pedidos de 18 unidades, de las cuales que incluye mini cargadores y mini 12 se entregaron en 2000 y el resto excavadoras. Mientras tanto, las durante el 2001. Exploraciones y excavadoras hidráulicas medianas, desarrollo por parte de compañías retroexcavadoraes y cargadores mineras de importancia en nuevos frontales, continúan siendo populares. emplazamientos proveerán mayores oportunidades de ventas de este camión. Reseña de C h i l e El último trimestre del año fue Las ganancias en servicios al cliente La seguridad del empleado testigo de un aumento considerable subieron 11% con relación al año continúa siendo una prioridad. Los en proyectos de generación de anterior, lo cual refleja continuidad en parámetros continuos con los clientes energía dentro de la industria de el crecimiento de maquinarias y nos ayudaron a reducir al 68% el telecomunicaciones y de gas. Se énfasis de parte de Finning Chile en número de accidentes que recibieron pedidos por un valor de proveer servicios específicos ocasionaran pérdidas de horas $13,5 millones de dólares para segmentados para el cliente en todas laborales durante el año, comparado instalaciones en 2001. las industrias que sirve la empresa. con los resultados vistos en 1999. La decisión de salir del negocio de Finning considera que la satisfacción camiones Kenworth en 1999 se del cliente está directamente finalizó en 2000 con la prioridad de relacionada con la competencia garantizar que los clientes no técnica de sus empleados. sufrieran ningún tipo de interrupción Junto con Caterpillar se inició un de servicios durante el proceso de programa de desarrollo exhaustivo de transición. capacitación continua. El programa Como consecuencia de una revisión ServicePro le permitirá a los técnicos estratégica del mercado de grúas, de Finning a manejar las crecientes Finning Chile renunció al acuerdo de complejidades de los equipos. distribución con Grove Crane. Asimismo, garantizará que continuemos entregando los servicios a nivel mundial que demandan los clientes. 31 Fleet of Caterpillar’s largest equipment is assembled at El Tesoro copper mine site in Chile. Mine operates 15 Cat machines, including five 789C trucks and three 994D wheel loaders. Una flota de equipos Caterpillar son armados en la mina de cobre El Tesoro, ubicada en el norte de Chile. El Tesoro opera 15 equipos Cat, incluyendo cinco camiones 789C y tres cargadores 994D. @ your service worldwide 32 Miner Escondida Limited produces fine copper sulfate and oxides at its mine located 170 km southeast of Antofagasta, Chile. The mine, which is owned by a consortium of companies, has operated for 10 years and now has over 2100 employees, including 75 Finning contract support staff. Over 80 of the 103 machines in the fleet are Caterpillar. Finning delivered seven 797 trucks to the mine in 2000. Minera Escondida Limitada produce sulfato y óxido de cobre de alta calidad en su mina ubicada a 170 km al sudeste de Antofagasta, Chile. La mina, que pertenece a un consorcio de compañías, viene operando desde hace diez años y en la actualidad cuenta con 2.100 empleados, personal que incluye 75 contratados de Finning. Más de 80 de las 103 maquinarias de su flotilla son Caterpillar. Finning entregó siete camiones 797 a la mina en 2000. < Finning service vehicles are dwarfed by Caterpillar’s largest mining truck, the 380-ton 797, working at Chile’s Escondida copper mine. Last year, Finning delivered 12 of these trucks to major mining customers in Chile. Los vehículos de servicio de Finning son pequeñísimos al lado de un 797, el camión minero más grande de Caterpillar (380 toneladas), utilizado en la mina de cobre Escondida. El año pasado, Finning Chile entregó 12 de estos camiones — la primera venta del 797 fuera de Norte América. Chile Operations “We’ve begun to work very well together as a team.” Félix Vásquez Superintendent, Mine Maintenance / Encargado de Mantenimiento Miner Escondida Limited / Minera Escondida Limitada Number of Caterpillar machines: 83 / Número de maquinas Cat en operación: 83 "In making the decision to purchase Cat 797s for “Uno de los factores principales que influyeron en the mine’s phase four expansion program, our nuestra decisión de comprar los Cat 797 para la cuarta 3333 evaluation focused primarily on the support package fase del programa de expansión, fue el paquete de that Finning and Caterpillar were providing. We found apoyo que ofrecía Finning y Caterpillar, el cual it very attractive in meeting our needs. hallamos sumamente satisfactorio para nuestras "We’ve begun working very well together as a necesidades.” team. For instance, we’ve established regular technical “Desde el principio trabajamos muy bien en meetings for our fleet of 793B/C trucks. These meetings equipo. Por ejemplo, establecimos reuniones técnicas have helped us identify problems and solutions in the regulares para nuestra flota de camiones 793B/C. Estas fleet and have contributed to increased performance. reuniones nos han ayudado a identificar problemas y We also embarked with Finning on a complete training luego encontrar soluciones, aumentando el program for personnel involved with this fleet with the rendimiento de estos camiones. También hemos result being an improved level of equipment emprendido con Finning, un programa de capacitación availability." para el personal relacionado con la flota, el cual ha mejorado el nivel de disponibilidad de los equipos.” < Generator sets provide emergency and security systems power for Chile bank operations. Grupos electrógenos suministran electricidad para sistemas de seguridad y contingencia en las operaciones de un banco chileno. In 1999, Banco de A. Edwards tendered for the installation of 24 generator sets to ensure emergency power and system security for its head office and main branches. Finning Chile S.A. won the contract, which also included a five-year maintenance agreement. Installation of the Caterpillar gen sets began at the end of 1999. The bank continues to purchase from Finning and now has 45 gen sets in operation. En 1999 Banco de A. Edwards llevó a licitación la instalación de una serie de generadores para asegurar la disponibilidad de energía en casos de emergencia y la seguridad del sistema en su casa matriz y principales sucursales. Finning Chile S.A. logró ganar el contrato que incluyó también un acuerdo de mantenimiento por cinco años. La instalación de los generadores Caterpillar comenzó a fines de 1999. El banco continúa comprando a Finning y cuenta en la actualidad con 45 generadores en operación. Chile Operations “We were impressed with the speed and efficiency that Finning delivered.” Didier González Project Coordinator / Coordinador de Proyectos Banco de A. Edwards Number of gen sets in operation: 45 / Número de equipos de generadores en operación: 45 “We knew the reputation of Cat products. This “Conocíamos la reputación de los productos Cat y was one of the factors in awarding Finning the ese fue uno de los factores considerados en la entrega 35 contract, but the other was the support Finning could del contrato a Finning. El otro factor fue el apoyo que offer nation wide. With branches all over the country, Finning ofrece a nivel nacional. Con sucursales en todo we needed to know that we could count on support el país, necesitábamos estar seguros de que podríamos at a moment’s notice. Other suppliers couldn’t contar con asistencia inmediata. Otros proveedores no guarantee this. pudieron garantizarnos eso.” “We were immediately impressed with the speed “Nos impresionó inmediatamente la velocidad y and efficiency that Finning delivered with the eficiencia de Finning durante la instalación de las installation of the first 24 units. Installation and trial primeras 24 unidades. La instalación y las pruebas periods went off without a hitch and certainly gave us transcurrieron sin complicaciones dándonos la absoluta the confidence to rely on Finning in the future. seguridad de confianza en Finning en el futuro.” “The units have never failed and continue to “La unidades no han fallado jamás y continúan perform well. And Finning’s ongoing maintenance has ofreciendo un buen rendimiento. Además, el servicio been excellent.” constante de mantenimiento de Finning ha sido excelente.” @ your service worldwide “We have a very close relationship with Finning people and consider them partners in our business.” Reinaldo Martín Huber Partner and Technical Manager / Socio y Gerente Técnico Contex Limited / Contex Limitada Number of Cat machines in operation: 12 / Número de maquinarias Cat en operación: 12 36 Contex Limited is a privately-owned construction firm based in Santiago, which employs up to 400 workers during peak periods. The company specializes in highways and CONTEX Limitada es una empresa constructora privada con sede en Santiago de Chile. En las temporadas más altas emplea hasta 400 trabajadores. La empresa se especializa en la construcción de seaport construction as well as subcontract work for carreteras y puertos marítimos como así también en mining firms. trabajos subcontratados para empresas mineras. Contex Limited, which purchased its first tractor CONTEX Limitada, quien compró su primer tractor from Finning in 1995, currently has 12 pieces of a Finning en 1995, cuenta en la actualidad con 12 Caterpillar equipment. The company also rents a wide unidades de equipos Caterpillar. La compañía también range of products from The Cat Rental Store. arrienda una amplia variedad de productos del Cat Rental Store. Chile Operations “We have only been a Finning client for the last “Nos hicimos clientes de Finnings a partir de los five years as previously we depended on one dealer for últimos cinco años, dependiendo anteriormente de una our equipment. We always knew that Cat quality was concesionaria para atender nuestras necesidades de excellent, but we had a strong relationship with this maquinarias. Siempre supimos de la excelente calidad other dealer and assumed at the time that we were Cat, pero teníamos fuertes lazos con esta otra also receiving the best service. Five years ago we had a compañía y suponíamos en esa época que recibíamos el particular project where we needed a tractor with mejor de los servicios. Hace cinco años atrás teníamos specifications that only a Cat model provided. We un proyecto en particular para el que requeríamos de decided to give Finning a try, and I can honestly say un tractor con especificaciones que sólo proveía un we’ve had no regrets. modelo Cat. Decidimos entonces probar con Finning y “There was never any question in our minds that les aseguro honestamente que no nos hemos the Cat quality was there, but naturally that comes at a arrepentidos.” premium. Once we had some Cat equipment in our “Jamás dudamos sobre la calidad de Cat, pero fleet, we soon realized, however, that there is a naturalmente, ello viene acompañado de un precio. Al tremendous difference in resale values between a Cat contar con algunas unidades Cat en nuestra flotilla nos machine and its competitors. When you factor this into dimos cuenta enseguida de la increíble diferencia entre your operations, the advantages to buying Cat quickly el precio de reventa de estas maquinarias y el de la add up. Finning has consistently given us the best competencia. Si incluimos esto dentro de nuestros trade-in values for our used equipment and this has cálculos operativos, las ventajas que ofrecen los 37 also kept us going back to them. productos Cat se suman rápidamente. Adicionalmente, “Finning service has truly been excellent. We Finning nos ha ofrecido constantemente los mejores have a very close relationship with Finning people at precios por nuestras unidades usadas, lo cual también the Santiago branch and consider them partners in our ha contribuido para que continuemos trabajando con la business. Once we started dealing with Finning, we empresa.” found that what we had thought were good levels of “El servicio de Finning ha sido excelente. Tenemos service in fact weren’t when we compared it to una relación muy estrecha con la gente de Finning de la Finning’s. We’ve been especially pleased with their sucursal de Santiago y los consideramos socios en technical people’s ability to diagnose and fix problems nuestro negocio. Cuando comenzamos a trabajar con la quickly. Parts availability has also never been a compañía, descubrimos que el nivel de servicio que concern, and we know Finning has made great efforts anteriormente considerábamos que era bueno, en to secure parts for us when we’ve needed them in a realidad no lo era, al compararlo con el que nos ofrecía hurry.” Finning. Estamos particularmente satisfechos con la habilidad de los técnicos para diagnosticar y resolver problemas. Podemos contar constantemente con la disponibilidad de repuestos y, en casos de urgencia, Finning ha hecho grandes esfuerzos para conseguirnos los repuestos que necesitábamos.” Management Discussion and Analysis Gaining wide market acceptance are Caterpillar’s small skid steer loaders, part of Cat’s compact equipment product line. Finning sold 140 units to contractors like Marty Franczak, of Petrofit Mechanical Ltd. who uses his machine for subdivision work at Nordegg, Alberta. Management Discussion and Analysis Results of Operations Revenue by Activity operating activities in 2000 compared with 1999. Consolidated revenues increased 10.3% to $2,460.0 million, whereas consolidated net income increased 23.1% to $73.4 million. Finning International achieved higher revenues, net income and cash flows from 2000 Earnings per share for the year 2000 were $0.95 compared with $0.75 in 1999, representing a 26.7% increase. Cash flow from operating activities for the period increased 8.7% to $240.6 million. The table below sets forth certain financial data expressed as a percentage of revenue 34% 32% 0 for the years indicated. Revenue Gross profit 5% 8% EBIT Selling, general & administrative expenses 7% 14% 1999 Finance costs and interest on other indebtedness Income before provision for income taxes Provision for income taxes Net income 2000 1999 Change 100.0% 100.0% 25.4% 18.7% 6.7% 2.4% 4.3% 1.3% 3.0% 26.1% 19.4% 6.7% 2.9% 3.8% 1.1% 2.7% -0.7% 0.7% 0.0% 0.5% 0.5% -0.2% 0.3% 39 36% 32% successfully concluded January 2001 (see note on Acquisition of Hewden). Hewden is a leading small equipment rental business in the U.K. In addition, Finning (UK) acquired During the year, the Company initiated a bid for Hewden Stuart Plc., which was distribution rights for marine power engines for Sabre Perkins covering England and Wales and acquired the MaK marine engine distribution business for the U.K. and Ireland. During 2000, the Company divested its non-core attachment fabrication services business in Canada. The Company also decided to exit the Kenworth dealership business in Chile effective March 31, 2000 due to difficult market conditions. Despite a slowdown of the North American economy, the outlook for 2001 remains positive for all the major operations. Finning (Canada) should continue to benefit from activity in the energy sector, Finning (Chile) from stabilized copper prices, and Finning (UK) and Hewden Stuart from the greatly increased government spending on infrastructure. 5% 7% 14% 6% Customer Support New Mobile New Power Systems Used Equipment Equipment Rental Leasing and Financing Management Discussion and Analysis Revenues In 2000, all lines of business recorded increases over 1999. Consolidated revenues were higher by $230.2 million (10.3%), new mobile equipment revenues were higher by $84.2 million (11.8%), new power systems products revenues were higher by $50.0 million (34.7%), customer support services revenues were higher by $44.8 million (5.6%) and used equipment revenues were higher by $31.3 million (10.1%). The table below provides details of revenue by operations and lines of business. 2000 (dollars in thousands) Canada UK Chile UMS Corp. Consol. Percentage Revenue New mobile equipment $ 344,290 $287,377 $164,834 $ $ $ 796,501 32.4% New power systems products Used equipment Equipment rental Operating leases 104,321 148,459 100,202 98,451 78,463 85,171 49,461 11,122 31,145 14,883 77,959 2,225 193,906 7.9% 342,734 13.9% 166,771 98,451 6.8% 4.0% Customer support services 405,782 181,690 245,965 8,806 842,243 34.2% Finance and other 13,011 6,196 23 196 19,426 0.8% 40 Total $1,214,516 $682,162 $474,145 $ 89,013 $ 196 $2,460,032 100.0% Revenue percentage by operations 49.4% 27.7% 19.3% 3.6% 0.0% 100.0% 1999 (dollars in thousands) New Mobile equipment $ 283,916 $325,082 $103,255 $ $ $ 712,253 31.8% New power systems products Used equipment Equipment rental Operating leases 58,520 125,368 89,634 95,427 68,971 76,086 46,484 16,410 18,597 14,826 587 91,378 4,715 Customer support services 370,131 196,318 221,009 10,014 Finance and other Total 9,926 3,093 109 $1,032,922 $712,941 $377,777 $106,216 $ 5 5 143,901 6.5% 311,429 14.0% 155,659 96,014 7.0% 4.3% 797,472 35.8% 13,133 0.6% $2,229,861 100.0% Revenue percentage by operations 46.3% 32.0% 16.9% 4.8% 0.0% 100.0% Revenues from Canada, UK, Chile and UMS were 49.4% (1999: 46.3%), 27.9% (1999: 32.0%), 19.3%(1999:16.9%) and 3.6% (1999: 4.8%) respectively. Revenues increased 17.6% in Canada and 25.5% in Chile, whereas UK and UMS recorded revenues lower by 4.3% and 16.2% respectively over 1999. Management Discussion and Analysis Canada Led by a resurgent petroleum sector, revenues in Finning (Canada) reached record highs of $1,214.5 million. Revenues were over 1999 levels in all areas, most notably in Revenue by Operations new and used equipment sales. New mobile equipment sales increased $60.4 million 2000 4% 28% 19% (21.3%), power systems product sales increased by $45.8 million (78.3%), while used equipment sales rose $23.1 million (18.4%) primarily as a result of mining truck sales. Equipment rental revenue increased 11.8% to $100.2 million, while leasing and finance revenues increased to $111.5 million (5.8%). Oil sands and diamond mining along with improved copper prices, also contributed to the growth in revenues across most of the sectors, most notably customer support services. Customer support services showed strong revenue growth as revenues were up $35.6 million or 9.6%. United Kingdom In the U.K., the decrease in revenue of $30.8 million was attributable to a 6.4% depreciation of the pound sterling against the Canadian dollar. In sterling terms, UK revenue increased 2.3%. In Canadian dollar terms, new mobile equipment revenue fell by $37.7 million (11.6%) compared with 1999. The decrease is primarily due to the Construction Equipment Division which experienced a difficult year as only a few infrastructure projects commenced. Weakness in Construction Equipment was partially offset by growth in the Materials Handling Division that won several national account deals. The Power Systems Division 41 41 49% 1999 5% 32% 17% showed strong growth of $9.5 million (13.8%) largely due to major deals with Internet service providers. Rental revenue increased $3.0 million (6.4%) as Materials Handling fleet size increased to over 1000 units at year-end and as the Power Systems rental division benefited from the rental of standby generator equipment over the Millenium period. Demand for rental units also increased due to extreme weather conditions that caused extensive flooding during the last few months of the year. The increase in rental revenue is also a reflection of the trend towards usership from ownership of equipment. Customer support services revenue decreased $14.6 million (7.5%) over 1999 revenue 46% in Canadian dollar terms. This was largely due to intense competition in the parts market especially for larger construction equipment parts together with a marketplace trend towards lower value unit equipment. In July 2000, the U.K. government announced plans to invest 180.0 billion pounds sterling on the roads and the railways in the country. The largest single road project ever in the U.K., the Birmingham Northern Relief Road project, commenced in early 2001. The total government expenditure on this project is 450.0 million pounds sterling. It is expected that this will stimulate demand for heavy equipment in the U.K. Canada UK Chile UMS Management Discussion and Analysis Chile Total revenues increased by $96.4 million (25.5%) mainly due to a strong performance in the mining sector, as copper production in Chile rose slightly above the 1999 levels with stabilization in copper prices. New mobile equipment sales increased $61.6 million (59.6%) mainly due to introduction of the new 380 ton truck to the mining sector. Twelve of these trucks were sold to two major mining customers in Chile. In addition, there was a large new equipment package sold to another mining operation. The increase of $12.5 million (67.5%) in used equipment sales is also attributable to sales to mining contractors. New power systems products sales were affected by a slowdown across major industrial sectors. Market size for power systems products shrank almost by half in 2000 as economic activity slowed, affecting all major industrial sectors. Very few major infrastructure and highway projects were started in 2000, as expropriation issues relating to bids awarded in 1999 had yet to be resolved. The Chilean Chamber of Construction reported that the construction activity dropped 20% in 2000 compared with 1999. The forestry industry was dramatically affected by new environmental regulations, diverting investment in plantations to other South American countries. Universal Machinery Services (UMS) 42 Used equipment revenues fell $13.4 million (14.7%) over 1999. The decrease was attributable to fewer major projects worldwide in the face of weak commodity prices and economic uncertainties. Increased competition in the global used equipment market 42 also contributed to the weakening of sales in 2000. The majority of used equipment sales for the year were concentrated in North America (62.0%), and Latin America (29.0%) with the balance of revenues distributed amongst Europe, West Africa, India, New Zealand, Australia and the Netherlands. Used Parts revenues were down $1.2 million (12.1%) compared with1999. Revenue shift to the domestic used parts divisions, delay of expansion plans into Dubai, U.K. and Miami and softening of the U.S. economy towards the end of 2000 further impacted the revenues on both used equipment and used parts. The Company held eight online auctions with proceeds approaching $3.0 million under "Finning Auctions.com’ for the sale of used equipment during the year. These auctions were successful in generating traffic and creating awareness among the target audience. The Company plans to conduct online auctions regularly in 2001. Management Discussion and Analysis Gross profits Gross profits increased $43.0 million (7.4%) to $624.4 million in 2000 compared with 1999. As a percentage of revenue, however, gross profit was lower at 25.4% compared with 26.1% in 1999. Gross margin as a percentage of revenue was lower in Canada due to a shift in sales mix. Higher gross margin activities such as customer support services did not grow as fast as the lower gross margin power systems for the gas compression and electric markets. Gross margin as a percentage of revenue was higher in the U.K. due to improvement in rental and materials handling margins. Rental margins improved due to increased volumes in a relatively fixed cost business, whereas materials handling margins benefited from better pricing from suppliers. Gross margin as a percentage of revenue was lower in Chile due to a shift in sales mix and higher service contract costs. It was also lower in UMS as a result of reducing aged inventory. Selling, general and administrative expenses Selling, general and administrative expenses increased $26.7 million (6.2%) to $459.1 million in 2000 compared with 1999. As a percentage of revenue, however, these expenses were lower at 18.7% compared with 19.4% in 1999. 43 Selling, general and administrative expenses as a percentage of revenue were lower in Canada, U.K. and Chile due to operating leverage and focus on cost control. Corporate expenses were higher mainly due to foreign exchange losses of $1.3 million and absence of foreign exchange translation gains of $5.4 million on inter-company dividends recorded in 1999. Earnings before interest and taxes (EBIT) EBIT increased by 11.0% to $165.3 million due to significant increases in Canada and UK. EBIT as a percentage of revenue was 6.7% in both 2000 and 1999 as the effect of lower gross margin percentage was offset by lower selling, general and administrative expense percentage. EBIT contribution from Canada, U.K., Chile and UMS was 74.4% (1999: 68.8%), 16.7% (1999: 12.7%), 17.7% (1999:19.7%) and (1.7%)(1999: 1.1%) respectively. Operating Income (EBIT) by Operations (dollars in millions) 123 102 Canada 28 19 UK 29 29 Chile 2 -3 UMS 2000 1999 Management Discussion and Analysis The table below illustrates EBIT contribution by operations. 2000 (dollars in thousands) Canada U.K. Chile UMS Corporate Consolidated Revenue from external sources $1,214,516 $682,162 $474,145 $ 89,013 $ 196 $2,460,032 Operating costs Depreciation Amortization of goodwill 943,226 147,300 1,012 629,309 24,389 843 435,877 8,987 91,784 12,042 2,112,238 - - 180,676 1,855 Earnings before interest and tax $ 122,978 $ 27,621 $ 29,281 $ (2,771) $ (11,846) $ 165,263 EBIT as a percentage of revenue EBIT percentage by operations 10.1% 74.4% 4.0% 16.7% 6.2% 17.7% -3.1% -1.7% -7.1% 6.7% 100.0% 1999 (dollars in thousands) Revenue from external sources $1,032,922 $712,941 $377,777 $106,216 $ 5 $2,229,861 Operating costs Depreciation Amortization of goodwill 785,290 144,167 984 669,520 23,668 836 332,638 15,463 384 103,734 850 3,415 1,894,597 - - 184,148 2,204 Earnings before interest and tax $ 102,481 $ 18,917 $ 29,292 $ 1,632 $ (3,410) $ 148,912 44 EBIT as a percentage of revenue EBIT percentage by operations 9.9% 68.8% 2.7% 12.7% 7.8% 19.7% 1.5% 1.1% -2.3% 6.7% 100.0% Finance Costs and Interest on Other Indebtedness Finance costs and interest on other indebtedness decreased $7.2 million (10.9%) to $58.6 million in 2000 compared with 1999, as debt was reduced during the year by focusing on asset management. The overall interest rate for the Company was 98 basis points higher in 2000 compared with the rates in 1999. Also, financing costs in 2000 include $1.3 million for amounts borrowed for acquiring Hewden shares. Provision for Income Taxes Income tax expense in 2000 amounted to $33.3 million, reflecting an effective tax rate of 31.2% during the year compared with 28.3% in 1999. The increase in the Company’s effective tax rate is mainly due to provision for income taxes in Chile at a nominal rate of 15% (Nil in 1999). Net Income Net Income improved by 23.1% to $73.4 million in 2000 compared to a year earlier. The stronger earnings performance and the Company’s repurchase of 4.1 million common shares during 2000, as part of a normal course issuer bid, contributed to a 26.7% increase in basic earnings per share to $0.95. Management Discussion and Analysis Acquisition of Hewden Stuart Plc. Finning International Inc., through a new wholly-owned, U.K.-based subsidiary, reached agreement with the Board of Directors of Hewden Stuart Plc. (Hewden) on the terms of a recommended cash offer for all of the issued and to be issued share capital of Hewden. The offer was for 115 pence in cash for each Hewden share, valuing the existing issued share capital of Hewden at approximately 322 million pounds sterling ($700 million), based on 280.3 million shares in issue. Finning International’s offer, made on November 29, 2000 represented a 68-percent premium to Hewden's closing share price on October 23, the day before Hewden announced that it was in talks on a possible offer for the Company. On January 12, 2001 Finning International declared its offer for Hewden wholly unconditional. As of January 30, 2001, Finning International owned or had received valid acceptances in respect of approximately 95.7% of Hewden shares. The Company is taking steps to acquire the remaining shares of Hewden and Hewden has been delisted from the London Stock Exchange. Hewden is a leader in the U.K. for small equipment rental and related services, with approximately 370 locations throughout Scotland, England, Wales and Northern Ireland and more than 4,300 employees. It offers a modern range of equipment to a variety of industry sectors in the General Hire, Tool Hire and Lifting Hire markets. For the year ended January 31, 2000, Hewden reported revenue from continuing operations of 256.0 million pounds sterling ($612.0 million) and operating profit from continuing operations 45 45 of 42.8 million pounds sterling ($102.0 million). The acquisition of Hewden is consistent with Finning International’s growth strategy to expand operations internationally and to diversify through the addition of new product lines and entry into the small equipment rental market. The equipment rental business of Hewden is highly complementary to the business and will enable Finning International to provide comprehensive services to a wider customer base through both channels. Management Discussion and Analysis Liquidity and Capital Resources Management of the Company assesses liquidity in terms of its ability to generate sufficient cash flow to fund its operations. Net cash flow is affected by the following items: • operating activities, including the level of accounts receivable, inventories, accounts payable, rental equipment and financing provided to customers; • investing activities, including acquisitions of complementary businesses, and capital expenditure; and • external financing, including bank credit facilities, commercial paper and other capital market activities, providing both short and long-term financing. Cash flow from operating activities Cash flow from operating activities was $240.6 million in 2000 compared with $221.3 million in 1999, an increase of $19.3 million. The increase from 1999 was primarily a result of improved cash earnings of $4.2 million ($258.6 vs. $254.4 million), bolstered by lower net outflow of $99.7 million on rental and leased equipment ($117.2 vs. $216.9 million), but offset by $ 84.6 million less provided by working capital changes ($99.2 vs. $183.8 million) 46 Cash used for investing activities Cash used in investing activities totaled $229.9 million, representing net capital expenditures of $7.7 million (1999: $9.0 million) on tangible assets, $4.2 million in goodwill paid on the acquisition of MaK and Sabre distribution operations in the U.K. and $218.1 million in investment in Hewden. Financing activities To complement the internally generated funds from operating and investing activities, the Company has available to itself approximately $907.8 million in unsecured short-term credit facilities and $135.0 million in unsecured term facilities. The Company also has a commercial paper program for $300.0 million, which can be issued against the designated short-term credit facilities amount. At year-end, approximately $532.5 million, including commercial paper, was drawn against the bank facilities. Longer-term capital resources are provided by direct access to capital markets. The Company is rated by both Standard & Poor’s (S&P) and Dominion Bond Rating Service (DBRS). On October 31, 2000, S&P and Canadian Bond Rating Service (CBRS) announced that they have combined operations in Canada. On November 29, 2000, S&P placed the Company on CreditWatch with negative implications following the announcement of the Company’s proposed acquisition of Hewden and as a result of the harmonization between CBRS and S&P. On January 24, 2001, S&P subsequently lowered its corporate credit and senior unsecured debt ratings on the Company to BBB with a positive outlook from BBB+. The ratings are expressed on S&P’s global ratings scale and the CBRS long- term debt ratings on the Company have been withdrawn and are superseded by the harmonized S&P rating. The outstanding ‘A-1 (Low)’ CBRS rating on commercial paper issued by Finning has not been harmonized and remains unchanged. Management Discussion and Analysis On November 29, 2000, DBRS placed the rating of the Company, Under Review with Developing Implications. DBRS rates Finning’s senior debentures and medium term notes BBB (high) and its commercial paper R-2 (high). As at December 31, 2000 overall debt, after making an investment of $218.1 million in Hewden, increased by $44.1 million. Short-term debt increased by $92.6 million to $398.2 million during the year while long-term debt was reduced by $48.5 million from $592.9 million to $544.4 million. The acquisition of Hewden was financed through a combination of operating bank lines and an acquisition finance facility for the Canadian dollar equivalent of 340 million pounds sterling which was arranged for the purposes of making the offer to Hewden shareholders. On February 7, 2001, the Company refinanced $425.0 million of the facilities, with this financing being recorded as a minority interest. The Company did not have any equity issues in 2000. Share capital decreased from $210.0 million in 1999 to $200.6 million at the end of 2000 reflecting the exercise of stock options and the repurchase of 4.1 million common shares as part of a normal course issuer bid in which the Company was allowed to buy back a maximum of 6.8 million shares. The Company has an employee share purchase plan for its Canadian employees. Under the terms of this plan, eligible employees may purchase common shares of the Company in the open market at market value. The Company pays a portion of the 47 purchase price to a maximum of 2% of employee earnings. The plan may be cancelled by Finning at any time. At December 31, 2000, over 65% of Canadian employees were contributing to this plan compared with 62% at the end of 1999. Financial Leverage The Company’s operations consist of three major components, namely its operating (new and used equipment sales and customer support services), finance (equipment leasing and financing) and equipment rental activities. Each of these major components has a different risk profile. Accordingly, Finning applies a different capital structure and financial leverage to each component based on industry norms. The finance assets and rental assets are supported by a combination of debt and equity. Finning applies a debt to equity ratio of 7:1 to its finance operation and 5:1 to its rental operation. Total debt and shareholders' equity is allocated to the operating, finance and rental activities. Deferred income taxes are allocated based on the assets and liabilities assigned to the operating, finance and rental activities. The Company’s overall debt to equity ratio improved from 1.29 at the end of 1999 to 1.04 at the end of 2000. Debt to equity ratio for its operating activities (excluding finance and rental activities and the debt and investment in Hewden) also improved significantly from 0.47:1 to 0.20:1 over the same period. The continued improvement in the debt to equity ratio was primarily due to the Company’s focused asset management program to improve current operating asset efficiency and short-term borrowings. The Company achieved an improvement in receivables collections, inventory turnover and earnings in 2000 as a result of the program. Management Discussion and Analysis The table below compares financial leverage and operating debt to equity ratio for the Company as at the end of 2000 with the corresponding ratios for 1999. As at Dec. 31, 2000 Operations Rental Finance Consolidated Operating Debt to Equity Ratio Total assets $1,180,287 $347,339 $404,500 $1,932,126 Payables and accruals Future income taxes, net Liabilities Net investment Short & long term debt Shareholders’ equity 482,328 (15,722) 466,606 14,466 11,240 25,706 3,328 13,431 16,759 500,122 8,949 509,071 713,681 321,633 387,741 1,423,055 117,308 268,028 339,263 596,383 53,605 48,468 724,599 698,456 0.97 0.90 0.59 Total debt and shareholders’ equity $ 713,691 $321,633 $387,731 $1,423,055 0.47 Debt to equity 0.20 `5.00 7.00 1.04 As at Dec. 31, 1999 0.20 481996 1997 1998 1999 2000 Total assets $1,269,999 $354,454 $401,781 $2,026,234 48 Payables and accruals Future income taxes, net Liabilities Net investment Short & long term debt Shareholders’ equity 410,301 - (7,230) 403,071 11,471 11,471 3,107 13,431 16,538 413,408 17,672 431,080 866,928 342,983 385,243 1,595,154 275,652 285,819 337,088 591,276 57,164 48,155 898,559 696,595 Total debt and shareholders’ equity $ 866,928 $342,983 $385,243 $1,595,154 Debt to equity 0.47 5.00 7.00 1.29 Notes: i) Transactions between segments have been eliminated to arrive at consolidated results ii) Investment in Hewden and debt associated therewith has not been included as the acquisition had not been completed by year-end. Financial Derivatives and Risk Management The Company uses various financial instruments such as interest rate swaps and forward exchange contracts and options as hedges against actual assets or liabilities. Derivative financial instruments are always associated with a related risk position. For example, the Company has a policy of arranging its financing such that the fixed rate financing offered to its customers is matched by fixed rate borrowings. As well, the portfolio is matched on currency and term. Finning enters into swap agreements, which fix the effective interest rate and currency of the borrowing. This is an effective and flexible method of matching fixed rate terms provided to customers with fixed rate debt obligations. Management Discussion and Analysis Finning continually evaluates and manages risks associated with financial derivatives. This includes counter-party credit exposure. Finning manages its credit exposure by ensuring there is no substantial concentration of credit risk with a single counter-party, and by dealing only with highly rated financial institutions as counter-parties. Financial Risks and Uncertainties The Company’s financial performance may be influenced either favourably or adversely by fluctuations in foreign exchange and commodity prices. The Company is subject to three main direct sources of foreign exchange risk: transaction, translation and economic. The first source of foreign exchange risk, transaction risk, relates to fluctuations in the purchase price of inventory. The Company’s operations in Canada and Chile source the majority of their products from the United States and, as a consequence, exchange rate movements affect the transaction price for most equipment and parts. Finning is generally able to manage this risk through adjustments in the pricing of its product sales, and through the use of financial derivatives. Finning uses a combination of forward, option or spot strategies to manage the foreign exchange transaction exposure. The second source of foreign exchange risk, translation risk, relates to the fact that the Company’s U.K. and Chilean operations are recorded in its financial statements in 49 Canadian dollars, while those operations conduct business primarily in British pounds in the U.K., and Chilean pesos and U.S. dollars in Chile. Changes in the British pound, Chilean peso and U.S. dollar to the Canadian dollar exchange rate directly affect the financial performance in Canadian dollars of the Company’s U.K. and Chilean operations. The Company hedges its investments in some of its foreign subsidiaries by borrowing funds in foreign currency or with long term cross currency swaps. The third source of foreign exchange risk, economic risk, is characterized by the risk associated with cash flows from subsidiary companies. To minimize fluctuations in the amount received in GBP currency dividends from its Hewden subsidiary, Finning has entered into a long term cross currency swap that fixes the foreign exchange rate on a certain amount of dividends received. The Company’s sales are also indirectly affected by fluctuations in commodity prices and exchange rates. In Canada, commodity price movements in the forestry, metals and petroleum sectors can have an impact on customers’ demands for equipment and customer services. In Chile, significant fluctuations in the price of copper and gold can have similar effects. In the U.K., lower prices for thermal coal may reduce equipment demand in that sector. In addition, the strength of the British pound and/or Canadian dollar relative to other currencies may result in lower activity levels in the used equipment market and increased competition from competitive imports. The massive $4.5 billion, 2,990 km natural gas pipeline from northern BC and Alberta to the United States involved hundreds of pieces of Cat equipment. Waschuk Pipeline Construction uses Cat pipelayers on a section near Grand Prairie, Alberta. The company augmented its own 150-machine fleet with another 50 machines, mostly Cat 689 pipelayers, 345 excavators, and D6M to D8R dozers. Management’s Report to the Shareholders The Consolidated Financial Statements of the Company have been prepared by management in accordance with generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgement of all information available up to January 30, 2001. The Company maintains an accounting system and related controls to provide management with reasonable assurance that transactions are executed and recorded in accordance with its authorizations, that assets are properly safeguarded and accounted for, and that financial records are reliable for preparation of financial statements. The Company’s independent auditors, appointed by the shareholders, express an opinion as to whether management’s financial statements present fairly the Company’s financial position, operating results and cash flow in accordance with generally accepted accounting principles. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets regularly during the year with financial officers of the Company and the external auditors to review internal accounting controls, risk management, audit results, quarterly financial results and accounting principles and practices. In addition, the Audit Committee reports its findings to the Board of Directors which reviews and approves the Consolidated Financial Statements contained in this Annual Report. The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized in Note 1 of the Notes to Consolidated Financial Statements. Financial information elsewhere in this Annual Report is consistent with that in the financial statements. 51 January 30, 2001 Vancouver, BC Canada Auditors’ Report To the Shareholders of Finning International Inc.: R. T. Mahler Executive Vice President and Chief Financial Officer We have audited the consolidated balance sheets of Finning International Inc. (a Canadian corporation) as at December 31, 2000 and 1999 and the consolidated statements of income and retained earnings and cash flow for the years then ended. These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the Consolidated Financial Statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Consolidated Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Consolidated Financial Statement presentation. In our opinion, these Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and cash flow for the years then ended in accordance with Canadian generally accepted accounting principles. January 30, 2001 Vancouver, BC Canada Arthur Andersen LLP Chartered Accountants Consolidated Balance Sheets As at December 31 ($ in thousands) Assets 2000 1999 Current assets Accounts receivable Inventories On-hand equipment Parts and supplies Current portion of instalment notes receivable $ 375,208 $ 386,561 395,420 203,579 66,476 406,882 219,423 47,442 Total current assets 1,040,683 1,060,308 Finance assets Instalment notes receivable Equpment leased to customers (Note 2) Total finance assets Rental equipment (Note 3) Land, buildings and equipment (Note 4) Investment (Note 5) Future income taxes (Note 12) Goodwill (Note 6) 52 Total assets Liabilities Current liabilities Short-term debt (Note 7) Accounts payable and accruals Income tax payable Current portion of long-term debt (Note 7) Total current liabilities Long-term debt (Note 7) Future income taxes (Note 12) Total liabilities Shareholders’ Equity Share capital (Note 9) Retained earnings Cumulative currency translation adjustments (Note 10) Total shareholders’ equity 72,569 253,949 326,518 311,019 189,961 218,050 7,465 63,945 71,628 272,151 343,779 341,534 206,254 - - 74,359 $ 2,157,641 $ 2,026,234 $ 398,208 $ 305,639 495,239 4,883 67,224 965,554 477,217 16,414 1,459,185 200,629 521,569 (23,742) 698,456 424,609 (11,201) 70,494 789,541 522,426 17,672 1,329,639 209,955 502,028 (15,388) 696,595 Total liabilities and shareholders’ equity $ 2,157,641 $ 2,026,234 Approved by the Directors: D.W.G. Whitehead, Director C.A. Pinette, Director The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Consolidated Statements of Income and Retained Earnings For the years ended December 31 ($ in thousands except per share amounts) Revenue New mobile equipment New power systems products Used equipment Equipment rental Operating leases Customer support services Finance and other Total revenue Cost of sales Gross profit Selling, general and administrative expenses Earnings before interest and taxes Finance cost and interest on other indebtedness (Notes 7 and 8) Income before provision for income taxes Provision for income taxes (Note 12) Net income Dividends on preferred shares Earnings attributable to common shares Retained earnings, beginning of year Dividends on common shares Premium on common share repurchase (Note 9) Retained earnings, end of year Earnings per share (Note 13) Basic Diluted 2000 1999 $ 796,503 $ 712,253 193,906 342,734 166,770 98,451 842,244 19,424 2,460,032 1,835,644 624,388 459,125 165,263 58,552 106,711 33,320 73,391 - 73,391 502,028 575,419 15,452 38,398 521,569 0.95 0.94 $ $ $ 143,901 311,429 155,659 96,014 797,472 13,133 2,229,861 1,648,478 581,383 432,471 148,912 65,768 83,144 23,544 59,600 19 59,581 458,366 517,947 15,919 - 502,028 0.75 0.74 $ $ $ Weighted average number of shares outstanding 77,436,109 79,616,362 53 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Consolidated Statements of Cash Flow For the years ended December 31 ($ in thousands) Operating Activities Net income Add items not affecting cash Depreciation Amortization of goodwill Future income taxes Other items Changes in working capital items and other Accounts receivable Inventories On-hand equipment Parts and supplies Instalment notes receivable Accounts payable and accruals Income taxes Cash provided by working capital items and other 54 Rental equipment, net of disposals Equipment leased to customers, net of disposals Cash flow from operating activities Investing Activities Cash invested in land, buildings and equipment, net of disposals Investment in Hewden Stuart Plc (Note 5) Cash used for investing activities Financing Activities Increase in long-term debt Repayment of long-term debt Conversion and redemption of preferred shares Issue of common shares on conversion of preferred shares and on exercise of stock options Repurchase of common shares Dividends paid Currency translation adjustments Cash provided by (used for) financing activities Decrease/(increase) in short-term debt Short-term debt at beginning of year 2000 1999 $ 73,391 $ 59,600 180,676 184,148 1,855 1,774 892 2,204 6,037 2,438 258,588 254,427 (7,840) (13,770) 4,502 27,678 (20,074) 78,939 15,987 99,192 (68,581) (48,584) 240,615 (11,893) (218,050) (229,943) - (42,746) - 1,472 (49,196) (15,452) 2,681 (103,241) (92,569) 305,639 147,328 36,959 (20,116) 33,202 202 183,805 (117,866) (99,043) 221,323 (9,020) - (9,020) 150,000 (66,370) (996) 2,372 - (15,938) 21,964 91,032 303,335 608,974 Short-term debt at end of year $ 398,208 $ 305,639 Cash flows include the following elements: Interest paid Income taxes paid $ $ 59,610 14,461 $ $ 56,698 19,924 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Notes to Consolidated Financial Statements December 31, 2000 and 1999 ($ and £ in thousands , except the number of shares and per share amounts) 1. Summary of Significant Accounting Policies These Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in Canada that require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual amounts could differ from those estimates. The significant accounting policies used in these Consolidated Financial Statements are as follows: Principles of Consolidation The Consolidated Financial Statements include the accounts of Finning International Inc. (“Finning” or “Company”) and its wholly owned subsidiaries. Principal operating subsidiaries include Finning (UK) Ltd. and Finning Chile S.A. Currency Translation Transactions undertaken in foreign currencies are translated into Canadian dollars at approximate exchange rates prevailing at the time the transactions occurred. Account balances denominated in foreign currencies are translated into Canadian dollars as follows: Monetary assets and liabilities are translated at exchange rates in effect at the balance sheet dates and non- monetary items are translated at historical exchange rates. 55 Exchange gains and losses are included in income except where the exchange gain or loss arises from the translation of monetary liabilities considered to be hedges, in which case the gain or loss is deferred and accounted for in conjunction with the hedged asset. Financial statements of self-sustaining foreign operations are translated into Canadian dollars as follows: Assets and liabilities are translated using the exchange rates in effect at the balance sheet dates. Revenue and expense items are translated at average exchange rates prevailing during the period that the transactions occurred. Unrealized translation gains and losses are deferred and included as a separate component of shareholders’ equity. These cumulative currency translation adjustments are recognized in income when there is a reduction in the net investment in the self-sustaining foreign operation. The Company has hedged its investments in its foreign subsidiaries by borrowing funds in foreign currency. Exchange gains or losses are accounted for in the cumulative currency translation adjustments. Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined on a specific item basis for on- hand equipment. For approximately two-thirds of parts and supplies, cost is determined on a first-in, first-out basis. An average cost basis is used for the remainder. Notes to Consolidated Financial Statements Instalment Notes Receivables Instalment notes receivables are recorded net of unearned finance charges. Equipment Leased to Customers Depreciation of equipment leased to customers is provided in equal monthly amounts over the terms of the individual leases after recognizing the estimated residual value of each unit at the end of each lease. Rental Equipment Rental equipment is recorded at cost, net of accumulated depreciation. Cost is determined on a specific item basis. Rental equipment is depreciated to its estimated residual value over its estimated useful life on a straight line or on an actual usage basis. Land, Buildings and Equipment Land, buildings and equipment are recorded at cost, net of accumulated depreciation. Buildings and equipment are depreciated over their estimated useful lives on a declining balance basis using the following annual rates: Buildings General equipment Automotive equipment 5% 20%-30% 30% 56 Revenue Recognition Revenue from sales of products and services is recognized at the time of shipment of products to, and performance of services for, customers. Equipment lease and rental revenue is recognized over the term of the lease or rental. Finance income is recognized as earned. Employee Benefits The Company and its subsidiaries have a number of defined benefit and defined contribution plans providing pension and other benefits to most of its employees in Canada and the U.K. Effective January 1, 2000 the Company adopted, on a prospective basis, the method of accounting for these benefits recommended by section 3461 of the CICA handbook. The transitional balance as a result of this change in accounting policy is being amortized over the expected average remaining service life of the employees covered by the plans. The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The Company has adopted the following policies: Defined benefit plans: For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. The cost of pensions and other retirement benefits is determined by independent actuaries using the projected benefit method prorated on service and management’s best estimates of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. Adjustments arising from plan amendments, changes in assumptions and the excess of net actuarial gains or losses over 10% of the greater of the benefit obligation and the fair value of the plan assets are amortized on a straight line basis over the expected average remaining service life of the employees covered by the plans. The average remaining service life of the employees covered by these plans ranges from 2 to 14 years. Notes to Consolidated Financial Statements Defined contribution plans: The cost of pension benefits includes the current service cost based on a fixed percentage of member earnings for the year. Goodwill Goodwill acquired on the acquisition of subsidiaries is amortized to income on a straight line basis over 40 years. Goodwill is evaluated annually, and is written down when the undiscounted future earnings of the related business are less than its carrying amount. Income Taxes Effective January 1, 2000, the Company changed its method of accounting for income taxes from the deferral method to the liability method. Under this method, temporary differences arising from the difference between the tax basis of an asset and a liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using tax rates anticipated to be in effect in the periods that the temporary differences are expected to reverse. The effect of a change in income tax rates on future income tax assets and liabilities is recognized in income in the period that the change occurs. The Company has applied this accounting change without restatement of prior period financial statements. The impact on the current year financial statements resulting from this change in the current year is an increase in provision for taxes for $2,836, decrease in current tax liability by $239, recognition of a future income tax asset of $7,465, increase in cumulative translation adjustment of $2,434 and a decrease in net purchased goodwill by $12,974, 57 Prior Year Comparatives Certain prior year amounts have been reclassified to conform to the 2000 presentation. 2. Equipment Leased to Customers Cost Less accumulated depreciation 2000 1999 $ 393,604 (139,655) $ 253,949 $ 392,366 (120,215) $ 272,151 Depreciation of equipment leased to customers for the year ended December 31, 2000 was $66,709 (1999: $66,539). 3. Rental Equipment Cost Less accumulated depreciation 2000 1999 $ 418,304 (107,285) $ 311,019 $ 465,628 (124,094) $ 341,534 Depreciation of rental equipment for the year ended December 31, 2000 was $96,168 (1999: $91,924) Notes to Consolidated Financial Statements 4. Land, Buildings and Equipment 2000 1999 Land $ 47,017 $ 47,647 Buildings and equipment Less accumulated depreciation 302,215 (159,271) 142,944 321,573 (162,966) 158,607 Total land, buildings and equipment $ 189,961 $ 206,254 Depreciation of buildings and equipment for the year ended December 31, 2000 was $17,799 (1999: $25,685). 5. Investment Finning, through a new wholly-owned, U.K.-based subsidiary, reached agreement with the Board of Directors of Hewden Stuart Plc (“Hewden”) on the terms of a recommended cash offer for all of the issued and to be issued ordinary share capital of Hewden. The offer was for 115 pence in cash for each Hewden share, valuing the existing 58 issued share capital of Hewden at approximately £322,000 ($700,000), based on 280.3 million shares in issue. Finning’s offer, made on November 29, 2000 represented a 68-percent premium to Hewden’s closing share price on October 23, the day before Hewden announced that it was in talks on a possible offer for the company. Prior to December 31, 2000, Finning had acquired 29.4% of the issued ordinary share capital of Hewden for $218,050. This acquisition is recorded at cost and reported as an investment on the balance sheet. On January 12, 2001 Finning declared the offer wholly unconditional. As of January 30, 2001 Finning owned approximately 95.7% of Hewden shares. The Company is taking steps to acquire the remaining shares of Hewden and delist them from the London Stock Exchange. The acquisition of Hewden will initially be financed through acquisition finance facilities for the purposes of making the offer to Hewden shareholders. Following completion of the takeover, Finning intends to refinance this facility through a combination of debt and minority interest. Notes to Consolidated Financial Statements 6. Goodwill 2000 1999 Purchased goodwill, beginning of year $ 88,619 $ 88,619 Goodwill on acquisitions made during the year 4,195 Reduction in goodwill in recognition of future income tax asset (Note 12) Foreign exchange translation adjustment Purchased goodwill, end of year Accumulated amortization, beginning of year Amorization for the year Reduction in accumulated amortization of goodwill (Note 12) Accumulated amortization, end of year (15,257) 220 77,777 (14,260) (1,855) 2,283 (13,832) - - - 88,619 (12,056) (2,204) - (14,260) Net purchased goodwill $ 63,945 $ 74,359 During the year the Company acquired two marine products distribution businesses operating in the U.K. and Ireland, namely MaK parts and service operations and Sabre Perkins operations for $6,168. The acquisitions are accounted for under the purchase method. The excess of the cost of the acquisitions over the amounts assigned to the identifiable assets acquired less the liabilities assumed is assigned to goodwill. 59 As a result of the Company changing its method of accounting for income taxes in 2000, the Company adjusted its goodwill to recognize a previously unrecognized future income tax asset with respect to tax loss carry-forwards for $12,974 that was acquired from the purchase of Finning Chile in 1993. Amortization of goodwill for the year ended December 31, 2000 was $1,855 (1999: $2,204). Notes to Consolidated Financial Statements 7 Short-Term and Long-Term Debt Short-term debt Bank indebtedness, commercial paper and other loans (a) $ 398,208 $ 305,639 2000 1999 Long-term debt Debentures (b) 8.35% due March 22, 2004 7.75% due November 1, 2004 6.60% due December 8, 2006 75,000 150,000 75,000 75,000 150,000 75,000 Bank term facilities (c) 134,291 75,576 Bank term facilities denominated in pound sterling (d) 89,728 151,541 Other unsecured loans denominated in U.S. dollars and Chilean pesos, maturing between 2001 and 2004 60 Less current portion of long-term debt 20,422 544,441 67,224 65,803 592,920 70,494 Total long-term debt $ 477,217 $ 522,426 (a) Bank indebtedness, commercial paper and other loans The Company has available $907,800 in unsecured short-term credit facilities. Borrowings under the credit facilities are at floating rates of interest at a margin over Canadian dollar bankers’ acceptance yields, and U.S. and U.K. LIBOR rates. In addition, the Company has a Canadian commercial paper program for $300,000 which can be issued against the available credit amount. Other loans include supplier merchandising programs. Included in short-term debt are foreign currency amounts denominated in US $26,599 (1999: US $26,428) and in £22,256 (1999: £11,555). (b) Debentures The Company’s debentures are unsecured, and interest is payable semi-annually with principal due on maturity. (c) Bank term facilities The Company has available $135,000 in unsecured term facilities. Borrowings under the term facilities are at floating rates of interest which averaged 6.24% in 2000 (1999: 5.23%). These facilities expire on August 31, 2001 and December 31, 2002. (d) Bank term facilities denominated in pound sterling The pound sterling term facilities are unsecured and are comprised of a £15,000 floating rate loan at an average interest rate of 6.63% (1999: 6.09%), maturing May 25, 2003; and a £25,000 fixed rate loan at 7.675%, maturing May 8, 2002. The proceeds of these loans have been used to finance the Company’s investment in the U.K. Notes to Consolidated Financial Statements Long-Term Debt Repayments Principal repayments on long-term debt in each of the next five years and thereafter are as follows: 2001 2002 2003 2004 2005 Thereafter $ 67,224 133,918 36,865 228,217 3,217 75,000 $ 544,441 Interest expense includes interest on debt incurred for a term greater than one year of $36,935 (1999: $34,111). 8. Financial Instruments The Company uses derivative financial instruments as part of an overall risk management strategy to manage the underlying financial and economic risks of the Company and to achieve lower cost financing. The Company uses derivative financial instruments to manage the mix of fixed and floating interest rate exposure, to manage foreign exchange exposure, and to diversify sources of financing. Interest Rate Risk Management The Company has a policy of arranging its financing so that the fixed rate financing offered to its customers on its lease and notes portfolio is matched by fixed rate borrowings. As well, the portfolio is matched on currency and term. To meet this objective, the Company enters into interest rate swap agreements, which fix the effective interest rate and currency of the borrowing. At December 31, 2000, interest rate swap agreements having a notional principal amount of $80,043 (1999: $104,810) at a weighted average fixed pay rate of 5.69% (1999: 5.49%) were outstanding. These agreements expire on various dates between 2001 and 2005. Additionally, the Company had an interest rate swap agreement outstanding at a notional principal amount of $150,000 (1999: $150,000). The Company received a fixed rate of 7.75% (1999: 7.75%) and paid a floating bankers’ acceptances based rate determined quarterly. This rate was 7.00% at December 31, 2000 (6.41% at December 31, 1999). On January 22, 2001, the Company unwound the swap, thus fixing $150,000 of its debt portfolio. The market value adjustment of the interest rate swap agreements as at December 31, 2000 was $4,597 (1999: $458) in favor of the Company, taking into account interest rates in effect at 61 the time. Foreign Exchange Risk Management The Company manages foreign exchange risk by matching assets with related liabilities, through adjustments in the pricing of its product sales, and through the use of derivative instruments such as forward exchange contracts. As at December 31, 2000, the Company had forward exchange contracts to sell £95,560 and option contracts to purchase £227,000 to hedge exchange exposure on its investment in Hewden shares (Note 5). Subsequent to the year-end, the Company completed the acquisition of Hewden. The forward and option contracts described above were settled and the Company entered into a long-term forward contract and cross currency swap to hedge its investment in Hewden. Under the terms of the contracts, the Company is obligated to deliver a notional amount of £323,560 and receive Canadian dollars at an exchange rate of 2.189. In addition, Finning has hedged £19,000 of annual cash flows from Hewden. Under the cross currency swap, Finning is obligated to deliver £19,000 annually and receive a floating Canadian dollar amount. Notes to Consolidated Financial Statements Fair Values The fair value of financial instruments is determined by reference to quoted market prices for actual or similar instruments, where available, or by estimates derived using present value or other valuation techniques. The fair value of accounts receivable, notes receivable, short-term debt, accounts payable and accruals approximates their recorded values due to the short-term maturities of these instruments. Asset (Liability) 2000 1999 Carrying Value Fair Value Carrying Value Fair Value $ (544,441) $ (545,903) $ (592,920) $ (590,995) $ $ 4,597 9,922 $ $ 458 (28) Long-term debt (includes current portion) Interest rate swaps Forward exchange and options contracts Credit Risk The Company operates internationally as a full service provider (selling, servicing, renting and financing) of heavy equipment and related products. The Company is not dependent on any single customer or group of customers. There is no concentration of credit risk related to the Company’s position in trade accounts or notes receivables. Credit risk is 62 minimized because of the diversification of the Company’s operations, as well as its large customer base and its geographical dispersion. The credit risk of the foreign currency contracts and interest rate swap agreements arises from the possibility that the counterparties to the agreements or contracts may default on their obligations; however, the Company does not anticipate such an event to occur. In order to minimize this risk, the Company enters into such agreements only with highly rated financial institutions. 9. Share Capital AUTHORIZED Unlimited Preferred shares without par of which 4,400,000 are designated as Cumulative Redeemable Preferred shares Unlimited Common shares ISSUED AND OUTSTANDING 2000 1999 Shares Amount Shares Amount Balance, beginning of year 79,736,877 $ 209,955 79,427,879 $ 207,583 Conversion of preferred shares Exercise of stock options Repurchase of common shares - 147,406 (4,093,820) - 1,472 (10,798) 156,352 152,646 - 996 1,376 - 75,790,463 $ 200,629 79,736,877 $ 209,955 Notes to Consolidated Financial Statements Common Shares A shareholders’ rights plan is in place which is intended to provide all holders of common shares with the opportunity to receive full and fair value for all of their shares in the event a third party attempts to acquire a significant interest in the Company. The Company’s dealership agreements with subsidiaries of Caterpillar Inc. are fundamental to its business and any change in control must be approved by Caterpillar. The plan provides that one share purchase right has been issued for each common share and will trade with the common shares until such time as any person or group, other than a permitted bidder, bids to acquire or acquires 20% or more of the Company’s common shares. The rights may also be triggered by a third party proposal for merger, amalgamation or a similar transaction. The rights plan will expire at the termination of the Annual Meeting of shareholders to be held in 2002. The plan will not be triggered if a bid meets certain criteria (a permitted bidder). These criteria include that: • the offer is made for all outstanding voting shares of the Company; • more than 50% of the voting shares have been tendered by independent shareholders pursuant to the Takeover Bid (voting shares tendered may be withdrawn until taken up and paid for); and • the Takeover Bid expires not less than 60 days after the date of the bid circular. Stock Options The Company has several stock option plans for employees and directors, the details of which are as follows: 63 Options outstanding, beginning of year Issued Exercised Cancelled Shares Option Price 5,932,918 1,085,917 (147,406) (252,988) $ 6.00 to $17.00 $11.96 to $12.98 $ 7.58 to $11.86 $ 7.58 to $17.00 Options outstanding, end of year 6,618,441 $ 6.00 to $17.00 There were 4,494,635 options exercisable at December 31, 2000 with the remaining options outstanding exercisable at various times to July 26, 2010. Repurchase of Common Shares The Company repurchased 4,093,820 common shares during 2000 as part of a normal course issuer bid under which the Company was allowed to buy back a maximum of 6.8 million shares. These shares were repurchased at an average price of $12.02 for an aggregate cost of $49,196 which has been allocated to reduce share capital by $10,798 and retained earnings by $38,398. Notes to Consolidated Financial Statements 10. Cumulative Currency Translation Adjustments Balance, beginning of year Gain realized during the year Translation adjustments for the year Balance, end of year 2000 1999 $ (15,388) $ 9,970 - (8,354) $ (23,742) (5,435) (19,923) $ (15,388) Translation gains or losses on the consolidation of foreign subsidiaries’ financial statements are accumulated in this account. Translation adjustments arise as a result of fluctuations in foreign currency exchange rates. At December 31, 2000, 1999 and 1998, the Canadian dollar exchange rates against the British pound sterling were 2.2432, 2.3314 and 2.5448 respectively, and the Chilean peso exchange rates against the Canadian dollar were 382, 367 and 308, respectively. The cumulative currency translation adjustment for 2000 resulted from the weakening of the Chilean peso and pound sterling against the Canadian dollar. During 1999, a dividend of £10,000 was paid from Finning Holdings Limited (U.K.) to the Company which generated a foreign exchange gain of $5,435. 64 11. Employee Benefits The expense for the Company’s benefit plans, primarily for pension benefits, is as follows: Canada 2000 UK Total Defined contribution plans Current service cost Net benefit plan expense Defined benefit plans $ 3,896 $ 3,896 $ $ - - $ 3,896 $ 3,896 Current service cost, net of employee contributions $ 4,716 $ 9,873 $ 14,589 Interest cost Expected return on plan assets Amortization of transitional obligation/(asset) Net benefit plan expense Total 12,926 (15,420) 1,144 $ 3,366 $ 7,262 15,327 (19,492) (1,307) $ 4,401 $ 4,401 28,253 (34,912) (163) $ 7,767 $ 11,663 Notes to Consolidated Financial Statements Information about the Company’s defined benefit plans is as follows: Accrued benefit obligation – Balance at the beginning of the year $ 183,926 $ 279,801 $ 463,727 Canada 2000 UK Total Current service cost Interest cost Benefits paid Actuarial gains Foreign exchange rate changes Balance at the end of year Plan assets – 6,698 12,926 (11,936) - - 12,176 15,327 (5,787) (3,810) (10,631) 18,874 28,253 (17,723) (3,810) (10,631) $ 191,614 $ 287,076 $ 478,690 Fair value at the beginning of the year $ 186,377 $ 298,760 $ 485,137 Actual return on plan assets Employer contributions Employees’ contributions Benefits paid Foreign exchange rate changes Fair value at the end of year 20,074 30 1,982 (11,936) - (6,147) 6,756 2,303 (5,787) (11,294) 13,927 6,786 4,285 (17,723) (11,294) $ 196,527 $ 284,591 $ 481,118 65 Funded status - plan surplus (deficit) $ 4,913 $ (2,485) $ 2,428 Unamortized net actuarial loss Unamortized transition obligation (asset) Accrued benefit asset (4,654) 6,259 6,518 $ 21,772 (16,936) 17,118 (10,677) $ 2,351 $ 8,869 Included in the above accrued benefit obligation and fair value of plan assets at the year-end are the following amounts in respect of plans that are not fully funded: Accrued benefit obligation Fair value of plan assets Funded status - plan deficit $ 21,283 8,930 $ 12,353 $ $ - - - $ 21,283 8,930 $ 12,353 The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations are as follows: Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Rate of increase in non-pension benefits Estimated Remaining Service Life (Years) 7.0% 8.5% 3.4% 4.7% 2-13 5.5% 6.8% 4.5% N/A 14 Plan assets include common shares of the Company having a fair value of $906 at December 31, 2000. In 1999, the Company’s obligations for pension benefits, under its defined benefit plans, were estimated by the plans’ actuaries to be $356,734. The pension plan assets, on an adjusted market value basis were $373,182. Notes to Consolidated Financial Statements 12. Income Taxes Provision for Income Taxes Current income tax expense Future income tax expense Provision for income taxes 2000 1999 $ 30,886 2,434 $ 33,320 $ 17,507 6,037 $ 23,544 Reconciliation of the Company’s effective income tax rate from statutory Canadian tax rates for the years ended December 31, 2000 and 1999 is as follows: 2000 1999 66 Combined federal and provincial tax rates 43.79% 43.99% Provision for income taxes based on the combined federal and provincial rates $ 46,729 $ 36,575 Increase (decrease) in provision resulting from: Lower effective rates on the losses (earnings) of foreign subsidiaries (15,823) (9,049) Benefit of unrecognized loss carry-forward of foreign subsidiary - (2,320) Amortization of goodwill and increase in assigned asset value Large corporation tax Income not subject to tax Other items Provision for income taxes 431 1,651 (694) 1,026 433 2,002 (2,735) (1,362) $ 33,320 $ 23,544 Notes to Consolidated Financial Statements Future income tax asset and liability Temporary differences and tax loss carry-forwards that give rise to future income tax assets and liabilities as at December 31, 2000 and 1999 are described below. As a result of the Company changing its method of accounting for income taxes in 2000, the Company adjusted its goodwill to recognize a previously unrecognized future income tax asset with respect to tax loss carry-forwards for $12,974 that was acquired from the purchase of Finning Chile in 1993. As of December 31, 2000 tax loss carry forward of $49,767 in Chilean pesos equivalent is available to Finning Chile S.A. to offset future taxable income. This loss is indexed to Chile’s inflation rate and has no expiry date. Future income tax assets: Tax loss carry-forwards Future income tax liabilities: Capital, rental, leased assets, inventories and reserves Pensions Other Net future income tax liability distributed as such: Future income tax asset - non-current Future income liability - current Future income liability - non-current 2000 1999 $ 7,465 $ - (8,009) (3,349) (5,056) (5,475) (6,790) (5,407) $ (8,949) $ (17,672) $ 7,465 (2,471) (13,943) $ (8,949) $ - (2,491) (15,181) $ (17,672) 67 Notes to Consolidated Financial Statements 13. Earnings Per Share Basic earnings per share is calculated by dividing net income available to the shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated to reflect the dilutive effect of exercising outstanding stock options by application of the treasury stock method. The comparative diluted earnings per share for 1999 has been restated. Calculation of earnings per share: 2000 Income Shares Per Share (Numerator) (Denominator) Amount Basic earnings per share: Income available to common shareholders $ 73,391 77,436,109 $ 0.95 Effect of dilutive securities: Stock options Diluted earnings per share: Income available to common shareholders 704,950 (0.01) 68 and assumed conversions $ 73,391 78,141,059 $ 0.94 Basic earnings per share: Income available to common shareholders $ 59,581 79,616,362 $ 0.75 1999 Effect of dilutive securities: Stock options Diluted earnings per share: Income available to common shareholders 846,529 (0.01) and assumed conversions $ 59,581 80,462,891 $ 0.74 14. Economic Relationships The Company distributes and services heavy equipment and related products. The Company has dealership agreements with numerous equipment manufacturers, of which the most significant are with subsidiaries of Caterpillar Inc. Distribution and servicing of Caterpillar products account for the major portion of the Company’s operations. Finning has a strong relationship with Caterpillar that has been ongoing since 1933. Notes to Consolidated Financial Statements 15. Segmented Information The Company and its subsidiaries have operated primarily in one industry during the year, that being the selling, servicing, renting and financing of heavy equipment and related products. Operating units are as follows: • Canadian operations: British Columbia, Alberta, most of the Northwest Territories and the Yukon. • U.K. operations: England, Scotland, Wales, Falkland Islands and the Channel Islands. • Chilean operations: throughout the country. • UMS represents the international used equipment and parts operations. • Corporate includes corporate head office operations. The reportable operating segments are: Canada UK Chile UMS Corporate Consolidated 2000 Revenue from external sources $1,214,516 $ 682,162 $ 474,145 $ 89,013 $ 196 $2,460,032 Operating costs Depreciation Amortization of goodwill 943,226 147,300 1,012 629,309 435,877 91,784 12,042 2,112,238 69 24,389 843 8,987 - - - - - 180,676 1,855 Earnings before interest and tax $ 122,978 $ 27,621 $ 29,281 $ (2,771) $ (11,846) $ 165,263 Finance cost and interest on other indebtedness Provision for income taxes Net income 58,552 33,320 $ 73,391 Identifiable assets Capital expenditures $1,195,607 $ 433,161 $ 226,422 $ 82,744 $ 219,707 $2,157,641 $ 7,851 $ 3,862 $ 3,324 $ - $ - $ 15,037 Corporate assets include $218,050 investment in Hewden shares. 1999 Revenue from external sources $1,032,922 $ 712,941 $ 377,777 $ 106,216 $ 5 $2,229,861 Operating costs Depreciation Amortization of goodwill 785,290 144,167 984 669,520 332,638 103,734 3,415 1,894,597 23,668 15,463 836 384 850 - - - 184,148 2,204 Earnings before interest and tax $ 102,481 $ 18,917 $ 29,292 $ 1,632 $ (3,410) $ 148,912 Finance cost and interest on other indebtedness Provision for income taxes Net income 65,768 23,544 $ 59,600 Identifiable assets Capital expenditures $1,242,837 $ 454,267 $ 245,725 $ 83,405 $ 8,703 $ 6,106 $ 6,055 $ - $ $ - - $2,026,234 $ 20,864 Ten-Year Financial Summary Years ended December 31 ($ in thousands except per share data) Revenue Canadian operations U.K. operations Chilean operations International operations Total consolidated Income before provision for income taxes As a percent of revenue Net income As a percent of revenue Earnings Per Common Share Basic Diluted (2) Dividends 70 Total common share Per common share Cash flow from operations Cash flow per share Gross capital expenditures Ratios Asset turnover ratio Debt to equity (3) Liabilities to equity (3) Operating debt to equity (excluding finance and rental activities (1) (3) Book value per common share Return on average shareholders’ equity Common Share Price High Low Common shares outstanding (thousands) Revenue per employee Net income per employee Number of Employees Canada U.K. Chile International Total 2000 1999 1998 1997 $1,214,516 $ 682,162 $ 474,145 $ 89,209 $2,460,032 $ 106,711 4.3% $ 73,391 3.0% $ $ $ $ 0.95 0.94 15,452 0.20 $ 240,615 $ $ 3.17 15,037 1.18 1.04:1 1.75:1 0.20:1 $ 9.02 10.5% $ $ 13.85 9.85 75,790 $ 477,120 $ 14,234 2,326 1,404 1,390 36 5,156 1,032,922 1,136,917 1,146,406 712,941 377,777 106,221 793,020 503,505 151,979 565,376 514,068 101,214 2,229,861 2,585,421 2,327,064 83,144 3.8% 59,600 2.7% 0.75 0.74 15,919 0.20 221,323 2.78 20,864 1.05 1.29:1 1.90:1 0.47:1 8.74 8.7% 15.40 9.00 79,737 450,113 12,031 2,271 1,364 1,259 60 4,954 $7,550 0.3% 3,185 0.1% 0.04 0.04 15,868 0.20 71,288 0.90 44,176 1.13 1.67:1 2.29:1 0.97:1 8.52 0.5% 18.50 10.25 79,426 492,367 607 2,494 1,348 1,354 55 5,251 149,351 6.4% 103,695 4.5% 1.32 1.27 15,761 0.20 (46,559) (0.59) 47,148 0.99 1.66:1 2.37:1 0.90:1 8.69 16.2% 20.50 14.43 79,091 423,565 18,874 2,496 1,720 1,228 50 5,494 Financial data has been restated to incorporate common share subdivision occurring during the ten-year period and to reflect a retroactive change in accounting for revenue recognition for exchange components implemented in 1992. 1. Assumes a debt to equity ratio of 7:1 in the finance operation and 5:1 in the rental operation. The debt to equity ratio has been restated to reflect a retroactive change in presenting customer rental purchase contracts as finance assets implemented in 1996. Ten-Year Financial Summar y 1996 1995 1994 1993 1992 1991 926,653 437,949 408,616 101,491 923,275 416,034 350,650 62,032 838,680 338,499 241,221 39,138 675,490 258,235 74,464 34,768 1,874,709 1,751,991 1,457,538 1,042,957 128,503 6.9% 88,184 4.7% 1.13 1.09 15,600 0.20 (63,150) (0.80) 43,132 1.04 1.50:1 1.97:1 0.59:1 7.59 16.0% 14.58 9.75 78,547 441,940 20,788 2,269 925 1,008 40 4,242 119,392 6.8% 77,493 4.4% 1.00 0.98 15,451 0.20 95,488 6.6% 61,421 4.2% 0.80 0.78 9,985 0.13 (150,093) (104,150) (1.94) 25,812 (1.35) 16,641 1.09 1.55:1 2.11:1 0.61:1 6.55 16.2% 11.63 8.63 77,442 428,674 18,961 2,228 884 941 34 4,087 1.06 1.35:1 1.99:1 0.43:1 5.83 14.8% 12.06 9.19 77,026 374,978 15,802 2,124 873 861 29 3,887 35,895 3.4% 22,271 2.1% 0.30 0.30 6,592 0.09 12,442 0.16 13,752 0.95 1.23:1 1.80:1 0.39:1 5.00 6.5% 10.88 5.88 76,266 283,875 6,062 2,025 863 759 27 3,674 553,316 251,909 - 27,512 832,737 1,728 0.2% 2,878 0.3% 0.03 0.03 5,042 0.08 (20.917) (0.31) 7,025 0.86 1.59:1 2.03:1 0.66:1 4.58 0.9% 7.25 5.25 67,370 281,425 973 2,004 930 - 25 2,959 583,542 267,828 - - 851,370 3.139 0.4% 4,612 0.5% 0.05 0.05 6,844 0.10 53,698 0.80 11,643 0.92 1.46:1 1.95:1 0.56:1 4.79 1.4% 7.82 5.88 67,056 260,757 1,413 2,142 1,123 - - 3,265 2. In 2000, the diluted earnings per share calculation was changed to reflect the dilutive effect of exercising outstanding stock options by application of the treasury stock method. Only diluted earnings for the years ended 1999 and 2000 have been restated. 3. Equity ratios for the 2000 result do not include investment in Hewden Stuart. 71 Corporate Information Board of Directors M. Norman Anderson President Anderson & Associates Vancouver, B.C. Ricardo Bacarreza Presidente Proinvest SA Santiago, Chile John E. Cleghorn Chairman and Chief Executive Officer Royal Bank of Canada Toronto, Ontario James F. (Jim) Dinning 72 Executive Vice President Sustainable Development & External Relations TransAlta Corp. Calgary, Alberta Timothy S. Howden Company Director Marlow, Buckinghamshire England Nicholas B. Lloyd President and Chief Executive Officer Finning Chile S.A. Vitacura, Chile Jefferson J. Mooney Chairman, President and CEO A&W Food Services of Canada Inc. Vancouver, B.C. Donald S. O’Sullivan President O’Sullivan Resources Ltd. Edmonton, Alberta Conrad A. Pinette President and Chief Operating Officer Lignum Limited Vancouver, B.C. Andrew H. Simon Executive Vice Chairman Diamant Boart S.A. Staffordshire England Monica E. Sloan Management and Strategy Consultant Calgary, Alberta Douglas W.G. Whitehead President and Chief Executive Officer Finning International Inc. Coquitlam, B.C. John M. Willson Company Director Vancouver, B.C. Corporate Information Officers Brian C. Bell Conrad A. Pinette Executive Vice President, Customer Support Services Chairman of the Board Finning International Inc. Finning International Inc. Jack A. Carthy Managing Director Finning (UK) Ltd. Ian M. Reid President and Chief Operating Officer Finning (Canada) Anthony R. Guglielmin Vice President and Corporate Treasurer Finning International Inc. John T. Struthers Corporate Secretary Finning International Inc. Nicholas B. Lloyd Douglas W.G. Whitehead President and Chief Executive Officer President and Chief Executive Officer Finning Chile S.A. Richard T. Mahler Executive Vice President and Chief Financial Officer Finning International Inc. Finning International Inc. 73 Committees Pension Committee A.R. Guglielmin R.T. Mahler Pension Fund Performance Committee J.E. Cleghorn A.H. Simon Audit Committee J.F. Dinning, Chairman R. Bacarreza J.E. Cleghorn A.H. Simon M.E. Sloan Human Resources & Compensation Committee M.N. Anderson, Chairman T.S. Howden J.J. Mooney J.M. Willson Governance Committee D.S. O’Sullivan, Chairman M.N. Anderson J.F. Dinning T.S. Howden C.A. Pinette Environmental, Health & Safety Committee T.S. Howden, Chairman R. Bacarreza D.S. O’Sullivan D.W.G. Whitehead J.M. Willson Shareholder Information Stock Exchanges Corporate Information The common shares of Finning International Inc. are listed The Company prepares an Annual Information Form (AIF) on the Toronto Stock Exchange. (Symbol: FTT) which is filed with the securities commissions or similar Auditors Arthur Andersen LLP., Chartered Accountants, Vancouver, Canada Solicitors bodies in all of the provinces of Canada. Copies of the AIF and Annual and Quarterly Reports are available to shareholders and other interested parties on request or can be accessed directly from Finning’s home page on the Internet at http://www.finning.com. Borden Ladner Gervais, Barristers and Solicitors Registrar and Transfer Agent Vancouver, Canada Corporate Head Office 555 Great Northern Way Computershare Trust Company of Canada. To contact the stock transfer office nearest to your location, see below. Vancouver, Canada, V5T 1E2 (604) 872-4444 Investor Inquiries Annual Meeting The Annual Meeting of the shareholders will be held at 11:00 a.m., May 10, 2001 at the Metro Convention Centre, Toronto. 74 Inquiries relating to shares or dividends should be directed to the Company’s Registrar and Transfer Agent. Inquiries relating to the Company’s operating activities and financial information should be addressed to Anthony R. Guglielmin, Vice President and Corporate Treasurer, (604) 331-4937, Fax (604) 331-4852, e-mail: aguglielmin@finning.ca Computershare Trust Company of Canada Montreal Trust Centre 510 Burrard Street Vancouver, B.C. V6C 3B9 Tel. (604) 661-9400 Fax (604) 683-3694 c/s (604) 661-9480 op. Western Gas Tower 530 - 8th Avenue S.W. Calgary, Alberta T2P 3S8 Tel. (403) 267-6800 Fax (403) 267-6529 200 Portage Avenue Winnipeg, Manitoba R3C 3X2 Tel. (204) 985-3048 Fax (204) 985-3162 151 Front Street W. Toronto, Ontario M5J 2N1 Tel. (416) 981-9500 Fax (416) 981-9800 Place Montreal Trust 1800 McGill College Avenue Montreal, Quebec H3A 3K9 Tel. (514) 982-7000 Fax (514) 982-7580 1465 Brenton Street Halifax, Nova Scotia B3J 3S9 Tel. (902) 420-2211 Fax (902) 420-3682 www.finning.com Printed in Canada