Finning International Annual Report 2004

FY2004 Annual Report · Finning International

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FI N N I NG I NTE R NATIONAL I NC.
2004 AN N UAL R EPORT

seeing it through

Financial Highlights
Letter to Shareholders
Finning (Canada)
Finning South America
Finning (UK)
Hewden
Power Systems
Interview with the CFO
Financial Report

02
04
18
22
26
30
34
38
41

Monetary amounts in this annual report are in Canadian dollars unless otherwise noted.

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seeing it through

Since our initial public offering in 1969, we’ve
been committed to delivering superior returns
to our shareholders.

To see that commitment through, we’ve grown
steadily – and carefully. We’ve diversified
by geography and by the industries and
customers we serve. We’ve enjoyed strong
organic growth in resource-rich, low-risk
markets, and have supplemented that growth
with strategic acquisitions.

With record revenues posted for 2004, we
broke the $4 billion mark for the first time. We
remain focussed on achieving our long-term
performance targets: a 15% annual growth rate
in sales and earnings, a 20% return on equity
and a 30% share of our key markets.

We have the people, the culture and the drive
to see it through. We are Finning.

C
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N
N
F

C
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A
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N

G
N

N
N
F

RELATIVE PRICE PERFORMANCE (5 YEARS)
FINNING INTERNATIONAL INC. VS. S&P/TSX COMPOSITE INDEX
(DECEMBER 31, 1999 TO DECEMBER 31, 2004)

300

250

200

150

100

Finning International Inc.

S&P/TSX Composite Index

financial highlights

YEAR E N D E D D EC E M B E R 31 ($M I LLI O N S, E XC E PT P E R S HAR E AM O U NTS)

200 4

2003

OPERATING DATA
Revenue
EBIT
Net Income
Basic EPS
Diluted EPS
Normalized EPS*
Return on Equity (%)
Normalized Return on Equity* (%)
Cash Flow from Operations Before Working Capital Items

BALANCE SHEET DATA

Total Assets
Working Capital
Total Shareholders’ Equity
Debt to Equity Ratio**

* Normalized earnings exclude certain items that do not reflect the financial performance of the Company’s ongoing
operations. Refer to Schedule 1 titled “Description of non-GAAP measures” on page 59 for a summary of these
items and a reconciliation of normalized (non-GAAP) results to published results.

** Non-controlling interest treated as equity in 2003.

4,161.9

3,593.3

265.7

114.9

1.45

1.43

1.75

11.0%

13.1%

495.9

3,804.0

245.9

1,326.2

1.03:1

255.2

132.0

1.71

1.68

1.75

14.3%

14.7%

506.1

3,440.6

213.3

958.6

0.79:1

2004 RETURN TO SHAREHOLDERS

In 2004, Finning provided common shareholders with
a capital gain of over 16% and dividends totaling
$0.40 per share. Total return to shareholder was 18%.

Share value (excluding dividends) has grown at an
annual compound growth rate as follows:

5 years – 21%

10 years – 13%

20 years – 15%

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

4.16

3.59

3.25

3.21

2.46

REVENUE ($ BILLIONS)

300

250

200

150

100

278

266

255

242

165

EBIT ($ MILLIONS)
Earnings Before Interest & Taxes

150

120

2.00

132

1.72

1.71

115

1.50

104

1.37

1.45

1.00

0.95

NET INCOME ($ MILLIONS)

0.50

BASIC EPS ($)
Earnings Per Share

C
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A
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N
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T
N

G
N

N
N
F

to our shareholders

SEEING IT THROUGH

Each annual report marks a milestone in a corporation’s
life – a chance to pause and reflect on the year’s
achievements and challenges – a benchmark from
which to move forward.

I’m very pleased to report that Finning continues to be
in a strong position as we head into a new year. In
2004 we again achieved record revenues and provided
our shareholders with another year of solid returns. We
have focused on our customers’ needs, and we’ve seen
great promise in efficiency and productivity measures.

It’s all part of the plan we have for managing the
dramatic growth at Finning, in a way that will allow us
to deliver consistent shareholder value in the years
ahead. It’s a winning plan and we’re committed to
seeing it through.

A WORLD OF OPPORTUNITY

We’re now in one of the strongest up-cycles in
commodity markets in decades. As our customers
in mining, forestry, and oil and gas ramp up their
businesses in response to higher commodity prices,
demand for new equipment increases and we are

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

Douglas W.G. Whitehead
P R E S I D E N T & C E O

in an excellent position to meet that demand. Our
business is growing with theirs. Commodity prices
are expected to remain at attractive levels and our
customers should continue to earn excellent returns.
This will result in continued opportunity for Finning.

In 2004, our order backlog almost doubled over
2003 and reached a record level of $835 million at
December 31st. The potential for growth in Western
Canada and South America continues to drive new
equipment sales.

Western Canada’s rich and diverse resource base
and solid general construction market will ensure that
Finning (Canada) remains a strong contributor for us
in the coming years.

In South America, high copper and gold prices are
driving mine expansions and new mine openings.
We’re also expecting general construction to be strong
as Chile and Argentina modernize their infrastructure.

In the U.K., we anticipate market conditions to
show growth, driven by a healthy economy, a large
population base and government investment in
infrastructure. Both Finning (UK) and Hewden will
benefit from new government spending on highways,
railways and airports.

As well, Finning (UK) and Caterpillar are working on a
major market initiative with a goal to double unit sales
by 2007 and improve Finning profitability.

At Hewden we are undertaking various initiatives to
change the business model that will result in significant
new market opportunities, as well as reducing costs
and making the operations more efficient and
responsive to customers.

Opportunities for our Power Systems business are
numerous. Power Systems delivers a diverse range
of applications and products, from electric power
generation and marine operations to gas compression
and on-highway truck fleets. The success of this unit
is notable and we see considerable opportunity for
growth in all of our geographic markets.

C
N

L
A
N
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T
A
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R
E
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N

G
N

N
N
F

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N
F

FINNING (CANADA)

8.4%

FINNING (UK)

3.3%

FINSA

HEWDEN

9.5%

8.5%

CONSOLIDATED

6.4%

EBIT AS A PERCENTAGE OF REVENUE BY OPERATION
(YEAR ENDED DECEMBER 31, 2004)

All signs point to continuing growth for the major
industries we serve. We expect to maintain our market
share in all areas – not because we’re resting on past
successes, but because we’re constantly working at
positioning ourselves to capitalize on growth and
performance improvements.

DIVERSIFICATION BY REVENUE SOURCE

Our goal is to be involved with our customers through
the entire equipment life cycle, including sales, parts
and service and ultimately re-manufacturing or
disposition of the used equipment.

While new equipment sales are important to our top
line growth, the margins generated by rentals, parts
and service are more attractive. As a result, we’ve been
steadily increasing our focus on those higher-margin
segments of our business - and we’ve been successful.
Parts, service and rental activity contributed 54% of
our total revenues and about 78% of our gross profit
in 2004.

Our outstanding customer support and service capability
adds value to our customers’ operations, ensuring
maximum equipment availability while at the same time
generating an attractive revenue stream for us.

These very profitable segments of our business
provide predictable, recurring revenue and earnings
that balance the cycles in other parts of our business.
It’s like having an annuity attached to every piece of
new and used equipment we sell. As long as we do a
good job of servicing our customers, our annuities
keep on building.

In 2004, our net investment in rental fleet increased
by approximately $128 million – both to assist
customers waiting for new equipment, and to increase
our customer support infrastructure for guaranteed
availability of equipment.

COST CONTAINMENT

Impressive “top line” growth aside, it’s the bottom line
that matters at the end of the day. So, while we
continue to grow our business, we also have a strong
focus on cost-control. In 2004, we launched an
extensive program designed to save $60 million a year
in ongoing costs by 2006. How are we achieving this?

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

First, we are driving a series of major cost-cutting
initiatives at Hewden. Every aspect of that business
has been under the microscope and a major change to
our business model is underway. With three consecutive
quarters of improving results, we’re confident we’ve
turned the corner.

Second, we plan to identify and divest non-strategic
assets and reduce working capital. We’re targeting
more than $200 million of reductions under this initiative.

And third, we have launched a broad range of company-
wide cost savings initiatives. In partnership with
Caterpillar, we have adopted the “6 Sigma” system of
analyzing business processes to find ways of improving
efficiencies and to quantify these improvements.

While strong customer demand for our products
and services has driven our revenues up, it has also
brought some challenges. To support the higher
business volumes, we’ve had to increase spending on
training and infrastructure. This is unquestionably good
news, but it puts pressure on us to control these costs
and keep operations as competitive as possible.

Our cost-control initiatives require rigorous analysis
and in some cases tough decisions. But I’m confident
the result will ensure that top-line growth continues
to be translated into bottom-line growth.

A SOLID BALANCE SHEET

In November 2004, we issued new equity as part of
a refinancing initiative. The gross proceeds of the
offering – $305 million – will strengthen our balance
sheet in support of further growth.

Issuing equity isn’t something we do lightly: our last
offering was 11 years ago. Since then, we’ve quadrupled
our revenues, increased our profits five times over and
more than quadrupled our market capitalization.

22.0

31.2

EBIT PERCENTAGE BY OPERATION*

Finning (Canada)
Finning (UK)
FINSA
Hewden

49.5 %
12.9 %
31.2 %
22.0 %

49.5

12.9

* Excludes corporate operating costs and

other expenses

A strong balance sheet gives us access to capital
markets at an attractive price which will allow us to
take advantage of growth opportunities when these
present themselves. It will also enable us to weather
adverse business conditions when these occur again.

ENHANCED CUSTOMER FOCUS

Caterpillar is one of the most valued and recognized
brands in the world. As Caterpillar’s largest dealer,
we operate on three continents with a team of over
12,000 employees. We sell, rent, service, source
financing for, and even insure Caterpillar equipment
and engines. We take care of just about everything
that happens to the machines after they leave
Caterpillar’s factory, and we typically stay involved
right through the machine’s life.

But all of this isn’t simply about looking after
equipment: it’s about looking after customers. Our
commitment to service is what sets Finning apart
from our competitors. It is a commitment to work with
our customers to help them lower their total owning
and operating costs over the equipment’s life. This is
critical whether our customers operate in the Arctic
or the Andes. In industries where every minute of
down-time is a lost opportunity, reliability is imperative.
At Finning, we’re known for being there when our
customers need us.

SAFETY IN NUMBERS

In addition to increasing value for our shareholders,
maintaining a safe and fulfilling work environment for
our employees remains a key objective. We set a goal
to continually reduce our lost time injuries, and I’m
proud to say we are achieving these objectives, even
as the number of employees grows with our expanding
operations. Safety is a key item on the agenda in

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

Douglas W.G. Whitehead
P R ES I D E NT
& C H I E F E X EC UTIVE O F F I C E R

Wayne M. Bingham
E X EC UTIVE VI C E P R ES I D E NT
& C H I E F F I NAN C IAL O F F I C E R

Ian M. Reid
P R ES I D E NT
F I N N I N G (CANADA)

Nicholas B. Lloyd
MANAG I N G D I R ECTO R
F I N N I N G G R O U P, U K

Stephen Mallett
P R ES I D E NT
F I N N I N G POWE R SYSTE M S

Brian C. Bell
P R ES I D E NT, F I N N I N G
S O UTH AM E R I CA

every monthly operating meeting. During 2004, we
achieved a record 2 million hours without a lost time
injury at Finning (Canada). On an overall corporate
basis, our lost time injury frequency rate has declined
to 0.78 lost time injuries per 200,000 work hours –
an outstanding performance.

Our commitment to shareholders remains unchanged.
We have demonstrated our dedication to protecting
shareholder interests, and we consistently rank as one
of the best-governed companies in Canada. We have
the team in place to continue to deliver strong returns
– and we will, as before, see it through.

STRONG AND READY FOR THE FUTURE

Over the past five years, we have grown the company
dramatically and have delivered attractive returns to
our shareholders. Our long-term targets of 15%
annual growth in revenue and earnings, 20% return on
equity and 30% market share in key markets continue
to be lofty targets that we strive to achieve.

I’d like to acknowledge and thank all of our employees
for their continued hard work and commitment to
excellence. At Finning we pride ourselves on customer
service that goes beyond just very good. Our ability to
deliver this level of service is a reflection of the quality
of the Caterpillar equipment we sell and people who
work at Finning. As well, I’d like to thank our Board of
Directors for their ongoing support and counsel.

Douglas W.G. Whitehead

P R E S I D E N T & C E O
M A R C H 2 5 , 2 0 0 5

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At Chile’s Escondida copper mine, more than 150 large mining
trucks and auxiliary equipment work around the clock moving
over 1 million tons of waste rock and ore, every day. The CAT
797 trucks used here stand more than 3 stories high and can
travel at 60 km per hour, even fully loaded with a 400 ton load.
Producing approximately 1.3 million tons of copper per annum,
Escondida is the world’s largest source of copper and a valued
and growing customer of Finning.

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growth

2004 marked another year of considerable
growth at Finning. Revenues reached record
levels as our customers took advantage of
one of the strongest commodity cycles we’ve
experienced in decades. We have a presence
on three continents, and continue to build
a customer base in a broad range of industry
sectors, promoting equipment, parts, service
and rental. With a core business now well
diversified – by geography, end market and
revenue stream – we’re in a strong position to
see Finning through to the next level of growth.

2004 REVENUE BY LINE OF BUSINESS

Equipment
Parts and Service
Rental
Finance, Leases & Other

45.3 %
29.7 %
24.3 %
0.7 %

24.3

45.3

29.7

Getting a new piece of equipment into the field is just the beginning.
From there, our goal is to service that equipment for life. Rental, parts
and service now contribute to over half our revenues.

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Extreme cold environments, where temperatures can dip
to minus 40°C, impose severe demands on people and
equipment. Engines that power 300 ton mining trucks,
capable of bearing 400 ton payloads must be maintained
at all temperatures for optimum efficiency. Moisture in the air
reservoir, if allowed to build up and freeze, can affect engine
start-up and result in costly downtime. Finning’s proactive
maintenance program provides regular monitoring of engine
and machine conditions to prevent breakdowns and provides
customers with maximum machine availability.

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efficiency

To translate our exceptional revenue growth
into exceptional bottom-line growth, we’re
focusing on improving productivity and
efficiency in all aspects of our operations.
In 2004, we adopted the “6 Sigma” system
to review and improve the efficiency of a
wide range of our business processes. Our
aim is to get the most out of our business
processes and our working capital. We’ve
targeted $60 million in cost savings across
our businesses by 2006. We’re confident
we’ll see that target met.

TARGETED COST SAVINGS
$60 MILLION BY 2006

Finning (Canada)
FINSA
Finning (UK)
Hewden
Corporate

TOTAL

12
7
7
24
10

$60

The “$60 million by 2006” program will allow us to reduce costs and
translate more of our substantial revenue growth into earnings growth.

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When a logging contractor landed an important contract with
a major Vancouver Island forestry company, they knew the
right equipment would be critical to getting the job done. After
an on-site needs assessment, Finning proposed a complete
package of equipment, training, service, product warranties
and financing allowing the contractor to commit to harvesting
600,000 cubic meters of wood per year. Our proposal to
install separate generator sets on the machines increased
lighting capacity by 3,000 watts, enabling productive and
safe operations through the dark winter months.

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customers

It’s not a simple service mantra. Our
customers operate in harsh conditions
with demanding reliability standards. We
understand that every minute of downtime
for them is a lost opportunity. Meeting
challenging customer demands is what
we do everyday at Finning — this “service
excellence” is the foundation we use to build
long-term customer relationships. In 2004,
we re-organized our entire sales force so
that it matches our segmented approach to
better serving customers and meeting their
business needs. This strategy puts our
customers at the center of our business –
where they belong.

END MARKET DIVERSIFICATION
(NEW EQUIPMENT DELIVERIES)

Mining
Construction
Power
Forestry
Petroleum
Other

28 %
27 %
20 %
9 %
7 %
9 %

As the world’s largest Caterpillar dealer, with a broad product line
and top-rate service, we are the supplier of choice for a wide range
of industries.

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Finning is committed to helping out in the hundreds of
communities in which we operate worldwide. Kids Kottage,
located in Edmonton, is just one of the many non-profit
organizations where we donate funding and volunteer
time. The centre supports families through challenging
times by providing safe, temporary care. In 2004, 1,500
children – from babies up to 10-year-olds – were cared
for at Kids Kottage.

people & culture

Taking care of customers, operating
efficiently and, ultimately, maintaining strong
growth means taking care of our people
first. Finning’s 12,280 employees are the
face and heart of our organization. We strive
continuously to make Finning an exemplary
place to work, and encourage our employees
to achieve their best. The result is motivated
employees who are proud to be part
of Finning. As responsible corporate
citizens, we are active in the hundreds of
communities we serve. We are also committed
to respecting, protecting, and preserving
natural resources – a commitment we share
with all our stakeholders.

2.50

2.48

2.22

2.00

1.98

1.50

1.00

0.50

0.97

0.78

LOST TIME INJURY FREQUENCY (LTI*)

Maintaining health, safety and employee well-being are key
concerns at Finning. We had a record-breaking year on the safety
front in 2004 – a trend we aim to continue.

*LTI is measured as the number of lost time injuries per 200,000 work hours.

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A CAT WHEEL LOADER OPERATES ON THE SEA-TO-SKY HIGHWAY
CONSTRUCTION PROJECT NEAR VANCOUVER. THE ROAD IS BEING
UPGRADED FOR THE 2010 WINTER OLYMPIC GAMES.

FINNING CANADA

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Ian Reid
President, Finning (Canada)

“We are experiencing unprecedented growth
in all customer segments. To meet demand,
we have the world’s best and most extensive line
of equipment, together with dedicated people
who deliver exceptional service. In 2004, our
customer-driven strategies and expanded rental network
helped us achieve further market penetration. We expect
even stronger levels of activity in the coming years due
to new oil sands projects, gas pipelines, the 2010 Olympic
Games, a forest industry recovery and ongoing developments
in the petroleum business. Canada’s growing resource sector
and robust economic conditions position us ideally to seize
emerging opportunities.”

LAURA TETREAU, 1ST YEAR APPRENTICE, CUSTOMER SUPPORT CENTRE –
PARTS, KAMLOOPS, BRITISH COLUMBIA. LAURA’S APPRENTICESHIP
TRAINING ENSURES EXPOSURE TO ALL ASPECTS OF THE PARTS FIELD.

FINNING (CANADA) REVENUE
BY LINE OF BUSINESS

New Equipment
Power Systems
Used Equipment
Equipment Rental
Parts & Service
Finances, Leases & Other

33 %
7 %
13 %
9 %
36 %
2 %

STORY OF THE YEAR: FINNING (CANADA)

Putting Technology to Work to Better Serve
Customers and Equipment One of the high notes
for Finning (Canada) in 2004 was winning a 10-year
exclusive supplier agreement with Luscar Ltd., the
largest producer of low-sulphur thermal coal in Canada.
The contract – with an annual estimated value of
between $25 and $35 million – is the result of
customer-driven initiatives we’ve been honing for years.

Partnering for Efficiency Wanting to raise its already
substantial operating, safety and environmental
standards, Luscar set out to find a supplier to help it
implement continuous improvement processes for its
fleet of 254 machines. The company was looking for
major efficiency gains through the use of technology.
Luscar found the ideal partner in Finning. Under the

new agreement, we will not only supply Luscar with
Caterpillar equipment and parts, but also deliver fleet
management services and introduce new technologies
to help the company trim operating costs at its six
surface coal mining operations in Alberta.

Helping Customers Reap the Benefits of Proactive
Maintenance Finning’s Global Maintenance System
(GMS) uses digital sensors on board the equipment,
satellite positioning and Internet technology to provide
minute-by-minute updates on equipment location,
running hours, fuel consumption, engine temperature,
and others – in short, a wealth of information to
support a proactive equipment maintenance program.
To oversee and analyze this information flow, Luscar
and Finning have hired a fleet manager who, with the
aid of a team of on-site technicians, can pinpoint
problems quickly – and prevent many from occurring.

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For Luscar, this means minimal equipment down time
and optimal productivity. The ultimate goal is to lower
the operating cost to production ratio and reduce the
overall lifecycle costs of the equipment – all of which
translates into big savings for the customer.

Using a sophisticated range of technologies lets us keep
our finger on the pulse of operations, both at the
office and at the mine site. Real-time management of
the incoming data enables us to help all our mining
sector customers manage their assets more effectively –
and, in the end, potentially save the customer millions
of dollars.

Seeing It Through Twenty years ago, we had a dozen
models of Caterpillar equipment to sell, and a handful
of customers. Today, we sell more than 300 products
and serve hundreds of customers in many major
industries. We monitor more than 700 machines in
our territory using GMS technology. And we have
specialized employees who are knowledgeable about
our customers’ business and their challenges.

Through our customer-driven strategy and customer
relationship management system, we now have a
“touch point” for every customer – from large global
oil companies to construction companies and forestry
operations. These customer relationships together
with our service capability, even more than our quality
Caterpillar products and technological edge, is what
sets us apart from the competition.

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A CAT EXCAVATOR AT WORK ON THE SANTIAGO SUBWAY SYSTEM.

FINNING
SOUTH AMERICA

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Brian Bell
President, Finning South America

“2004 was a very successful year. We
responded effectively to a huge rise in demand
related to the strong up-turn in the mining
industry, and increased our market share
significantly in all our territories. To support

customer demand, we hired almost 1,000 new employees,
700 of whom were mechanics. We worked very hard to
improve the work climate and were rewarded with a new
4-year labour agreement in Chile. 2004 was a year to
build market share, and secure the long-term customer
support contracts that go with the sale of new equipment.
We experienced growth at a dizzying pace – growth that is
setting the foundation for strong returns in the future.”

CARLOS JAYME, SUPERVISOR AT THE COMPONENT REBUILD CENTRE,
ANTOFAGASTA, CHILE. THE COMPONENT REBUILD CENTRE WAS UPGRADED
IN 2004 AT A COST OF $6.5 MILLION.

450

400

350

300

250

200

150

100

412

176

156

181

125

FINSA NEW EQUIPMENT SALES
($ MILLIONS)

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STORY OF THE YEAR: FINNING SOUTH AMERICA

Meeting Clients’ Needs – A Tall Order in the Andes
Thanks to rising copper and gold prices, mining is
booming in South America – and Finning South
America reaped considerable benefits in 2004 from
their partnerships and alliances with the world-class
mining companies in the region.

A Reputation for Solving Challenging Problems
South America accounts for a substantial portion of
today’s global mining output. However, the sheer
scale – not to mention the remoteness and climatic
conditions at many of the mine locations – pose
tremendous challenges. Take, for example, the
Veladero Mine – Barrick Gold’s project in Argentina.
This mine lies seven hours by road from the city of
San Juan, high in the Andes where cold temperatures
and high wind speeds are experienced regularly.

Critical to mining projects like Veladero, especially in a
booming market, is maximizing output by operating the
best equipment available – Caterpillar equipment. For
the same reason, these mines use the most advanced
mine management technology and skills.

At Veladero, we keep the mining operations running
by supplying Caterpillar equipment and applying best
practices developed over a decade’s experience
operating under similar conditions in the region.

Optimizing Production and Keeping Running Costs
in Check The success that we and Barrick have had
at Veladero – and that we’ve had at other mines in
South America – was hard earned. Not only did we
have to supply the right equipment, we had to meet the

customers’ exacting demands for world class service
and support of that equipment. Setting up the service
capability at Veladero required 120 new heavy-
equipment mechanics and support staff with Caterpillar
experience. Tailor made training programs were
developed, which included guidance on how to live at
high altitude, a comprehensive safety program and an
update on environmental regulations, in addition to the
required technical skills. Our training program turns out
top-rate mechanics who are technically skilled and
committed to customer service. Our Finning ProService
program ensures that we constantly upgrade our
mechanics’ skills throughout their career.

Seeing It Through A highly skilled equipment
maintenance department is critical for Barrick and our
other mining customers. Mines operate 24 hours a
day, 7 days a week, 365 days a year. Production time
lost due to equipment down time significantly impacts
the mine’s performance. In many cases, Finning is
the mine’s equipment maintenance department; our
mechanics provide round-the-clock coverage at many
mine sites in the region.

To have that capability in place means we must plan
ahead. For example, we have already begun recruiting,
training and relocating people in anticipation of
several new maintenance and repair contracts, which
we expect to start in 2005. Planners, mining engineers,
mechanics – all these people need to be in place
ahead of time. We also plan for equipment and parts
needs, pre-ordering from Caterpillar so delivery can
be made when it’s needed.

Our best results are obtained when we work closely
with customers to meet their productivity targets and
operational needs. Veladero is a great example of this
teamwork with customers.

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CATERPILLAR ENGINES POWER
WATER TAXIS ON THE RIVER THAMES.

FINNING UK

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Neil Dickinson
Managing Director, Finning (UK)

“The U.K. is a sophisticated market with a modern,
well-developed economy. To succeed, we need
to be cost competitive with an attractive value
proposition providing creative solutions for our
customers. Using service as a key differentiator
in 2004, we worked closely with Caterpillar to implement the
new DBSi system that touches major dealer operations including
customer relationship management. We also integrated the
Lex Harvey acquisition, making us one of the top players in
the materials handling industry. In addition in 2004, following
extensive customer research, we re-focussed our organization
to “move closer to our customers”. Finning (UK) is now well
positioned to capitalize on the opportunities arising from the
increased government infrastructure spending program.”

MIKE WAREING, OPERATOR/DRIVER – LIVERPOOL, U.K. MIKE WORKS AT
THE PORT OF LIVERPOOL FILLING CUSTOMERS’ LIFT TRUCKS WITH FUEL.

1,200

1,000

800

600

400

200

1,044

934

828

804

682

REVENUE FROM FINNING (UK)
($ MILLIONS)

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STORY OF THE YEAR: FINNING (UK)

Integrating Operations to Deliver Unique Centralized
Service When Finning (UK) Ltd. acquired the materials
handling business of Lex Harvey last year, we
became one of the leading players in the materials
handling industry.

Reinventing Ourselves The task of reinventing Finning
Materials Handling took place over the course of
2004. We centralized our operations and doubled our
workshop facility to 63 dedicated bays. We increased
our field service work force four-fold. And we
expanded our National Centre in Cannock from
80,000 to 140,000 square feet. More than 200
support staff are now based there, working in the
areas of parts, service, warranty and administration.
We also invested in a new integrated business system

that facilitates delivery of a full range of services to
meet each customer’s needs – from rental to sales to
field service.

Bringing Real Benefits to Customers Our new
centralized and tightly integrated support systems have
been a large boost for our customers, enabling us to
work both with major national, multi-branch businesses
and smaller operations. With our expanded workshop
facility, we have more than doubled our capacity, and

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are now in a position to meet tight deadlines anywhere
in the country. To satisfy the growing demand for
casual equipment rental, we have increased our short-
term rental fleet to over 3,000 high-quality machines.
We handle up to 500,000 calls per annum at our
service centre – and with a network of more than
600 mobile service engineers throughout the U.K., we
know that for almost any postal code in the country
we can dispatch a service engineer to a customer’s
site within four hours. Tripling the size of our support
staff and setting them up to work in teams has further
strengthened our ability to provide seamless, reliable
service to customers everywhere.

Seeing It Through Creating a single, expanded
materials handling business has significantly
bolstered our customer service support offering –
and we’re confident this will translate into greater
gains in market share.

It’s already started. The Mersey Docks and Harbour
Company recently awarded us a long-term supply and
service contract at the Port of Liverpool. Under this
new six-year agreement with Britain’s second largest
port group, we have permanently located a team
of 12 employees at Seaforth Terminal to provide
24-hour, onsite fleet service support for approximately
30 pieces of equipment. The Seaforth container
operation is considered to be among the most efficient
in the U.K. With Liverpool’s cargo traffic at an all-time
high, Seaforth Terminal required a materials handling
company able to guarantee maximum levels of fleet
up-time. By putting a dedicated Finning team on site
around the clock, we can give that assurance.

Our goal now is to implement this centralized support
model in other parts of our operations.

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A CAT TELEHANDLER OPERATES AT THE WEMBLEY
STADIUM CONSTRUCTION SITE IN LONDON.

HEWDEN

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Nick Lloyd
Managing Director, Finning Group, UK

“In 2004, we launched our new vision, “One
Hewden – moving closer to the customer.”
Carrying out the vision is a huge undertaking,
but by year-end we built momentum across our
organization in becoming a more customer

focused, marketing-driven business. It was also a year of
significant investment – over $190 million in rental assets.
These initiatives have helped us guarantee service levels and
also secure significant new contracts. Rental is the fastest
growing segment in U.K.’s equipment industry. As Europe’s
largest equipment rental business, we’re confident we will
continue to lead the industry in the years ahead.”

GREG TODD, APPRENTICE TECHNICIAN AT THE HEWDEN DEPOT IN
EDINBURGH, SCOTLAND. GREG’S TRAINING PROGRAM WILL QUALIFY
HIM TO SERVICE HEWDEN’S RENTAL FLEET.

80,000

75,000

70,000

65,000

60,000

UK CONSTRUCTION MARKET – TOTAL OUTPUT*
(£ MILLIONS AT 2000 PRICES)

*Source: Department of Trade & Industry

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STORY OF THE YEAR: HEWDEN

Strengthening Our Position with “One Hewden”
A desire to put the company in easier reach of its
customers inspired the start of a major reorganization
of Hewden’s business in 2004. This strategy – “One
Hewden – delivering total rental solutions to the
customer who builds, maintains and repairs the
infrastructure of the United Kingdom” was how we
summed up our vision of providing greater value to
our customers through a better-integrated, more
consistent service offering.

Why the change? Hewden has 3,724 staff and more
than 360 locations. It was becoming clear that we
needed to simplify our organizational structure to
stay competitive and to serve our customers better.
In our business, availability and reliability of equipment
are essential, as is proactive contact. Special project

teams set out to review all aspects of the business,
with a view to move closer to our customers’
expectations of service.

Streamlined Product Offerings and One Distribution
Channel In just eight months, we made significant
advances in shifting to a truly customer-focussed
organization. We introduced customer portfolios for the
first time. We developed smarter processes for data
collection, analysis and mapping. In December we
combined the Plant and Tool rental businesses – a
restructuring that lets us fully meet the needs of
customers with multiple sites, as well as continuing
to provide quality service to those who only require
local services.

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Connecting with Customers We introduced several
changes intended to take a proactive approach to
customer contact and management. Innovations in
customer communications included Customer
Connect, a telephony system linking every Hewden
location to allow seamless transfer of customer calls
throughout the organization, a new customer service
audit program to raise customer service levels
nationwide, and new customer brochures and sales
literature to create a greater understanding of our
company and its services.

As well, we invested more than $190 million in rental
assets, guaranteeing customers greater product and
service availability, reliability and choice – plus the
highest equipment safety standards in the industry.

Seeing It Through The initiatives launched under the
“One Hewden” banner have helped secure significant
new contracts with large construction companies such
as Multiplex and Mace. Multiplex is responsible for
overall project design and construction on Wembley
Stadium, while Mace’s projects include Heathrow’s
Terminal Five and the new world headquarters for the
Royal Bank of Scotland.

Like us, Mace and Multiplex provide their customers
with solutions, not just products or services. To
assist Mace on the fast-tracked Royal Bank of
Scotland project, we set up an on-site operation to
give their 1,100 subcontractors quick and efficient
access to equipment and maintenance services.
Delivering essential solutions at source is estimated
to have increased the productivity of their workforce
by about 30% – allowing Mace to meet its deadlines
and remain competitive.

Our goal is to deliver these improved solutions to
all our customers.

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A FINNING MECHANIC CHECKS AN AIR
FILTER ON A GENERATOR UNIT FROM THE
RENTAL FLEET IN SANTIAGO.

POWER SYSTEMS

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Steve Mallett
President, Power Systems

“Power Systems’ remarkable growth has been
fuelled by strong commodity prices, high activity
in the oil and gas sector, a recovering economy
in Western Canada, and a global trend to electric
power generation and “green energy.” A key

growth area for Finning and Caterpillar, Power Systems will
leverage our diverse brand offering and identify opportunities
in a variety of applications. We will strengthen our rental
operations, increase our product support focus, and apply our
multi-brand approach through different distribution channels.
We have the expertise to broaden our market segments –
and to reach our revenue goal of $1 billion by 2008.”

LEN DAVIES, CHARGEHAND – DIESEL ELECTRICAL DEPARTMENT, POWER
SYSTEMS BRANCH IN RICHMOND, BRITISH COLUMBIA. LEN SUPERVISES
TESTING OF NEW INSTALLATIONS AND EQUIPMENT AND PERFORMS
FIELD SERVICE TROUBLESHOOTING AND REPAIRS.

POWER SYSTEMS REVENUE
GEOGRAPHIC BREAKDOWN

Canada
UK
South America

48 %
33 %
19 %

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STORY OF THE YEAR: POWER SYSTEMS

Solving Problems – Wherever they Occur In January
2004, the Thorensen & Co. Shipping Company called
us from Thailand with an urgent request for a
generator. One of its ocean-going container ships,
the Thor Neptune, was running out of power. Two of
the three generator sets that power the vessel had
gone down, and it was unable to sail into the port of
Valparaiso, Chile. The company wanted a fast, cost-
efficient solution.

A Job with Unusual Challenges We quickly mobilized,
contacting Thorensen’s agency in Chile. The same day,
Power Systems employees boarded the vessel and
despite language barriers, came up with a technical

solution and a proposal to meet the customer’s
needs. We prepared, dispatched and installed two
generator sets in a record eight days – an amazing
feat considering the vessel was still at sea and
the necessary equipment had to be transported by
tugboat and transferred on board.

To get the job done, the Power Systems team worked
four shifts 24 hours a day. Numerous obstacles had to
be overcome. A hundred metres of power cable had to
be purchased locally, a logistics plan needed to be
coordinated (involving hiring a towboat and moving

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equipment from our facilities, 120 kilometres away),
installation away from dockside had to be managed,
and test runs had to be conducted.

On day 8, the Thor Neptune, with new generators
working, control systems back to normal, and a
5,000-hour maintenance contract proceeded on its
way. This wasn’t a simple power generator sale: it
was a complete solution.

This is just one example of how Power Systems
approaches customer needs. Our slogan is “powering
a better future for our customers.” Any company can
supply a product, but only a few can deliver a customer
solution. That’s a commitment we stand behind.

Seeing It Through By taking advantage of the
multiple brands that are available from Caterpillar,
including the Perkins line that was used in the Thor
Neptune, we now have access to new markets and
an opportunity to achieve greater market penetration.
Carrying a range of engines under several brand
names allows us to serve the needs of more
customers. Key to our expansion success are the
skilled people we have throughout our organization –
those who can meet our customers’ needs, from
repairing marine engines and installing electric power
generators to powering large installations.

Being a Caterpillar dealer gives us a strong platform
on which to build expertise in many different areas.
Our goal now is to continue growing the Power
Systems business, to extend our reach to other parts
of the world – on land and at sea.

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FI NANCIAL MANAG E M E NT

A conversation with Wayne Bingham,
Executive Vice President and Chief Financial Officer:
Key questions about managing growth

“Finning’s success can be attributed
to our balanced growth strategy,
which combines organic growth
with measured growth through
acquisition, and our ongoing focus
on improving productivity. Finning
today is financially stronger, more
flexible, and with a more transparent
balance sheet.”

Revenue growth has been
impressive, but bottom line growth
is flat. Why?

Corporate governance and financial
controls are high profile topics
currently. What is Finning doing to
maintain investor confidence?

Finning is recognized as one of the
best-governed companies in Canada –
even before introduction of the new
Canadian securities regulations. In
adopting these new requirements, we’ve
welcomed the opportunity to further
improve our processes and systems to
give our share-holders comfort that they
can trust our corporate governance and
internal control procedures.

With the support of our team worldwide,
we are well on track to meet all the
requirements of the new regulations.
We remain committed to building on
our reputation as a leader in corporate
governance practices.

Business has been very strong in Canada
and South America, but in racing to meet
the increasing demands of our customers,
we’ve incurred one-time setup costs to
support the new business. As well, our
UK dealership and Hewden have both
faced market challenges.

Also, foreign currency exposure, higher
pension costs, and expenditures incurred
to comply with new regulatory requirements
have reduced earnings by a cumulative
$0.55 per share over the past two years.

To address the cost issues, we’ve
undertaken the “$60 million by 2006”
program to reduce costs and to allow
us to translate more of our substantial
revenue growth into earnings growth.
At Hewden we are implementing a
new business model and technology
upgrades to improve customer service
and cost efficiency.

Wayne M. Bingham

E X E C U T I V E V I C E P R E S I D E N T
& C H I E F F I N A N C I A L O F F I C E R

You completed a significant
equity issue in 2004. What did
that achieve for you?

Current business conditions are
very good. How is Finning going to
grow in the future?

How are you managing risk?

The $305 million we raised with that
equity issue enabled us to redeem a
non-controlling interest associated with
our acquisition of Hewden. Also, it helped
strengthen our financial position and
support our credit rating. We’ve grown the
company considerably in the recent past
and much of this growth had been
funded with debt. Adding new equity to
support the debt has improved our
financial flexibility and enhanced our
ability to grow the company. We now
have a more simplified, transparent
balance sheet.

We tackle risk management across
several fronts. In 2004, we implemented
an enterprise risk management system
through which we actively review and
manage a wide range of business risks.
The risk management system takes into
account the fact that our business is
diversified: by geography, by industry
type, and by business line (equipment
sales, parts, service and rental).

By actively reviewing the risks that
impact our business we are able to
take early action to manage these risks
as appropriate.

Two of our main markets, Western
Canada and South America, are richly
endowed with natural resources that will
remain in high demand globally for years
to come. New projects and project
expansions in these regions will fuel
continued growth. Currently, our sales are
heavily skewed to new equipment sales.
In a year or two, the business mix will
shift more to parts and service – areas
with a higher degree of profitability. Our
UK operations will also provide earnings
growth opportunities through efficiencies,
changes to the business model and
market share increases. Providing parts
and repair service over the life of
equipment, plus investing in component
re-manufacturing facilities, enhancing our
rental operations, and expanding our
Power Systems business will keep us on
track for future growth.

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Management’s Discussion and Analysis
Management’s Report to the Shareholders
Auditors’ Report
Consolidated Financial Statements
Ten-Year Financial Summary
Directors, Officers and Committees
Corporate Governance
Shareholder Information

42
61
61
62
88
90
92
93

financial report

MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion and analysis of Finning International Inc. (Finning or the Company) should be read in conjunction with the
consolidated financial statements and accompanying notes. The results reported herein have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP) and are presented in Canadian dollars unless otherwise stated.

Results of Operations

FOURTH QUARTER OVERVIEW

REVENUE BY OPERATION ($ MILLIONS) 3 months ended December 31

REVENUE BY LINE OF BUSINESS ($ MILLIONS) 3 months ended December 31

CANADA

SOUTH AMERICA

HEWDEN

2004

2003

456

378

244

221

210

188

165

146

100

200

300

400

500

NEW EQUIPMENT

POWER & ENERGY

USED EQUIPMENT

EQUIPMENT RENTAL

CSS*

OTHER

2004

2003

118

332

264

246

211

308

278

100

150

200

250

300

350

*Customer Support Services

The Company achieved record quarterly revenues driven by higher new equipment sales, customer support services and
equipment rental. Consolidated revenues increased 15.2% to $1,075.2 million, earnings before interest and taxes (EBIT)
increased 11.4% to $60.7 million and consolidated net income decreased by 28.5% to $20.1 million. Basic Earnings Per
Share (EPS) for the quarter was $0.23 compared with $0.36 in the same period last year.

Revenue increased in all operations, year-over-year, but is primarily due to the strong performance of the Company’s South
American and Canadian operations as a result of strong equipment and service related spending by our customers that benefit
from high commodity prices. This increase is offset by higher costs in the fourth quarter of 2004 to meet increased customer
service demand and higher costs relating to information systems, pensions, long-term incentive plans, refinancing costs and the
negative impact of a stronger Canadian dollar to the US dollar.

Excluding items that do not reflect the Company’s ongoing operations, Normalized EBIT for the quarter was $60.9 million
(2003: $61.0 million). Normalized Net Income was $34.5 million (2003: $32.7 million) and Normalized Basic EPS was $0.42,
comparable to the fourth quarter of 2003. Please refer to Schedule 1 for a summary of normalized items and a reconciliation of
normalized (non-GAAP) results to published results.

During the fourth quarter, the Canadian dollar was stronger against the US dollar and relatively unchanged against the U.K.
pound sterling compared to the same period last year. As a result, foreign exchange negatively impacted earnings by $0.06 per
share. Also, in the fourth quarter, the Company experienced higher expenses for long-term incentive plans of $4.5 million after
tax, or $0.06 per share. The long-term incentive costs are primarily related to providing shareholder value by achieving the
common share price hurdles for vesting, which are established under long-term incentive plans.

Cash utilized after changes in working capital for the fourth quarter of 2004 was $2.4 million, compared with positive cash flow
of $91.8 million for the same quarter last year. This reflects a higher investment in inventories in the fourth quarter of 2004 to
meet current sales demand and managing the longer lead times required for delivery of product. The Company made a net
investment of $17.6 million in revenue earning assets this quarter compared to $48.0 million for the comparable period last year.

ANNUAL OVERVIEW

Finning achieved record consolidated revenues in 2004 and exceeded its goal of 15% annual revenue growth. Revenues
increased 15.8% to $4,161.9 million from the 2003 level and were higher in all operations, year-over-year, most notably in the
Company’s South American operations. The revenue results also included a full year of contribution from the Lex Harvey
business which was acquired by Finning (UK) during 2003. EBIT increased 4.1% to $265.7 million and consolidated net
income decreased 13.0% to $114.9 million. Basic EPS was $1.45 compared with $1.71 in the same period last year. This
decrease is primarily due to higher net expenses incurred in 2004 that management regards as not reflective of the ongoing
operations of the Company.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Adjusting for those items not reflective of the Company’s ongoing operations as outlined in Schedule 1, Normalized EBIT was
$279.4 million, compared to $259.5 million in 2003. Normalized Net Income was $138.1 million (2003: $135.0 million) and
Normalized Basic EPS was unchanged from 2003 at $1.75. While the revenue growth rate did not translate to the bottom line,
Normalized EBIT was higher than the prior year. This increase occurred notwithstanding expenditures in 2004 relating to a
higher operating cost structure as the Company positions itself to deliver service for large maintenance contracts announced
during the year in South America, higher information system expenses in the U.K., and higher pension and long-term incentive
plan (LTIP) costs. Higher LTIP costs of $0.13 per share (2003: $0.09 per share) are the result of a 16.6% increase in the
Company’s share price, year-over-year.

Higher finance costs relating to higher average borrowing levels offset the increased Normalized EBIT so that Normalized
Basic EPS was unchanged year-over-year. The higher borrowing levels reflect increased investments in working capital and a
full year of financing for the June 2003 Lex Harvey acquisition.

The further strengthening of the Canadian dollar relative to the United States dollar negatively impacted Normalized Basic EPS
by $0.18 per share compared to the prior year. Finning’s business is geographically diversified and the Company conducts
business in multiple currencies, the most significant of which are the US dollar, the Canadian dollar, the U.K. pound sterling and
the Chilean peso. The most significant foreign exchange impact on the Company’s net income is the translation of foreign
currency based earnings into Canadian dollars. Compared to the prior year, the Canadian dollar strengthened against the US
dollar while it weakened against all the other currencies in which the Company transacts its business. As a result, EBIT and net
income decreased by $17.8 million and $14.4 million, respectively.

Cash flow after changes in working capital was $243.6 million, which is $140.6 million lower than the same period last year.
This decrease reflects the following items:
• Higher investment in inventories in all operations to meet the increased demand for sales and service as well as to address

delivery lead times. This was partially offset by higher supplier payables at the end of 2004.

• Higher customer accounts receivable reflecting higher sales activity in December compared to the previous year.

The Company increased spending in revenue-earning assets by 39.4% with a net investment of $364.6 million in 2004 (2003:
$261.6 million). This reflects an increased investment in the Company’s CAT Rental Stores, increased activity in rent-to-
purchase customer agreements, and investing in operational rental fleets to maintain the Company’s competitive position. In
2004, the Company continued with its strategy to sell its lease portfolio to Caterpillar Financial Services (2004: $93.0 million
compared to 2003: $63.6 million) and by the end of 2004 had divested virtually all of its lease portfolio. As a result of these
activities, $121.0 million of cash was used in operating activities in 2004 compared to $122.7 million generated from operating
activities in 2003.

In November 2004, the Company issued 10 million common shares for proceeds, net of underwriting fees, of $292.8 million,
which were used to fund a portion of the cost of refinancing the $425 million non-controlling partnership interests.

The table below sets forth summary financial data for the years indicated.

($ M I LLI O N S)

Revenue
Gross profit
Selling, general & administrative expenses
Normalized EBIT
Other expenses
EBIT
Finance costs and interest on other indebtedness
Provision for income taxes
Non-controlling interests
Net income

2004

4,161.9
1,243.7
964.3
279.4
13.7
265.7
118.1
17.6
15.1
114.9

2003

3,593.3
1,037.6
778.1
259.5
4.3
255.2
76.9
26.6
19.7
132.0

(% O F R EVE N U E)

2004

2003

29.9%
23.2%
6.7%
0.3%
6.4%
2.8%
0.4%
0.4%
2.8%

28.9%
21.7%
7.2%
0.1%
7.1%
2.1%
0.7%
0.6%
3.7%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

REVENUES

REVENUE BY OPERATION ($ MILLIONS) 12 months ended December 31

REVENUE BY LINE OF BUSINESS ($ MILLIONS) 12 months ended December 31

CANADA

SOUTH AMERICA

HEWDEN

2004

2003

1,563

1,456

1,043

934

870

562

686

641

200

400

600

800

1,000

1,200

1,400

1,600

NEW EQUIPMENT

POWER & ENERGY

USED EQUIPMENT

EQUIPMENT RENTAL

CSS*

OTHER

2004

2003

274
262

391

364

1,218

966

1,010

821

1,237

1,110

200

400

600

800

1,000

1,200

1,400

*Customer Support Services

Revenues in 2004 increased 15.8% to $4,161.9 million. Most of the increase was contributed by the Company’s South
American and UK operations and reflects the impact of stronger commodity prices, higher rental revenues in the U.K. with an
additional 5 months contribution from the Lex Harvey business acquired in 2003, and a weaker Canadian dollar relative to
the U.K. pound sterling.

Finning’s order book continued to build, reaching a record level of $835 million at December 2004, up from the December
2003 level of $420 million. Order book, or backlog, represents the retail value of equipment units ordered by customers for
future deliveries and is a measure used by Company management to forecast future revenues. The Company is dependent on
Caterpillar for the timely supply of equipment and parts to fulfill these deliveries. Caterpillar has announced that certain of its
models are under managed distribution, which would increase the time necessary to deliver these products when ordered. The
Company is working closely with Caterpillar and our customers to ensure we can meet demand for new product. In addition, the
Company is committed to utilize its asset pool of rental and used equipment in order to meet customer demand in the event
of a shortage in supply.

From a line of business perspective, revenue mix shifted slightly towards new equipment sales in 2004 as a result of large
deliveries in South America. It also shifted towards equipment rentals, reflecting the expansion of the Company’s rental
business. All components of revenue increased except for operating leases which reflect the 2003 and 2004 sales of
substantially all of the lease portfolio assets to Caterpillar Financial Services Limited.

The table below provides details of revenue by operations and lines of business.

($ M I LLI O N S)
For the year ended December 31, 2004

New mobile equipment
New power & energy systems
Used equipment
Equipment rental
Operating leases
Customer support services
Finance and other
Total
Revenue percentage by operations

For the year ended December 31, 2003

New mobile equipment
New power & energy systems
Used equipment
Equipment rental
Operating leases
Customer support services
Finance and other
Total
Revenue percentage by operations

Canada

510.9
113.3
194.9
148.6
25.3
564.1
5.5
1,562.6
37.5%

Canada

494.9
101.8
177.4
116.1
65.4
497.1
3.6
1,456.3
40.5%

340.7
105.5
128.6
221.7
—
247.0
—
1,043.5
25.1%

318.2
118.1
115.9
137.4
—
244.6
—
934.2
26.0%

South
America

357.6
54.7
36.2
38.6
—
381.6
1.2
869.9
20.9%

South
America

138.5
42.5
26.7
25.8
0.5
327.1
0.9
562.0
15.6%

Hewden

Consolidated

Revenue %

9.2
—
31.5
600.9
—
44.3
—
685.9
16.5%

1,218.4
273.5
391.2
1,009.8
25.3
1,237.0
6.7
4,161.9
100.0%

29.3%
6.6%
9.4%
24.3%
0.6%
29.7%
0.1%
100.0%

Hewden

Consolidated

Revenue %

14.4
—
43.6
542.0
—
40.8
—
640.8
17.9%

966.0
262.4
363.6
821.3
65.9
1,109.6
4.5
3,593.3
100.0%

26.9%
7.3%
10.1%
22.9%
1.8%
30.9%
0.1%
100.0%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Canada
The Canadian operating segment primarily reflects the results of the Company’s operating division, Finning (Canada). Also
included in this operating segment is Finning International’s interest in OEM Remanufacturing Company Inc. (OEM). OEM will
be fully operational in a new component rebuild facility in Edmonton, Alberta, in the first half of 2005 and will provide
component rebuild services to Finning (Canada) as well as other companies.

Record revenues were achieved by the Company’s Canadian operations in 2004. Revenues increased 7.3% over the 2003
levels to $1,562.6 million mainly due to higher customer support services, equipment rentals, used equipment and new mobile
equipment revenues, partially offset by lower leasing revenues. Continued strong performance from customer support services
produced an improvement in revenues of 13.5%.

The increase in revenue occurred despite an increase in the value of the Canadian dollar relative to the United States dollar,
year-over-year, which negatively impacted revenue by approximately $56 million. Revenues were enhanced by deliveries of
power systems units to power generation projects. In addition, rental revenues increased year-over-year as a result of higher
rental activity and more CAT Rental Store business in 2004. There were 25 CAT Rental Stores servicing Western Canada by
the end of 2003 and throughout 2004. 2004 has benefited from the 13 locations that were added during 2003 and their
contribution for a full year adds an incremental $16.7 million to 2004 rental revenues.

Revenue for 2003 reflected significant mining equipment package deliveries that were not repeated in 2004. Finning
(Canada)’s new equipment order backlog at December 31, 2004 includes a significant number of mining trucks of all sizes,
as well as a large number of mining support equipment orders. This backlog would indicate that 2005 may be one of the
strongest years in history for mining equipment deliveries in Canada. Backlog is strong and reflects increased activity in the
mining, construction, forestry and petroleum sectors. A stronger construction and petroleum market in 2004 and the sale
of lease contracts to Caterpillar Financial Services Limited (CFSL) has more than offset the absence of large truck deliveries
in 2004. In 2004, equipment revenues included $106.3 million of lease contracts sold to CFSL (2003: $74.3 million). As a
result of these sales that occurred throughout 2004, the Canadian lease fleet was reduced from $97.2 million at December
2003 to only $2.8 million at December 2004. This has resulted in $40.1 million lower lease revenues in 2004 when
compared to 2003 and lease revenues are expected to be minimal for 2005.

United Kingdom
Revenues in 2004 increased 11.7% to $1,043.5 million for the Company’s UK operations. In local currency, revenues rose by
6.8%. The materials handling rental business, which includes the Lex Harvey business acquired in June 2003, contributed most
of the revenue improvement while revenue from both power systems and customer support services was lower than in 2003.
New power and energy systems revenue was down 10.7% from the prior year reflecting the significant power systems sales
made in 2003 to the electric power generation diesel sector that did not recur in 2004. New equipment revenues increased in
2004 compared to the prior year primarily due to a higher volume of sales to the construction sector. Quarrying activity in 2004
was weaker than 2003 as major quarrying customers have been deferring their capital purchases. Revenues in the U.K. were
also impacted by government infrastructure projects which, although temporarily delayed, are expected to provide significant
opportunities in the future.

In the second quarter of 2004, the Company was granted the distribution rights for Perkins Engines, a leading manufacturer of
diesel engines, for mainland U.K. Finning took over responsibility for Perkins' distribution business effective December 2004.
Revenue contribution for the month of December was $1.4 million.

New equipment order backlog closed the year at a record high dollar value. Backlog units for quarrying and government sectors
contributed to the increase over last year.

The U.K. market continues to be competitive, and together with Caterpillar, the Company has a number of initiatives underway
to increase profitability and market share.

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South America
Revenues in 2004 from South America increased 54.8% to $869.9 million, driven by the continued strength in commodity
prices, higher activity in customer support services with large mining customers and strong construction activity in Argentina.
In local currency, revenues increased 65.3%. South America experienced growth in all core lines of business and particularly
in new equipment, which more than doubled the revenues achieved in 2003. Significant revenue improvement was also
experienced in customer support services (CSS) as general activity increased and the Company continued to be successful in
its bids for long-term maintenance contracts for mining equipment. Approximately 47% of CSS revenue is currently generated
by maintenance and repair contracts. Power and energy systems revenues also improved in the year with the strength of the
mining sector. The 2003 acquisitions of the Caterpillar dealerships in Argentina, Uruguay and Bolivia contributed $235.7 million
to revenues in 2004 (2003: $142.0 million).

New equipment order backlog continues at very strong levels and is comparable to the record levels set in the previous two
quarters and has surpassed December 2003 year-end levels.

In 2004, South America operations now contributed 20.9% of the total consolidated revenue of the Company, up from 15.6%
one year ago.

Hewden
Hewden revenues increased 7.0% to $685.9 million in 2004 compared with 2003. In local currency, revenues increased 2.7%.
Although competitive constraints in the U.K. rental hire market and overcapacity continue to apply downward pressure on rental
pricing, rental revenues are higher reflecting increased volumes, an improvement in rental utilization and a slight improvement in
margins from the prior year. This trend has positively impacted revenues for the past three quarters. To further improve revenues
and operational results, Hewden has initiated several inter-related projects to improve financial performance and become more
efficient in meeting the needs of a core customer base, with a streamlined product offering and a more strategically structured
distribution channel.

GROSS PROFIT

Gross profit of $1,243.7 million in 2004 was 19.9% higher than 2003. As a percentage of revenue, consolidated gross profit
in 2004 improved to 29.9% from 28.9% in 2003. Factors affecting the net improvement in gross profit for the year are
detailed below:
• In Canada, gross profits increased 10.5%. Improvements were achieved in customer support services margins, equipment

rental and new equipment sales related to higher volumes. Gross profit as a percentage of revenue also increased as a result
of a slight revenue mix shift and higher margins achieved on equipment in 2004, as the prior year had more large mining
equipment sales at lower margins.

• In the UK operation, gross profits increased 20.4% reflecting rental volume increase as a result of acquiring the Lex Harvey

business mid-2003 and stronger margins from used equipment.

• In South America, gross profits increased 49.8% reflecting increased demand for the Company’s products and services,
driven by robust commodity prices and strength in the economic activity of the countries in which Finning South America
operates, primarily mining and construction sectors. Gross margin as a percentage of revenue declined slightly in 2004 due
to the higher proportion of lower margined equipment sales.

• In Hewden, price competitiveness in the U.K. rental market continued in 2004. However, rental gross margin as a percentage

of sales increased by 2.2% compared to the prior year with volumes and equipment utilization showing positive increases
year-over-year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses increased $186.2 million to $964.3 million in 2004 compared to the prior
year. As a percentage of revenue, these expenses were 23.2% in 2004 compared to 21.7% in 2003. This percentage increase
is partially due to the Company’s strategic focus and efforts to meet customer demands by growing the customer support
services and rental businesses, which attract a higher level of SG&A. The customer support services cost base increased in
2004 to support new customer contracts for repair and maintenance of equipment. In South America, to support the revenue
growth, headcount increased by over 800 people most of which were for direct revenue generating positions. The productivity
of these new recruits is improving as they complete their training programs.

Selling costs were higher in 2004 by $102.8 million, to support the incremental sales volumes experienced in the year and related
manpower requirements. Selling expenses as a percentage of revenue increased from 13.5% in 2003 to 14.1% for 2004.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

General and administrative expenses increased by $83.4 million over 2003. Some of the significant items contributing to this
increase were:

• Increased headcount costs as mentioned above.
• Higher pension costs in Canada and the U.K. of $10.3 million.
• Higher business information systems costs incurred in the UK operations of $13.4 million.
• Long-term incentive plan (LTIP) costs and stock option expenses were higher by $4.1 million compared to 2003. LTIP costs

are directly related to providing shareholder value by achieving a higher share price which results in a higher degree of vesting
as well as valuing vested awards at a higher share price.

The Company is committed to improving its cost structure and implemented a formalized a program in 2004 to reduce
annualized costs by $60 million by 2006. Management has already identified a number of significant opportunities to reduce
costs, including projects already underway at Hewden and Finning (UK), the disposition of non-core assets, various 6-Sigma
projects in Canada and South America and certain initiatives to achieve company-wide efficiencies.

Hewden has initiated 3 major inter-related projects that are designed to improve the financial performance of its rental
operation. The goal is to simplify its organizational structure, with streamlined product offerings and a single distribution channel
to the customer. To achieve these goals, Hewden intends to:
• Target a core customer base, with more focus on professional contractors and less on general consumers;
• Narrow its product offerings to align with the needs of its target customers, which will reduce the total investment in inventory

and working capital; and

• Organize its rental operations into a regional “hub and spoke” system, where strategic locations will act as a hub for a defined
sales area, carrying the full line of products and services, and smaller surrounding stores will carry a more limited inventory.

The Company believes that these initiatives will increase equipment utilization and reduce logistics costs. In conjunction with
these sales and distribution initiatives, Hewden has embarked on a strategy to integrate all of its operating divisions into a
single organizational structure, supported by common business processes and a single information system. The supply chain
will be centralized in order to attain better vendor pricing and procurement terms. The implementation of a new information
system will support the hub and spoke model, and provide the platform for more efficient business processes. Management
expects substantial cost savings from the integration of its back office activities, consolidated supply chain activities, more
efficient business processes and improved management information. The costs of these projects will be incurred over a two
to three-year period and will partially be offset by the sale of surplus depots and non-core assets.

Finning (UK) has also initiated programs, some jointly with Caterpillar, which will focus on process efficiency improvements as
well as the rationalization of non-core assets.

Changes have recently been made to the senior management teams in the United Kingdom designed to ensure strong
leadership for the two businesses as key projects and programs are underway. The new management team will focus on
maximizing synergies between the two organizations and leverage the benefits of shared customer information across all
lines of business.

In Canada and South America, senior management is leading several initiatives to improve business processes and generate
maximum efficiency within the operations using the 6-Sigma approach. The Company continues to investigate opportunities
for maximizing shared services within each of its operations, as well as on a global basis.

OTHER EXPENSES

Other expenses are shown separately on the income statement to allow an easier comparison of the performance of the
Company’s ongoing operations to the corresponding period in the prior year and are excluded from the calculation of
normalized results. As a result of these items, the Company recorded a pre-tax expense of $13.7 million in 2004, compared to
a pre-tax expense of $4.3 million for the corresponding period in 2003. See Schedule 1 for a complete listing of these items.

The major pre-tax items were:

In 2004:
• In June, the Company settled proceedings against Hewden Tower Cranes Limited, a subsidiary of the Company, with Yarm

Road Limited and Cleveland Bridge U.K. Limited totalling £5.2 million ($12.8 million). The settlement was for damages arising
from the collapse of a tower crane at the Canary Wharf site in the U.K. on May 21, 2000, prior to the Company acquiring the
business. The impact of the settlement, net of previous accruals, was a pre-tax charge of $7.9 million.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

• Restructuring and project costs incurred in Canada, UK and Hewden operations of $16.0 million which included the following

significant costs:
• In the UK operation, downsizing of specialized services and a restructuring of their component rebuild centre resulted in a

redundancy charge of $1.0 million in the second quarter.

• Costs of $6.1 million were incurred on the 3 key projects at Hewden mentioned previously. These initiatives will address

the increasingly sophisticated expectations of Hewden’s customers and include a complete review of the information
technology systems supporting Hewden’s entire business as well as integrating functions into a single back office and
management structure.

• Finning (Canada) re-organized its operations to improve its customer service focus to take advantage of growth

opportunities and reduce its cost base. This restructuring involved the re-alignment of various customer-facing positions
and streamlining of other functions. As a result, a restructuring charge was taken of $3.7 million for redundancy charges.
Annualized savings from this re-organization are estimated at $2.5 million. Finning (Canada) also recorded a further
restructuring charge of $2.2 million mainly to cover redundancy costs as a result of outsourcing its component rebuild
service work to OEM.

• Gain on sale of surplus properties in Canada and the UK in 2004 of $6.8 million (2003: $1.8 million).
• Recognition of the unamortized portion of the deferred gain from the sale of the Canadian Materials Handling business in

2001. In the first quarter of 2004, Finning assessed that the risk associated with receiving payments from the purchaser had
been substantially reduced and as such, the Company recognized the remaining portion of the deferred gain (2004: $3.8
million; 2003: $1.6 million).

In 2003:
• Costs incurred on the DBSi process re-engineering project of $22.1 million. DBSi was the new process and systems

technology from Caterpillar and enhancements include customer relationship management, finance and administration, and
supply chain management. The DBSi project was initiated in 2002, and implementation was completed in the Company’s UK
operation in January 2004. Ongoing post-implementation costs in 2004 were reported as part of regular general and
administrative costs.

• The sale of the UK power rental business to Energyst Rental Solutions (SM) for a pre-tax gain of $13.8 million recorded in

the first quarter of 2003.

EARNINGS BEFORE INTEREST AND TAXES (EBIT)

EBIT increased by 4.1% to $265.7 million in 2004 with record EBIT levels achieved in Canada and South America. The
increase in gross profit of $206.1 million in 2004 was primarily offset by an increase in SG&A costs of $186.2 million. The
increased SG&A expense reflects higher pension and information system costs and increased headcount to meet business
growth and customer service demand. EBIT was also reduced as a result of the strengthening Canadian dollar relative to the
United States dollar. The foreign exchange variance is mainly due to translating foreign currency based earnings into Canadian
dollars. Most of the foreign exchange impact reflected in 2004 EBIT was due to a 7.1% stronger Canadian dollar relative to
the United States dollar year-over-year. This was partially offset by the impact of a 4.2% weaker Canadian dollar relative to the
U.K. pound sterling, year-over-year. EBIT as a percentage of revenue decreased from 7.1% in 2003 to 6.4% in 2004.

NORMALIZED EBIT BY OPERATION* ($ MILLIONS) 12 months ended December 31

CANADA

SOUTH AMERICA

HEWDEN

2004

2003

132

120

100

120

140

*see Schedule 1: Description of Non-GAAP Measures

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Major components of the annual EBIT variance were:

($ M I LLI O N S)

2003 annual EBIT

Net growth in operations
Long-term incentive plan costs
Pension expense
Foreign exchange impact
Increased UK information systems implementation and running costs
Net change in normalizing items (see note 3 to the Consolidated Financial Statements)

2004 annual EBIT

The table below illustrates annual EBIT contribution by operations:

255.2
65.5
(4.1)
(10.3)
(17.8)
(13.4)
(9.4)
265.7

2004

Revenue from external sources
Operating costs
Depreciation and amortization
Other expenses (income)
Earnings before interest and tax
EBIT as percentage of revenue
EBIT percentage by operations

2003

Revenue from external sources
Operating costs
Depreciation and amortization
Other expenses (income)
Earnings before interest and tax
EBIT as percentage of revenue
EBIT percentage by operations

Canada

1,562.6
1,318.5
112.5
—
131.6
8.4%
49.5%

Canada

1,456.3
1,210.5
125.3
—
120.5
8.3%
47.2%

1,043.5
923.4
85.9
—
34.2
3.3%
12.9%

934.2
820.9
65.7
—
47.6
5.1%
18.7%

South
America

869.9
764.0
22.9
—
83.0
9.5%
31.2%

South
America

562.0
480.0
22.1
—
59.9
10.7%
23.5%

Hewden

Other

Consolidated

685.9
482.6
144.8
—
58.5
8.5%
22.0%

Hewden

640.8
446.9
141.8
—
52.1
8.1%
20.4%

—
27.9
—
13.7
(41.6)
—
(15.6)%

4,161.9
3,516.4
366.1
13.7
265.7
6.4%
100.0%

Other

Consolidated

—
20.6
—
4.3
(24.9)
—
(9.8)%

3,593.3
2,978.9
354.9
4.3
255.2
7.1%
100.0%

FINANCE COSTS AND INTEREST ON OTHER INDEBTEDNESS

Finance costs and interest on other indebtedness for the year ended December 31, 2004 of $118.1 million was 53.6% higher
than last year. The increase in 2004 is primarily due to the following:
• Higher finance costs associated with the redemption of the non-controlling partnership interests relating to the Company’s

investment in Hewden. The Company incurred a $14.2 million refinancing charge to unwind a hedging arrangement
associated with the non-controlling partnership interests. The Company also expensed $8.1 million of related unamortized
deferred financing costs. These costs form part of normalizing items in Schedule 1 and are not considered reflective of
ongoing operating finance costs.

• Higher short-term borrowing levels in most operations in 2004 to fund the higher investment in working capital and rental assets.
• Foreign exchange impact of translating sterling denominated interest in 2004 with a U.K. pound sterling relative to the

Canadian dollar.

• Higher average borrowing levels, year-over-year, due to a full year of financing for the June 2003 acquisition of the Lex Harvey

business in the U.K.

The increase was partially offset by lower interest rates achieved on the refinancing of two MTN maturities in 2004.

PROVISION FOR INCOME TAXES

The 2004 annual income tax expense was $17.6 million (13.3% effective tax rate) compared with $26.6 million (16.8%
effective tax rate) for 2003, primarily as a result of a higher proportion of earnings generated in jurisdictions with lower tax
rates as well as adjustments for favourable tax assessments realized in 2004 relating to previous years. Adjusting for the tax on
items not considered reflective of the Company’s ongoing operations, the effective tax rates, after adjusting for non-controlling
interests, would be 18.2% for 2004 compared with 17.1% for 2003. Management anticipates that for 2005, the consolidated
effective tax rate will approximate 20%.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

NON-CONTROLLING INTERESTS

The Company formed a partnership in 2001 for the purpose of raising capital to fund the acquisition of Hewden. Private
investors invested $425 million into the partnership in return for non-controlling partnership interests. The financial position,
results of operations and cash flows of the partnership have been consolidated with the results of the Company from its date
of inception. On November 24, 2004, Finning redeemed the non-controlling partnership interests held by the private investors
for $425 million. Management believes that the removal of the third party interests in Hewden will allow full flexibility in
implementing various initiatives designed to unlock the full value of its businesses in the U.K. and to enhance the Company’s
ability to grow its business. The refinancing of the non-controlling interests was funded principally through a common equity
offering in November of 2004, which raised proceeds, net of underwriting fees, of $292.8 million, and short-term borrowings
on the Company’s bank credit facilities. In December 2004, the Company repaid these short-term bank borrowings by issuing
a 7-year, $150 million unsecured Medium Term Note.

The distribution to the non-controlling partnership interests in 2004 (up to November 24, 2004, the date of redemption) was
$15.1 million, representing a yield of 4.0% compared to $19.7 million and a yield of 4.6% in 2003.

NET INCOME

Net income declined by $17.1 million to $114.9 million in 2004 and basic earnings per share decreased to $1.45 in 2004
compared to $1.71 in the prior year primarily due to incurring net costs that are not considered reflective of the Company’s
ongoing operations, such as refinancing costs related to the redemption of the non-controlling interests, restructuring costs and
settlement of a legal claim. On a normalized basis, net income was $138.1 million (2003: $135.0 million) and Normalized Basic
EPS was $1.75, comparable to 2003.

Accounting Estimates and Contingencies

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
and disclosure of contingent assets and liabilities. The more significant estimates include: fair market values for goodwill
impairment tests, reserves for warranty, provisions for income tax, and costs associated with maintenance and repair contracts.

During the year, the Company performs an assessment of goodwill by estimating the fair value of operations to which the
goodwill relates using the expected present value of future discounted cash flows, which resulted in no impairment in 2004.
The Company performs impairment tests on its goodwill balances on an annual basis or as warranted by events or
circumstances. A significant portion of recorded goodwill relates to Hewden Stuart plc, acquired in 2001.

Due to the size, complexity and nature of the Company’s operations, various legal matters are pending. In the opinion of
management, none of these matters will not have a material effect on the Company’s consolidated financial position or results
of operations.

In June 2004, Hewden Tower Cranes Limited settled its legal claim with Yarm Road Limited and Cleveland Bridge U.K. Limited.
A claim of £16.6 million plus costs and interest was brought against Hewden Tower Cranes Limited, a subsidiary of the
Company, by Yarm Road Limited and Cleveland Bridge U.K. Limited, for damages arising from the collapse of a tower crane at
the Canary Wharf site in the U.K. on May 21, 2000. The accident occurred prior to the acquisition of Hewden Tower Cranes
Limited by the Company. The business of Hewden Tower Cranes Limited was sold by the Company in October 2002. The final
settlement amount for this claim totalled £4.9 million in full and final settlement of any claims, counter claims, cross claims or
contra charges including interest and costs and incorporating an earlier adjudication award of £1.5 million in January 2004.
In addition, Hewden was responsible for the costs of the adjudication, trial and independent legal advice of approximately £0.3
million. An amount of £3.2 million ($7.9 million) pre-tax, net of previous accruals, was charged to the income statement as
“other expenses” in the second quarter of 2004.

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 expenditures; and
• external financing, including bank credit facilities, commercial paper and other capital market activities, providing both short

and long-term financing.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

CASH FLOW AFTER WORKING CAPITAL CHANGES
($ MILLIONS)

243.6

384.2

100

150

200

250

300

350

400

2004

2003

CASH FLOW FROM OPERATING ACTIVITIES

For the year ended December 31, 2004 cash after working capital changes of $243.6 million was $140.6 million lower than
2003. In the twelve months ended December 31, 2004, $261.3 million more cash was invested in inventories to meet current
sales demand and managing the longer lead time required for delivery of product. Accounts receivable also increased with
stronger December activity in 2004 with cash collection to follow in 2005. Net cash invested in rental assets was a record
$441.4 million and was $128.5 million higher than the investment in 2003. The increased investment was required to support
the Company’s expanded rental business in both rental fleet and rental purchase options for customers. During 2004, the
Company also sold $92.9 million of leased equipment, the majority of its remaining lease fleet, to Caterpillar Financial Services
Limited (2003: $64.2 million) as the Company exited this line of business. Overall, in 2004, cash used in operations amounted
to $121.0 million compared to cash flow from operations in 2003 of $122.7 million.

CASH USED FOR INVESTING ACTIVITIES

Net cash invested in 2004 totalled $73.0 million compared to $314.3 million in 2003. Gross capital additions in 2004 was
$106.2 million (2003: $89.7 million), of which approximately $32.4 million has been invested in Edmonton for the new
component rebuild facility being built by OEM which will be completed in the first half of 2005. The balance in 2003 includes
an investment of $284.8 million for the acquisitions of Lex Harvey and the Caterpillar dealerships in Argentina, Bolivia and
Uruguay partially offset by proceeds of $34.1 million from the sale of the U.K. power rental business.

The Company’s planned capital expenditures for 2005 are projected to be in the range of $125 to $150 million and will be
funded through operations. Gross rental additions for 2005 are projected to be in the $375 to $425 million range.

FINANCING ACTIVITIES

To complement the internally generated funds from operating and investing activities, the Company has approximately
$1.1 billion in unsecured short-term credit facilities. At the year-end, approximately $472 million was drawn against these
short-term credit 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). DBRS rates the Company’s senior debentures and medium term
notes as BBB (high) and S&P rates the Company’s long-term debt at BBB+ stable.

As at December 31, 2004, the Company’s short and long-term borrowings totalled $1,367.9 million, an increase of $279.6
million compared to December 31, 2003 levels. The increase in debt is attributable to the refinancing of the non-controlling
partnership interests and an increased investment in working capital due to a decision made by the Company to increase
inventory levels to meet current sales demand and manage the longer lead times required for delivery of product. During 2004,
the Company repaid its $75 million 8.35% debenture and its $150 million 7.75% medium term note (MTN), both of which
matured, with short-term borrowings on its bank credit facilities.

In December 2004, Finning issued a 7-year, $150 million unsecured MTN. The MTN has a coupon interest rate of 4.64% per
annum, payable semi-annually commencing June 14, 2005. The MTN was priced at 99.97% of its principal amount to yield
4.645% per annum. Proceeds were used to repay existing bank indebtedness.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

In November 2004, the Company issued 10 million common shares at a price of $30.50 per common share for total gross
proceeds of $305 million. The proceeds, net of underwriting fees, of $292.8 million were used to fund a portion of the cost
of refinancing the $425 million non-controlling partnership interests in Hewden. Share capital increased from $248.9 million
at December 31, 2003 to $557.7 million at the end of 2004, reflecting the common share issuance and the exercise of stock
options of approximately 1.0 million common shares for $13.1 million.

Under a normal course issuer bid, which began on December 8, 2003, the Company was allowed to buy back a maximum of
approximately 7.8 million shares (10% of the Company’s public float) up to December 7, 2004. The Company launched this issuer
bid earlier in 2004, as it believed that the market price of its common shares at that time did not reflect the underlying value of
the Company. Finning repurchased approximately 0.3 million common shares during 2004 as part of the normal course issuer bid.
These shares were repurchased at an average price of $29.15 for an aggregate cost of $9.6 million, which was allocated to
reduce share capital by $1.1 million and retained earnings by $8.5 million. Finning repurchased approximately 1.3 million common
shares during 2003 under the previous year’s normal course issuer bid, at an average price of $24.51 for an aggregate cost of
$32.8 million. The normal course issuer bid has now expired and management has not instituted a new normal course issuer bid.

In May 2003, Finning issued a 10-year, unsecured £200 million Eurobond. The Eurobond bears interest at a rate of 5.625%
per annum, payable annually on May 30 of each year until maturity. The Eurobond was priced at 99.043% of its principal
amount to yield 5.753% per annum. The Eurobond proceeds of $449.5 million at the date of issuance were utilized to finance
the acquisition of Lex Harvey as well as repaying existing bank indebtedness.

As a result of management’s confidence in the future earnings for the Company and its ongoing commitment to the return of value
to its shareholders, the Company increased its quarterly dividend in February 2004, by one cent to ten cents per common share
and in February 2005, by one cent to eleven cents per common share.

CONTRACTUAL OBLIGATIONS

Principal payments on contractual obligations in each of the next five years and thereafter are as follows:

($ M I LLI O N S)

2005

2006

2007

2008

2009

Thereafter

Total

Long-term debt
Operating leases
Total contractual obligations

6,460
64,749
$ 71,209

$ 78,383
56,569
$ 134,952

-
46,689
$ 46,689

$ 200,000
39,219
$ 239,219

-
33,205
$ 33,205

$ 611,240
203,606
$ 814,846

$ 896,083
444,037
$1,340,120

OFF-BALANCE SHEET ARRANGEMENT

Under an agreement dated November 29, 2002, the Company sold a $30 million co-ownership interest in a pool of eligible
non-interest bearing trade receivables to a multi-seller securitization trust. In September 2004, an additional $15 million
was sold under the same agreement to bring the total to $45 million. Under the terms of this agreement, which expires on
November 29, 2007, the Company can sell co-ownership interests of up to $120 million on a revolving basis. The Company
retains a subordinated interest in the cash flows arising from the eligible receivables underlying the trust’s co-ownership interest.
The trust and its investors do not have recourse to the Company’s other assets in the event that obligors fail to pay the underlying
receivables when due. Pursuant to the agreement, the Company continues to service the pool of underlying receivables.

In each of the years ended December 31, 2004 and 2003, the Company recognized a pre-tax loss of $0.9 million relating to
these transfers. The Company estimates the fair value of its retained interest and computes the loss on sale using a discounted
cash flow model. The key assumptions underlying this model are:

December 31, 2004

Range for year ended 2004

Cost of funds
Weighted average life in days
Average credit loss ratio
Average dilution ratio
Servicing fee rate
Fair value of retained interest

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2.83%

0.0086%
7.09%
2.0%

$9.7 million

2.32% – 3.02%
30.14 – 40.54
(0.0058%) – 0.0933%
5.46% – 8.08%

MANAGEMENT’S DISCUSSION AND ANALYSIS

The impact of an immediate 10 percent and 20 percent adverse change in the average dilution ratio on the current fair value
of the retained interest would be reductions of approximately $0.4 million and $0.8 million, respectively. The impact of an
immediate 10 percent and 20 percent adverse change in the weighted average life in days on the current fair value of the
retained interest would be reductions of approximately $0.9 million and $1.6 million, respectively. The sensitivity of the current
fair value of the retained interest or residual cash flows to an immediate 10 percent and 20 percent adverse change in each
of the remaining assumptions is not significant.

The table below shows certain cash flows received from and paid to the securitization trust:

For the years ended December 31 ($ M I LLI O N S)

Proceeds from new securitization
Proceeds from revolving reinvestment of collections

EMPLOYEE SHARE PURCHASE PLAN

2004

15.0
354.5

$
$

2003

—
356.1

$
$

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 current market price. The Company pays a
portion of the purchase price to a maximum of 2% of employee earnings. At December 31, 2004, 59% of Canadian
employees were contributing to this plan. The Company has an All Employee Share Purchase Ownership Plan for its employees
in Finning (UK) and Hewden. Under the terms of this plan, employees may contribute up to 10% of their salary to a maximum
of £125.00 per month. The Company will provide one common share, purchased in the open market, for every three the
employee purchases. At December 31, 2004, 23% and 15% of eligible employees in Finning (UK) and Hewden, respectively,
were contributing to this plan. These plans may be cancelled by Finning at any time.

Financial Leverage

The Company’s overall debt to total capital ratio increased from 44% at the end of 2003 to 51% at the end of 2004. This
increase in the overall debt to total capital ratio was primarily due to the refinancing of the non-controlling partnership interests
and the additional debt in 2004 to fund working capital requirements, partially offset by the Company’s continued focus on
improving the efficiency of current operating assets. The debt to total capital ratios were calculated on a fully consolidated
basis including the non-controlling interests as equity in 2003.

Management believes that the redemption of the non-controlling partnership interests will enhance the Company’s ability to
implement organizational changes and efficiencies in its U.K. operations, strengthen the Company’s financial position and
simplify Finning’s capital structure.

Risk Management

Finning and its subsidiaries are exposed to market, financial and operating risks in the normal course of their business activities.
The Company has adopted an Enterprise Risk Management approach in identifying and evaluating risks. This risk management
approach assists in managing business activities and risks associated with those activities.

The Company is dedicated to a strong risk management culture to protect and enhance shareholder value. The processes
within Finning’s risk management function are designed to ensure that risks are properly identified, reported and managed.

The Company discloses all of its key risks in its most recent Annual Information Form with key financial risks also included in
the Company’s Annual Management’s Discussion and Analysis (MD&A). On a quarterly basis, the Company assesses all of its
key risks and any changes to key financial or business risks are disclosed in the Company’s quarterly MD&A.

Financial Derivatives

The Company uses various financial instruments such as interest rate swaps, forward exchange contracts and options to
manage its foreign exchange and interest rate exposures (see notes 4 and 5 of Notes to the Consolidated Financial
Statements). Derivative financial instruments are always associated with a related underlying risk position and are never used
for trading or speculative purposes.

The Company continually evaluates and manages risks associated with financial derivatives, which includes counterparty
credit exposure. The Company manages its credit exposure through credit approval and oversight and by ensuring there is
no significant concentration of credit risk with a single counterparty, and by dealing only with highly rated financial institutions
as counterparties.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Risks and Uncertainties

INTEREST RATES

The Company’s debt portfolio is comprised of both fixed and floating rate debt instruments, with terms to maturity ranging up
to ten years. In relation to its debt financing, the Company is exposed to potential changes in interest rates, which may cause
the Company’s borrowing costs to fluctuate. Floating rate debt exposes the Company to fluctuations in short-term interest
rates, while fixed rate debt exposes the Company to future interest rate movements upon refinancing the debt at maturity.
Fluctuations in current or future interest rates could result in a material adverse impact on the Company’s financial results, by
causing related finance expense to rise. Further, the fair value of the Company’s fixed rate debt obligations may be negatively
affected by declines in interest rates, thereby exposing the Company to potential losses on early settlements or refinancing.
The Company minimizes its interest rate risk by balancing its portfolio of fixed and floating rate debt, as well as managing the
term to maturity of its debt portfolio. At certain times the Company utilizes derivative instruments such as interest rate swaps
to adjust the balance of fixed and floating rate debt to appropriately determined levels.

CREDIT RISK

The Company has a large diversified customer base, and is not dependent on any single customer or group of customers.
Although there is usually no significant concentration of credit risk related to the Company’s position in trade accounts or notes
receivable, the Company does have a certain degree of credit exposure arising from its foreign exchange and interest rate
derivative contracts. There is a risk that counterparties to these derivative contracts may default on their obligations. However,
the Company minimizes this risk by ensuring there is no excessive concentration of credit risk with any single counterparty, by
active credit management and monitoring, and by dealing only with highly rated financial institutions.

FINANCING ARRANGEMENTS

The Company will require capital to finance its future growth and to refinance its outstanding debt obligations as they come
due for repayment. If the cash generated from the Company’s business, together with the credit available under existing bank
facilities, is not sufficient to fund future capital requirements, the Company will require additional debt or equity financing in the
capital markets. The Company’s ability to access capital markets on terms that are acceptable will be dependent upon
prevailing market conditions, as well as the Company’s future financial condition. Further, the Company’s ability to increase its
debt financing may be limited by its financial covenants or its credit rating objectives. Although the Company does not anticipate
any difficulties in raising funds in the future, there can be no assurance that capital will be available on suitable terms and
conditions, or that borrowing costs and credit ratings won’t be adversely affected. In addition, the Company’s current financing
arrangements contain certain restrictive covenants that may impact the Company’s future operating and financial flexibility.

COMMODITY PRICES

The Company’s sales are affected by fluctuations in commodity prices. In Canada, commodity price movements in the forestry,
metals, coal and petroleum sectors can have an impact on customers’ demands for equipment and customer service. In Chile
and Argentina, 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.

FOREIGN EXCHANGE EXPOSURE

The Company is geographically diversified, with significant investments in several different countries. The Company transacts
business in multiple currencies, the most significant of which are the US dollar, the Canadian dollar, the U.K. pound sterling, the
Chilean peso, and the European euro. As a result, the Company has a certain degree of foreign currency exposure with respect
to items denominated in foreign currencies. The three main types of foreign exchange risk of the Company can be categorized
as follows:

Investment In Foreign Operations
All of the Company’s foreign operations are considered self-sustaining. Accordingly, assets and liabilities are translated into
Canadian dollars using the exchange rates in effect at the balance sheet dates. Any unrealized translation gains and losses are
deferred and included in a separate component of shareholders’ equity. These cumulative currency translation adjustments are
recognized in income when there has been a reduction in the net investment of the foreign operations.

It is the Company’s objective to hedge its net foreign investments to the greatest extent possible. The Company has hedged
a significant portion of its foreign investments through foreign currency denominated loans and other derivative contracts
(forward contracts and cross currency swaps). Any exchange gains or losses arising from the translation of the hedge

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A
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N

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MANAGEMENT’S DISCUSSION AND ANALYSIS

instruments are deferred and accounted for in the cumulative currency translation adjustment account. A 5% hypothetical
strengthening of the Canadian dollar relative to all other currencies from the December 2004 month end rates, assuming the
same current level of hedging instruments, would result in a deferred unrealized loss of approximately $21 million.

Transaction Exposure
Many of the Company’s operations purchase, sell, rent, and lease products throughout the world using different currencies. This
potential mismatch of currencies creates transactional exposure at the operational level, which may affect the Company’s
profitability as exchange rates fluctuate. It may also impact the Company’s competitive position as relative currency movements
affect the business practices and/or pricing strategies of the Company’s competitors.

It is the Company’s objective to minimize the impact of exchange rate movements and volatility in results. Each operation
manages the majority of its transactional exposure through effective sales pricing policies. The Company also enters into
forward exchange and option contracts to manage residual mismatches in foreign currency cash flows. As a result, the foreign
exchange impact on earnings with respect to transactional activity is minimal.

Translation Exposure
The most significant foreign exchange impact on the Company’s net income is the translation of foreign currency based
earnings into Canadian dollars each reporting period. All of the Company’s foreign subsidiaries report their operating results
in currencies other than the Canadian dollar. Therefore, exchange rate movements in the US dollar and U.K. pound sterling
relative to the Canadian dollar will impact the consolidated results of the U.K. and South American operations in Canadian
dollar terms. In addition, the Company’s Canadian results are impacted by the translation of their US dollar based earnings.
The Company hedges some of its earnings translation exposure through foreign currency denominated loans and derivative
contracts associated with the net investment hedges.

Sensitivity to variances in foreign exchange rates
The sensitivity of the Company’s annual net earnings to fluctuations in average annual foreign exchange rates is summarized in
the table below. The table assumes that the Canadian dollar strengthens 5% against the currency noted, for a full year relative
to the December 2004 month end rates, without any change in local currency volumes or hedging activities.

Currency

USD
GBP
EUR
CHP

December 31, 2004 month end rates

($ M I LLI O N S)
Increase (decrease) in annual net income

1.2036
2.3062
1.6292
0.002166

(12)
(3)
3
2

The sensitivities noted above ignore the impact of exchange rate movements on other macroeconomic variables, including
overall levels of demand and relative competitive advantages. If it were possible to quantify these impacts, the results would
likely be different from the sensitivities shown above.

Controls and Procedures Certification

The Company is subject to the requirements of Multilateral Instrument 52-109, “Certification of Disclosure in Issuers’ Annual
and Interim Filings” and Multilateral Instrument 52 -111, “Reporting on Internal Control over Financial Reporting”, issued by the
Canadian Securities regulatory authorities. On a quarterly basis, throughout 2004, Finning’s Chief Executive Officer and Chief
Financial Officer have been certifying as to the fair presentation of the Company’s MD&A and financial statements.

The Company will be required to disclose management’s evaluation of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures in 2005 and internal controls in 2006.

The Company has a global project in place and regular reporting on the status of the project is provided to senior management
and the Company’s Audit Committee. The Company believes it has adequate human and financial resources and project
oversight in order to be able to meet the additional certification requirements as required by the regulations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Selected Quarterly Information

($ M I LLI O N S, E XC E PT FO R S HAR E
AN D O PTI O N DATA)

2004

2003

Revenue

Canada
UK
South America
Hewden
Total revenue
Net income

Earnings per

common share
Basic
Diluted
Normalized

456.2
244.4
210.1
164.5
$ 1,075.2
20.1
$

381.5
268.4
256.0
180.0
1,085.9
43.1

363.1
290.7
203.1
175.7
1,032.6
27.8

$
$
$

0.23
0.23
0.42

0.56
0.55
0.56

0.35
0.35
0.40

361.8
240.0
200.7
165.7
968.2
23.9

0.31
0.30
0.37

378.4
220.5
187.7
146.4
933.0
28.1

0.36
0.36
0.42

373.2
242.0
143.6
166.2
925.0
36.6

0.48
0.47
0.51

347.8
242.3
111.7
159.3
861.1
32.2

0.42
0.41
0.46

356.9
229.4
119.0
168.9
874.2
35.1

0.45
0.44
0.36

Total assets

$ 3,804.0

3,683.6

3,744.2

3,555.0

3,440.6

3,204.5

3,168.1

2,902.9

Long-term debt

Current
Non-current

Total long-term debt
Cash dividends paid
per common share

Common shares

outstanding (000’s)
Options outstanding

(000’s)

6.5
889.6
896.1

156.3
738.9
895.2

158.7
767.3
926.0

159.1
765.9
925.0

235.2
748.2
983.4

82.6
882.0
964.6

78.9
886.4
965.3

41.1
516.6
557.7

0.10

0.09

88,390

78,037

77,849

77,937

77,755

77,779

77,394

76,573

2,016

2,359

2,546

2,564

2,746

2,825

3,210

4,093

New Accounting Pronouncements

HEDGING INSTRUMENTS

Effective January 1, 2004, the Company adopted The Canadian Institute of Chartered Accountants (CICA) Accounting
Guideline 13, Hedging Relationships (AcG-13). The guideline specifies the conditions under which hedge accounting is
appropriate, includes requirements for the identification, documentation and designation of hedging relationships, sets
standards for determining hedge effectiveness, and establishes criteria for the discontinuance of hedge accounting. At the time
of AcG-13 implementation, the Company met the criteria for all hedging relationships with the exception of certain interest rate
swaps. AcG-13 did not permit hedge accounting for these derivative instruments and as a result, hedge accounting was
discontinued in 2004 for these derivative instruments in accordance with the guideline. The market values on January 1, 2004
were initially recorded on the balance sheet as a deferred loss, and were being amortized to finance expense over the
remaining life of the derivative contracts. In addition, the derivative contracts were marked-to-market each month during the
year, with changes in market value being recorded in finance expense each period. In December 2004, the Company elected to
terminate these interest rate swaps, for a net settlement loss of $14,514. This loss was comprised of the net cumulative effect
of deferred loss amortization and mark-to-market adjustments up to the date of settlement ($2,170) as well as the write-off of
the remaining deferred loss balance at the settlement date ($12,344). The settlement loss was recorded as a charge to finance
expense, of which, $14,364 was recognized in the fourth quarter. As at December 31, 2004, there are no derivative instruments
outstanding that do not receive hedge accounting.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

ASSET RETIREMENT OBLIGATIONS

Effective January 1, 2004, the Company adopted Section 3110 of the CICA Handbook Asset Retirement Obligations. The
accounting recommendations focus on the recognition and measurement of liabilities for obligations associated with the
retirement of property, plant and equipment when those obligations result from the acquisition, construction, development or
normal operations of the assets. The standard requires the recognition of any statutory, contractual or other legal obligation,
normally when incurred. The obligations are measured initially at fair value and the resulting costs capitalized into the carrying
amount of the related asset. In subsequent periods, the liability is adjusted for the accretion of discount and any changes in
the amount or timing of the underlying future cash flows. The asset retirement cost is amortized to income on a systematic and
rational basis. Adoption of this standard does not have a significant impact on the consolidated financial statements.

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 2004, the Company adopted Section 3063 of the CICA Handbook Impairment of Long-Lived Assets,
which establishes standards for the recognition, measurement and disclosure of the impairment of long-lived assets. Impairment
of long-lived assets held for use is determined in a two-step process, with the first step determining when an impairment arises
and the second step measuring the amount of the impairment. An impairment loss is recognized when the carrying amount of
a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition.
An impairment loss is measured as the amount by which the long-lived asset’s carrying amount exceeds its fair value. To test
for and measure impairment, long-lived assets are grouped at the lowest level for which identifiable cash flows are largely
independent. Adoption of this standard does not have a significant impact on the consolidated financial statements.

VENDOR REBATES

Effective July 1, 2004, the Company adopted CICA Emerging Issues Committee (EIC) 144 Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor. EIC 144 provides guidance on how a customer
(including a reseller) of a vendor’s products should account for cash consideration received from a vendor. Adoption of this
standard does not have a significant impact on the consolidated financial statements.

VARIABLE INTEREST ENTITIES

In June 2003, The Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 15, Consolidation of
Variable Interest Entities (AcG-15). A recent announcement by the CICA deferred the effective dates of AcG-15, which
requires consolidation of certain “variable interest entities” (VIEs) beginning in the first quarter of 2005. A VIE is any type of
legal structure not controlled by voting equity, but rather by contractual or other financial arrangements. The rules are complex
and views on implementation are evolving. The Company has reviewed AcG-15 and does not anticipate that adoption of this
standard will have any impact on the consolidated financial statements.

Market Outlook

Economic conditions in the Company’s markets were very strong in 2004 and we expect those conditions to continue into
2005. Our medium to long-term future prospects are excellent, given the Company’s strong order backlog in most of its
operations and the strength in the key economic indicators that impact the Company’s customers.

Commodity prices for copper, gold, coal and oil and gas are expected to remain strong near current levels into 2005. Strong
commodity prices bode well for our customers resulting in an increase in mining activity and new development. This activity has
resulted in large new equipment sales in Chile, and Argentina and Canada. These equipment sales provide future opportunity
as the Company services the equipment through long-term maintenance contracts a number of years after the original sale.
The increased mining activity and new development experienced by our customers is also reflected in our strong order
book/backlog, which reached record levels yet again at December 31, 2004.

Strong commodity prices will benefit our Canadian operations resulting from the growth in the Alberta oil sands as well as
proposed pipeline projects in Western Canada and the Northwest Territories.

The Company’s results are impacted by the stronger Canadian dollar compared to the U.S. dollar in the translation of foreign
currency earnings. The Company expects that our 2005 results will be negatively impacted as a result of translating foreign
currency based earnings in the first, second and third quarters of 2005 in comparison to 2004 due to the current strength of
the Canadian dollar.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

U.K. economic indicators forecast continued growth in 2005 and the ongoing £180 billion nationwide infrastructure renewal
program in the U.K. is expected to provide significant opportunities in the latter half of 2005 to increase revenue, at both
Finning (UK) and to a lesser extent at Hewden. Many projects associated with this infrastructure program are already underway
and others are scheduled to start in the next few years. Finning (UK) has also undertaken a major marketing initiative with
Caterpillar with a goal of doubling the number of units sold by 2007 and significantly increasing Finning (UK)’s market share.
Together, Finning and Caterpillar are working to increase Finning (UK) profitability.

Although competitive pressures continue to impact the U.K. rental business, Hewden experienced increased volumes and
higher utilization of equipment, year-over-year, in the second, third and fourth quarters of 2004, which the Company believes
bodes well for future improvement in results.

The Company has initiated several inter-related projects at Hewden that are designed to improve the financial performance of
the rental operation. The goal is to simplify the organizational structure, with streamlined product offerings and one distribution
channel to the customer. Costs related to these initiatives will be incurred over the next two to three years and will result in
increased equipment utilization, lower logistics costs and more efficient business processes. Management anticipates certain
one-time costs to implement these initiatives.

Management plans to achieve $60 million in annual cost reductions throughout its business units by the end of 2006 and has
already identified a number of significant opportunities to reduce costs. Projects are already underway at Hewden and Finning
(UK) as noted above, numerous 6 Sigma projects are underway in Canada and South America and there is potential to realize
company-wide efficiencies and dispose of non-core assets.

The current economic environment, commodity pricing and launched and pending cost efficiency initiatives, together, provide a
positive outlook for the Company’s medium to long-term growth opportunities.

F E B R UARY 23, 2005

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Schedule 1

DESCRIPTION OF NON-GAAP MEASURES

To supplement Finning’s consolidated financial statements, the Company uses certain non-GAAP measures that do not have
standardized meanings under Canadian GAAP and are therefore unlikely to be comparable to similar measures used by other
companies. These non-GAAP measures are Normalized Net Income, Normalized Basic EPS and Normalized EBIT. Finning’s
management believes these financial measures are useful to investors because they contain the same meaningful information
that is used by Finning management to assess the financial performance of the Company and its operating segments. To
allow the reader to view financial results in this way, occasional or other significant items that do not reflect the underlying
financial performance of the Company’s ongoing operations have been removed from reported results prepared in accordance
with GAAP.

RECONCILIATION BETWEEN REPORTED EBIT AND NORMALIZED EBIT

($ TH O USAN D S)

Reported EBIT (GAAP measure)
Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs in Canada and the U.K.
Recognition of deferred gain on the 2001 sale of the

Canadian Materials Handling business
(2003 reflects amortization of the gain)

Loss (income) from equity investment
Canary Wharf legal settlement
Costs incurred on DBSi business process reengineering project
Gain on sale of the UK Power Rental business
Normalized EBIT (reflects non-GAAP measure)

RECONCILIATION BETWEEN REPORTED NET INCOME AND EPS
AND NORMALIZED NET INCOME AND EPS

($ TH O USAN D S, E XC E PT E PS DATA)

Basic EPS (GAAP measure)
Reported net income (GAAP measure)
Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs in Canada and the U.K.
Recognition of deferred gain on the 2001 sale of the

Canadian Materials Handling business
(2003 reflects amortization of the gain)

Loss (income) from equity investment
Canary Wharf legal settlement
Costs incurred on DBSi business process reengineering project
Gain on sale of the UK Power Rental business
Recognition of deferred costs on unwind of non-controlling interests
Unwind of interest rate swaps
Market value adjustment:

3 months ended December 31
2003

2004

12 months ended December 31
2003

2004

60,680
(4,365)
4,374

—
231
—
—
—
60,920

54,478
(1,139)
—

$ 265,741
(6,770)
15,989

$ 255,168
(1,791)
—

—
(55)
—
7,691
—
60,975

(3,800)
461
7,863
—
—
$ 279,484

(1,600)
(606)
—
22,104
(13,800)
$ 259,475

3 months ended December 31
2003

2004

12 months ended December 31
2003

2004

$0.23
20,181
(3,337)
2,934

$0.36
28,079
(800)
—

$1.45
$ 114,946
(5,183)
10,812

$1.71
$ 131,951
(1,248)
—

(115)
231
—
—
—
5,264
8,003

—
(55)
—
5,447
—
—
—

(3,115)
461
5,504
—
—
5,264
8,003

(1,288)
(606)
—
15,352
(9,168)
—
—

interest rate swaps not eligible for hedge accounting
Normalized Net Income (reflects non-GAAP measure)
Normalized Basic EPS (reflects non-GAAP measure)

1,310
34,471
$0.42

—
32,671
$0.42

1,407
$ 138,099
$1.75

—
$ 134,993
$1.75

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MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED ANNUAL INFORMATION

($ MILLION, EXCEPT FOR SHARE DATA)

Total revenue
Net income
Earnings per common share

basic
diluted
Total assets
Long-term debt (3)

current
non-current

Cash dividends declared per common share

$
$

2004

4,161.9
114.9

$1.45
$1.43
3,804.0

6.5
889.6
896.1
$0.40

$
$

2003 (1)

3,593.3
132.0

$1.71
$1.68
3,440.6

235.2
748.2
983.4
$0.36

$
$

2002 (2)

3,207.5
132.3

$1.72
$1.68
3,162.5

42.3
514.1
556.4
$0.30

(1) During 2003, the Company acquired the Caterpillar dealerships in Argentina, Uruguay and Bolivia and the materials handling

business of Lex Harvey in the U.K.

(2) During 2002, the Company acquired the majority of the remaining rental assets of Maxxiom Limited in the U.K., and acquired

100% of the voting shares of Distribuidora Perkins Chilena SAC (Diperk), in Chile.

(3) During 2003, the Company issued a 10-year, unsecured £200 million Eurobond. The Eurobond bears coupon interest at

5.625% per annum and was priced at 99.043% of its principal amount to yield 5.753% per annum. The Eurobond proceeds
of $449.5 million at the date of issuance were utilized to finance the acquisition of Lex Harvey as well as repaying existing
bank indebtedness. During 2004, the Company issued a 7-year, unsecured $150 million Medium Term Note (MTN). The MTN
bears a coupon interest rate of 4.64% per annum and was priced at 99.97% of its principal amount to yield 4.645% per
annum. Proceeds from the issuance were used to repay existing bank indebtedness.

OUTSTANDING SHARE DATA

Common shares outstanding
Options outstanding

December 31, 2004

88,389,881
2,016,058

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MANAGEMENT’S REPORT TO THE SHAREHOLDERS

The Consolidated Financial Statements and Management’s Discussion and Analysis (MD&A) of the Company have been
prepared by management in accordance with Canadian generally accepted accounting principles and necessarily include some
amounts that are based on management's best estimates and judgement of all information available.

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 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 Canadian 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 and MD&A 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.

W.M. Bingham
E X E C U T I V E V I C E P R E S I D E N T & C H I E F F I N A N C I A L O F F I C E R
F E B R UA RY 2 3 , 2 0 0 5 VA N C O U V E R , B C , CA N A DA

AUDITORS’ REPORT

To the Shareholders of Finning International Inc.:

We have audited the consolidated balance sheets of Finning International Inc. (a Canadian corporation) as at December 31, 2004
and 2003 and the consolidated statements of income, retained earnings and cash flow for each of the years in the two year
period ended December 31, 2004. 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 audit.

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, 2004 and 2003, and the results of its operations and its cash flow for each of the years in the
two year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

Deloitte & Touche LLP, Chartered Accountants
F E B R UA RY 2 3 , 2 0 0 5 VA N C O U V E R , B C , CA N A DA

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A
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N

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N

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F

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

For the years ended December 31 ($ TH O USAN D S E XC E PT P E R S HAR E AM O U NTS)

2004

2003

$ 1,218,432
273,456
391,239
1,009,760
25,264
1,237,046
6,710
4,161,907
2,918,160
1,243,747
964,263
13,743
265,741
118,100
147,641
17,546
15,149
$ 114,946

$ 966,042
262,352
363,549
821,315
65,925
1,109,571
4,541
3,593,295
2,555,682
1,037,613
778,138
4,307
255,168
76,868
178,300
26,648
19,701
$ 131,951

$ 775,113
114,946
(31,181)
(8,557)
$ 850,321

$ 699,741
131,951
(27,816)
(28,763)
$ 775,113

$
$

1.45
1.43

$
$

1.71
1.68

79,018,683

77,326,253

Revenue

New mobile equipment
New power and energy systems
Used equipment
Equipment rental
Operating leases
Customer support services
Finance and other
Total revenue

Cost of sales
Gross profit
Selling, general and administrative expenses
Other expenses (Note 3)
Earnings before interest, taxes and non-controlling interests
Finance costs and interest on other indebtedness (Notes 4 and 5)
Income before provision for income taxes and non-controlling interests
Provision for income taxes (Note 2)
Non-controlling interests (Note 6)
Net income

Retained earnings, beginning of year
Net income
Dividends on common shares
Premium on repurchase of common shares (Note 7)
Retained earnings, end of year

Earnings per share (Note 8)

Basic
Diluted

Weighted average number of shares outstanding

AP P R OVE D BY TH E D I R ECTO R S:

D.W.G. Whitehead, Director

C.A. Pinette, Director

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED BALANCE SHEETS

As at December 31 ($ TH O USAN D S)

2004

2003

ASSETS
Current Assets

Cash and short-term investments
Accounts receivable
Inventories

On-hand equipment
Parts and supplies
Other assets (Note 13)
Income taxes recoverable
Future income taxes (Note 2)
Current portion of instalment notes receivable

Total current assets

Finance Assets

Instalment notes receivable
Equipment leased to customers (Note 9)

Total finance assets

Rental equipment (Note 10)
Land, buildings and equipment (Note 11)
Future income taxes (Note 2)
Goodwill (Note 12)
Intangible assets (Note 12)
Other assets (Note 13)

LIABILITIES
Current Liabilities

Short-term debt (Note 4)
Accounts payable and accruals
Income tax payable
Future income taxes (Note 2)
Current portion of long-term debt (Note 4)

Total current liabilities

Long-term debt (Note 4)
Future income taxes (Note 2)

Total liabilities

Commitments and Contingencies (Notes 21 and 22)

NON-CONTROLLING INTERESTS (Note 6)

SHAREHOLDERS’ EQUITY

Share capital (Note 7)
Retained earnings
Contributed surplus
Cumulative currency translation adjustments (Note 15)

Total shareholders’ equity

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

15,843
578,350

66,385
481,397

641,366
346,490
115,295
12,435
24,820
24,355
1,758,954

12,879
3,357
16,236

1,163,976
330,430
31,091
386,257
12,042
105,025
$ 3,804,011

$ 471,811
1,027,667
4,354
2,773
6,460
1,513,065

889,623
75,118
2,477,806

438,715
270,984
98,379
11,968
35,133
25,944
1,428,905

7,145
97,925
105,070

1,046,130
287,778
39,344
393,109
9,692
130,550
$ 3,440,578

$ 104,910
848,888
20,852
5,711
235,243
1,215,604

748,181
93,212
2,056,997

—

425,000

557,740
850,321
878
(82,734)
1,326,205
$ 3,804,011

248,939
775,113
—
(65,471)
958,581
$ 3,440,578

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

CONSOLIDATED STATEMENTS OF CASH FLOW

For the years ended December 31 ($ TH O USAN D S)

2004

2003

OPERATING ACTIVITIES

Net income
Add

Depreciation and amortization
Future income taxes
Stock option expense
Other items
Non-controlling interests distribution

Changes in working capital items
Accounts receivable and other
Inventories – on-hand equipment
Inventories – parts and supplies
Instalment notes receivable
Accounts payable and accruals
Income taxes

Cash provided after changes in working capital items

Rental equipment, net of disposals
Equipment leased to customers, net of disposals

Cash flow (used) provided by operating activities

INVESTING ACTIVITIES

Net cash invested in land, buildings and equipment
Proceeds from UK power rental business sale
Acquisitions (Note 16)

Cash used by investing activities

FINANCING ACTIVITIES

Increase (decrease) in short-term debt
Repayment of long-term debt
Securitization of accounts receivable (Note 18)
Medium term note issue (Note 4)
Eurobond issue (Note 4)
Non-controlling interests distribution
Common shares issued (Note 7)
Issue of common shares on exercise of stock options (Note 7)
Redemption of non-controlling interests
Repurchase of common shares
Dividends paid

Cash provided by financing activities
Currency translation adjustments
(Decrease) increase in cash and short-term investments
Cash and short-term investments, beginning of year
Cash and short-term investments, end of year
Cash flows include the following elements:

Interest paid
Income taxes paid

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

$ 114,946

$ 131,951

366,087
(2,321)
878
1,150
15,149
495,889

(131,051)
(217,612)
(85,326)
(4,648)
201,812
(15,446)
243,618
(441,352)
76,778
(120,956)

(73,028)
—
—
(73,028)

381,174
(237,282)
15,000
150,000
—
(15,149)
296,769
13,095
(425,000)
(9,620)
(31,181)
137,806
5,636
(50,542)
66,385
15,843

98,736
21,380

$
$

354,959
17,256
—
(17,797)
19,701
506,070

(38,828)
(37,027)
(4,593)
(5,030)
13,612
(49,994)
384,210
(312,881)
51,325
122,654

(63,600)
34,056
(284,805)
(314,349)

(149,700)
(29,843)
—
—
449,520
(19,701)
—
19,538
—
(32,812)
(27,816)
209,186
14,268
31,759
34,626
66,385

59,900
35,297

$
$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003 ($ AN D £ I N TH O USAN D S, E XC E PT FO R E X E R C I S E AN D S HAR E P R I C ES)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting
principles and are presented in Canadian dollars, unless otherwise stated.

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and
disclosure of contingent assets and liabilities. Actual amounts could differ from those estimates. The significant accounting
policies used in these Consolidated Financial Statements are as follows:

(a) Principles of Consolidation
The Consolidated Financial Statements include the accounts of Finning International Inc. (“Finning” or “Company”), which
includes the division of Finning (Canada), and its wholly owned subsidiaries. Principal operating subsidiaries include Finning
(UK) Ltd., Finning Chile S.A., and Hewden Stuart plc (“Hewden”) as well as the Caterpillar dealerships in Argentina, Uruguay
and Bolivia (Note 16).

For interests acquired or disposed of during the year, the results of operations are included in the consolidated statements of
income from, or up to, the date of the transaction, respectively.

(b) Currency Translation
Transactions undertaken in foreign currencies are translated into Canadian dollars at 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.

• Exchange gains and losses are included in income except where the exchange gain or loss arises from the translation of

monetary liabilities designated as hedges, in which case the gain or loss is deferred and accounted for in conjunction with the
hedged asset.

Financial statements of foreign operations, all considered self-sustaining, 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 some of its investments in foreign subsidiaries using derivatives and foreign denominated
borrowings. Exchange gains or losses arising from the translation of the hedge instruments are accounted for in cumulative
currency translation adjustments.

(c) Cash and Short-Term Investments
Short-term investments, consisting of highly rated money market instruments with original maturities of three months or less,
are considered to be cash equivalents and are recorded at cost, which approximates current market value.

(d) Securitization of Trade Receivables
In 2002 and 2004, the Company sold a co-ownership interest in certain present and future accounts receivable in Canada to
a securitization trust. These transactions are accounted for as sales to the extent that the Company is considered to have
surrendered control over the interest in the accounts receivables and receives proceeds from the trust, other than a beneficial
interest in the assets sold. Losses on these transactions are recognized as other expenses and are dependent in part on the
previous carrying amount of the receivable interest transferred, which is allocated between the interest sold and the interest
retained by the Company, based on their relative value at the date of the transfer. The Company determines fair value based on
the present value of future expected cash flows using management’s best estimates of key assumptions such as discount
rates, weighted average life of accounts receivable, dilution rates and credit loss ratios. The Company continues to service the
receivables and recognizes a servicing liability on the date of the transfer, which is amortized to income over the expected life
of the transferred receivable interest.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(e) 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.

(f) Instalment Notes Receivables
Instalment notes receivables are recorded net of unearned finance charges.

(g) 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.

(h) 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.

(i) 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 either a declining balance or straight-line basis
using the following annual rates:

2% - 5%
Buildings
20% - 33%
General equipment
Automotive equipment 20% - 33%

(j) Deferred Costs
Costs incurred for the development of new businesses which benefit future periods are deferred and upon commencement of
operations are amortized on a straight-line basis over the expected period of benefit, or expensed upon abandonment of the project.

Costs related to the issuance of long-term debt are deferred and amortized on a straight-line basis over the term of the
respective debt issues.

Deferred costs are included in long-term other assets on the consolidated balance sheets.

(k) Revenue Recognition
Revenue recognition, with the exception of cash sales, includes obtaining a written arrangement in the form of a contract or
purchase order with the customer. A fixed or determinable sales price is established with the customer whereby ultimate
collection of the revenue is reasonably assured. Revenue is recognized as performance requirements are achieved in
accordance with the following:

Revenue from sales of equipment is recognized at the time of shipment of the product to the customer at which time title to the
equipment and significant risks of ownership passes to the customer;

Revenue from power and energy systems includes construction contracts with customers that involve the design, installation
and assembly of power and energy equipment systems. Revenue is recognized on a percentage of completion basis
proportionate to the work that has been completed which is based on associated costs incurred;

Revenue from equipment rentals and operating leases is recognized in accordance with the terms of the relevant agreement
with the customer, either evenly over the term of that agreement or on a usage basis such as the number of hours that the
equipment is used; and

Revenue from customer support services includes sales of parts and servicing of equipment. For sales of parts, revenue is
recognized when the part is shipped to the customer or when the part is installed in the customer’s equipment. For servicing
of equipment, revenue is recognized as the service work is performed. Customer support services are also offered to customers
in the form of long-term maintenance and repair contracts. For these contracts, revenue is recognized on a percentage of
completion basis proportionate to the service work that has been performed based on the parts and labour service provided.
Parts revenue is recognized based on parts list price and service revenue is recognized based on standard billing labour rates.
At the completion of the contract, any remaining deferred revenue on the contract is recognized as revenue. Any losses
estimated during the term of the contract are recognized when identified. For the materials handling business, revenue from
long-term maintenance and repair contracts is recognized on a straight-line basis over the life of the contract.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(l) Stock-Based Compensation
The Company has stock option plans and other stock-based compensation plans for directors and certain eligible employees.
Stock-based payments to non-employees and direct awards to employees and non-employees are accounted for using a
fair value-based method of accounting. Share appreciation rights (SAR) and similar awards to be settled in cash are
accounted for by measuring the amount by which the quoted market price exceeds the strike price at the balance sheet
date. The fair value-based method of accounting is used to account for all other stock-based transactions with employees,
including stock options.

The Company accounts for SAR by measuring the amount by which the quoted market price exceeds the strike price at the
balance sheet date. Changes in the quoted market value of SAR between the date of the grant and the measurement date
result in a change in the measure of compensation for the award and is amortized over the remaining vesting period.

In accordance with the recommendations of The Canadian Institute of Chartered Accountants (CICA), the Company
adopted the fair value-based method of accounting for stock options in 2003, applied on a prospective basis. The Company
will continue to use the intrinsic value-based method of accounting for stock options granted prior to January 1, 2003.
When options are exercised, the proceeds received by the Company are credited to share capital in the consolidated
balance sheet.

Changes in the Company’s obligations under other stock-based compensation plans, which arise from fluctuations in the market
price of the Company’s common shares underlying these compensation plans, are recorded in selling, general and administrative
expenses in the consolidated statement of income with a corresponding accrual in the consolidated balance sheet.

(m) 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 the Canadian and the U.K. operations. The Company accrues its obligations under
employee benefit plans and the related costs, net of plan assets and has adopted the following policies:

Defined benefit plans: For the purpose of calculating the expected return on plan assets, those assets are valued at market
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.

Past service costs from plan amendments are amortized on a straight-line basis over the expected average remaining service
life of employees active at the date of amendment.

The excess of net actuarial gains or losses over 10% of the greater of the benefit obligation and the market value of the plan
assets is amortized on a straight-line basis over the expected average remaining service life of the active employees covered by
the plans.

On January 1, 2000, the Company adopted the new accounting standard on employee future benefits using the prospective
application method. The Company is amortizing the transitional obligation on a straight-line basis over 13 years in Canada and
Hewden plans and over 14 years in the UK operations’ plan, which was the average remaining service period of employees
expected to receive benefits under the benefit plan as of January 1, 2000.

Defined contribution plans: The cost of pension benefits includes the current service cost based on a fixed percentage of
member earnings for the year.

(n) Goodwill and Other Intangible Assets
Goodwill represents the excess cost of an investment over the fair value of the net assets acquired. Goodwill and intangible
assets with indefinite lives are not amortized and are subject to an annual assessment for impairment primarily by applying
a fair value-based test at the reporting unit level. The fair value is estimated using the expected present value of future
discounted cash flows. The Company also considers projected future operating results, trends and other circumstances in
making such evaluations. An impairment loss would be recognized to the extent the carrying amount of goodwill exceeds the
fair value of goodwill. Separable intangible assets that are not deemed to have an indefinite life are amortized on a straight-line
basis over their useful lives to a maximum period of ten years. The Company did not recognize any impairment to goodwill as
a result of the annual impairment assessment.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(o) Income Taxes
The asset and liability method of tax allocation is used in accounting for income taxes. 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.

(p) Derivatives
The Company utilizes derivative financial instruments in the management of its foreign currency and interest rate exposures.
The Company uses financial instruments such as interest rate swaps, cross-currency swaps, forward exchange contracts and
options as hedges against actual underlying exposures. These instruments are always associated with a related risk position
and are never used for trading or speculative purposes. The Company's policy is to utilize derivative financial instruments for
hedging purposes only.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to
specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company
also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Foreign Exchange
The Company hedges the foreign currency exposure on its net investment in foreign self-sustaining operations by entering into
offsetting forward exchange contracts and cross-currency swap contracts, when it is deemed appropriate. Foreign exchange
translation gains and losses on derivative financial instruments used to hedge foreign net investments are accrued under
current liabilities on the balance sheet and recognized in the cumulative currency translation account, offsetting the respective
translation gains and losses recognized on the underlying foreign net investments. The forward premium or discount on forward
foreign exchange contracts is amortized as an adjustment of interest expense over the term of the forward contract.

The Company also enters into foreign exchange contracts to hedge purchase commitments and accounts payable denominated
in foreign currencies. Foreign exchange translation gains and losses on forward contracts used to hedge purchase
commitments are recognized as an adjustment of the purchase cost when the purchase is recorded. Foreign exchange gains
and losses on forward contracts used to hedge accounts payable are recognized in income in the same manner as the gains
and losses on the underlying hedged accounts payable.
Interest Rates
The Company enters into interest rate swaps to manage the fixed and floating interest rate exposures in its debt portfolio. The
Company designates its interest rate swap agreements as hedges of the underlying debt or cash flows. Interest expense on the
debt is adjusted to include the payments made or received under the interest rate swaps.
Termination of Hedges
Realized and unrealized gains or losses associated with derivative instruments, which have been terminated for hedge
accounting purposes or cease to be effective prior to maturity, are deferred under current liabilities on the balance sheet and
recognized in income in the period in which the underlying hedged transaction is recognized. In the event a designated hedged
item is sold, extinguished or matures prior to the termination of the related derivative instrument, any realized or unrealized gain
or loss on such derivative instrument is recognized in income.

(q) Change in Functional Currency
It is management’s view that the United States dollar best portrays the economic results of all the South American
operations and thereby best achieves the objectives of foreign currency translation. As a result, effective October 1, 2003,
the functional currency of the Chilean operation was changed from the Chilean peso to the United States dollar to reflect
the increased exposure to the US dollar as a result of the growth in international operations. The method used to translate
the results and financial position for items and transactions denominated in non-US currency is described in the notes
above on currency translation. The Company applied the functional currency change for the Chilean operation on a
prospective basis as of the beginning of the fourth quarter of 2003. The net effect of this change in functional currency
for the three months ended December 31, 2003 was to decrease net assets by $18,300 and increase the net income
reported by approximately $3,587.

(r) Comparative Figures
Certain comparative figures have been reclassified to conform to the 2004 presentation.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. INCOME TAXES

Provision for Income Taxes

For years ended December 31

Current income tax expense
Future income tax expense

2004

19,867
(2,321)
17,546

2003

9,392
17,256
26,648

Reconciliation of the Company’s effective income tax rate from statutory Canadian tax rates for the years ended December 31,
2004 and 2003 is as follows:

For years ended December 31

Combined federal and provincial tax rates
Provision for income taxes based on the combined federal and provincial rates
Increase / (decrease) in provision resulting from:

Lower effective rates on the earnings of foreign subsidiaries
Large corporation tax
Income not subject to tax
Other items

Provision for income taxes

2004

35.17%
46,597

(29,023)
1,000
(1,136)
108
17,546

2003

37.10%
58,840

(29,206)
1,741
(433)
(4,294)
26,648

At December 31, 2004, the Company has loss carry-forwards of approximately $25,256 for income tax purposes that expire
through 2014. For financial reporting purposes a deferred tax asset of $8,136 has been recognized in respect of these loss
carry-forwards.

Future Income Tax Asset and Liability

Temporary differences and tax loss carry-forwards that give rise to future income tax assets and liabilities are described below.

December 31

Future income tax assets
Future income tax liabilities:

Capital, rental and leased assets, inventories and reserves
Pensions
Other

Net future income tax liability

Presented on balance sheet as:

Future income tax asset – current
Future income tax asset – non-current
Future income tax liability – current
Future income tax liability – non-current

2004

2003

66,166

75,156

(68,732)
(14,865)
(4,549)
(88,146)
(21,980)

24,820
31,091
(2,773)
(75,118)
(21,980)

(78,713)
(18,104)
(2,785)
(99,602)
(24,446)

35,133
39,344
(5,711)
(93,212)
(24,446)

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. OTHER EXPENSES

Other expenses (income) for the years ended December 31 include the following items:

Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs in Canada and the U.K.
Recognition of deferred gain on the 2001 sale of the

Canadian Materials Handling business (2003 reflects amortization of the gain)

Loss (income) from equity investment
Canary Wharf legal settlement (Note 22)
Costs incurred on DBSi business process reengineering project
Gain on sale of the UK Power Rental business

Tax recovery on net other expenses
Other expenses, net of tax

4. SHORT-TERM AND LONG-TERM DEBT

December 31

Short-term debt:

2004

(6,770)
15,989

(3,800)
461
7,863
—
—
13,743
5,264
8,479

2003

(1,791)
—

(1,600)
(606)
—
22,104
(13,800)
4,307
1,265
3,042

2004

2003

Bank indebtedness, commercial paper and other loans (a)

$ 471,811

$ 104,910

Long-term debt:
Debentures (b)

8.35% due March 22, 2004
6.60% due December 8, 2006

Medium Term Notes (b)

7.75% due November 1, 2004
7.40% due June 19, 2008
4.64% due December 14, 2011

5.625% Eurobond due May 30, 2013 (c)
Other unsecured term loans due 2005 to 2006 (d)

Less current portion of long-term debt
Total long-term debt

—
75,000

75,000
75,000

—
200,000
150,000
461,240
9,843
896,083
6,460
$ 889,623

150,000
200,000
—
461,320
22,104
983,424
235,243
748,181

(a) Bank indebtedness, commercial paper and other loans
The Company has approximately $1.1 billion 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. Included in short-term debt are foreign currency denominated debt of US$157,602 (2003: US$55,190) and
£50,554 (2003: £14,070).

(b) Debentures and Medium Term Notes
The Company's debentures and medium term notes are unsecured, and interest is payable semi-annually with principal due
on maturity.

During 2004, the Company repaid its $75,000 8.35% debentures and its $150,000 7.75% medium term note, both of which
matured, with short-term borrowings on its bank credit facilities.

In December 2004, the Company issued a 7-year, $150,000 unsecured Medium Term Note (MTN). The MTN has a coupon
interest rate of 4.64% per annum, payable semi-annually commencing June 14, 2005. The MTN was priced at 99.97% of
its principal amount to yield 4.645% per annum. Proceeds from the issuance were used to repay existing bank indebtedness.
The MTN will mature on December 14, 2011.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(c) Eurobond
On May 30, 2003 the Company issued a 10-year £200,000 unsecured Eurobond, bearing coupon interest at 5.625% per
annum, payable annually on May 30 of each year until maturity. The Eurobond was priced at 99.043% of its principal amount
to yield 5.753% per annum. Proceeds of $449,520 from the Eurobond at the date of issuance were used to finance the
acquisition of Lex Harvey and also to repay existing bank indebtedness. Unless redeemed early, the Eurobond will mature on
May 30, 2013. The Eurobond is subject to early redemption, in whole, at the option of the Company as described and outlined
in the Eurobond prospectus.

(d) Other unsecured term loans
Other unsecured term loans primarily consist of supplier merchandising programs at a floating rate of interest based on Canadian
dollar bankers’ acceptance yields.

Covenants
The Company is required to meet various covenants with respect to its debt facilities. As at December 31, 2004, the Company
is in compliance with these covenants.

Long-Term Debt Repayments
Principal repayments on long-term debt in each of the next five years and thereafter are as follows:

2005
2006
2007
2008
2009
Thereafter

6,460
78,383
—
200,000
—
611,240
$ 896,083

Finance costs and interest on other indebtedness as shown on the consolidated statement of income is comprised of the
following elements:

Interest on debt securities:

Debentures
Bank indebtedness, commercial paper and other loans
Term facilities

Interest on swap contracts
Mark to market valuation changes on interest rate swaps not eligible for hedge accounting

and the unwind of those interest rate swaps

Amortization of deferred debt costs and other finance related expenses

2004

2003

59,206
15,519
640
75,365
16,283

14,514
11,938
$ 118,100

52,778
8,012
931
61,721
13,074

—
2,073
76,868

Interest expense includes interest on debt incurred for a term greater than one year of $59,846 (2003: $53,832).

In December 2004, the Company unwound its interest rate swaps that did not receive hedge accounting treatment. A settlement
loss of $14,514 was recorded on the unwind transactions.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. FINANCIAL INSTRUMENTS

The Company is subject to various financial risks including interest rate risk and foreign exchange risk. To manage this risk, the
Company uses interest rate swaps, cross-currency swaps, forward exchange contracts and options as hedges against actual
assets, liabilities, firm commitments or forecasted transactions.

The following derivative contracts were in place at December 31, 2004 and 2003:

2004
I NTE R EST R ATE SWAPS

Fixed/Floating Swaps:

Canadian $ pay floating, received fixed

Cross-Currency Interest Rate Swap: (1)

Notional
Value

Term to
Maturity

Total Fair
Value

$ 100,000

3.5 years

3,258

Buy Canadian $ (sell £228,000), pay £ fixed; receive C$ fixed

$ 498,849

perpetual

(18,957)

FO RWAR D FO R E I G N E XC HAN G E C O NTR ACTS

Buy US$ (sell Canadian $)
Sell CLP (buy US$)
Buy Euro (sell £)
Sell £ (buy Canadian $) (2)

2003
I NTE R EST R ATE SWAPS

Fixed/Floating Swaps:

Canadian $ pay fixed; receive floating
Canadian $ pay floating; receive fixed

Cross-Currency Interest Rate Swap: (1)

Notional
Value

Term to
Maturity

US$173,545
322
US$
576
£
95,560
£

1 – 12 months
1 month
10 months
perpetual

Notional
Value

Term to
Maturity

$
22,613
$ 100,000

1 - 4 years
4.5 years

Buy Canadian $ (sell £228,000), pay £ fixed; receive C$ floating

$ 498,849

perpetual

FO RWAR D FO R E I G N E XC HAN G E C O NTR ACTS

Buy US$ (sell Canadian $)
Sell US$ (buy Canadian $)
Sell £ (buy Canadian $) (2)

Notional
Value

Term to
Maturity

US$ 81,269
US$ 29,000
95,560
£

1 - 2 years
1 - 4 months
perpetual

Total Fair
Value

(5,557)
(57)
42
(10,540)

Total Fair
Value

(506)
2,237

(41,272)

Total Fair
Value

(4,500)
983
(8,277)

$
$
$
$

$
$

$
$
$

(1) The perpetual cross-currency interest rate swap contract hedges the Company's net investment in Hewden and a fixed

amount of annual U.K. pound sterling cash flows. At December 31, 2004, $26,965 of the negative fair value, representing
the mark-to-spot rate loss on the forward foreign exchange component of the swap, has been recognized on the balance
sheet in current liabilities and offset to cumulative currency translation adjustments.

(2) The forward foreign exchange contract hedges the Company's net investment in Hewden. At December 31, 2004, $11,037
of the negative fair value, representing the mark-to-spot rate loss on the contract, has been recognized on the balance sheet
in current liabilities and offset to cumulative currency translation adjustments.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Values
The following fair value information is provided solely to comply with financial instrument disclosure requirements. The Company
cautions readers in the interpretation of the impact of these estimated 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 estimated fair values of interest rate swaps and foreign exchange
contracts are reported above. 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.

The fair value of the Company’s long-term debt is estimated as follows:

December 31

Long-term debt

2004

2003

Book Value

Fair Value

Book Value

Fair Value

$ 896,083

$ 919,755

$ 983,424

$ 1,007,579

Effective January 1, 2004, the Company adopted The Canadian Institute of Chartered Accountants (CICA) Accounting
Guideline 13, Hedging Relationships (AcG-13). The guideline specifies the conditions under which hedge accounting is
appropriate, includes requirements for the identification, documentation and designation of hedging relationships, sets
standards for determining hedge effectiveness, and establishes criteria for the discontinuance of hedge accounting. At the time
of AcG-13 implementation, the Company met the criteria for all hedging relationships with the exception of certain interest rate
swaps. AcG-13 did not permit hedge accounting for these derivative instruments and as a result, hedge accounting was
discontinued in 2004 for these derivative instruments in accordance with the guideline. The market values on January 1, 2004
were initially recorded on the balance sheet as a deferred loss, and were being amortized to finance expense over the
remaining life of the derivative contracts. In addition, the derivative contracts were marked-to-market each month during the
year, with changes in market value being recorded in finance expense each period. In December 2004, the Company elected to
terminate these interest rate swaps, for a net settlement loss of $14,514. This loss was comprised of the net cumulative effect
of deferred loss amortization and mark-to-market adjustments up to the date of settlement ($2,170) as well as the write-off of
the remaining deferred loss balance at the settlement date ($12,344). The settlement loss was recorded as a charge to finance
expense, of which, $14,364 was recognized in the fourth quarter. As at December 31, 2004, there are no derivative
instruments outstanding that do not receive hedge accounting.

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 significant
concentration of credit risk related to the Company's position in trade accounts or notes receivables. Credit risk is minimized
because of the diversification of the Company's operations, as well as its large customer base and its geographical dispersion.

The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on
their obligations. However, the credit risk is limited to those contracts where the Company would incur a loss in replacing the
instrument. In order to minimize this risk, the Company enters into derivative transactions only with highly rated financial institutions.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. NON-CONTROLLING INTERESTS

In 2001, the Company formed a partnership with third party private investors to raise capital to fund the acquisition of Hewden.
The private investors injected $425,000 into the partnership in return for non-controlling partnership interests. A subsidiary of
the Company was the general partner in the partnership. The partnership interest was reported as non-controlling interests on
the financial statements and distributions on the partnership interest were accounted for as distributions to non-controlling
interests. The financial position, results of operations and cash flows of the partnership were consolidated with the Company
from its date of inception. On November 24, 2004, Finning redeemed the non-controlling partnership interests held by the
private investors for $425,000. Management believes that the removal of the third party interests in Hewden will allow full
flexibility in implementing the various initiatives designed to unlock the full value of its businesses in the U.K. and enhance the
Company’s ability to grow its business. The financing of the redemption of the non-controlling interests was funded principally
through a common equity offering in November of 2004, which raised proceeds, net of underwriting fees, of $292,800, and
through short-term borrowings on the Company’s bank credit facilities. In December 2004, the Company repaid these short-
term bank borrowings by issuing a 7-year, $150,000 unsecured Medium Term Note.

Through their partnership interest, the private investors had a preferred interest in the shares of Hewden ranking in priority to
the debt securities issued by the Company. The return to which the private investors were entitled was limited to a quarterly
distribution on their partnership interests, which was calculated with reference to Canadian dollar bankers’ acceptances. The
distributions to the non-controlling interests totalled $15,149 in 2004 (representing a yield of 4.0%), up to the date of
redemption of the partnership interest (2003: $19,701 and a yield of 4.6%).

7. SHARE CAPITAL

The Company is authorized to issue an unlimited number of preferred shares without par value, of which 4,400,000 are
designated as cumulative redeemable preferred shares. The Company had no preferred shares outstanding for the years ended
December 31, 2004 and 2003.

The Company is authorized to issue an unlimited number of common shares. Common shares issued and outstanding are:

Balance, beginning of year
Equity issue
Exercise of stock options
Repurchase of common shares
Balance, end of year

2004

2003

Amount

77,754,985
10,000,000
964,796
(329,900)
88,389,881

$ 248,939
296,769
13,095
(1,063)
557,740

77,579,954
—
1,513,931
(1,338,900)
77,754,985

$ 233,450
—
19,538
(4,049)
$ 248,939

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 Inc.

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 a merger, amalgamation or a similar
transaction. The rights plan will expire at the termination of the Annual Meeting of shareholders to be held in May 2005.

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.

Equity Issue
In November 2004, the Company issued 10 million common shares for cash under a public offering at a price of $30.50 per
share. Proceeds, net of underwriting fees, were $292,800. After tax-affecting the underwriting fees and issue costs, share
capital increased by $296,769.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Repurchase of Common Shares
The Company repurchased 329,900 common shares during 2004 as part of normal course issuer bids. These shares were
repurchased at an average price of $29.15 for an aggregate cost of $9,620, which has been allocated to reduce share capital
by $1,063 and retained earnings by $8,557. In 2003, the Company repurchased 1,338,900 common shares at an average
price of $24.51 for an aggregate cost of $32,812, which was allocated to reduce share capital by $4,049 and retained
earnings by $28,763.

Stock Options
The Company has several stock option plans for employees and directors, the details of which are as follows:

Options outstanding, beginning of year
Issued
Exercised
Cancelled
Options outstanding, end of year

Exercisable at year-end

2004

Weighted
Average
Exercise Price

$
$
$
$
$

13.31
29.38
13.56
25.21
15.08

13.13

Options

2,745,620
242,200
(964,796)
(6,966)
2,016,058

1,773,858

2003

Weighted
Average
Exercise Price

$
$
$

13.20
n/a
12.91
14.55
13.31

13.30

Options

4,323,218
—
(1,513,931)
(63,667)
2,745,620

2,516,904

In April 2004, the Company issued 242,200 common share options to senior executives and management of the Company,
representing the first issuance of stock options since February 2001. These stock options, similar to the previous stock options
issued by the Company, give the holder the right, but not the obligation, to purchase common shares at a predetermined price
based on the fair market value of the common shares at the time the option is granted. After the date of grant, the options vest
one-third per year over a three-year period.

The Company determines the cost of all stock options granted since January 1, 2002 using the fair value-based method
of accounting for stock options. This method of accounting uses an option-pricing model to determine the fair value of
stock options granted which is amortized over the period over which the related options vest. The fair value of the options
granted has been estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

Dividend yield
Expected volatility
Risk-free interest rate
Expected life

1.12%
26.82%
3.95%
7 years

Stock option expense recognized as a result of granting stock options in 2004 was $878 (2003: $nil).

The following table summarizes information about the stock options outstanding at December 31, 2004:

Range of exercise prices

$9 – 12
$12 – 15
$15 – 17
$29.38

O PTI O N S O UTSTAN D I N G

O PTI O N S E X E R C I SAB LE

Weighted
Average
Remaining
Contractural
Life (in years)
3.37
5.61
2.77
6.33
4.63

Weighted
Average
Exercise
Price
10.27
12.92
16.41
29.38
15.08

$
$
$
$
$

Weighted
Average
Remaining
Contracural
Life (in years)
3.37
5.61
2.77
—
4.40

Weighted
Average
Exercise
Price
10.27
12.92
16.41
—
13.13

$
$
$

Number
Outstanding
419,850
930,151
423,857
—
1,773,858

Number
Outstanding
419,850
930,151
423,857
242,200
2,016,058

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. SHARE CAPITAL (CONTINUED)

Other stock-based compensation plans

The Company has other stock-based compensation plans in the form of deferred share unit plans and stock appreciation rights
plans that use notional units. These notional units, upon vesting, are valued based on the Company’s common share price on
the Toronto Stock Exchange and are marked to market at the end of each fiscal quarter. Changes in the value of the units as a
result of fluctuations in the Company’s share price and new issues are recognized in selling, general and administrative
expense in the consolidated statement of income with the corresponding liability recorded on the consolidated balance sheet
in accounts payable and accruals. Details of these plans are as follows:

Directors

Directors’ Deferred Share Unit Plan A (DDSU)
Under the DDSU Plan, non-employee Directors of the Company may elect to allocate all or a portion of their cash compensation
as deferred share units. These units are fully vested upon issuance. These units accumulate dividend equivalents in the form
of additional units based on the dividends paid on the Company’s common shares. Units are redeemable only following
termination of service on the Board of Directors and must be redeemed by December 31st of the year following the year in
which the termination occurred.

Non-employee Directors of the Company were allocated a total of 19,950 share units in 2004.

Executive

Deferred Share Unit Plan A (DSU-A)
Under the DSU-A Plan, senior executives of the Company may be awarded deferred share units as approved by the Board of
Directors. These units are fully vested upon issuance to the executives. These units accumulate dividend equivalents in the form of
additional units based on the dividends paid on the Company’s common shares. Units are redeemable only following termination
of employment and must be redeemed by December 31st of the year following the year in which the termination occurred.
Deferred Share Unit Plan B (DSU-B)
Under the DSU-B Plan, executives of the Company may be awarded performance based deferred share units as approved by
the Board of Directors. This plan utilizes notional units that become partially vested on December 31st of the year following
the year of retirement, death or disability or at specified percentages if the Company’s common share price exceeds, for ten
consecutive days, at specified levels, the common share price at the date of grant.

Executives of the Company were awarded 118,100 deferred share units in 2004 with similar terms to the existing DSU-B Plan.

The specified levels and respective vesting percentages are as follows:

C O M M O N S HAR E P R I C E

Grant Price
10% improvement
20% improvement
30% improvement
40% improvement

Vesting %

2004 Plan

2003 Plan

2002 Plan

0%
25%
50%
75%
100%

$
$
$
$
$

29.38
32.32
35.26
38.19
41.13

$
$
$
$
$

26.95
29.65
32.34
35.04
37.73

$
$
$
$
$

26.05
28.66
31.26
33.87
36.47

Vested deferred share units are redeemable for a period of 30 days after termination, or by December 31st of the year
following the year of retirement, death or disability. The notional deferred share units that have not vested within five years to
the date that they were granted expire. Only vested units accumulate dividend equivalents in the form of additional units based
on the dividends paid on the Company’s common shares.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Details of the deferred share unit plans are as follows:

U N ITS

Outstanding, beginning of year
Additions during year
Exercised/cancelled during year
Outstanding, end of year
Vested, beginning of year
Vested during year
Exercised/cancelled during year
Vested, end of year

LIAB I LITY ($ TH O USAN D S)
Balance, beginning of year
Expensed during year
Exercised/cancelled during year
Balance, end of year

DSU-A

2004

67,607
713
(15,604)
52,716
67,607
713
(15,604)
52,716

2,028
311
(495)
1,844

2003

66,740
867
—
67,607
66,740
867
—
67,607

1,705
323
—
2,028

DSU-B

DDSU

2004

2003

2004

2003

685,766
130,951
(93,416)
723,301
258,498
213,802
(84,250)
388,050

275,200
423,820
(13,254)
685,766
28,050
230,448
—
258,498

132,390
30,682
—
163,072
132,390
30,682
—
163,072

95,089
38,328
(1,027)
132,390
95,089
38,328
(1,027)
132,390

7,755
8,626
(2,803)
13,578

717
7,038
—
7,755

3,972
1,734
—
5,706

2,430
1,568
(26)
3,972

Management
Beginning in 2002, awards under the Share Appreciation Rights Plan (SAR) were granted to senior managers within Canada
and the U.K. Under the SAR Plan, awards are expensed over the vesting periods when the market price of the common shares
exceeds the strike price under the plan for vested units. Changes, either increases or decreases, in the quoted market value of
those shares between the date of grant and the measurement date result in a change in the measure of compensation for the
award and will be amortized over the remaining vesting periods. The SAR Plan uses notional units that are valued based on the
Company’s common share price on the Toronto Stock Exchange. The vested units are exercisable for cash if incremental
common share price thresholds are achieved or other performance measures are met.

In 2004, 237,129 awards were granted to management in the U.K. and Canada at a grant price of $29.38.

Details of the share appreciation rights plans are as follows:

U N ITS

LIAB I LITY ($ TH O USAN D S)
Balance, beginning of year
Expensed during period
Exercised/cancelled during period
Balance, end of period

Strike price ranges:

2004

2003

541,121
237,129
(128,883)
649,367
163,708
138,665
(97,300)
205,073

1,226
2,837
(543)
3,520

$26.05 – $29.38

282,500
279,500
(20,879)
541,121
84,500
96,587
(17,379)
163,708

—
1,341
(115)
1,226

Changes in the value of all deferred share units and share appreciation rights as a result of fluctuations in the Company’s
common share price, the impact of vesting during 2004 and the impact of stock options resulted in a charge to income of
$14,387 (2003: $10,270). This amount was recognized in selling, general and administrative expenses on the consolidated
statement of income.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income available to common 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 applying the treasury stock method.

2004

Income
(Numerator)

Shares
(Denominator)

Per Share
Amount

Basic earnings per share: net income
Effect of dilutive securities: stock options
Diluted earnings per share: net income and assumed conversions

$ 114,946
—
$ 114,946

79,018,683
1,051,870
80,070,553

2003

Basic earnings per share: net income
Effect of dilutive securities: stock options
Diluted earnings per share: net income and assumed conversions

$ 131,951
—
$ 131,951

77,326,253
1,468,380
78,794,633

9. EQUIPMENT LEASED TO CUSTOMERS

December 31

Cost
Less accumulated depreciation

2004

25,307
(21,950)
3,357

1.45
—
1.43

1.71
—
1.68

2003

159,735
(61,810)
97,925

Depreciation of equipment leased to customers for the year ended December 31, 2004 was $17,752 (2003: $48,588).

During 2004, the Company sold $92,930 of leases to Caterpillar Financial Services Limited (2003: $64,213), generating
margins of $13,339 (2003: $10,087).

10. RENTAL EQUIPMENT

December 31

Cost
Less accumulated depreciation

2004

2003

$ 1,999,319
(835,343)
$ 1,163,976

$ 1,821,314
(775,184)
$ 1,046,130

Depreciation of rental equipment for the year ended December 31, 2004 was $314,886 (2003: $275,320).

11. LAND, BUILDINGS AND EQUIPMENT

December 31

Land
Buildings and equipment
Less accumulated depreciation

Total land, buildings and equipment

2004

2003

54,999
505,510
(230,079)
275,431
$ 330,430

58,692
432,186
(203,100)
229,086
$ 287,778

Depreciation of buildings and equipment for the year ended December 31, 2004 was $31,954 (2003: $31,051).

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. GOODWILL AND OTHER INTANGIBLE ASSETS

December 31

Goodwill
Goodwill, beginning of year
South America and Lex Harvey acquisitions (2003) and final purchase price adjustments (2004)
Other acquisitions
Divestitures
Foreign exchange translation adjustment
Goodwill, end of year

Intangible Assets
Intangible assets, beginning of year
South America and Lex Harvey acquisitions (2003) and final purchase price adjustments (2004)
Other acquisitions
Foreign exchange translation adjustment
Intangible assets, end of year
Accumulated amortization
Net intangible assets

2004

2003

$ 393,109
(7,786)
1,872
—
(938)
$ 386,257

$ 379,866
41,312
1,963
(452)
(29,580)
$ 393,109

10,757
3,587
217
41
14,602
(2,560)
12,042

2,300
7,761
1,043
(347)
10,757
(1,065)
9,692

During 2004, the Company acquired interests in smaller customer service operations in Canada and in Chile providing goodwill
of $1,271 and $601, respectively (2003: $1,963 for smaller Canadian rental operations). During 2003, the Company acquired
certain Caterpillar dealership operations in Argentina, Uruguay and Bolivia for a total purchase price of $52,233, resulting in
goodwill of $3,076 and intangible assets in Argentina, representing customer contracts and the related customer relationships,
of $2,935. The Argentina intangible assets will be amortized over 4 years. The Company also acquired the business and assets
of Lex Harvey for a total purchase price of $212,659. The preliminary allocation of the purchase price resulted in goodwill of
$38,236 and intangible assets, representing customer contracts and the related customer relationships, of $4,826. In 2004,
the Company completed its assessment of the final purchase price allocation of Lex Harvey and the resulting purchase price
adjustment reduced goodwill by $7,786 and liabilities by $1,720 and increased deferred tax assets by $2,479 and intangible
assets by $3,587. The Lex Harvey intangible assets will be amortized over 10 years.

13. OTHER ASSETS

December 31

Other assets – current:

Supplier claims receivable
Retained interest in transferred receivables (Note 18)
Value added tax receivable
Prepaid expenses
Other

Other assets – long-term:

Accrued defined benefit pension asset
Deferred financing costs
Investment in Maxim Power Corporation (Note 24)
Investment in Energyst Rental Solutions
Deferred project costs
Matreq S.A. receivable US$4,000 (Note 16)
Other

2004

2003

26,565
10,786
25,193
13,398
39,353
$ 115,295

49,609
17,462
14,173
5,115
2,874
4,814
10,978
$ 105,025

39,500
9,040
11,000
10,100
28,739
98,379

51,004
25,292
14,634
5,115
8,544
5,170
20,791
$ 130,550

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. INVESTMENTS

During 2003, the Company invested $6,755 to acquire a 15.17% ownership interest in Energyst Rental Solutions (SM)
(Energyst), a newly established company offering energy rental services to national and international customers across Europe.
As part of this transaction, the Company’s UK operation sold its power rental business to Energyst for $34,056 with a resulting
after-tax gain of $9,168. The investment in Energyst is accounted for using the cost method and is reported in other assets on
the consolidated balance sheet.

15. CUMULATIVE CURRENCY TRANSLATION ADJUSTMENTS

December 31

Balance, beginning of year
Gain realized during the year
Translation adjustments for the year
Balance, end of year

2004

2003

(65,471)
—
(17,263)
(82,734)

(2,831)
(2,578)
(60,062)
(65,471)

The Company operates in three main currencies: Canadian dollars, U.K. pound sterling and U.S. dollars. Translation gains or
losses on the consolidation of the financial statements of self-sustaining foreign operations are accumulated in this account.
Translation adjustments arise as a result of fluctuations in foreign currency exchange rates. The cumulative currency translation
adjustment for 2004 mainly resulted from the 6.9% weakening of the U.S. dollar against the Canadian dollar.

At December 31, 2004 and 2003, the exchange rates of the Canadian dollar against the following foreign currencies were
as follows:

Exchange Rate as at December 31

United States dollar
U.K. pound sterling

Average exchange rates for years ended December 31 (1)

United States dollar
U.K. pound sterling

2004

1.2036
2.3062

1.3015
2.3842

2003

1.2924
2.3066

1.4015
2.2883

(1) Effective October 1, 2003, the functional currency for Finning Chile S.A. was changed from the Chilean peso to the US dollar.

The Chilean peso average exchange rate for the nine months ended September 30, 2003 was 0.002032.

16. ACQUISITIONS

During 2003, the Company acquired the Caterpillar dealership operations in Argentina, Uruguay, and Bolivia and a materials
handling business in the U.K. The purchases of these operations are accounted for under the purchase method of accounting.
The allocation of the purchase price to the materials handling business in the U.K. was adjusted in the second quarter of 2004
with final tax adjustments made in the fourth quarter of 2004. The final allocations are reflected in the table below:

Argentina and
Uruguay (a)

Bolivia (b)

UK Operations:
Lex Harvey (c)

91,915
(37,981)
953
2,935
57,822
(14,497)
43,325

18,043
(5,842)
2,123
—
14,324
(5,416)
8,908

$ 193,350
(19,554)
30,450
8,413
212,659
—
$ 212,659

Total assets
Total liabilities
Goodwill
Intangible assets
Net assets acquired
Less assumed debt
Total purchase price

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a) In January 2003, the Company completed its acquisition of 100% of the voting shares of Macrosa Del Plata S.A. and
Servicios Mineros S.A., the Caterpillar dealerships in Argentina and General Machinery Co S.A., the Caterpillar dealership in
Uruguay. The purchase price of $43,325 (US$27,951) was financed through debt. The sellers are also entitled to additional
future consideration, to a maximum of US$20,000, based on realization of certain performance criteria over a six-year period
ending December 31, 2008 for these operations. This other consideration will be accrued as a cost of the acquisition if and
when the performance criteria is achieved. Any additional consideration is payable only if certain performance criteria are
achieved and maintained to December 31, 2008. With the strong performance of the dealership in Argentina in 2003 and
2004, indications are that the performance criteria may be met in 2005 which would trigger a payment in early 2006. No
additional consideration has been recorded in the accounts.

(b) In April 2003, the acquisition of 100% of the voting shares of Matreq S.A., the Bolivian Caterpillar dealership was
completed. The purchase price of $8,908 (US$6,000) was financed through debt. In addition, other consideration of $5,938
(US$4,000) was advanced to the seller and is contingent upon certain future performance criteria of this operation extending
to the end of 2010. This other consideration is recorded in other assets.

(c) In June 2003, the Company, through its UK operation, acquired the materials handling business and majority of the assets
of Lex Harvey Limited and its associated company (Lex Harvey) from RAC plc, a publicly listed company in the U.K. The results
from Lex Harvey have been integrated and reported within the UK operation results. The aggregate purchase price of
$212,659 (£94,616) was funded through debt.

17. EMPLOYEE BENEFITS

The Company and its subsidiaries in Canada and the U.K. have defined benefit pension plans and defined contribution pension
plans providing retirement benefits for most of their permanent employees.

The defined benefit pension plans are registered pension plans that provide a pension based on the members’ final average
earnings and years of service while participating in the pension plan.
• In Canada, defined benefit plans exist for eligible employees. Final average earnings are based on the highest

5-year average salary and there is no standard indexation feature. Effective July 1, 2004, non-executive members of the
employee defined benefit plan were offered a voluntary opportunity to convert their benefits to a defined contribution pension
plan and this defined benefit plan was subsequently closed to all new non-executive employees. The defined benefit pension
plan continues to be open to new executives. Pension benefits that exceed the permitted maximums are provided by a non-
registered supplemental pension plan for all employees covered by a defined benefit plan. Benefits under this plan are
partially secured by a Registered Compensation Arrangement.

• In Finning (UK), defined benefit plans exist for all employees hired prior to January 2003. Final average earnings are based

on the highest 3-year period and benefits are indexed annually with inflation. Effective January 2003, this plan was closed to
new non-executive employees and replaced with a defined contribution pension plan. The defined benefit plan was
temporarily re-opened in June 2003, on a one-time basis, to allow for the transfer of employees assumed upon acquisition of the
Lex Harvey business. These employees were allowed to join to the Finning (UK) defined benefit pension plan, for future
service only.

• Hewden has a defined benefit plan that is open to eligible senior management and executive members by invitation only.
Final average earnings are based on the highest 3-year period and benefits are indexed annually with inflation. Employees
who are ineligible for the defined benefits plans can join a defined contribution arrangement.

The defined contribution pension plans are registered pension plans that offer a base contribution rate for all members. In
addition, where applicable, the company will match contributions made by the plan members, subject to a maximum of
1% of earnings.

The Company’s South American employees do not participate in employer pension plans but are covered by country specific
legislation with respect to indemnity plans.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. EMPLOYEE BENEFITS (CONTINUED)

The expense for the Company’s benefit plans, primarily for pension benefits, is as follows:

For years ended December 31

Canada

Hewden

Total

Canada

Hewden

Total

2004

2003

Defined contribution plans
Net benefit plan expense

Defined benefit plans
Current service cost, net of
employee contributions

Interest cost
Actual return on plan assets
Actuarial losses
Employee future benefit

costs before adjustments
to recognize the long-term
nature of employee
future benefit costs

Adjustments to recognize
the long-term nature
of employee future
benefit costs:

Difference between expected
return and actual return
on plan assets for year

Difference between
actuarial loss
recognized for year and
actual actuarial loss
on accrued benefit
obligation for year
Difference between

amortization of past service
costs for year and actual
plan amendments for year

Amortization of transitional

obligation/(asset)
Defined benefit costs

$ 8,008

553

279

8,840

$ 5,939

158 $

263

$ 6,360

$ 5,149
14,951
(22,081)
17,437

$ 12,083
20,662
(26,167)
44,315

$ 2,983
10,104
(5,765)
14,110

$ 20,215
45,717
(54,013)
75,862

$ 4,566
14,903
(18,273)
6,688

$ 9,137 $ 3,046
8,247
(7,487)
17,597

16,368
(22,720)
39,161

$ 16,749
39,518
(48,480)
63,446

15,456

50,893

21,432

87,781

7,884

41,946

21,403

71,233

5,062

5,948

(2,453)

8,557

1,808

5,604

452

7,864

(16,841)

(38,838)

(12,131)

(67,810)

(6,099)

(35,600)

(16,695)

(58,394)

298

—

298

—

298

1,047

(1,385)

1,771

1,433

1,047

(1,330)

1,700

1,417

recognized

TOTAL

5,022
$ 13,030

16,618
$ 17,171

8,619
$ 8,898

30,259
$ 39,099

4,938
$ 10,877

10,620
$ 10,778 $

6,860
7,123

22,418
$ 28,778

Total cash payments for employee future benefits for 2004, consisting of cash contributed by the Company to its funded
pension plans, cash payments made directly to beneficiaries for its unfunded other benefit plans, and cash contributed to its
defined contribution plans, was $38,032 (2003: $32,029).

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about the Company’s defined benefit plans is as follows:

For years ended December 31

Canada

Hewden

Total

Canada

Hewden

Total

2004

2003

Accrued benefit obligation
Balance at beginning of year $ 228,841 $ 351,208 $ 170,264 $ 750,313
27,931
Current service cost
45,717
Interest cost
(29,491)
Benefits paid
75,862
Actuarial losses
Foreign exchange
rate changes

16,117
20,662
(12,398)
44,315

7,069
14,951
(11,836)
17,437

4,745
10,104
(5,257)
14,110

(3,114)
$ 256,462 $ 417,596 $ 193,160 $ 867,218

Balance at end of year

(2,308)

(806)

—

Plan assets
Fair value at beginning of year $ 233,017 $ 263,356 $ 110,660 $ 607,033
54,013
Actual return on plan assets
27,494
Employer contributions
7,716
Employees’ contributions
(29,491)
Benefits paid
Foreign exchange
rate changes

26,167
15,800
4,034
(12,398)

22,081
4,005
1,920
(11,836)

5,765
7,689
1,762
(5,257)

(1,491)
$ 249,187 $ 295,814 $ 120,273 $ 665,274

(1,145)

(346)

—

Fair value at end of year

Funded status –

$ 212,167
6,396
14,903
(11,313)
6,688

—
$ 228,841

$ 220,782
18,273
3,135
1,830
(11,313)

—
$ 232,707

$ 320,128 $ 159,342 $ 691,637
23,858
39,715
(23,807)
63,446

12,794
16,499
(7,639)
39,161

4,668
8,313
(4,855)
17,597

(29,735)

(44,536)
$ 351,208 $ 170,264 $ 750,313

(14,801)

$ 255,239 $ 108,041 $ 584,062
48,480
18,847
7,012
(23,807)

22,720
13,161
3,584
(7,639)

7,487
2,551
1,598
(4,855)

(23,709)

(33,744)
$ 263,356 $ 104,787 $ 600,850

(10,035)

plan surplus/(deficit)

(7,275) $ (121,782) $ (72,887) $ (201,944) $

3,866

$ (87,852) $ (65,477) $(149,463)

Unamortized net
actuarial loss
Unamortized past
service costs

Contributions remitted
after valuation date

Adjustment
Unamortized transitional

obligation/asset

Accrued benefit

asset/(liability)(1)

42,961

141,084

56,020

240,065

31,182

109,289

41,918

182,389

2,960

—

2,960

3,258

—

3,258

—
—

1,656
—

1,261
—

2,917
—

310
—

—
1,241

5,873
—

6,183
1,241

1,974

(11,969)

12,137

2,142

3,021

(13,311)

13,851

3,561

$ 40,620 $

8,989 $ (3,469) $ 46,140

$ 41,637

9,367 $

(3,835) $

47,169

(1) Accrued benefit asset or liability is classified as either other assets or accounts payable and accruals, respectively, on the

Consolidated Balance Sheets.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. EMPLOYEE BENEFITS (CONTINUED)

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:

2004

2003

For years ended December 31

Canada

Hewden

Total

Canada

Hewden

Total

Accrued benefit obligation
Fair value of plan assets
Funded status – plan deficit

$214,333
188,499
$ 25,834

$ 417,596
295,814
$121,782

$193,160
120,273
$ 72,887

$ 825,089
604,586
$ 220,503

$185,871
173,473
$ 12,398

$351,208 $170,264
104,787
$ 87,852 $ 65,477

263,356

$ 707,343
541,616
$165,727

Plan assets are principally invested in the following securities at November 30, 2004:

Equity
Fixed-income

Canada

57%
43%

74%
26%

Hewden

72%
28%

For measurement purposes, assets and liabilities of the plans are valued as at November 30. Plan assets include common
shares of the Company having a fair value of $724 at December 31, 2004 (2003: $684).

The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations are as follows:

Accrued benefit obligations as of December 31:

Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase

Benefit costs for years ended December 31:

Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase

Estimated remaining service life (years)

2004

2003

Canada

Hewden

Canada

Hewden

6.00%
7.50%
3.20%

6.50%
8.00%
3.48%
10 -15

5.40%
7.50%
3.25%

5.75%
7.25%
3.20%
14

5.40%
7.75%
3.50%

5.75%
7.25%
3.50%
13

6.50%
8.00%
3.48%

7.00%
8.50%
4.10%
10 -15

5.75%
7.25%
3.20%

5.75%
7.25%
3.20%
14

5.75%
7.25%
3.50%

5.75%
7.25%
3.50%
13

Defined benefit pension plans are country and entity specific. The major defined benefit plans and their respective valuation
dates are:

Defined Benefit Plan
Canada – BC Regular & Executive Plan
Canada – Executive Supplemental Income Plan
Canada – General Supplemental Income Plan
Canada – Alberta Defined Benefit Plan
Finning UK Defined Benefit Scheme
Hewden Stuart Pension Scheme
Hewden Pension Plan

Last Actuarial Valuation Date
December 31, 2003
December 31, 2002
December 31, 2002
December 31, 2002
January 1, 2004
December 31, 2002
April 6, 2002

Next Actuarial Valuation Date
December 31, 2006
December 31, 2005
December 31, 2005
December 31, 2005
January 1, 2006
December 31, 2005
December 31, 2004

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. ACCOUNTS RECEIVABLE SECURITIZATION

Under an agreement dated November 29, 2002, the Company sold a $30,000 co-ownership interest in a pool of eligible non-
interest bearing trade receivables to a multi-seller securitization trust. In September 2004, an additional $15,000 was sold
under this agreement, increasing the co-ownership interest total to $45,000. Under the terms of this agreement, which
expires on November 29, 2007, the Company can sell co-ownership interests of up to $120,000 on a revolving basis. The
Company retains a subordinated interest in the cash flows arising from the eligible receivables underlying the trust’s co-
ownership interest. The trust and its investors do not have recourse to the Company’s other assets in the event that obligors
fail to pay the underlying receivables when due. Pursuant to the agreement, the Company continues to service the pool of
underlying receivables.

As at December 31, 2004, the Company is carrying a retained interest (which, in effect, is an overcollateralization of the trade
receivables which have been sold) in the amount of $10,786 (as at December 31, 2003: $9,040) and is reported on the
consolidated balance sheet in other current assets (Note 13). The servicing liability outstanding is approximately $49 as at
December 31, 2004 (as at December 31, 2003: $33).

For the year ended December 31, 2004, the Company recognized a pre-tax loss of $964 (2003: $929) relating to these
transfers. The Company estimates the fair value of its retained interest and computes the loss on sale using a discounted cash
flow model. The key assumptions underlying this model are:

Cost of funds
Weighted average life in days
Average credit loss ratio
Average dilution ratio
Servicing fee rate
Fair value of retained interest

December 31, 2004
2.8257%
32
0.0086%
7.09%
2.0%
$9,656

Range for year ended 2004
2.32% – 3.02%
30.14 – 40.54
(0.0058%) – 0.0933%
5.46% – 8.08%

The impact of an immediate 10 percent and 20 percent adverse change in the average dilution ratio on the current fair value
of the retained interest would be reductions of approximately $400 and $801, respectively. The impact of an immediate 10
percent and 20 percent adverse change in the weighted average life in days on the current fair value of the retained interest
would be reductions of approximately $887 and $1,627, respectively. The sensitivity of the current fair value of the retained
interest or residual cash flows to an immediate 10 percent and 20 percent adverse change in each of the remaining
assumptions is not significant.

The table below shows certain cash flows received from and paid to the securitization trust:

For the years ended December 31

Proceeds from new securitization
Proceeds from revolving reinvestment of collections

2004

2003

$
15,000
$ 354,520

$
—
$ 356,143

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. 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 Inc. that has been ongoing since 1933.

20. 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, the Northwest Territories and the Yukon Territory.
• UK operations: England, Scotland, Wales, Falkland Islands and the Channel Islands
• South American operations: Chile, Argentina, Uruguay and Bolivia.
• Hewden operations: Equipment rental in England, Scotland, Wales and Jersey.
• Other operations: corporate head office.

The reportable operating segments are:

2004

Canada

South America

Hewden

Other

Consolidated

Revenue from external sources
Operating costs
Depreciation and amortization
Other expenses
Earnings before interest and tax
Finance costs and interest
on other indebtedness
Provision for income taxes
Non-controlling interests
Net income
Identifiable assets
Gross capital expenditures
Gross rental fleet acquired

$ 1,562,584
1,318,448
112,485
—
$ 131,651

$ 1,043,485
923,370
85,941
—
34,174

$ 869,893
763,975
22,885
—
83,033

$ 685,930
482,672
144,776
—
58,482

15
27,871
—
13,743
(41,599)

$ 1,078,278
$
52,908
$ 125,347

$ 884,308
$
13,700
$ 105,921

$ 652,152
22,659
$
34,633
$

$ 1,089,257
$
16,935
$ 190,140

$ 100,016
—
$
—
$

$ 4,161,907
3,516,336
366,087
13,743
$ 265,741

118,100
17,546
15,149
$ 114,946
$ 3,804,011
$ 106,202
$ 456,041

2003

Canada

South America

Hewden

Other

Consolidated

$ 1,456,357
1,210,548
125,332
—
$ 120,477

$ 934,193
820,845
65,732
—
47,616

$ 561,964
480,004
22,073
—
59,887

$ 640,757
446,873
141,822
—
52,062

24
20,591
—
4,307
(24,874)

$ 1,025,144
38,113
$
71,600
$

$ 733,314
14,276
$
25,571
$

$ 529,115
16,640
$
33,540
$

$ 1,044,990
$
20,628
$ 166,534

$ 108,015
—
$
—
$

$ 3,593,295
2,978,861
354,959
4,307
$ 255,168

76,868
26,648
19,701
$ 131,951
$ 3,440,578
89,657
$
297,245
$

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. OPERATING LEASES

Payments due under various operating lease contracts are as follows:

2005
2006
2007
2008
2009
Thereafter

64,749
56,569
46,689
39,219
33,205
203,606
$ 444,037

22. COMMITMENTS AND CONTINGENCIES

(a) Due to the size, complexity and nature of the Company’s operations, various legal matters are pending. In the opinion
of management, these matters will not have a material effect on the Company’s consolidated financial position or results
of operations.

(b) In June 2004, Hewden Tower Cranes Limited, a subsidiary of the Company settled its legal claim with Yarm Road Limited
and Cleveland Bridge U.K. Limited for damages arising from the collapse of a tower crane at the Canary Wharf site in the U.K.
on May 21, 2000. The accident occurred prior to the acquisition of Hewden Tower Cranes Limited by the Company. The final
settlement amount totalled £4,875 in full and final settlement of any claims, counter claims, cross claims or contra charges
including interest and costs and incorporating the earlier adjudication award of £1,485 in January 2004. In addition, Hewden
was responsible for the costs of the adjudication, trial and independent legal advice of approximately £293. An amount of
£3,168 ($7,863) pre-tax, net of previous accruals, was charged to the income statement as “other expenses” in 2004.

23. GUARANTEES AND INDEMNIFICATIONS

In 2003, the Company adopted CICA Accounting Guideline 14, Disclosure of Guarantees (AcG-14) on a prospective basis.
AcG-14 supplements other disclosure requirements and as such, some of these disclosures are reported in other notes
throughout the Consolidated Financial Statements.

The Company enters into contracts with rights of return, in certain circumstances, for the repurchase of equipment sold to
customers for an amount estimated to be the future value of the fair market price at that time. As at December 31, 2004 the
total estimated value of these contracts outstanding is $156,976 coming due at periods ranging from 2005 to 2013. Usually,
the equipment at the exercise date of the contract is worth more than the contract value. The total amount recognized as a
provision against these contracts is $1,896.

The Company has also guaranteed the residual value of certain assets up to a maximum of $4,000 extending over periods up
until 2008.

24. SUBSEQUENT EVENT

On December 31, 2004, the Company entered into an agreement to sell its 36% interest in Maxim Power Corporation for
cash of $16,000, resulting in a pre-tax gain of approximately $1,827. This transaction is expected to close March 31, 2005.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

TEN-YEAR FINANCIAL SUMMARY

Years ended December 31 ($ THOUSANDS EXCEPT PER SHARE AND PER EMPLOYEE DATA)

2004

2003

Revenue

Canadian operations
U.K. operations
South American operations
Hewden
International operations
TOTAL CONSOLIDATED

Earnings before interest and taxes (EBIT)

As a percent of revenue

Net income

As a percent of revenue

Earnings Per Common Share

Basic
Diluted (1)

Dividends

Total common share
Per common share

Cash flow after working capital changes

Cash flow per common share

Gross capital expenditures

Ratios

Asset turnover ratio
Debt to equity (2, 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
UK
South America
Hewden
International
TOTAL

$ 1,562,584
$ 1,043,485
$ 869,893
$ 685,930
15
$
$ 4,161,907

$ 265,741
6.4%
$ 114,946
2.8%

$
$

1.45
1.43

31,181
0.40

$ 243,618
$
2.76
$ 106,202

1.15
1.03:1
15.00
11.0%

35.39
28.85

$
$

88,390
$ 338,918
9,360
$

2,936
2,373
3,203
3,724
44
12,280

1,456,357
934,193
561,964
640,757
24
3,593,295

255,168
7.1%
131,951
3.7%

1.71
1.68

27,816
0.36

384,210
4.94
89,657

1.09
0.79:1
12.33
14.3%

33.20
23.00

77,755
314,953
11,129

2,717
2,387
2,456
3,804
45
11,409

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N

N
N
F

Financial data has been restated to incorporate common share subdivision occurring during the ten year period.
1. 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. Diluted earnings for the years ended 1999 to 2004 have been stated using this method.

2. Equity ratios for the 2000 result do not include investment in Hewden Stuart.
3. Years 2001 to 2003 included non-controlling interest that was treated as equity.

2002

2001

2000

1999

1998

1997

1996

1995

1,269,275
828,246
444,644
665,266
55
3,207,486

277,783
8.7%
132,253
4.1%

1,398,623
804,084
448,005
587,482
8,849
3,247,043

241,601
7.4%
103,917
3.2%

1,214,516
682,162
474,145
—
89,209
2,460,032

165,263
6.7%
73,391
3.0%

1,032,922
712,941
377,777
—
106,221
2,229,861

148,912
6.7%
59,600
2.7%

1.72
1.68

1.37
1.34

0.95
0.94

0.75
0.74

23,100
0.30

472,804
6.09
47,426

1.05
0.60:1
11.99
15.7%

28.85
19.65

77,580
327,462
13,502

2,548
1,578
1,817
3,813
39
9,795

15,155
0.20

445,623
5.88
51,180

1.25
0.87:1
10.23
14.1%

20.35
12.10

75,816
331,230
10,601

2,629
1,553
1,516
4,066
39
9,803

15,452
0.20

357,780
4.72
15,284

1.18
1.04:1
9.02
10.5%

13.85
9.85

75,790
477,120
14,234

2,326
1,404
1,390
—
36
5,156

15,919
0.20

438,232
5.50
20,864

1.05
1.29:1
8.74
8.7%

15.40
9.00

79,737
450,113
12,031

2,271
1,364
1,259
—
60
4,954

1,136,917
793,020
503,505
—
151,979
2,585,421

82,729
3.2%
3,185
0.1%

0.04
0.04

15,868
0.20

253,891
3.20
44,176

1.13
1.67:1
8.52
0.5%

18.50
10.25

79,426
492,367
607

2,494
1,348
1,354
—
55
5,251

1,146,406
565,376
514,068
—
101,214
2,327,064

216,625
9.3%
103,695
4.5%

926,653
437,949
408,616
—
101,491
1,874,709

188,404
10.0%
88,184
4.7%

923,275
416,034
350,650
—
62,032
1,751,991

174,397
10.0%
77,493
4.4%

1.32
1.27

1.13
1.09

1.00
0.98

15,761
0.20

200,397
2.53
47,148

0.99
1.66:1
8.69
16.2%

20.50
14.43

79,091
423,565
18,874

2,496
1,720
1,228
—
50
5,494

15,600
0.20

153,887
1.96
43,132

1.04
1.50:1
7.59
16.0%

14.58
9.75

78,547
441,940
20,788

2,269
925
1,008
—
40
4,242

15,451
0.20

16,341
0.21
25,812

1.09

1.55:1
6.55
16.2%

11.63
8.63

77,442
428,674
18,961

2,228
884
941
—
34
4,087

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DIRECTORS, OFFICERS AND COMMITTEES

BOARD OF DIRECTORS: TOP ROW LE FT TO R IG HT: JOHN E. CLEGHORN, RICARDO BACARREZA, JOHN M. WILLSON,
JEFFERSON J. MOONEY, MICHAEL T. WAITES, TIMOTHY S. HOWDEN BOTTOM ROW LE FT TO R IG HT: DONALD S. O’SULLIVAN,
CONRAD A. PINETTE, ANDREW H. SIMON, JAMES F. DINNING, DOUGLAS W.G. WHITEHEAD

Board of Directors

Ricardo Bacarreza
S A N T I AG O , C H I LE

Jefferson J. Mooney
VA N C O U V E R , B R I T I S H C O LU M B I A

President, Proinvest S.A., a financial services company based in
Santiago, Chile. Director of several companies. Previously, an
economist at the World Bank in Washington, D.C. and a senior
executive of a number of banks and insurance companies in Chile.

Chairman, A&W Food Services of Canada Inc. Director of A&W
Canada Inc., A&W Food Services of Canada Inc., A&W
Trademarks Inc., The Cadillac Fairview Corporation Limited,
previously, Chairman of the Business Council of British Columbia,
Ontrea Inc. and Ontrasia Inc.

John E. Cleghorn
TO R O N TO , O N TA R I O

Chairman of the Board, SNC-Lavalin Group Inc. Director of
Canadian Pacific Railways, Molson Coors and Nortel
Networks. Chancellor Emeritus of Wilfred Laurier University.
Previously, executive positions with several financial institutions,
including Chairman and Chief Executive Officer of the Royal
Bank of Canada.

James F. Dinning
CA LG A RY, A LB E R TA

Chairman of the Board, Western Financial Group. Director of
Shaw Communications Inc. and the Alberta Energy Research
Institute. Previously, 11 years as a member of the Legislative
Assembly of Alberta, three cabinet portfolios 1988 to 1997,
including Provincial Treasurer.

Timothy S. Howden
M A R LOW, B U C K I N G H A M S H I R E , E N G L A N D

Director of several companies, including Hyperion Insurance
Group, SSL and International plc, Chairman, Benchmark Dental
Laboratories Ltd. Previously, senior executive positions with
several international companies involved in the food and
household products distribution industries.

Donald S. O’Sullivan
E D M O N TO N , A LB E R TA

President, O’Sullivan Resources Ltd. Director of National Life
Assurance Company of Canada Ltd. Previously, ownership
and/or executive positions with several companies.

Conrad A. Pinette
VA N C O U V E R , B R I T I S H C O LU M B I A

Elected Chairman of the Board of the Company in 2000.
Executive Vice President, Riverside Forest Products Limited,
a wholly owned subsidiary of Tolko Industries Ltd. Trustee of
A&W Revenue Royalties Income Fund and Director of
TimberWest Forest Corporation.

Andrew H. Simon, OBE
LO N D O N , E N G L A N D

Director of several companies, including SGL Carbon AG, Kaffee
Partner, Associated British Ports plc, Dalkia Plc and Brake
Brothers Ltd. Previously, Managing Director and Chairman and
Chief Executive Officer of Evode Group of Staffordshire, an
international specialty chemicals and materials company.

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Corporate Officers

Conrad A. Pinette

CHAIRMAN OF THE BOARD
FINNING INTERNATIONAL INC.

Neil R. Dickinson

MANAGING DIRECTOR
FINNING (UK) LTD.

Douglas W.G. Whitehead

Nicholas B. Lloyd

PRESIDENT &
CHIEF EXECUTIVE OFFICER
FINNING INTERNATIONAL INC.

Brian C. Bell

PRESIDENT, SOUTH AMERICA
FINNING SOUTH AMERICA

Wayne M. Bingham

EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
FINNING INTERNATIONAL INC.

MANAGING DIRECTOR
FINNING GROUP, UK

Stephen Mallett

PRESIDENT
FINNING POWER SYSTEMS
FINNING INTERNATIONAL INC.

Ian M. Reid

PRESIDENT
FINNING (CANADA)

Anthony R. Guglielmin

John T. Struthers

CORPORATE SECRETARY
FINNING INTERNATIONAL INC.

Shelley C. Williams

VICE PRESIDENT,
CORPORATE TREASURER
FINNING INTERNATIONAL INC.

VICE PRESIDENT
CORPORATE DEVELOPMENT
& STRATEGIC PLANNING
FINNING INTERNATIONAL INC.

Anna P. Marks

VICE PRESIDENT &
CORPORATE CONTROLLER
FINNING INTERNATIONAL INC.

Douglas W. Sprout

UK EXECUTIVE DIRECTOR,
SUPPORT SERVICES
FINNING (UK) LTD.

Michael T. Waites
CA LG A RY, A LB E R TA

Executive Vice President, Chief Financial Officer and Chief
Executive Officer, U.S. Network, Canadian Pacific Railway.
Previously, Vice President and Comptroller of Canadian Pacific
Railway and Vice President and Chief Financial Officer of
Chevron Canada Resources.

Douglas W.G. Whitehead
W E ST VA N C O U V E R , B R I T I S H C O LU M B I A

President and Chief Executive Officer of the Company. Director
of Ballard Power Systems Inc., Terasen Inc., Belkorp Industries Inc.
and the Conference Board of Canada. Previously, senior
executive positions with Fletcher Challenge Canada, including
President and Chief Executive Officer.

John M. Willson
VA N C O U V E R , B R I T I S H C O LU M B I A

Director of Nexen Inc., Pan American Silver Corporation and
Aber Diamond Corporation. Previously, senior executive positions
with several companies, including President and Chief Executive
Officer of Placer Dome Inc., an international gold mining and
production company, and President and Chief Executive Officer
of Western Canada Steel Ltd.

Committees

AUDIT COMMITTEE

Ricardo Bacarreza, Andrew H. Simon (chairman)
Jefferson J. Mooney, Michael T. Waites

HUMAN RESOURCES, COMPENSATION
& PENSION COMMITTEE

James F. Dinning, Timothy S. Howden (chairman)
Jefferson J. Mooney, Donald S. O’Sullivan, John M. Willson

ENVIRONMENTAL, HEALTH & SAFETY COMMITTEE

Ricardo Bacarreza, John E. Cleghorn, James F. Dinning
Douglas W.G. Whitehead, John M. Willson (chairman)

GOVERNANCE COMMITTEE

John E. Cleghorn, Timothy S. Howden, Conrad A. Pinette
Andrew H. Simon, Donald S. O’Sullivan (chairman)

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CORPORATE GOVERNANCE

The Board of Directors and management of Finning International Inc. consider good governance to be an important factor in
the effective operation of the Company.

The Board has overall responsibility for conduct of the business and affairs of the Company and discharges this responsibility
both directly and through delegating certain authority to committees of the Board and to senior management of the Company.

The Corporate Governance Committee enhances corporate performance by assessing and making recommendations
regarding board effectiveness and by establishing a process for identifying, recruiting, appointing and re-appointing
directors and providing for the on-going development of current board members. The Committee monitors the flow of
information between the board and management and, where necessary, makes recommendations on improving these lines
of communication.

The Audit Committee assists the Board in fulfilling its oversight responsibility to shareholders, potential shareholders, the
investment community and others with respect to the Company’s financial statements, financial reporting process, systems
of internal accounting and financial controls, internal audit function, external auditors’ reports and risk assessment and
management. The Committee is empowered to investigate any matter, with full access to all books, records, facilities and
personnel of the Company. It is also empowered to instruct and retain outside counsel or other experts as required.

The Human Resources, Compensation and Pension Committee plans for the continuity of executive officers and other key
employees. The committee also reviews the Company’s overall executive compensation plan to ensure it is competitive and
motivating in order to attract, retain and inspire excellence in the performance of executive officers and other key employees.
In all its deliberations, the Committee takes into account the cost of executive compensation and the interests of shareholders.
In addition, the Committee reviews with the Finning International Management Pension Committee the investment objectives
of the Corporation’s Pension funds, the choice of fund manager(s), the ongoing performance of the funds and the design of
and benefits arising from the Corporation’s Pension funds.

The Environmental, Health and Safety Committee encourages, assists and counsels the management of the Company in its
drive towards attaining and maintaining a high level of performance in areas relating to the environment, health and safety. The
Committee also seeks to ensure, through the management of the Company, that the Company’s employees and contractors
enjoy a safe and healthy workplace. The Committee pursues the Company’s goal of reducing accidents in the workplace
through the adoption, monitoring and employment of policies and procedures designed to meet or exceed the environmental,
health and safety goals which the Company has set for itself and applicable regulatory requirements.

Ranked number 1 by Canadian Business Magazine in 2004 report on corporate governance.

Ranked number 2 by Globe and Mail Report on Business, 2004 study on corporate governance.

Conrad A. Pinette
C H A I R M A N O F T H E B OA R D

The Company’s compliance with the Toronto Stock Exchange Corporate Governance Guidelines is highlighted below:

BOARD RESPONSIBLE FOR OVERALL STEWARDSHIP OF COMPANY

BOARD CONSTITUTED WITH MAJORITY OF UNRELATED DIRECTORS

RELATIONSHIP OF EACH DIRECTOR DISCLOSED AND EXPLAINED

CORPORATE GOVERNANCE COMMITTEE CONSTITUTED WITH NON-MANAGEMENT DIRECTORS

PROCESS IMPLEMENTED TO ASSESS BOARD EFFECTIVENESS

ORIENTATION AND EDUCATION PROGRAM PROVIDED FOR NEW DIRECTORS

BOARD SIZE REVIEWED FOR EFFECTIVE DECISION-MAKING

DIRECTORS’ COMPENSATION REFLECTIVE OF RISK AND RESPONSIBILITY

COMMITTEES GENERALLY COMPOSED OF NON-MANAGEMENT DIRECTORS

COMMITTEE ASSIGNED TO SUPERVISE CORPORATE GOVERNANCE

LIMITS TO MANAGEMENT RESPONSIBILITIES DEFINED

BOARD FUNCTIONS INDEPENDENTLY OF MANAGEMENT

AUDIT COMMITTEE COMPOSED ONLY OF UNRELATED DIRECTORS AND HAS DIRECT COMMUNICATION WITH THE COMPANY’S AUDITORS

SYSTEM IMPLEMENTED FOR BOARD TO ENGAGE OUTSIDE ADVISORS

YES

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SHAREHOLDER INFORMATION

STOCK EXCHANGES

CORPORATE INFORMATION

The common shares of Finning International Inc. are listed on
the Toronto Stock Exchange. Symbol: FTT

AUDITORS

Deloitte & Touche LLP
Vancouver, Canada

SOLICITORS

Borden Ladner Gervais LLP
Vancouver, Canada

CORPORATE HEAD OFFICE

Suite 1000 - 666 Burrard Street
Vancouver, Canada V6C 2X8
Telephone: 604-691-6444

ANNUAL MEETING

The Annual General Meeting of shareholders will be held at
11:00 a.m. PDT on May 11, 2005 at the Hyatt Regency Hotel
in Vancouver.

The Company prepares an Annual Information Form (AIF),
which is filed with the securities commission or similar 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 website at www.finning.com

INVESTOR INQUIRIES

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 directed to Tom Merinsky, Vice President, Investor
Relations. Telephone 604-331-4950, Fax 604-331-4899
email: investor_relations@finning.ca

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements and information,
which reflect the current view of Finning International Inc.
with respect to future events and financial performance. Any
such forward-looking statements are subject to risks and
uncertainties and Finning’s actual results of operations could
differ materially from historical results or current expectations.
Finning assumes no obligation to publicly update or revise its
forward-looking statements even if experience or future
changes make it clear that any projected results expressed or
implied therein do not materialize.

Refer to Finning’s annual report, management information circular,
annual information form and other filings with the Ontario
Securities Commission and Toronto Stock Exchange, which can
be found at www.sedar.com, for further information on risks and
uncertainties that could cause actual results to differ materially
from forward-looking statements contained in this report.

REGISTRAR & TRANSFER AGENT

COMPUTERSHARE TRUST COMPANY OF CANADA

Vancouver
Computershare
510 Burrard Street
2nd Floor
Vancouver, B.C.
V6C 3B9

Toronto
Computershare
100 University Avenue
11th Floor
Toronto, Ontario
M5J 2Y1

Phone
North America
1-800-564-6253

International
514-982-7555

Website
www.computershare.com

email
service@computershare.com

www.finning.com

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