Finning International Annual Report 2005

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FY2005 Annual Report · Finning International

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DRIVEN

FINNING INTERNATIONAL INC. 2005 ANNUAL REPORT

TO OUTPERFORM

MONETARY AMOUNTS IN THIS ANNUAL REPORT ARE IN CANADIAN DOLLARS UNLESS OTHERWISE NOTED.

TO OUTPERFORM

FINNING AT A GLANCE

FINANCIAL HIGHLIGHTS

LETTEr To SHArEHoLdErS

CHAIrmAN’S LETTEr

FINANCIAL mANAGEmENT

FINNING CANAdA

- FoCUS oN oIL SANdS

oEm rEmANUFACTUrING

FINNING SoUTH AmErICA

- FoCUS oN CoPPEr mINING

FINNING GroUP UK

- FoCUS oN U.K. CoNSTrUCTIoN

PowEr SySTEmS

CorPorATE rESPoNSIbILITy

FINANCIAL rEPorT

boArd oF dIrECTorS

CorPorATE oFFICErS ANd
EXECUTIVE mANAGEmENT

CorPorATE GoVErNANCE

SHArEHoLdEr INFormATIoN

Inside ack Cover

CAT 797 MINING TRUCKS - ALBIAN SANDS, ALBERTA

FINNING AT A GLANCE

Finning International Inc. is the world’s largest Caterpillar equipment dealer. The Company sells, rents, finances and
provides customer support services for Caterpillar equipment and engines in western Canada, the U.K., and
South America (Chile, Argentina, olivia, and Uruguay). Finning also owns Hewden, the largest equipment rental
business in Europe. Headquartered in Vancouver, ritish Columbia, Canada, Finning International Inc. is a widely-held,
publicly-traded corporation, listed on the Toronto Stock Exchange (symbol FTT).

Finning operations worldwide

Edmonton

Vancouver

Santiago

Glasgow

Cannock

FINNING (CANAdA)

FINNING SoUTH AmErICA

FINNING (UK)
HEwdEN

H Corporate Headquarters

Finning (Canada)

Finning South America

Finning (UK)

Hewden

- Sectors: mining, construction,
oil & gas, forestry, pipelines
- 3,300 employees
- 75 branch locations and a
presence in 45 other
communities throughout
.C., Alberta,Yukon and the
Northwest Territories

Financial Performance
($ millions)

Revenue
EIT

2005
2004
2,050 1,563
132

150

- Sectors: mining, construction,
oil & gas, forestry
- 3,400 employees
- 48 locations throughout Chile,
Argentina, olivia and Uruguay

- Sectors: construction,
materials handling, mining,
quarrying, waste
management
- 2,500 employees
- 27 locations throughout
England, Scotland and Wales

- Europe’s largest equipment
rental and associated services
operation
- Sectors: construction,
engineering, petrochemical,
manufacturing, telecom
- 3,600 employees
- 353 locations throughout the
U.K.

Revenue
EIT

2005
1,007
95

2004
870
83

Revenue
EIT

2005
2004
1,123 1,043
34

Revenue
EIT

2005
655
55

2004
686
59

2
2

2005 ACHIEVEmENTS

oPPorTUNITIES

• Very strong revenue growth, up 16% over 2004

• Oil sands expansion in Alberta

• Record annual earnings of $1.85 per share

• Copper mining growth in Chile

• Record new equipment deliveries in all operations

• uoyant mining activity in ritish Columbia

• Excellent safety record: LTI(1) frequency – 0.72

• Strong construction market in all territories

• Strong cash flow (after working capital changes), up 94%
to $479 million

• Debt to total capital ratio reduced to 47% from 51%

• Shift in consolidated revenue mix to parts and service

• Pipeline construction projects worldwide
including western Canadian gas pipeline projects

• Quarterly dividend increase in 2006 of 18% to $0.13 per
share (six increases in four years)

• Growing global demand for distributed power
generation

• Improved UK operations

• Continued focus on cost savings and efficiencies

• Increased contribution from new business
initiatives (OEM, Diperk UK, Pipeline Machinery
International)

• Record order backlog of $968 million

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

Power Systems*

- Caterpillar and associated brands
engine sales and service in all Finning
territories.
- Sectors: oil and gas, on-highway trucks,
marine, industrial, distributed power,
construction and rental.

Results are reported within other Finning
divisions. Revenues included within other
divisions are:

Revenue

2005
610

2004
479

14%

TOTAL REVENUES BY OPERATION

23%

42%

21%

FINNING (CANADA)
FINNING SOUTH AMERICA
FINNING (UK)
HEWDEN

42%
21%
23%
14%

* Power Systems locations and # of employees are recorded within other Finning divisions

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3
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FINANCIAL HIGHLIGHTS

YEAR ENDED DECEMER 31
($MILLIONS, EXCEPT PER SHARE AMOUNTS)

oPErATING dATA
Revenue
Earnings efore Interest and Taxes
Net Income
asic Earnings Per Share
Diluted Earnings Per Share
Return on Equity (%)
Cash Flow from Operations After Working Capital Items

bALANCE SHEET dATA
Total Assets
Invested Capital
Total Shareholders’ Equity
Debt to Equity Ratio*

* Non-controlling interest treated as equity in 2003.

2005

2004

2003

4,834.6
285.3
164.0
1.85
1.83
11.8%
478.8

4,161.9
265.7
114.9
1.45
1.43
11.0%
247.4

3,736.4
2,644.7
1,413.0
0.87:1

3,804.0
2,694.1
1,326.2
1.03:1

3,593.3
255.2
132.0
1.71
1.68
14.3%
384.2

3,440.6
2,471.9
958.6
0.79:1

REVENUE ($ BILLIONS)

EBIT ($ MILLIONS)
Earnings Before Interest & Taxes

NET INCOME ($ MILLIONS)

BASIC EPS ($)
Earnings Per Share

4.16

3.59

3.25

3.21

4.83

300

250

242

285

200

278

266

255

200

150

100

150

100

2.00

1.85

1.72

1.71

164

1.50

1.37

1.45

132

115

104

1.00

0.50

0.00

2001 2002 2003 2004 2005

5.0

4.0

3.0

2.0

1.0

0.0

In 2005, Finning continued to set the pace
with record revenues of $4.8 billion and
solid market share gains. We achieved
another year of very high levels of new
equipment sales further expanding the
population of Caterpillar equipment in all
our territories. This large and growing
fleet is the foundation for significant parts,
service and product support opportunities
which will drive increasing profitability for
Finning in the future.

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LETTEr To SHArEHoLdErS

TO EXCEL

“Our business is underpinned by
two fundamental goals: to provide
unrivalled customer service and,
in the context of prudent financial
management, to generate superior
returns for our shareholders.”

Doug Whitehead
PRESIDENT & CEO

To our shareholders:

2005 proved another milestone year for Finning in terms of new
equipment orders and revenue growth, while at the same time
testing our ability to operate efficiently given such high customer
demand and the challenges we had to overcome to meet that
demand.

Overall, we met those challenges successfully, resulting in another
very strong year - an achievement that directly reflects the
efforts of Finning employees and their dedication and
inventiveness in every aspect of our business. I am proud of our
“can do” culture and ability to respond to challenging conditions
and changing customer needs. This resolve to never become
complacent is key to the success to which we are driven.

Tracking progress
Highlights of 2005 include an outstanding performance by our
Canadian operations, followed closely by the very strong results
from our South American group. oth regions generated returns
on capital that exceeded our risk-adjusted target returns and set
absolute profit records. Performance from our UK operations
generated mixed results in 2005. Hewden continued its steady
recovery, working diligently to build a customer-focused rental
business, which will be supported by new information technology.
This will enable first-class customer service as well as
management access to timely information to increase our
efficiency in directing a large-scale business in a very competitive
marketplace.

In the UK Caterpillar dealership, 2005 was an improved year for
our Power Systems and Construction Equipment divisions, which
rebounded from 2004 with record deliveries of new machinery.
Unfortunately, the Materials Handling (fork lift) business in the
U.K. did not perform well, due to very competitive market
conditions and internal systems challenges that resulted in
reduced business volumes, higher costs and lower profitability.

To address this under-performance, we have revised our business
plan, made senior management changes and are working with our
key supplier. In addition, we are considering a new information
technology system that will make our Materials Handling division

more cost-efficient and improve customer service. Addressing
the overall performance of our Materials Handling business in
the U.K. is our primary objective for 2006.

meeting demand
Strong demand for equipment and parts in our markets, as well
as globally, not only increased our order book volume, it also
led to tight supply. In response, while Caterpillar worked hard to
ramp up production, each Finning operating unit exerted
considerable effort and expense to meet customer needs.

We utilized rental fleets extensively to help customers avoid
downtime. We sourced used equipment to satisfy short-term
demand. We also stepped up Finning’s capabilities for
remanufacturing in Canada and South America. Our OEM
Remanufacturing facility in Edmonton is now complete and fully
operational.

Our relationship with Caterpillar is stronger than ever. As our
key business partner, and with Finning as the world’s largest
Cat dealer, mutual support and cooperation remain vital. This
proved clearly evident in our joint development of a new
strategic plan for our UK Caterpillar dealership, which is
discussed in further detail in the UK section of this report.

Equally important, the commitment of Finning employees to
all customers in every sector ensures that outstanding service
continues to be the hallmark of our corporate culture.

driving opportunity
Finning continues to benefit from an unprecedented commodity
up-cycle that shows no indication of slowing. As our customers
in mining and oil and gas respond to rising global demand,
we are winning a growing share of contracts for equipment,
maintenance and support services. As these industries prosper,
their success spreads to related businesses and drives
construction in both the private and public sectors. As a result,
our order book remains extremely strong at $968 million, up
16% over year-end 2004 levels, a clear signal that 2006 is shaping
up to be a very good year.

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LETTEr To SHArEHoLdErS

RELATIVE PRICE PERFORMANCE
FINNING INTERNATIONAL INC. VS. S&P/TSX COMPOSITE INDEX
Dec. 31, 2000 to Dec. 31, 2005

300

250

200

150

100

2000

2001

2002

2003

2004

2005

Finning International Inc.

S&P/TSX Composite Index

2005 return to Shareholders

In 2005, Finning’s common shares provided shareholders with
a capital gain of 6% and dividends totaling $0.44 per share.
Total return to shareholders was over 7%.

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

5 years - 24%
10 years - 14%
20 years - 12%

For several years, we have experienced a surge in new
equipment sales, considerably adding to the size of the Cat
fleets in our markets. This translates into future opportunity: as
warranties expire and equipment comes due for maintenance,
we expect these fleets to drive a growing stream of higher
margin parts and service revenue for Finning. This will ensure
that Canada and South America will continue to contribute
significantly to our corporate-wide growth as we go forward.

Fuelling growth
Canada is expected to once again report record results
bolstered by high commodity prices, thriving resource and
construction based businesses, and improved results from our
newer ventures. Western Canadian economic forecasts remain
robust, creating strong demand for new and used equipment,
rentals, parts and customer support services. The oil sands
sector in particular presents tremendous future opportunities
for Finning.

In South America, record copper and gold prices continue to
drive new mine openings and higher demand for new equipment.
Tax and royalty revenues are bolstering local economies
resulting in increased spending on infrastructure and private
sector construction. Finning operations will continue to
capitalize on this growth, together with increasing profitability in
parts and service.

While economic activity in the U.K. is expected to remain at
reasonable levels in 2006, competition will continue to be
challenging in all our lines of business.

Hewden will continue to advance its key projects, including the
installation of a new management information system and the
implementation of a lower capital-cost, customer-facing structure.

In the UK Caterpillar dealership, the Construction Equipment
division will benefit from growing demand from new coal mines in
Scotland and Wales, however general and infrastructure
construction will remain the primary markets.

Overall, revenue growth in Finning (UK) and Hewden is expected
to be modest in 2006, yet focus on expense control should see
profitability improve in each operation. To support the main
elements of our UK business in the future, we are now
implementing a joint strategic plan with Caterpillar designed to
enable the dealership to double market share in key product lines
and reach median levels of profitability for Cat dealers.

Finning’s global Power Systems revenues continue to grow with
significant market gains in marine and electric power
generation applications, as well as unprecedented demand from
the gas compression industry in Canada. “Green energy”
initiatives globally are also expected to fuel Power Systems
opportunities in the future.

Ian M. Reid – President
Finning (Canada)

rian C. ell – President
Finning South America

Nicholas . Lloyd – Managing Director
Finning Group, UK

Stephen Mallett – President
Finning Power Systems

Nadine J. lock – Vice President
Corporate Human Resources

Worldwide, despite challenging supply conditions, our market
share in mining, general construction and power systems has
grown considerably, with record machine deliveries in all
geographic regions.

Our keen focus on employee safety remains a key element of
Finning culture, and in 2005 we set another safety record and
continued as a recognized leader in workplace safety performance.
Sadly, despite our high standards and emphasis on safety,
a tragedy occured on July 9, 2005 at one of our Hewden branches
in the U.K. Daniel Littler lost his life on July12, 2005 from the
injuries he suffered at work. Daniel will be sadly missed by all his
family, friends and colleagues. His death serves as a reminder to
each of us that workplace safety must be the first and foremost
consideration everyday. We must continually exercise caution.

Looking ahead, we have laid the groundwork to accrue larger
future gains as our many initiatives mature. We have the people
and financial resources to seize the numerous opportunities in all
our markets. Caterpillar is committed to expediting supply. And
we remain focused on providing unparalleled customer service,
generating operational efficiencies and containing costs.

In summary, our business is about people and service excellence.
Without the hard work and dedication of thousands of Finning
employees, our company would not have grown to become the
successful organization it is. I thank all of our personnel for their
commitment to both Finning and our customers. I also thank our
oard of Directors and Caterpillar for their ongoing support.

Early in 2005, John Cleghorn decided not to stand for
re-election to the oard due to heavy demands on his time
from other commitments. I’d like to take this opportunity
to thank John for his service to Finning’s shareholders and
to wish him well in his future endeavors.

Though 2005 was challenging, it was unquestionably
rewarding. As we go forward, we remain passionate about
improving results year-over-year, achieving our financial and
operating targets, and delivering stronger returns to our
shareholders.

This is the goal to which we are dedicated and driven.

Sincerely,
FINNING INTERNATIONAL INC.

Douglas W. G. Whitehead
President & Chief Executive Officer

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CHAIrmAN’S LETTEr

Conrad A. Pinette
CHAIRMAN OF THE OARD

Douglas W.G. Whitehead
PRESIDENT & CEO

Jefferson J. Mooney

Michael T. Waites

James F. Dinning

“2005 was a very good year for Finning as the Company
continued its solid rate of growth while focusing on
improving efficiencies in all operations.”

Andrew H. Simon

Donald S. O’Sullivan

John M. Willson

Timothy S. Howden

Ricardo acarreza

The Finning oard of Directors is a balanced and experienced international team working to represent the interests of Finning
shareholders. The oard considers excellence in corporate governance, as well as a corporate culture of integrity and respect for the
Company’s stakeholders, to be critical to Finning’s future success. High governance standards support the effectiveness of the oard in
overseeing management and enhancing shareholder value.

Over the years, Finning has been recognized as one of the best-governed companies in Canada. The oard is focused on building on this
success through continuous evaluation and improvement of our governance processes, and is committed to remaining a leader in
corporate governance practices.

2005 was a very good year for Finning as the Company continued its solid rate of growth while focusing on improving efficiencies in all
operations. The under-performance of our UK operations is a key issue and one the oard is monitoring closely. Improving Finning’s
performance in the U.K. is management’s primary objective in 2006.

On behalf of the oard of Directors, I would like to thank Finning’s management team and employees around the world for their
dedication and drive to achieve Finning’s corporate goals and deliver value to our shareholders.

The Company’s management proxy circular and the corporate governance section of the Company’s website provide a full discussion
of Finning’s corporate governance policies and practices. I encourage you to review this material for a more complete understanding
of Finning.

On behalf of the entire oard,

Conrad A. Pinnette
Chairman of the oard

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FINANCIAL mANAGEmENT

Finning’s financial health continues to be very good.
We have responded well to the financial pressures
created by the dramatic growth of 2004 and 2005.

2005 earnings reach record levels.
Our 2005 reported earnings grew to $1.85 per share
reflecting the strong performance of our Canadian and
South American operations. Earnings per share, while at
record levels, were below our expectations due to a
number of factors:
• Finning (UK) results were lower than expected;
• the Canadian dollar was stronger than expected; and
• the rise in our stock price in the third quarter of
2005 triggered long-term incentive plan expenses
that impacted our earnings to a higher degree than
anticipated.

2005 cash flow is greatly improved.
Cash flow after changes in working capital increased to
over $475 million, almost two times the previous year’s
amount, due to a strong focus on more efficient use of
working capital. Each of our operating units was
successful in controlling new equipment inventories,
improving cash cycle times and implementing capital
efficiencies.

Shareholder dividends rose for the sixth time
in four years.
Quarterly dividends paid to shareholders increased
from $0.10 to $0.11 per share in 2005, and again to
$0.13 per share in early 2006. Finning remains
committed to providing our shareholders with an
attractive and growing dividend as part of the overall
annual return. To the extent that earnings growth allows,
we plan to continue increasing shareholder dividends.

Tighter corporate governance
requirements will be met on time.
We continue to meet the stringent governance
requirements of new legislation. We have met all the
certification stipulations to date and are well on our way
to meet the next level of requirements. The onus to
comply with the Canadian Securities Administrators
Multilateral Instrument 52-109 while running everyday
business is a challenge, but we prevail and are set to
meet the ultimate level of requirements. The Company
has appropriate disclosure controls and procedures in
place to ensure all material information is disclosed on a
timely basis.

ANNUAL DIVIDEND PER SHARE

5 YEAR COMPOUND ANNUAL GROWTH RATE = 21%

0.52*

0.44

0.40

0.36

0.30

$0.60

$0.50

$0.40

$0.30

0.20

$0.20

$0.10

$0.0

2001 2002 2003 2004 2005 2006

*Indicated Dividend

Long-term incentive plan expenses
impact earnings.
In 2002, when governance experts questioned the
propriety of share options as long-term incentives for
public company management, Finning moved to
performance vesting Deferred Share Units (DSU’s).
Widely regarded as a better alternative to align
management with shareholders, DSU’s are expensed when
they vest and then marked to market. We assumed a fairly
even and modest impact on earnings over time, linked to
increases in stock price. However, we found that the
vesting expense can vary significantly between periods.
In 2005, as our stock price increased, the associated
expense amounted to $0.16 per share (non-cash), which
reflects the vesting of 7 out of 16 tranches in 2005 (5
tranches in Q3 alone). The impact of the unvested DSU’s
will be more modest, as only 3 tranches remain. Going
forward, with the 2004 re-introduction of stock options,
combined with DSU’s, the impact of DSU vesting and
mark-to-market is expected to be less variable.

New bank facility will ensure credit
stability for 5 years.
During 2005, we successfully negotiated a global, 5-year
committed revolving credit facility for $800 million with an
international syndicate of banks. This credit facility will be
a source of financing for all of our regions and provide
improved pricing and liquidity for the next 5 years.

we are on target for $60 million in cost
savings by year end 2006.
Launched in mid 2004, our “60 by 06” cost savings
program gained momentum in 2005. Across all regions,
we’ve undertaken over 100 efficiency projects that will cut
expenditures and add value and discipline to our future
performance. While the nature of our cost-saving
initiatives has evolved over the 18 months since we started,
we are in good shape to hit our mark, with over $37
million of ongoing annual savings already achieved at
Dec 31, 2005.

Enterprise risk management is proving very
worthwhile.
Our adoption of an enterprise-wide risk management
process has established a valuable tool for identifying
and prioritizing the risk areas that impact our businesses.
Working at ground level to help us run day-to-day
operations, this framework also facilitates the process by
which we report information to our oard of Directors
and shareholders.

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FINNING | CANADA

TO LEAD

FINNING MECHANIC ON AN 844 WHEEL DOZER IN ASSEMBLY SHOP- MILDRED LAKE BRANCH, ALBERTA

A corporate crown jewel, this territory alone generates
annual revenues exceeding $2 billion.

2005 Performance
Finning (Canada) had a very successful year, capitalizing on
increased demand from customers across all sectors. Continued
strength in commodity prices and healthy economies in .C. and
Alberta supported very robust activity in mining, construction, oil
and gas and forestry.

mining
This sector saw very strong growth in 2005 due to rising
commodity prices, driven by growing global demand and limited
supply. All indicators point to continued strength in mining, and
we expect to benefit from rising demand for parts and service on
equipment already operating in the field.

Another year of strong equipment sales added to the large and
growing population of Cat equipment in western Canada, provid-
ing significant growth opportunities for product support services
in future years. While managing increased volumes of business in
all operations, Finning (Canada) set a new safety record in 2005
to remain a recognized leader in industry safety.

Tackling Challenges
Increased worldwide demand for Cat equipment and parts led
to supply shortages in some product categories. To mitigate new
equipment availability issues, Finning (Canada) devised innovative
strategies to meet customer needs including selling a portion of
its rental fleet as well as sourcing and selling record amounts of
quality used equipment.

Increased need for skilled service personnel also presented a
challenge, calling for renewed focus on recruiting initiatives. Our
new “People Strategy” is aimed at attracting, developing and
engaging quality people to grow the business and service our
customers.

Construction
Record expenditures for housing and commercial construction
and major infrastructure projects in western Canada led to a very
successful year for all lines of Cat construction equipment.
Proposed construction expenditures for 2006 will see Finning gain
further ground with excellent opportunities to build on this year’s
wins.

Conventional oil & Gas
Approximately 22,000 wells were drilled in western Canada
in 2005, and a higher number is expected for 2006. We anticipate
strong demand for gas compression engines and mobile equipment
through 2006 and beyond.

Forestry
The .C. interior softwood lumber industry had a strong year in
2005 due to higher prices for lumber and accelerated harvesting
to counter the widespread impact of the pine beetle infestation.
These factors are expected to continue to positively influence
demand for equipment in .C.’s interior forestry sector.

Future momentum
The western Canadian economy is forecast to remain strong
and commodity prices are expected to stay at attractive levels
throughout 2006. As a result, Finning (Canada) is anticipating
another very good year for new equipment sales and increased
parts and service business from the growing population of ma-
chines in its territories.

Cat rental Stores
With 27 stores in .C. and Alberta, we are now a major player in
the small equipment rental industry. 2005 was a very successful
year, with revenues up 56% and profitability exceeding
expectations. Finning plans to open two new Cat Rental Stores in
2006 and will continue to focus on cost efficiencies and increased
asset utilization.

Expansion of the Alberta oil sands industry and .C.’s mining
sector, together with growing housing starts and construction
projects related to the 2010 Olympics, as well as numerous
infrastructure initiatives, all point to favourable market conditions
and opportunities for 2006 and years to come.

Pipelines
As a partner with a 25% interest in PipeLine Machinery
International (PLM), the global Cat pipeline equipment dealership,
Finning has the opportunity to become involved as a supplier to
pipeline construction projects worldwide. Several major pipeline
projects have been proposed for western Canada and are
expected to proceed in the 2007 to 2011 time period.

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FOCUS ON THE OIL SANDS

NORTHWEST TERRITORIES

797 MINING TRUCKS - ALBIAN SANDS, ALBERTA

ATHABASCA DEPOSIT

Mildred Lake

ALBERTA

Fort McMurray

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A t h a b as c a R iv e r

Edmonton

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The Alberta oil sands – “the biggest known oil reserve
in the world” is expected to attract an estimated $87
billion worth of investment over the next decade(1).

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UNITED STATES

311

265

177

COMPARATIVE OIL RESERVES(2)
(billions of barrels)

CANADA conventional
US conventional
ALBERTA OIL SANDS established reserves
SAUDI ARABIA
ALBERTA OIL SANDS ultimately recoverable
reserves

(1) Government of Alberta
(2) Alberta Energy and Utilities oard

renewed energy
In 2005 the vast potential of the Canadian oil sands became
world news. With oil prices reaching and exceeding the US $60
per barrel range for an extended period, the economic value of
this Canadian resource became widely recognized. Finning saw
the long-term potential of this region a decade ago and prudently
began to capitalize on emerging oil sands production.

There are an estimated 1.7 trillion barrels of bitumen in place in
the oil sands’ three major areas, which encompass nearly 80,000
square kilometres – Athabasca/Fort McMurray, Cold Lake and
Peace River. 177 billion barrels are classified as established
recoverable reserves, second only to Saudi Arabia.

Existing projects produced about one million barrels of oil per
day in 2005, a 67% increase over production levels of five years
ago. As global energy demands escalate and conventional supply
is unable to keep up, sustaining oil prices at or above US $40
per barrel, the oil sands output is expected to triple within the
next decade. This level of production has the potential to provide

797 MINING TRUCKS - ALBIAN SANDS, ALBERTA

» Mechanics at truck shop - Albian Sands

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» Caterpillar Excavator, working tailings
- Albian Sands

over 10% of North America’s crude oil supply, and is estimated
to require more than $87 billion of capital investment in existing
and proposed mining operations, which will be producing oil for
decades to come.

Most oil sands production is currently recovered using a
surface-mining method, referred to as “truck & shovel” mining,
which involves excavating millions of cubic metres of oil-
containing sand and trucking it to processing plants. This work
requires the large capacity and durability of Cat equipment,
supported by Finning’s around-the-clock maintenance and
customer service.

Leading position
Today, Finning is the industry leader in oil sands equipment
sales and service. Finning customers operate the world’s largest
population of Cat 797 trucks - 79 units - all working 24 hours a
day, 365 days a year in challenging conditions of extreme winter
temperatures, a highly abrasive, oil-saturated, sandy environment
and, in summer, soft ground conditions. In this setting, the
reliability and durability of these trucks, the biggest in the world,
are critical to delivering production efficiencies for our customers.
In addition, Finning is by far the largest supplier with a full range
of equipment, parts and customer support services that the oil
sands industry depends on.

In the current economic climate, when time is money, and
equipment downtime must be kept to a minimum, customers are
constantly looking for ways to guarantee equipment
performance and minimize operating costs. In response, Finning
works in full partnership with customers through Maintenance
and Repair Contracts (MARCs). As a MARC provider, Finning
offers complete fleet maintenance, including repairs, parts,
preventive maintenance and other equipment management
services that control key variables relating to mechanical
availability.

Fuelled growth
The Alberta oil sands represent a tremendous growth
opportunity for Finning. Cat mining equipment, widely regarded
as among the best in the world, supported by Finning’s extensive
customer service infrastructure, gives us a significant competitive
advantage in this region. Finning is in an excellent position to
continue to capitalize on equipment, parts and service
requirements for existing mine expansions, new projects and
opportunities for current fleet replacements for these long-lived
mining operations.

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FOCUS ON THE OIL SANDS CONTINUED

» 797 Mining Trucks - Albian Sands

» Mildred Lake parts warehouse

» Mechanic - Mildred Lake truck shop

Finning oil sands employees: 307
2005 oil sands mining revenue: $310 million

CATERPILLAR FLEET IN THE OIL SANDS

CATERPILLAR 797B MINING TRUCK
FAST FACTS

797 TRUCKS*
793 TRUCKS
777-789 TRUCKS
D10 & D11 TRACTORS
D8-D9 TRACTORS
24H GRADERS
16H GRADERS
TOTAL

*Includes trucks to be delivered in 2006

96
53
56
55
27
27
26
340

EMPTY WEIGHT
MAX SPEED
HORSE POWER
HEIGHT (empty)
LENGTH
WIDTH
FUEL CAPACITY
LOAD CAPACITY
TIRE DIMENSIONS
TIRE WEIGHT

623,690 kg (1,375,000 lb)
67 km/h (42 mph)
3,550 hp
7.6 metres (24.9 ft)
14.5 metres (47.5 ft)
9.8 metres (32 ft)
6,814 litres (1,800 gal)
400 tonnes
4 metres (13 ft) high
15,000 kg (33,000 lb)

OEM REMANUFACTURING

» OEM Remanufacturing - Edmonton

» Mechanics in engine shop - OEM

» OEM machine shop - Edmonton

Finning International’s new component remanufacturing
business supplies cost competitive components to
Finning and other industrial customers.

In 2005, Finning International finalized a significant strategic
investment to support customers who depend on very large
Caterpillar equipment. Over $70 million was invested in a
state-of-the-art, 286,000 sq. ft. component remanufacturing facility
in Edmonton. Completed in mid 2005, OEM Remanufacturing
(OEM) is now fully operational, providing customers across
western Canada with access to a large and reliable supply of
remanufactured Caterpillar engines, powertrain and hydraulic
components for large equipment.

OEM is one of North America’s most advanced engine and power
train component remanufacturing companies. Remanufacturing
services are complemented by a comprehensive exchange
program of quality remanufactured components enhancing the
quality of customer service.

Assembled components are fully tested at full horsepower, torque,
rpm (revolutions per minute) and hydraulic pressure to accurately
simulate field operating conditions.

OEM provides Finning customers with a wide supply of “like new”
components which lowers the overall cost of owning and
operating Caterpillar equipment.

OEM’s new facility was designed with considerable expansion
capacity to meet the growing future demand for remanufacturing
services in the natural resources industry in western Canada, as
well as customers beyond Finning’s dealership territory.

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FINNING | SOUTH AMERICA

TO ADVANCE

LAS REJAS BRANCH - SANTIAGO, CHILE

2005 results reflect very good growth in the mining
and general machinery sectors.

2005 Performance
Finning South America continued to experience growing demand
for equipment, parts and service across all industries. Driven
largely by an increase in new equipment sales, 2005 total revenue
rose 16% over last year to a record $1.0 billion. EIT increased by
15% to $95 million.

Mining-related revenues increased by 15% in 2005 reflecting a
very busy mining sector fueled by strong copper and gold prices.
Finning also capitalized on broader economic growth in this
region, with construction equipment revenue up 41% boosted by
strong construction and infrastructure spending.

The attractive growth in new equipment sales continues to build
the Cat fleet in this territory, paving the way for healthy growth in
parts and service revenues in the future.

Tackling Challenges
In 2005, very strong demand for Cat equipment and tight
supply called for creative methods of meeting immediate
customer needs. Throughout the region, Finning staff rose to
the challenge, utilizing rental fleets where possible and expediting
delivery and dealer preparation activity for new equipment.
In some instances, meeting customer needs in a timely fashion
impacted profitability.

In the past two years, Finning South America has expanded
dramatically, almost doubling revenues and hiring approximately
1,000 new mechanics and shop support staff. To meet the
challenge of training these new employees, Finning University
was launched in 2005. oth increased training and a focus on
customer satisfaction and loyalty were key service initiatives in
2005.

Future momentum
Copper and gold prices are expected to remain strong through
2006, enabling mining customers to operate at peak levels and
expand operations. Also, the growing income tax and royalty
payments from this sector fuel government infrastructure
development and wider economic growth. Having expanded our
resources considerably in 2004 and 2005, we are well positioned
to capitalize on the resulting opportunities.

Finning South America is also increasing capabilities in parts and
components remanufacturing. These facilities in Antofagasta, Chile
underwent a major expansion in 2004, and a full truck rebuild
centre will open in mid 2006 in La Negra, Chile. With larger Cat
fleets operating in this region, a proportional increase in more
profitable parts and service revenues is expected in 2006.

mining
2005 proved to be another very robust year for growth in the
mining sector, driven by strong global demand for copper and
gold. Capitalizing on this growth, as well as securing multi-year
service contracts with most mining equipment sales, ensures an
ongoing stream of parts and service revenue.

Construction
Government spending on roads, highways and other
infrastructure allowed our construction customers to expand
their equipment fleets. In Argentina, the general machinery
business had a very strong year and exceeded expectations.

Forestry
Finning is well positioned to take advantage of the growing
opportunities in the forestry sector. Radiata Pine and Eucalyptus
plantations are well suited for mechanized logging. As new
plantations mature every year, there is ongoing demand for
additional equipment. The Chilean harvest of Eucalyptus is
estimated to increase 400% by 2010.

1,007

870

562

448

445

1,200

1,000

800

600

400

200

FINNING SOUTH AMERICA
REVENUE
($ millions)

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2001 2002 2003 2004 2005

FOCUS ON COPPER MINING

ESCONDIDA COPPER MINE, ATACAMA DESERT, CHILE

The world’s largest copper producer, Chile is ranked as a
prime region for further mining investment(1).

GROWING SOUTH AMERICAN COPPER PRODUCTION*
(thousand tonnes)

CHILE
PERU
ARGENTINA
BRAZIL

10,000

8,000

6,000

4,000

2,000

1985

1990

1995

2000

2005

2010

1993 - FINNING ACQUIRED THE CATERPILLAR DEALERSHIP IN CHILE

2003 - FINNING ACQUIRED THE CATERPILLAR DEALERSHIP IN ARGENTINA

* CRU

Chilean copper
Chile holds about 30% of the world’s known copper resources,
and has dominated global copper production since the 1990s.
Over the last decade, Chilean copper output has more than
doubled, reaching 5.6 million tonnes in 2005 and accounting for
approximately 35% of the world’s mined copper.

Escalating global demand for copper, driven primarily by
expanding economies in Asia, strong housing markets in North
America and Europe, and explosive growth in consumer
electronics worldwide, coupled with limited supply growth, have
pushed the price of copper to the U.S. $2.00/lb. range in 2005 –
a 54% increase over the previous year. While copper prices are
forecast to retreat somewhat from the current historical highs,
they are expected to remain at attractive levels. The result is that
the Chilean copper mining industry is expected to continue to
prosper, with production levels projected to increase to 6.6
million tonnes per year by 2010.

As one of the world’s lowest-cost copper producing countries
and one with a stable political climate and healthy economic
growth, Chile is consistently ranked as the best place for mining

(1)Fraser Institute, Canada

FOCUS ON COPPER MINING

» 797 en route to the crusher deck,
Escondida - Chile

» Ripper, Coldeco copper mine - northern Chile

» Finning mechanics at truck shop in Escondida

companies to invest. Growing copper production is estimated to
draw U.S. $11 billion in capital investment over the next three
years to fund new mine openings and the expansion of existing
projects.(2)

Finning has been the Caterpillar dealer in Chile since 1993 and
has capitalized on the strong growth in copper mining since the
mid 1990s. In 2003, Finning expanded its operations in this metal-
rich region of South America through the acquisition of the Cat
dealerships in Argentina, olivia and Uruguay.

Leading position
Mining remains a key industry segment and growth driver for
Finning South America, accounting for 58% of total revenue in
2005. Strong growth in mining has also fuelled broader economic
expansion resulting in increased spending on general construction
and infrastructure in the region.

Finning South America has successfully responded to the
growing demand for mining equipment, parts and customer
support services, and now commands approximately 65% of the
market in this sector. We also provide comprehensive customer
support services and maintain the second largest population of
Cat 797 mining trucks in the world (57 units - behind only the
Canadian oil sands fleets). These machines operate in some of the
world’s largest open pit mines, sometimes located at high

(2) Chile’s State Copper Commission

altitudes and in challenging environments, where optimal
equipment performance is critical and downtime is costly.
Finning offers its customers the most reliable and durable mining
equipment available – Caterpillar equipment, and provides the
most comprehensive maintenance services that allow our
customers to operate as efficiently as possible. Over the years,
Finning has significantly expanded its customer service
infrastructure, invested in training its mechanics to top industry
standards and improved its remanufacturing capabilities. Finning
South America is now in a leading position to respond to growing
business volumes and evolving customer requirements.

Fuelled growth
The outlook for Finning operations in the South American copper
mining industry is excellent. We will continue to capitalize on
increasing demand in new and expanding mines, and secure
long-term maintenance contracts that drive future parts and
service opportunities. Our upgraded remanufacturing facility
and a new truck rebuild centre will bring additional value to our
mining customers as we continually strive to improve our service
expertise and capabilities in this large, resource rich and low-cost
mining region.

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FINNING | GROUP UK

TO CONTEND

TELEHANDLER - WEMBLEY STADIUM CONSTRUCTION SITE

Closer to the customer and more efficient, we are
focused on improving performance.

FINNING GROUP UK

HEWDEN
Rental Operation

FINNING (UK)

CONSTRUCTION
EQUIPMENT

POWER
SYSTEMS

MATERIALS
HANDLING

2005 Performance

Finning (UK)
Finning (UK) 2005 revenues increased 8% to $1.1 billion (up 16% in
local currency) driven by growth in the Construction Equipment
and Power Systems divisions. New mobile equipment revenues
increased 23% mainly due to strong activity in the mining and
quarrying sectors, in part driven by higher coal prices. Customer
service revenues increased 4% reflecting success in winning more
parts and service business.

These revenue improvements were partially offset by the results
from the Materials Handling (fork lift truck) division, which ex-
perienced a challenging year. The difficult task of merging the Lex
Harvey and the previous Finning Materials Handling businesses,
combined with very competitive market conditions, were the
primary reasons for this business failing to meet expectations.

Hewden
Hewden’s 2005 revenues decreased 5% to $655 million (in local
currency, revenues increased 3%). While the U.K. equipment rental
market continued to be price competitive in 2005, rental margins
showed a modest improvement. Hewden capitalized on relatively
strong activity across most sectors, increasing used equipment
sales and rental volumes from customers in construction and
petrochemicals.

During the year, Hewden continued to implement its
“One Hewden” strategy to provide total equipment rental
solutions on a nation-wide basis to professional customers who
build, maintain and repair the infrastructure in the U.K. Hewden
also continued to focus on expense control and improving
efficiencies. Headcount was reduced by 125 employees to 3,600.

operating Initiatives

Finning (UK)
A primary focus for the dealership in 2005 was to build machine
population while reducing its cost base through implementing
operating efficiencies. Continuing the strategy of moving closer
to customers, a regional account management structure was
implemented and a strategic account team was formed.

Together with Caterpillar, in 2005 Finning completed an in-depth
review of its customers, products and markets, and with
Caterpillar has agreed to a three-year strategic plan to double
new construction machine unit sales and, concurrently, to improve
the profitability of the dealership to the median level of dealers
in the Caterpillar network. Caterpillar’s commitment to this plan
includes ensuring that its product line in the U.K. has market
based pricing and that its equipment meets the technical
requirements of the U.K. specific customer base.

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FINNING | GROUP UK CONTINUED

Finning, for its part, has been working on adjusting its existing
centralized product service offerings for its larger equipment
customers to a more decentralized, regional model, moving its
service offering closer to the customer. To increase share in the
small equipment market, Finning (UK)’s Construction Division has
launched a new Cat Compact distribution channel, appointed a
general manager, and is proceeding to launch this channel in two
regions.

In Materials Handling, the effort of combining two very
different business models, Finning Materials Handling and Lex
Harvey, proved to be more challenging and costly than anticipated.
Much of this transition was completed in 2005, and the focus now
is on improving the combined business processes in the service
area. Customer support services will continue to receive signifi-
cant attention.

The information systems upgrade for the Materials Handling
division, originally planned for mid 2005, was deferred as
Caterpillar announced a change in their dealer systems direction
during the year. The Materials Handling business is now developing
and implementing processes to address the concerns of operating
two inefficient legacy systems.

Hewden
In a move to focus on its core customer base and to drive cost
efficiencies, Hewden collapsed 11 separate businesses into one
operation in 2005. This large undertaking required a significant
restructuring to align both management and internal systems.

During the year, the business continued to move closer to its
customers and lower costs. Hewden reduced regional general
management roles from nine to five and realigned its sales
structures from being product focused to a more customer
centric model. Hewden also realigned its business support
operations to achieve a cost-effective back-office function.
Two back-office support centres were formed for corporate and
commercial reporting, resulting in a reduction of headcount by
36 people.

Future momentum

The U.K. economy has enjoyed a period of sustained stability, and
interest rates are forecast to remain at current levels. Although
in 2005 construction output saw its first decline since 1994,
the decline was nominal, and all indicators point to a favourable
outlook.

Finning (UK)
Finning (UK) will continue to focus on reducing costs and realize
benefits from enhanced customer relationships arising from a shift
to servicing customers on a regional basis, and will continue to
add resources at the customer interface. The impact of the new
three-year strategic plan is expected to result in higher unit sales
and improved margins.

Materials Handling will target productivity improvements and
streamline business processes to increase efficiency. This
division will also focus on improving asset productivity and
overall performance.

Hewden
Streamlining all operations under one up-to-date management
information system, Hewden will achieve increased efficiencies
and cost containment. Hewden, which rents in excess of 100,000
products each day, has announced a £14 million investment in a
new information system, which will allow it to move from
numerous legacy systems to a modern integrated systems
solution. During 2006, Hewden will continue to upgrade its
operations to meet customer needs.

GROUP UK REVENUE
($ millions)

HEWDEN
UK

U.K. CONSTRUCTION MARKET
TOTAL OUTPUT (1)
(£ millions at 2000 prices)

1,800

1,600

1,400

1,200

1,000

800

600

400

200

80,000

75,000

70,000

65,000

60,000

1,777

1,729

1,575

1,493

1,391

2001 2002 2003 2004 2005

FOCUS ON U.K. CONSTRUCTION

» Cat Excavator - Heathrow, Terminal 5

» Articulated Dump Truck - Heathrow

» Heathrow, Terminal 5 construction

The U.K. construction industry is one of the strongest in
the world, with output ranked in the global top ten.(1)

The total U.K. construction market is estimated to be worth
approximately £80 billion(2) annually. Growth has been strong,
with annual growth rates over the past 10 years in the range
of 2.0 - 2.5%. Future construction investment is expected to
grow through both publicly and privately funded initiatives.
The 2012 Summer Olympics awarded to London will also
generate considerable future opportunities.

Leading position
The expanding U.K. construction industry is a key market
opportunity for Finning, which serves two types of construction
customers: Hewden provides a one-stop solution for customers
who choose to rent their equipment, and the Construction
Equipment division of Finning (UK) offers equipment, parts and
support services to customers expanding and replacing their own
fleets.

In a climate of rising costs, it is important for construction
companies to find a “one-stop shop” where they can source all
their equipment needs and are guaranteed dealer support to
ensure reliable, cost-effective equipment performance. Finning
works with customers to provide solutions that minimize costs
and maximize productivity and equipment availability.

Fuelled growth
The growth potential for Finning Group UK in the construction
industry is excellent, driven by public/private housing,
industrial/commercial building, repair and maintenance work
and infrastructure construction.

(1) U.K. Department of Trade & Industry
(2) 1 billion = 1,000,000,000

Over the next ten years, the U.K. is projected to be one of the
few countries in the European Union with population growth.
Demographic and social trends increase the number of house-
holds leading to a housing shortage. Currently, there is an annual
shortfall of 70,000 units. Construction of housing is forecast to
increase by 39% to an estimated £25.5 billion by 2010.

In 2001, the government set out a 10-year, £180 billion plan to
improve the transport infrastructure within the U.K. To date,
many of these projects have failed to get off the ground due to
planning and legal delays. However, many large, high-value road
and rail network projects are now forecast to proceed within the
next few years.

In 2004, the U.K. government announced a “school renewal
program” to replace or renovate all of England’s secondary
schools over the next 15 years at a cost of £45 billion.

Other opportunities include a £16 billion program whereby U.K.
water utilities will invest in their supply pipes, sewers and
treatment works by upgrading or replacing the existing
infrastructure.

Many high-profile initiatives will require public/private partner-
ships and private financing, resulting in requirements for
equipment supply from a wider range of construction companies.

Construction is the largest customer segment for Finning’s
operations in the U.K. Finning Group UK is well positioned
to take advantage of the opportunities presented by this
large market.

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27
27

FINNING | POWER SYSTEMS

TO GENERATE

CATERPILLAR POWERED GENERATOR - MOLYMET, SANITAGO, CHILE

The Power Systems division supplies engines and related
customer services across all Finning territories.

2005 Performance
2005 proved a very successful year for the Power Systems busi-
ness with revenues and EIT both up approximately 27% over
2004. Strong demand for engines for gas compression and electric
power generation applications, and support services across all
sectors, contributed to higher revenues and market share gains in
most product lines.

Tackling Challenges
Tight supply conditions for certain engine models increased
delivery times and challenged our staff in meeting customer
needs. Power Systems operations in western Canada and South
America were also faced with a shortage of skilled technicians to
support the growing demand for customer service.

In addition, while the start-up Diperk UK operations continued
to build sales volumes in 2005, they were unable to generate
sufficient revenue to make a positive contribution to EIT.

Future momentum
We expect continuing strong demand for gas compression
engines from western Canada, as compression requirements
ramp up in both existing and new wells to supply rising demand
for natural gas. The electric power generation and marine original
equipment manufacturer sectors in the U.K. continue to see
demand growth. In South America, electric power generation
initiatives will drive the Power Systems business in that region.

Given high energy prices, global trends toward alternative fuel
sources will continue to support solid growth in generating
power from alternative fuels, creating future opportunities for
Finning’s UK Power Systems business. One example is the U.K.
government’s target to generate 10% of the country’s energy
from “green” sources by 2010.

In 2005, Finning increased its ownership of Energyst .V.,
a Pan-European power rental company jointly owned by
Finning, Caterpillar and 10 European Cat dealers. Finning is now
the largest shareholder with a 24.4% interest. During the year,
a new management team was appointed, and operations became
profitable. The revised ownership structure and new management
are expected to enable Energyst to broaden its markets in Europe
and generate additional revenue and positive contributions to
profitability.

Canada
The western Canadian Power Systems operations benefited
significantly from the expansion of the petroleum industry in .C.
and Alberta as high natural gas prices resulted in increased drilling
activity and demand for compression in 2005.

The “on-highway” truck business, supplying parts and service to
Cat powered trucks, saw attractive growth in 2005. Finning also
secured a contract to supply marine engines to .C. Ferry
Corporation, and was awarded the contract to provide all on-site
power generation equipment for De eers Canada Inc.’s Snap
Lake underground diamond mining project in the Northwest
Territories.

United Kingdom
The U.K. is the most diversified market for Power Systems.
Opportunities are driven by industrial and marine applications,
as well as conventional electric generation and “green”
electric power initiatives. Going forward, we expect a growing
contribution from Energyst’s operations and improved
returns from Diperk UK.

South America
The key drivers in South America are mining and construction,
ranging from generator sets for construction customers in
urban centres to remote power plants for mining customers
in the Andes. Opportunities also include emerging requirements
for energy conservation and environmental management systems
by mining customers. Future opportunities will also arise as
the gas reserves in Argentina, and to a lesser extent olivia,
are developed.

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700

600

500

400

358

363

610

479

456

POWER SYSTEMS
REVENUE
($ millions)

POWER SYSTEMS RESULTS ARE
REPORTED WITHIN OTHER
FINNING DIVISIONS

300

200

100

2001 2002 2003 2004 2005

CorPorATE rESPoNSIbILITy

TO UPHOLD

OIL SAMPLE TESTING LABORATORY - COMPONENT REBUILD CENTRE, ANTOFAGASTA, CHILE

CorPorATE rESPoNSIbILTy

From employee safety to community support, from
recycling to remanufacturing – we take our role as a
responsible corporate citizen seriously.

Setting Standards
Our employee safety standards are outstanding, and we
continuously work on improving our safety record. In 2005 our
Lost Time Injury (LTI) frequency dropped to a record low - 0.72
lost time injuries per 200,000 work hours – an excellent safety
performance.

South America
In 2005, Finning South America implemented a Corporate Social
Responsibility policy with three key components. Foremost is
safety, and like Canada, Finning South America is a record
performer with a 2005 LTI frequency rate significantly below
the industry norm.

Canada
Finning (Canada) leads in workplace safety and continues to make
measured gains towards our target of “Getting to Zero” injuries.
In 2005, Finning was named a “Work Safe Alberta - est Safety
Performer” by the Workers Compensation oard, a distinction
bestowed on just 350 of Alberta’s 128,000 employers.

In a unique partnership with the Northern Alberta Institute of
Technology and Caterpillar, Finning funds the Caterpillar Dealer
Service Technician program: ThinkIG. ased on Caterpillar’s
evaluation, our first class of graduates (spring 2005) received the
highest marks among all ThinkIG students in the world.

The United Way is the largest beneficiary of Finning’s community
investment. In addition to matching employee donations,
employees volunteer their time to the United Way. Finning
employees, customers and suppliers also participated in the
Cat Chopper Charity Ride to raise funds for the United Way.

United Kingdom
In addition to continual improvement through ISO safety and
environmental management, Finning personnel in the U.K.
support their communities throughout the year by sponsoring
events which raise funds for children, disaster relief and other
worthy causes.

In 2005, Finning (UK) became involved in an initiative to
produce electricity from mine gas, an innovative and “green”
use of this alternative fuel source. Finning employees provided
key expertise throughout nine months of strategic planning,
inventive thinking and practical solutions to help make this
endeavour possible.

The second component is an Environmental Management System
based on advanced world practices and standards. Today, two-
thirds of our Mining Contracts as well as our Component Rebuild
Centre are ISO 14001 certified and audited.

The third element is community support. We fund educational
programs for underprivileged children and contribute to
programs for the handicapped. In addition to corporate donations,
our employees are actively involved in raising money as well as
performing “hands on” community work.

Finning University and our ThinkIG School in Santiago, Chile are
technical programs to train mechanics to Finning standards. oth
are examples of our innovative approach to recruiting mechanics
from local communities.

2.5

1.98

2.0

2.22

1.5

1.0

0.5

0.0

0.97

0.78

0.72

LOST TIME INJURY
FREQUENCY (LTI)

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

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2001 2002 2003 2004 2005

FINANCIAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

MANAGEMENT’S REPORT TO THE SHAREHOLDERS

AUDITORS’ REPORT

CONSOLIDATED FINANCIAL STATEMENTS

TEN YEAR FINANCIAL SUMMARY

FINANCIAL REPORT

mANAGEmENT’S dISCUSSIoN & 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

($ MILLIONS)

q4 2005

Q4 2004

q4 2005

Q4 2004

(% OF REVENUE)

Revenue
Gross profit
Selling, general & administrative expenses
Other expenses
Earnings before interest and taxes (EIT)
Finance costs
Provision for income taxes
Non-controlling interests
Net income

1,184.0
337.3
274.7
0.9
61.7
17.8
7.7
–
36.2

1,075.2
311.1
250.2
0.2
60.7
45.3
(7.3)
2.6
20.1

28.5%
23.2%
0.1%
5.2%
1.5%
0.6%
–
3.1%

28.9%
23.3%
0.0%
5.6%
4.2%
(0.7)%
0.2%
1.9%

The Company achieved record fourth quarter revenues driven by continued strong equipment sales and customer support services in the quarter.
Consolidated revenues increased 10.1% to $1,184.0 million, EBIT increased 1.6% to $61.7 million and consolidated net income increased by 80.1%
to $36.2 million. Basic Earnings Per Share (EPS) for the quarter was $0.41 compared with $0.23 in the same period last year.

Revenue increased in most operations, year over year. Continued strength in commodity prices, infrastructure spending in the regions in which the
Company operates, price increases, and strong customer support services activities contributed to higher revenues.

Revenue was higher in 2005 particularly in the Company’s Canadian and South American operations as a result of strong equipment and service
related spending by our customers that benefit from high commodity prices.

The growth in revenues occurred despite the negative foreign exchange translation impact on revenues of approximately $60 million due to a
stronger Canadian dollar in the quarter relative to the U.K. pound sterling (9.9% strengthening) and the U.S. dollar (3.9% strengthening), year over year.

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

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

EBIT BY OPERATION*
($ millions) 3 months ended December 31
*excluding other operations – corporate head office

2
2
5

6
5
4

600

500

400

300

200

100

8
6
4 2
4
2

7
4
2

0
1
2

5
6
1

7
4
1

7
4
3

8
0
3

6
4
2

4
3
2

5
9
3

2
3
3

400

300

200

100

8
1
1

2
1
1

3
9

7
6

2004
2005

4 3

2004
2005

0
4

9
2

6
2

6
1

0
1

CANADA

SOUTH
AMERICA

HEWDEN

NEW
EQUIPMENT

POWER &
ENERGY

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

OTHER

CANADA

SOUTH
AMERICA

HEWDEN

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

2004
2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

From a line of business perspective, strong demand for new equipment and customer support services in the fourth quarter of 2005 was partially
offset by lower rental revenues from the UK Materials Handling business. 2005 revenues exceeded 2004 revenues notwithstanding the 2004 sale
of the majority of the Company’s leased assets to Caterpillar Financial Services Limited which resulted in an additional $60 million of equipment sales
revenue in the fourth quarter of 2004. Excluding the impact of foreign exchange and the sale of leased assets, revenues in local currency increased
by 37% in Canada; 22% in the UK operations and 21% in South America, while Hewden remained at similar levels to last year’s quarter.

Gross profit of $337.3 million in the quarter increased 8.4% over the same period last year. As a percentage of revenue, gross profit decreased slightly
over last year primarily due to a higher proportion of 2005 revenues from new equipment sales which experience lower margins than the rental and
customer support services line of business.

EBIT increased $1.0 million, year over year, with the strong performance in the Company’s South American operations partially offset by higher costs
and lower contribution from the UK Materials Handling business in the fourth quarter of 2005. Costs were higher in the Canadian operating segment
to support the Company’s start-up operation, OEM Remanufacturing, which, while in production in the fourth quarter of 2005, was impacted by
Finning (Canada)’s labour stoppage and also incurred higher start-up costs. In 2005, the Canadian operating segment’s EBIT was also negatively
impacted by approximately $5.6 million of additional costs due to a labour strike at Finning (Canada) which lasted approximately 6 weeks. In 2004,
Finning (Canada) sold its leased assets which contributed $6.4 million to EBIT.

In addition, EBIT from operations were impacted year over year due to the stronger Canadian dollar relative to both the U.S. dollar and the U.K.
pound sterling currencies, and the Chilean peso which strengthened relative to the Canadian dollar. The Chilean peso strengthened approximately
8% over the fourth quarter of 2004 and resulted in higher selling, general and administrative (SG&A) costs from our South American operations
when translated into Canadian dollars. EBIT for the fourth quarter was approximately $8.0 million lower than last year as a result of these foreign
currency movements.

Long-term incentive plan (LTIP) costs were lower in the fourth quarter of 2005. The common share price movement in the fourth quarter of 2005
generated income of $2.8 million, whereas an increase in the common share price in the fourth quarter of 2004 triggered the vesting of deferred
share units and resulted in an expense of $6.7 million.

In local currencies, and excluding the impact of the lease asset sales, LTIP and strike costs, EBIT reflects stronger operational performances from the
Company’s Canadian and South American operations year over year, partially offset by a weaker performance from the Company’s UK Materials
Handling business.

Net income improved 80.1% in the fourth quarter of 2005 reflecting lower financing costs due to the refinancing of the non-controlling interests
in Hewden in November 2004.

Cash flow after changes in working capital for the quarter was $135.2 million, a significant improvement from cash flow of $1.4 million generated in
the same period last year. This was primarily due to stabilizing working capital requirements in the last two quarters of 2005 as management continues
to focus on improving cash cycle times and operating efficiencies. In the fourth quarter of 2005 the Company continued to invest in inventories to
support strong customer demand and product availability issues, although at a lower growth rate than the prior year.

The Company made a net investment in rental assets of $29.3 million during the fourth quarter of 2005, a decrease of $40.4 million from the same
period in 2004. Rental assets were utilized in 2005 to support customer demand where product availability issues arose and fewer rental assets were
purchased by the UK Materials Handling business due to lower demand. As a result of these items and despite the fourth quarter 2004 sale of the
majority of the Canadian leased assets, cash flow from operating activities was $98.7 million in 2005 compared to a use of cash of $16.1 million in 2004.

Normalized results
Certain revenue and expense items that were not reflective of the underlying performance of the Company’s ongoing operations were removed
from reported results prepared in accordance with GAAP in Canada. See Schedule 1 for a summary of normalized items and a reconciliation of
normalized results to published results. Excluding items that do not reflect the Company’s ongoing operations, Normalized EBIT for the quarter was
$62.5 million or 2.6% higher than the fourth quarter of 2004. Normalized Net Income was $37.0 million (2004: $34.5 million) while Normalized EPS
was $0.41, comparable to the fourth quarter of 2004 ($0.42 per share).

mANAGEmENT’S dISCUSSIoN & ANALySIS

ANNUAL oVErVIEw

($ MILLIONS)

Revenue
Gross profit
Selling, general & administrative expenses
Other expenses
Earnings before interest and taxes
Finance costs
Provision for income taxes
Non-controlling interests
Net income

2005

4,834.6
1,391.1
1,103.5
2.3
285.3
76.9
44.4
–
164.0

2004

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

(% OF REVENUE)

2005

28.8%
22.8%
0.1%
5.9%
1.6%
0.9%
–
3.4%

2004

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

Finning achieved record consolidated revenues in 2005 and exceeded its goal of 15% annual revenue growth. Revenues are higher, year over year,
most notably in the Company’s Canadian and South American operations with unprecedented demand for our products and services, increasing
16.2% over 2004 to $4,834.6 million.

EBIT increased 7.4% to $285.3 million and consolidated net income increased 42.7% to $164.0 million despite higher LTIP costs and the negative
impact of a stronger Canadian dollar in 2005. Basic EPS was $1.85 compared with $1.45 in 2004.

The increase in net income year over year was primarily due to the exceptional performance of the Company’s Canadian and South American operations,
lower finance costs and other expenses and the elimination of non-controlling interests distributions. The increase in net income compared with
2004 was partially offset by higher pension and LTIP costs. Higher LTIP costs of $0.16 per share (2004: $0.13 per share) were the result of an increase
in the Company’s share price year over year as well, which hit a high of $41.39 per share in the third quarter of 2005. As a result, five deferred share
unit tranches vested in the third quarter of 2005. LTIP costs are directly related to providing shareholder value by achieving a higher share price.

The Company’s LTIP includes stock-based compensation plans such as deferred share unit plans, share appreciation rights plans and stock options.
The costs incurred in 2005 are primarily due to the vesting of seven tranches of deferred share units and the mark-to-market impact on the valuation
of LTIP resulting from the appreciation of the Company’s share price in 2005.

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

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

EBIT BY OPERATION*
($ millions) 12 months ended December 31
*excluding other operations – corporate head office

0
5
0

3
6
5
1

2,500

2,000

1,500

1,000

500

3
2
1
1

3
4
0
1,

7
0
0
0 1
7
8

6
8
6

5
5
6

6
2
6
1

8
1
2
1

2,000

1,500

1,000

500

0
1
0
1

1
0
0
1

9
5
4 3
7
2

1
3
1 4
9
3

0
1
4
71
3
2
1

2004
2005

2
3

2004
2005

0
5
1

2
3
1

5
9

3
8

200

150

100

9
5

5
5

4
3

8
1

CANADA

SOUTH
AMERICA

HEWDEN

NEW
EQUIPMENT

POWER &
ENERGY

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

OTHER

CANADA

SOUTH
AMERICA

HEWDEN

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

2004
2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

Other expenses were lower by $11.4 million in 2005 partially due to the $7.9 million pre-tax settlement of a legal claim in 2004 in the U.K. Finance costs
in 2005 were lower compared with 2004 due to foreign exchange and $22.3 million of costs associated with the redemption of non-controlling interests.

The Company is committed to improving its cost structure and continues to progress its plan to reduce annualized costs by $60 million by the end of 2006.

Finning’s business is geographically diversified and the Company conducts business in multiple currencies, the most significant of which are the
U.S. 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 strengthening of the Canadian
dollar against the U.S. dollar and U.K. pound sterling decreased EBIT and net income by $27.9 million and $15.1 million, respectively.

Finning’s order book of $968 million continues at extremely strong levels, up 15.9% from the December 2004 levels of $835 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. Notwithstanding the strong backlog levels, the Company is dependent on Caterpillar for the timely supply
of equipment and parts to fulfill these deliveries. Caterpillar has reported that while they have increased production at some of their manufacturing
facilities to meet the increase in demand for their products, they continue to place certain of their models under managed distribution in North
America. In addition, Caterpillar continues to face material supply chain constraints for large mining products, in particular a continued tire shortage,
thereby increasing the delivery time for these products. Caterpillar is focusing on its production processes to improve order fulfillment and supply
chain efficiencies. The Company continues to work closely with Caterpillar and customers to ensure that demand for product can be met. Where
supply constraints occur, the Company has been utilizing its rental assets and used equipment to meet demand.

For the year ended December 31, 2005 cash flow after working capital items of $478.8 million was almost double that of the same period in 2004
as a result of stabilizing working capital. The Company decreased net spending on rental assets by 29.6% with a net investment of $310.7 million in
2005 (2004: $441.4 million). In 2004, the Company continued with its strategy to sell its lease portfolio to Caterpillar Financial Services Limited and by
the end of 2004 had divested virtually its entire lease portfolio. Cash flow from operating activities was $158.3 million compared to a use of cash of
$117.2 million in the same period of 2004.

In November 2004, the Company issued 10 million common shares for proceeds, net of issue costs and income taxes, of $296.8 million, which were
used to fund a portion of the cost of refinancing the $425.0 million non-controlling interests in Hewden.

RESULTS Y USINESS SEGMENT
The Company and its subsidiaries have operated primarily in one principal business during the year, that being the selling, servicing, renting and financing
of heavy equipment and related products in various markets worldwide as noted below.

Operating units are as follows:

• Canadian operations: British Columbia, Alberta, the Yukon Territory, the Northwest Territories, and a portion of Nunavut.
• South American operations: Chile, Argentina, Uruguay and Bolivia.
• UK operations: England, Scotland, Wales, Falkland Islands and the Channel Islands.
• Hewden operations: Equipment rental in England, Scotland, Wales and Jersey.
• Other operations: corporate head office.

mANAGEmENT’S dISCUSSIoN & ANALySIS

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

For year ended December 31, 2005
($ MILLIONS)

Canada

South America

Hewden

Consolidated

New mobile equipment
New power & energy systems
Used equipment
Equipment rental
Customer support services
Other
Total
Revenue percentage by operations

739.5
143.7
253.0
195.4
712.2
5.9
$ 2,049.7
42.4%

454.7
75.4
29.8
45.5
399.7
2.2
$ 1,007.3
20.8%

419.7
139.9
119.2
187.5
256.2
–
$ 1,122.5
23.2%

11.8
–
28.8
572.7
41.8
–
655.1
13.6%

$ 1,625.7
359.0
430.8
1,001.1
1,409.9
8.1
$ 4,834.6
100.0%

For year ended December 31, 2004
($ MILLIONS)

Canada

South America

Hewden

Consolidated

New mobile equipment
New power & energy systems
Used equipment
Equipment rental
Customer support services
Other
Total
Revenue percentage by operations

510.9
113.3
194.9
148.6
564.1
30.8
$ 1,562.6
37.5%

357.6
54.7
36.2
38.6
381.6
1.2
869.9
20.9%

340.7
105.5
128.6
221.7
247.0
–
$ 1,043.5
25.1%

9.2
–
31.5
600.9
44.3
–
685.9
16.5%

1,218.4
273.5
391.2
1,009.8
1,237.0
32.0
4,161.9
100.0%

Revenue
percentage

33.6%
7.4%
8.9%
20.7%
29.2%
0.2%
100.0%

Revenue
percentage

29.3%
6.6%
9.4%
24.3%
29.7%
0.7%
100.0%

The table below provides annual EBIT contribution by operations:

For year ended December 31, 2005
($ MILLIONS)

Revenue from external sources
Operating costs
Depreciation and amortization
Other expenses
Earnings before interest and taxes
Earnings before interest and taxes
– percentage of revenue
– percentage by operations

For year ended December 31, 2004
($ MILLIONS)

Canada

South America

Hewden

Other

Consolidated

$ 2,049.7
1,782.2
117.3
–
150.2

$ 1,007.3
886.2
25.6
–
95.5

$ 1,122.5
1,026.9
77.9
–
17.7

7.3%
52.6%

9.5%
33.5%

1.6%
6.2%

655.1
463.9
136.0
–
55.2

8.4%
19.4%

–
31.0
–
2.3
(33.3)

$ 4,834.6
4,190.2
356.8
2.3
285.3

–
(11.7)%

5.9%
100.0%

Canada

South America

Hewden

Other

Consolidated

$ 1,562.6
1,318.5
112.5
–
131.6

8.4%
49.5%

869.9
764.0
22.9
–
83.0

9.5%
31.2%

$ 1,043.5
923.4
85.9
–
34.2

3.3%
12.9%

685.9
482.6
144.8
–
58.5

8.5%
22.0%

–
27.9
–
13.7
(41.6)

$ 4,161.9
3,516.4
366.1
13.7
265.7

–
(15.6)%

6.4%
100.0%

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

mANAGEmENT’S dISCUSSIoN & ANALySIS

Canadian OperatiOns
The Canadian operating segment primarily reflects the results of the Company’s operating division, Finning (Canada). This reporting segment also
includes the Company’s interest in OEM Remanufacturing Company Inc. (OEM), which became fully operational late in the second quarter of 2005.
OEM is a component rebuild facility based in Edmonton, Alberta.

The table below provides details of the results from the Canadian operating segment:

For years ended December 31
($ MILLIONS)

Revenue from external sources
Operating costs
Depreciation and amortization
Earnings before interest and taxes
Earnings before interest and taxes
– as a percentage of revenue
– as a percentage of consolidated earnings before interest and taxes

2005

2,049.7
1,782.2
117.3
150.2

7.3%
52.6%

2004

1,562.6
1,318.5
112.5
131.6

8.4%
49.5%

Record results were achieved in the Company’s Canadian operations in 2005. Revenues increased 31.2% over the 2004 levels to $2,049.7 million
with Alberta-based operations contributing over 68% of revenues in 2005, an increase from 63% in 2004. The increase in revenues was attributable to
significant strength in the mining, petroleum and construction sectors driven by strong commodity and energy prices and higher levels of infrastructure
spending. In 2005, Finning (Canada) more than doubled the number of equipment units that it delivered to mining customers compared with the
same period last year leading to its strongest revenue year in history.

This strong activity in 2005 more than offset the shortfall in revenues due to the sale of leased assets in 2004 and the absence of the associated
leasing revenues in 2005 which, in total, unfavourably impacted the year over year revenues by approximately $130 million. In addition, a 7%
strengthening of the Canadian dollar relative to the U.S. dollar, year over year, had a negative impact of approximately $40 million on revenues.

Revenues from all lines of business in Canada increased over 2004 levels with the exception of operating lease revenues. Finning (Canada) experienced
continued strong performance in customer support services despite a six-week disruption in service work in the fourth quarter of 2005 due to
a labour strike. Revenues were boosted by demand for parts, price realization and the additional revenue from the Company’s new product alliance
venture with Shell. This alliance contributed a major portion of the overall improvement in customer support services revenues of 26% in 2005
compared with 2004. Although revenues increased, the related margin from the fuel and lubricant sales of this business is lower than that of the
traditional dealership parts retail business.

CANADA – REVENUE BY LINE OF BUSINESS
($ millions) 12 months ended December 31

CANADA – REVENUE
($ millions) 12 months ended December 31

CANADA – EBIT
($ millions) 12 months ended December 31

800

0
4
7

1
1
5

600

400

200

2
1
7

4
6
5

3
5
2

5
9
1

9
4
1

4
4
1

3
1
1

1
3

2004
2005

0
5
0

3
6
5
1

2,000

1,500

9
9
3
1

6
5
4
1

9
6
2
1

1,000

500

200

150

100

0
5
1

2
3
1

0
2
1

3
1
1

NEW
EQUIPMENT

POWER &
ENERGY

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

OTHER

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

Rental revenues increased over the 2004 comparable period as a result of a larger rental fleet. The growth in the rental fleet reflects the increased
demand for the Cat Rental Store businesses in 2005 and continued strong customer demand to rent equipment with an end of term option to purchase.

New equipment backlog continues to be strong and includes a significant number of mining trucks of all sizes, as well as a large number of mining
support equipment orders. Backlog reflects the strong activity in the mining, petroleum, construction and government sectors in which the Canadian
operations operate.

In Canada, higher gross profits were achieved due to strong customer demand and price realization, but decreased as a percentage of revenue. This was
mainly due to a change in the mix of revenues in 2005 to more equipment sales, which attract a lower margin than the rental and customer support
services businesses, as well as lower margins contributed by the ancillary Shell alliance business and the absence of the higher leasing business margins.
This reduction was partially offset by improved equipment margins due to strong demand and improved rental margins as a result of the Cat Rental
Store growth in 2005.

The record revenue experienced by the Canadian operating segment in 2005 was partially offset by higher SG&A costs. Variable costs were higher
in 2005 to support the increased volumes and to meet customer demands. Customer service demand increased due to new maintenance contracts
entered into in 2005. As a result, Canadian operations added revenue-generating employees and staff to support the higher level of demand. As well,
the start-up of the component rebuild business of OEM increased SG&A expense levels for the Canadian operating segment. Headcount for the
Canadian operating segment increased by approximately 250 or 8% over 2004. Other key factors affecting the SG&A increase in 2005 compared
with 2004 include:

• Finning (Canada) incurred additional costs to maintain operations during a six-week labour strike which commenced in October 2005 by the
International Association of Machinists and Aerospace Workers – Local Lodge 99, representing Finning (Canada) employees in Alberta and
Northwest Territories. On December 5, 2005, an agreement was reached on a three-year collective agreement which will expire April 30, 2008.
The strike resulted in higher costs of $5.6 million for security, freight and delivery as well as costs related to replacement workers.

• Higher costs incurred in the start-up business of OEM.
• Higher pension and LTIP costs.

The Canadian operations have numerous initiatives underway to reduce SG&A costs and has implemented various 6-Sigma projects to facilitate
further cost efficiencies.

Record revenues in the Canadian operations, partially offset by higher SG&A, costs translated into a strong contribution to EBIT of $150.2 million
in 2005 compared with $131.6 million in 2004.

Finning (Canada)’s collective bargaining agreement with the International Association of Machinists and Aerospace Workers, Vancouver Lodge 692,
covering approximately 800 unionized employees located in British Columbia, expires on April 14, 2006. The Company is committed to the collective
bargaining process and to concluding a fair contract for its employees and for Finning.

In 2005, Finning (Canada) was selected by Caterpillar to be one of four Caterpillar dealers forming a new global Caterpillar dealership, PipeLine
Machinery International (PLM). PLM is now operational and serving the global pipeline construction industry by supplying Caterpillar pipeline products
to international customers who specialize in large diameter pipeline projects. Global energy demand is expected to drive an increase in worldwide
construction activity in the future and Finning’s 25% interest in PLM provides an opportunity to participate in this growth.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

mANAGEmENT’S dISCUSSIoN & ANALySIS

sOuth ameriCa
The Company’s South American operations include the results of its Caterpillar dealerships in Chile, Argentina, Uruguay and Bolivia.

The table below provides details of the results from the South American operations:

For years ended December 31
($ MILLIONS)

2005

1,007.3
886.2
25.6
95.5

9.5%
33.5%

2004

869.9
764.0
22.9
83.0

9.5%
31.2%

Revenues in 2005, for the first time ever, exceeded the $1 billion level and increased 15.8%, despite the negative impact of a strengthening Canadian
dollar relative to the U.S. dollar. In local currency (U.S. dollar), Finning South America revenues increased 24% reflecting strong machine deliveries
to mining and construction customers. This is a result of the strong commodity cycle and high metals prices driven by global demand and strong
economic growth in the countries in which Finning South America operates. Finning’s expectation is that commodity prices will continue to be strong
in 2006 which should encourage more investment in mining and infrastructure spending. Finning South America experienced growth in most lines
of business in 2005, particularly in new equipment sales. Growth was also experienced in customer support services to meet the demands of an
increasing number of new mining maintenance and repair contracts and higher construction rental activity supported by a larger rental fleet.

New equipment order backlog was higher than last year and shows ongoing strength as significant new mining contracts continue to be secured
to more than offset orders being delivered to customers.

Gross profit increased in 2005 over 2004, reflecting the strong demand for the Company’s products and favourable performance of customer
support contracts.

SOUTH AMERICA – REVENUE BY LINE OF BUSINESS
($ millions) 12 months ended December 31

SOUTH AMERICA – REVENUE
($ millions) 12 months ended December 31

SOUTH AMERICA – EBIT
($ millions) 12 months ended December 31

5
5
4

7
5
3

500

400

300

200

100

0
0
4

2
8
3

1,500

1,000

2
6
5

500

8
4
4

5
4
4

7
0
0
1

0
7
8

5
7

5
5

6
3

0
3

5
94
3

2004
2005

5
9

3
8

0
6

5
4

9
3

100

NEW
EQUIPMENT

POWER &
ENERGY

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

OTHER

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

SG&A costs were higher in 2005 compared with 2004. Variable selling costs were higher, year over year, to support the incremental business volumes
experienced in 2005. Other key factors affecting the SG&A increase in 2005 compared with 2004 include:

• Higher LTIP costs.
•

Higher costs to support increased volumes and to meet customer demands. Customer service demand has increased due to new maintenance
contracts entered into in the last year. As a result, South America added revenue-generating employees and staff to support the higher level of demand
in South America and net headcount increased by approximately 282 or 7.5% from one year ago.

Finning South America has numerous initiatives underway to reduce SG&A costs and has implemented various 6-Sigma projects to facilitate further
cost efficiencies. In the fourth quarter of 2005, the Company’s South American operations reorganized selected areas of their operations and
reduced headcount by approximately 100 employees from 2004 levels. These reductions are anticipated to save costs into the future by approximately
$2.4 million per year.

Record revenues partially offset by higher SG&A costs translated into a strong contribution to EBIT of $95.5 million in 2005 compared with
$83.0 million in 2004.

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mANAGEmENT’S dISCUSSIoN & ANALySIS

uNited KiNgdom (“uK”) group
The UK Group includes the Company’s UK Operations and Hewden Operations, described below.

uK OperatiOns
The Company’s UK Operations include the results of Finning (UK) which operates the Caterpillar dealership in the U.K. (Construction Equipment and
Power Systems divisions) and the UK Materials Handling business. Also included in the UK operations is Diperk UK, sole distributor of Perkins engines
in the U.K. marketplace.

The table below provides details of the results from the UK Operations:

For years ended December 31
($ MILLIONS)

2005

1,122.5
1,026.9
77.9
17.7

1.6%
6.2%

2004

1,043.5
923.4
85.9
34.2

3.3%
12.9%

Revenues in 2005 of $1,122.5 million were up by 7.6% from the prior year. Excluding the foreign currency translation impact due to the 7.5%
strengthening of the Canadian dollar relative to the U.K. pound sterling, revenues in the UK Operations increased 16.3% in local currency over the prior
year. This reflected improvements in the Construction Equipment and Power Systems divisions. New mobile equipment revenues increased 23.2%
in 2005 compared with 2004. Activity was strong in the quarrying sector in the first half of 2005 with deliveries to customers that had previously been
deferring their capital purchases. Activity was also strong in the mining sector with higher coal prices driving increased extraction activity in the U.K.
New order backlog at December 2005 was higher than the December 2004 levels.

Revenue for new power and energy systems increased by $34.4 million or 32.6% compared with 2004, with improvements in the marine and power
generation sectors. In addition, Power System revenues included $14.3 million from Diperk UK, which began operations in December 2004.

Customer service revenues increased in the UK Operations, year over year, reflecting stronger volumes in the Construction Equipment division and
incremental volumes amounting to $13.9 million from Diperk UK.

UK – REVENUE BY LINE OF BUSINESS
($ millions) 12 months ended December 31

UK – REVENUE
($ millions) 12 months ended December 31

UK – EBIT
($ millions) 12 months ended December 31

0
2
4

1
4
3

500

400

300

200

100

6
5
2

7
4
2

1
2
2

8
8
1

0
4
1

6
0
1

8
2
1

9
1
1

2004
2005

1,500

1,000

4
3
8 9
2
8

4
0
8

500

3
2
1
3 1
4
0
1

9
4

8
4

2
3

4
3

8
1

NEW
EQUIPMENT

POWER &
ENERGY

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

These improvements were offset by the results of the Materials Handling division of the UK Operation, which experienced a difficult year. In addition
to operating in a very competitive marketplace, a number of other factors influenced performance. Combining two very different business models,
Finning Materials Handling with Lex Harvey, has proven to be a challenging and costly process that to date has not been fully successful. Information
systems upgrades that were originally planned were deferred which has caused the business to operate with two inefficient legacy systems that are
challenging to integrate. 2005 saw a higher proportion of customers finance their long-term contracts externally. This increased new equipment sales
revenue in 2005 but also had the effect of reducing the Division’s long term rental fleet and related rental revenues. At December 31, 2005, the
Materials Handling long-term rental fleet was approximately 11,000 units, down 7% from the end of 2004. Rental revenues also decreased in 2005
partially due to a slowing demand for short-term rental of Materials Handling fleet units. As a result, the short-term rental fleet for Materials Handling
has been reduced to 2,500 units at the end of December 2005 compared with 3,000 at December 2004. Efforts are ongoing to improve the results
of the Materials Handling division. Senior management changes have been implemented. As well, in late 2005, Finning introduced several special
programs providing its Materials Handling customers with favourable financing terms and manufacturer supported pricing incentives. The benefits
of these programs were only beginning to materialize in the last few months of the year. In January 2006, the Materials Handling division of the UK
Operations was selected as the preferred supplier to provide approximately 130 warehouse lift trucks to DSG International, a large international
company. This is a significant new customer with opportunity for growth.

Gross profit in 2005 for the UK Operations was lower in absolute dollars due to the stronger Canadian dollar. In local currency, gross profit increased
4% over last year but gross profit margins were lower in 2005. This is partially due to a higher proportion of revenue from sales of equipment, which
typically earn lower margins than other lines of business, and lower margin percentages achieved in the competitive U.K. marketplace. Other factors
influencing the lower gross profit margins were lower rental fleet revenues and higher fleet maintenance costs of the Materials Handling business
and lower margins achieved by the new Diperk UK business. There has been some improvement in the absolute gross margin contribution achieved
by the Construction Equipment and Power Systems divisions while they work on improving their market share, but at lower percentage margins
reflecting the competitiveness of the U.K. marketplace. Management at Finning (UK) continues to focus on improving margins in all areas, cost control
and working with Caterpillar to improve market share.

The UK Operations also experienced higher SG&A costs. Key factors affecting the SG&A increase in 2005 compared with 2004 include:

• Higher operating costs due to continued systems inefficiencies.
• Higher costs due to the start-up phase of Diperk UK.
• Higher pension, LTIP and other people related costs.

The increase in SG&A in 2005 compared with 2004 was partially offset by the favourable foreign exchange impact due to a stronger Canadian dollar
relative to the U.K. pound sterling.

Management has identified a number of significant opportunities to reduce costs, including projects already underway at Finning (UK), including reducing
the costs associated with their DBSi information system, pension and other areas. Finning (UK) and affected employees have agreed to change employee
pensionable benefits which will now increase broadly in line with inflation. This change will be effective early in 2006 and is anticipated to decrease pension
expense for Finning (UK) by approximately $5.5 million annually. In February 2006, Finning (UK) implemented a restructuring plan that will result in a
reduction in headcount by approximately 50 people to reduce employment related costs by approximately $3 million going forward.

The UK Operations contributed $17.7 million of EBIT in 2005 compared with $34.2 million in 2004, reflecting the impact on revenues, margins and
SG&A discussed above.

To support the effort in the U.K. to grow market share in all sectors and improve profitability, Finning (UK) has agreed to a three-year strategic plan with Caterpillar.
The plan is based on a mutual commitment to double the present market share and concurrently to improve the profitability of the dealership to the median
level of dealers in the Caterpillar dealer network. Caterpillar, for its part, has agreed to ensure that its products in the U.K. will have market based pricing and
that its equipment will at least have parity in terms of key technical capabilities and specifications. Finning, for its part, has agreed to adjust its existing centralized
product service offerings for its larger equipment to a more decentralized, regional model, moving its service offering closer to the customer. In addition,
Finning has agreed to launch a new “Cat Compact” distribution channel for the smaller equipment in the product line. In support of this strategic plan, certain
product lines have seen adjustments to pricing levels. Also, in 2005 Caterpillar announced a global alliance with JLG Industries Inc. to produce a full line of
Caterpillar branded telehandlers by late 2006. This is a key product for Finning as telehandlers are the largest market segments in the U.K. equipment market.
Finning in turn has appointed a general manager for the new Cat Compact channel and is proceeding to pilot 2 regions of the new distribution channel.

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mANAGEmENT’S dISCUSSIoN & ANALySIS

hewden OperatiOns
Hewden is an equipment rental and associated services operation in the United Kingdom.

The table below provides details of the results from Hewden:

For years ended December 31
($ MILLIONS)

2005

655.1
463.9
136.0
55.2

8.4%
19.4%

2004

685.9
482.6
144.8
58.5

8.5%
22.0%

Hewden revenues decreased 4.5% to $655.1 million in 2005 compared with 2004, although in local currency, revenues increased 3.2%. Despite early
indications of a softening U.K. economic environment, Hewden benefited from moderate increases in rental prices and volumes.

Although price competitiveness in the U.K. rental market continued in 2005, rental margins showed a modest improvement. Revenues increased year
over year, in local currency, which improves margins due to the relatively fixed costs associated with the Hewden rental business. The improvement
in rental margins was offset by the rapid increase in the cost of fuel in the latter part of 2005 which was not fully absorbed by customers.

Hewden’s moderately higher SG&A costs, in local currency, were affected by some of the same factors impacting the UK operations – higher LTIP
costs and inflationary impact on people costs. Other items included in SG&A in 2005 were:

• Higher costs associated with credit and collection functions. Some of these costs are system driven and are expected to decrease once Hewden

implements its new information technology system in 2007.

• Savings from employee headcount reductions of approximately 120 as a result of cost-saving initiatives and project studies. Efficiencies as a result

of restructuring and employee headcount reductions are expected to result in $2.5 million of annual cost savings going forward.

HEWDEN – REVENUE BY LINE OF BUSINESS
($ millions) 12 months ended December 31

HEWDEN – REVENUE
($ millions) 12 months ended December 31

HEWDEN – EBIT
($ millions) 12 months ended December 31

1
0
6

3
7
5

800

7
8
5

600

5
6
6

6
8
6

5
5
6

1
4
6

1
9 1

2
3

9
2

4
4

2
4

2004
2005

NEW
EQUIPMENT

USED
EQUIPMENT

EQUIPMENT
RENTAL

CSS

400

200

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

9
5

5
5

2
5

9
7

4
7

700

600

500

400

300

200

100

mANAGEmENT’S dISCUSSIoN & ANALySIS

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. This is expected, in conjunction with its new information technology system, to increase asset utilization and reduce costs. Project costs
relating to these initiatives are expected to continue in 2006 and 2007.

Hewden contributed $55.2 million of EBIT in 2005 compared with $58.5 million in 2004, reflecting the impact on revenues, margins and SG&A
discussed above, together with the adverse impact of a stronger Canadian dollar when translating Hewden’s results from U.K. pound sterling. In local
currency, EBIT increased 2.1%.

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. As a result of these items, the Company recorded a pre-tax expense of $2.3 million in
2005, compared to a pre-tax expense of $13.7 million for the corresponding period in 2004. See Schedule 1 for a complete listing of these items.

The major items were:

In 2005:
• Restructuring and project costs incurred in all operations of $12.4 million primarily due to:

– Project costs in the UK operation for business model redesign and in the Hewden operation for its key initiatives which focus on its core

customer base, narrowing its product offering and simplifying its operational organization so as to increase asset utilization and reduce costs.
These expenditures, which began in 2004 in the Hewden operation, are expected to continue into 2007.

– Restructuring relating to the outsourcing of Finning (Canada)’s parts warehousing to Tracker Logistics. In the first quarter of 2005, Finning
(Canada) entered into a five-year renewable contract with Edmonton, Alberta based Tracker Logistics, to outsource the majority of the
warehousing activities of its Edmonton-based parts distribution centre. The contract, subject to volumes handled, represents commitments
of approximately $9.0 million per annum.

– Restructuring related to centralizing certain functions to be shared throughout the South American operations and realigning of other positions

to better service customers, with a headcount reduction of approximately 100 employees and a resulting charge of $2.3 million.

• Sale of the Company’s investment in Maxim Power Corp. as part of a strategy to divest non-core assets. The Company recorded a $1.8 million gain

on the sale of this investment.

• Gain on sale of surplus properties in the U.K. and Canada of $8.3 million.

In 2004:
• The Company settled Hewden legal claims for damages arising from the collapse of a tower crane at the Canary Wharf site in the U.K. on May

21, 2000, which was prior to the Company’s acquisition of Hewden in 2001. The impact of the settlement, net of previous accruals, was a pre-tax
charge of $7.9 million.

• Restructuring and project costs of $16.0 million primarily due to:
– The implementation of Hewden’s key initiatives in 2004.
– Finning (Canada)’s restructuring to take advantage of growth opportunities, reduce its cost base and to cover redundancy costs in preparation

of outsourcing its component rebuild service work to OEM.

– Finning (UK)’s downsizing of specialized services and a restructuring of its component rebuild centre.

• Recognition of the $3.8 million unamortized portion of the deferred gain from the sale of the Canadian Materials Handling business in 2001.
• Gain on sale of surplus properties in the U.K. and Canada of $6.8 million.

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earnings befOre interest and taxes (ebit)
On a consolidated basis, EBIT increased by 7.4% to $285.3 million in 2005 with record EBIT levels achieved in Canada and South America. The increase
in gross profit of $147.4 million in 2005 was somewhat offset by higher SG&A costs. The increased SG&A expense reflects higher LTIP costs, pension
costs and increased headcount to meet business growth and customer service demand. EBIT was also lower in 2005 as a result of the strengthening
Canadian dollar relative to the U.S. dollar and U.K. pound sterling. The foreign exchange variance is mainly due to translating results from country
operations that are based on a foreign currency into Canadian dollars. EBIT as a percentage of revenue decreased from 6.4% in 2004 to 5.9% in 2005.

Major components of the annual EBIT variance were:

($ MILLIONS)

2004 annual EbIT
Net growth in operations, particularly Canada and South America
Start-up businesses
Higher pension expense
Lower UK Materials Handling contribution
Foreign exchange impact
Higher long-term incentive plan costs
Canada lease sale in 2004
Canada strike
Net change in other expenses (see note 2 to the Consolidated Financial Statements)
2005 annual EbIT

265.7
98.9
(7.3)
(5.9)
(17.0)
(27.9)
(6.3)
(20.8)
(5.6)
11.5
285.3

finanCe COsts
Finance costs for the year ended December 31, 2005 of $76.9 million were 34.9% lower than last year primarily due to the following:

• Lower average long-term borrowing rates in 2005 as term debt matured in 2004 and was refinanced at lower rates.
• Costs incurred in 2004 related to the redemption of the non-controlling interests which was used to finance a portion of the Hewden Stuart
acquisition. Redemption of the non-controlling interests resulted in a charge of $22.3 million in 2004, which included costs to unwind related
hedging arrangements and the accelerated write-off of associated deferred financing costs.

• Favourable foreign exchange impact of translating U.K. pound sterling and U.S. denominated finance costs in 2005 with a stronger Canadian dollar.

These decreases were partially offset by higher debt levels in 2005 and higher short-term interest rates. Debt levels increased in most operations
in 2005 to fund the higher investment in working capital and rental assets. Debt levels were also higher in 2005 due to a full year’s impact of the
refinancing of the non-controlling interests in late 2004 partially with debt.

EBIT BY OPERATION*
($ millions) 12 months ended December 31
*excluding other operations – corporate head office

0
5
1

2
3
1

5
9

3
8

200

150

100

9
5

5
5

4
3

8
1

2004
2005

CANADA

SOUTH
AMERICA

HEWDEN

mANAGEmENT’S dISCUSSIoN & ANALySIS

prOvisiOn fOr inCOme taxes
The 2005 annual income tax expense was $44.4 million (21.3% effective tax rate) compared with $17.6 million (13.2% effective tax rate) for 2004,
primarily as a result of a higher level of income and more earnings originating in the higher Canadian tax jurisdiction relative to total earnings than in
2004. Tax expense was also lower in 2004 partially due to favourable tax assessments received which did not recur in 2005. Management anticipates
that for 2006, the consolidated effective tax rate will approximate 22-25%.

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 $425.0 million
into the partnership in return for non-controlling partnership interests. The financial position, results of operations and cash flows of the partnership
were consolidated with the results of the Company from the date of the partnership’s inception. On November 24, 2004, Finning redeemed the
non-controlling partnership interests held by the private investors for $425.0 million. The removal of the third party interests in Hewden provided
increased 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 refinancing of the non-controlling interests was funded principally through a common share equity offering in
November 2004, which raised proceeds, net of issue costs and income taxes, of $296.8 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, $150.0 million unsecured medium
term note (MTN).

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%.

net inCOme
Net income increased 42.7% to $164.0 million in 2005 compared with $114.9 million in 2004 reflecting the strong contributions from the Canadian
and South American operations, lower finance costs, the absence of non-controlling interests and lower other expenses. 2005 results were tempered
by the unfavourable foreign exchange impact of approximately $15.1 million after-tax, primarily due to translating foreign sourced earnings, and the
higher LTIP costs of $4.7 million after-tax. Basic earnings per share increased to $1.85 in 2005 compared to $1.45 in the prior year.

ACCOUNTING ESTIMATES AND CONTINGENCIES
Management’s discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s consolidated
financial statements, which have been prepared in accordance with Canadian GAAP. The Company’s significant accounting policies are contained in
note 1 to the consolidated financial statements. Certain of these policies require management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. These policies may require particularly
subjective and complex judgments to be made as they relate to matters that are inherently uncertain and because the likelihood that materially
different amounts could be reported under different conditions or using different assumptions. We have discussed the development, selection and
application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the Audit Committee of the Board
of Directors. The more significant estimates include: fair values for goodwill impairment tests, reserves for warranty, provisions for income tax,
employee future benefits and costs associated with maintenance and repair contracts.

During the year, the Company performed an assessment of goodwill by estimating the fair value of operations to which the goodwill relates using
the present value of expected discounted future cash flows, which resulted in no impairment in 2005. 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 and tax matters are pending. In the opinion of management, none
of these matters will have a material effect on the Company’s consolidated financial position or results of operations.

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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.

Cash flOw frOm Operating aCtivities
For the year ended December 31, 2005, cash flow before working capital changes was $521.5 million, an increase of $18.2 million over 2004, and
cash flow after working capital changes was $478.8 million, almost double the amount in 2004. Working capital at the end of 2005 increased over the
2004 balances although not at the same growth rate in 2004. The increase in 2005 was to support the increase in customer demand and the revenue
growth year over year, and to manage the longer lead times required for delivery of product. Significant progress was made throughout the year on
working capital efficiencies which will continue into 2006 with increased focus on credit collections and management of inventory levels.

In addition, 6-Sigma projects have been initiated throughout the Company to improve cash cycle times and operating efficiencies. As a result of
management focus, the Company’s investment in rental assets of $310.7 million in 2005 was lower than the $441.4 million invested in 2004. In 2004,
cash flow benefited from the sale of a portion of the Company’s leased assets to Caterpillar Financial Services Limited. Overall, in 2005, cash flow
from operations amounted to $158.3 million compared to cash used in operations in 2004 of $117.2 million.

Cash used fOr investing aCtivities
Net cash invested in 2005 totalled $44.9 million compared with $76.8 million in 2004. Gross capital additions in 2005 were $81.1 million (2004:
$106.2 million), of which approximately $33.0 million was invested in OEM’s new component rebuild facility built in Edmonton, Alberta. The facility
became fully operational late in the second quarter of 2005 at a cost of approximately $72.0 million incurred over 2004 and 2005. The 2005 amounts
also reflect the $16.0 million proceeds on the sale of the Company’s investment in Maxim Power Corp., proceeds of $8.8 million on the settlement
of foreign currency forwards, as well as a further investment of $9.5 million in Energyst B.V. Other spending was for general operational requirements.

The Company’s planned capital expenditures for 2006 are projected to be in the range of $75.0 to $125.0 million and will be funded through
operations. Net rental additions for 2006 are projected to be in the $350.0 to $400.0 million range.

CASH FLOW AFTER WORKING CAPITAL CHANGES
($ millions) 12 months ended December 31

3
7
4

5
4
4

4
8
3

9
7
4

7
4
2

600

500

400

300

200

100

2001

2002

2003

2004

2005

mANAGEmENT’S dISCUSSIoN & ANALySIS

finanCing aCtivities
To complement the internally generated funds from operating and investing activities, the Company has approximately $1,376.0 million in unsecured
credit facilities. Included in this amount is a new five-year global syndicated bank credit facility entered into in 2005 which replaced existing Canadian
bank lines. At the year-end, approximately $199 million was drawn on these 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). In 2005, the Company’s short-term debt rating was upgraded to R-1 (low) and its long-term debt rating was
reconfirmed at BBB (high) by DBRS. In addition, the Company’s long-term debt rating was reconfirmed at BBB+ by S&P. Since the short-term rating
upgrade by DBRS, the Company has utilized the Canadian commercial paper market as its principal source of short-term funding. The Company’s
commercial paper program has a maximum authorized limit of $500 million, and is backstopped by the global syndicated credit facility.

As at December 31, 2005, the Company’s short and long-term borrowings totalled $1,231.7 million, a decrease of $136.2 million compared to
December 31, 2004 levels. This reflects lower overall debt in foreign currency ($70.4 million) as well as the impact of translating foreign denominated
debt into Canadian dollars ($65.8 million).

During 2004, the Company repaid its $75.0 million 8.35% debenture and its $150.0 million 7.75% 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.

Dividends paid to shareholders were $39.1 million, $7.9 million higher than 2004 due to an increase in the quarterly dividend rate from $0.10
to $0.11 per share announced in early 2005 and the higher number of common shares outstanding in 2005 due primarily to the equity issue in
December 2004.

In November 2004, the Company issued 10 million common shares at a price of $30.50 per common share for total gross proceeds of $305.0 million.
The proceeds, net of issue costs and income taxes, of $296.8 million were used to fund a portion of the cost of refinancing the $425.0 million non-
controlling partnership interests in Hewden. Share capital increased from $557.7 million at December 31, 2004 to $568.1 million at the end of 2005,
reflecting the exercise of stock options of approximately 0.8 million common shares for $10.4 million.

In 2004, under a normal course issuer bid that expired December 7, 2004, Finning repurchased approximately 0.3 million common shares. 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. No common shares were repurchased in 2005.

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. The Company’s Board of Directors approved a further increase in Finning’s quarterly dividend
in February 2006 by two cents to thirteen cents per common share.

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mANAGEmENT’S dISCUSSIoN & ANALySIS

CONTRACTUAL OLIGATIONS
Payments on contractual obligations in each of the next five years and thereafter are as follows:

($ MILLIONS)

2006

2007

2008

2009

2010

Thereafter

Total

Long-term debt
– principal repayment
– interest
Operating leases
Argentina additional consideration(1)
$
Total contractual obligations

80.3 $
54.6
68.1
14.0
217.0 $

2.2
49.9
60.7
10.7
123.5

203.0
42.0
51.4
–
296.4

–
35.1
43.4
–
78.5

88.7
34.2
39.7
–
162.6

550.7
30.6
183.4
–
764.7

924.9
246.4
446.7
24.7
$ 1,642.7

(1) In January 2003, the Company completed its acquisition of 100% of the voting shares of Macrosa Del Plata S.A. and Servicios Mineras S.A., the
Caterpillar dealerships in Argentina and General Machinery Co S.A., the Caterpillar dealership in Uruguay. As part of this agreement, the sellers
are entitled to additional future consideration based on the realization of certain performance criteria over a six-year period ending December 31,
2008 for the Argentina operations. Any additional consideration is payable only if certain performance criteria are achieved and maintained for
a stipulated period. As a result of the strong performance of the dealership in Argentina since acquisition to date, Finning expects that the
maximum future consideration criteria will be met, and these amounts have been recorded in accordance with the agreement as $24.7 million
(U.S. $21.2 million) to goodwill. It is estimated that a provisional payment of approximately $14.0 million (U.S. $12.0 million) will be paid in the
first half of 2006 with the balance of $10.7 million (U.S. $9.2 million) likely payable in 2007.

OFF-ALANCE SHEET ARRANGEMENT
The Company sold a $45.0 million co-ownership interest in a pool of eligible non-interest bearing trade receivables to a multi-seller securitization
trust (the “Trust”), net of overcollateralization. Under the terms of the agreement, which expires on November 29, 2007, the Company can sell
co-ownership interests of up to $120.0 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.

As at December 31, 2005, the Company is carrying a retained interest in the amount of $7.1 million (as at December 31, 2004: $10.8 million),
which equals the amount of overcollateralization in the receivables it sold.

For the year ended December 31, 2005, the Company recognized a pre-tax loss of $1.4 million (2004: $1.0 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:

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, 2005

range for year ended 2005

2.96%
32.8
0.0092%
9.66%
2.0%
$6.9 million

2.81% - 3.49%
29.7 - 36.6
(0.0004)% - 0.084%
5.63% - 9.84%

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 $0.5 million and $1.1 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 $0.6 million and
$1.2 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.

mANAGEmENT’S dISCUSSIoN & ANALySIS

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

For years ended December 31
($ MILLIONS)

Proceeds from new securitization
Proceeds from revolving reinvestment of collections

2005

–
495.5

$
$

2004

15.0
354.5

$
$

EMPLOYEE SHARE PURCHASE PLAN
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 the current market price. The Company pays a portion of the purchase price to a maximum
of 2% of employee earnings. At December 31, 2005, 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, 2005, 22% and 13% 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 decreased from 51% at the end of 2004 to 47% at the end of 2005. This decrease in the overall debt
to total capital ratio was primarily due to the continued focus on improving the efficiency of current operating assets. The debt to total capital ratios
were calculated on a fully consolidated basis.

rISK mANAGEmENT
Finning and its subsidiaries are exposed to market, financial and other risks in the normal course of their business activities. The Company has adopted
an Enterprise Risk Management (ERM) approach in identifying and evaluating risks. This ERM framework provides an integrated approach to managing
business activities and risks as well as assisting the Company in achieving its strategic objectives.

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, managed and reported.

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 & 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 foreign exchange contracts and options to manage its foreign
exchange and interest rate exposures (see notes 3 and 4 of Notes to the Consolidated Financial Statements). The Company’s derivative financial
instruments are always associated with a related underlying risk position and are not 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 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.

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

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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 will not 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, and customers base their decisions on the long-term outlook for metals. 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 U.S. 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 in the foreign operations.

It is the Company’s objective to minimize its net foreign investments exposure. 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 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 2005 month end rates, assuming the same
current level of hedging instruments, would result in a deferred unrealized loss of approximately $35.0 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.

mANAGEmENT’S dISCUSSIoN & ANALySIS

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 U.S. 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 U.S. 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 2005 month end
rates, without any change in hedging activities and using forecasted volumes for 2006.

Currency

USD
GP
EUR
CHP

december 31, 2005
month end rates

1.1659
2.0036
1.3805
0.002267

Increase (decrease) in
annual net income
$ MILLIONS
(13)
(4)
1
1

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
As a reporting issuer, the Company is required to comply with the requirements of Multilateral Instrument 52-109, “Certification of Disclosure in
Issuers’ Annual and Interim Filings” (“MI 52-109”) issued by the Canadian Securities regulatory authorities (often referred to as Bill 198). Finning has
a global project in place to evaluate the Company’s disclosure and internal controls over financial reporting. Regular reporting on the status of the
project is provided to senior management and the Company’s Audit Committee on a quarterly basis. The Company believes it has adequate human
and financial resources and project oversight in place in order to be able to meet all certification requirements required by the regulations.

In compliance with the requirements of MI 52-109, Finning’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have certified as to
the fair presentation of the Company’s MD&A and financial statements on a quarterly basis throughout 2004 and 2005.

Beginning with the 2005 annual filings, the Company is required to comply with securities reporting legislation and accounting standards that
are intended to ensure the full, accurate and timely communication of financial and other material information to the public. The Company has
a Disclosure Policy and Disclosure Committee in place to mitigate risks associated with the disclosure of inaccurate or incomplete information,
or failure to disclose required information.

• The Disclosure Policy sets out accountabilities, authorized spokespersons and our approach to the determination, preparation and dissemination

of material information. The policy also defines restrictions on insider trading and the handling of confidential information.

• The Disclosure Committee reviews all financial information prepared for communication to the public to ensure it meets all regulatory

requirements and is responsible for raising all outstanding issues it believes require the attention of the Audit Committee prior to recommending
disclosure for that Committee’s approval.

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In compliance with MI 52-109, the Company’s CEO and CFO, or the person performing those functions, (“Certifying Officers”) have reviewed and
certified the consolidated financial statements for the year ended December 31, 2005, together with other financial information included in annual
securities filings. Under the supervision and with the participation of Finning’s management, the Company conducted an evaluation of its disclosure
controls and procedures. Based on this evaluation, the Company’s Certifying Officers have also certified that disclosure controls and procedures have
been put in place, and that these controls and procedures provide reasonable assurance that all information considered necessary for appropriate
disclosure has been accumulated and communicated to management on a timely basis and disclosed in the annual filing.

SELECTEd qUArTErLy INFormATIoN
($ MILLIONS, EXCEPT FOR SHARE AND OPTION DATA)

2005

2004

Revenue
Canada
South America
UK
Hewden
Total revenue
Net income
Earnings per common share
asic
Diluted
Total assets
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)

$ 521.5
246.9
268.3
147.3
$ 1,184.0
36.2
$

$ 531.1
258.9
264.9
170.8
$ 1,225.7
44.8
$

$ 509.5
274.3
313.3
174.4
$ 1,271.5
45.6
$

$ 487.6
227.2
276.0
162.6
$ 1,153.4
37.4
$

$ 456.2
210.1
244.4
164.5
$ 1,075.2
20.1
$

$ 381.5
256.0
268.4
180.0
$ 1,085.9
43.1
$

$ 363.1
203.1
290.7
175.7
$ 1,032.6
27.8
$

0.41
$
$
0.40
$ 3,736.4

0.50
$
$
0.50
$ 3,754.3

0.52
$
$
0.51
$ 3,916.8

0.42
$
$
0.42
$ 3,905.3

0.23
$
$
0.23
$ 3,804.0

0.56
$
$
0.55
$ 3,683.6

0.35
$
$
0.35
$ 3,744.2

80.3
844.6
$ 924.9

6.3
843.0
$ 849.3

4.1
866.6
$ 870.7

5.1
885.3
$ 890.4

6.5
889.6
$ 896.1

$ 156.3
738.9
$ 895.2

$ 158.7
767.3
$ 926.0

$ 361.8
200.7
240.0
165.7
$ 968.2
23.9
$

0.31
$
$
0.30
$ 3,555.0

$ 159.1
765.9
$ 925.0

0.11

0.10

89,202
1,474

89,138
1,545

88,906
1,810

88,608
1,812

88,390
2,016

78,037
2,359

77,849
2,546

77,937
2,564

NEw ACCoUNTING ProNoUNCEmENTS
The Company is not aware of any accounting pronouncements that would have an impact on our consolidated financial statements in 2006.

mANAGEmENT’S dISCUSSIoN & ANALySIS

mArKET oUTLooK
Finning’s success is linked to local economic conditions in the regions where it has operations. In addition, global economic conditions which have a direct
bearing on demand for commodities such as oil, copper, coal and gold, in turn influence the heavy equipment buying decisions of many of Finning’s key
customers in western Canada and South America. The U.K. markets are largely driven by the overall level of “build, repair, maintain” construction activity.

In addition to new equipment sales, as the size of the Caterpillar fleet in Finning’s geographic regions grows, a larger proportion of the Company’s
business will be driven by more stable, higher-margin parts and service revenue. This revenue stream is less sensitive to commodity prices and in some
instances is countercyclical as equipment owners will keep their equipment longer in less buoyant economic times and as a result, require more parts
and service on the older equipment.

Global economic conditions remain good. Demand for energy and the key mineral commodities remains strong and supply increases appear to be
modest. As a result, commodity prices are expected to remain firm for the near future and the outlook for Finning’s business in western Canada and
South America is expected to continue to be very good.

Finning (Canada)’s resource based customers are prospering. General construction spending is at very high levels and government spending on
infrastructure projects is increasing. Finning (Canada)’s positive outlook is reflected in the record level of sales and earnings and the strong order backlog.

Similarly, in South America the strong commodity markets, in particular strong copper prices, are also leading to very good financial results by the
Company’s customers in this region. Capital spending by mining customers continues at a strong pace, and general construction markets are also
strong. In Argentina, the economy is experiencing inflationary pressure on wage rates, however to date, the Company has experienced minimal impact
on its results by adjusting its salary structure and passing on price increases to its customers.

Business conditions in the U.K. continue to be somewhat uncertain. After a weaker 2005, expectations are for a modest improvement in 2006.
A recent interest rate cut has modestly stimulated housing markets and this is expected to have a beneficial impact on construction activity, which
will impact operations at Finning (UK) and Hewden. Currently, construction activity continues at moderate levels.

Hewden continues to review its structure and implement changes in order to improve customer service and profitability as well as simplify the
organizational structure. However, competitive pressures continue to impact the Company’s operations in the U.K. A realignment of certain back
office functions at Hewden and the implementation of a new information system that will enhance the quality of its customer services and reduce
transaction costs are underway as is a revised plan to create strategically located rental centres surrounded by smaller satellite rental stores.

In the UK dealership operations, management together with Caterpillar have agreed on an extensive project to increase the dealership’s profitability
while increasing Caterpillar’s market share in the U.K. Finning (UK) will expand its service offering for small and compact machines in the U.K. market
and Caterpillar has agreed to product line changes and pricing changes that will make its product line better suited for U.K. markets and more price
competitive with U.K. competitors.

Finning (UK) has delayed the systems integration of the Lex Harvey business and as a result, the Materials Handling business continues to experience
inefficiencies. Information technology alternatives are under consideration and the Company is examining potential improvements in its service
delivery. Discussions continue with the supplier of the materials handling equipment to negotiate more competitive pricing. Finning (UK) management
is focusing on improving margins in all areas, achieving efficiencies and controlling costs.

The company-wide plan to reduce costs by $60 million by the end of 2006 is on track and the Company expects to have its cost savings fully in place
by January 1, 2007. To date, the Company has completed projects that will generate over $37 million of annual savings.

The Company’s results are impacted by the stronger Canadian dollar compared to the U.S. dollar and the U.K. pound sterling in the translation of
foreign currency earnings. The Company anticipates that its 2006 results will be negatively impacted as a result of translating foreign currency based
earnings should the strength of the Canadian dollar continue against the U.S. dollar and the U.K. pound sterling.

The Company’s order backlog is at record levels and the Company’s key customers are for the most part, very profitable and growing. The current
economic environment, commodity pricing and launched and pending cost efficiency initiatives, taken together, provide a positive outlook for the
Company’s medium to long-term growth opportunities.

February 15, 2006

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SCHEdULE 1
DESCRIPTION OF NON-GAAP MEASURES
To supplement Finning’s consolidated financial statements, the Company has used 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 provided these financial measures 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 EIT and Normalized EIT

3 months ended
December 31

12 months ended
December 31

($ THOUSANDS)

2005

2004

2005

2004

Earnings before interest and taxes (EIT)
Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs
(Gain on sale of) loss from equity investment
Legal settlement
Recognition of deferred gain on the 2001 sale of the
Canadian Materials Handling business
Normalized EIT (reflects non-GAAP measure)

61,630
(2,487)
3,362
–
–

60,680
(4,365)
4,374
231
–

285,285
(8,274)
12,362
(1,827)
–

265,741
(6,770)
15,989
461
7,863

–
62,505

–
60,920

–
287,546

(3,800)
279,484

Reconciliation between reported net income and EPS and Normalized Net Income and Normalized asic EPS

3 months ended
December 31

12 months ended
December 31

($ THOUSANDS, EXCEPT EPS DATA)

2005

2004

2005

2004

asic EPS (GAAP measure)
Reported net income (GAAP measure)
Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs
(Gain on sale of) loss from equity investment
Legal settlement
Recognition of deferred gain on the 2001 sale of the
Canadian Materials Handling business
Recognition of deferred costs on unwind
of non-controlling interests
Unwind of interest rate swaps
Market value adjustment: interest rate swaps
not eligible for hedge accounting
Normalized Net Income (reflects non-GAAP measure)
Normalized asic EPS (reflects non-GAAP measure)

$
$

0.41
36,184
(1,768)
2,633
–
–

–

–
–

–
37,049
0.41

$
$

0.23
20,181
(3,337)
2,934
231
–

(115)

5,264
8,003

1,310
34,471
0.42

$
$

1.85
164,030
(5,765)
8,900
(1,653)
–

–

–
–

1.45
114,946
(5,183)
10,812
461
5,504

(3,115)

5,264
8,003

–
165,512
1.86

$
$

1,407
138,099
1.75

mANAGEmENT’S dISCUSSIoN & ANALySIS

SELECTEd ANNUAL INFormATIoN

($ MILLIONS, EXCEPT FOR SHARE DATA)

Total revenue
Net income(1)
Earnings per common share(1)
asic
Diluted
Total assets
Long-term debt(2)
Current
Non-current

Cash dividends declared per common share

2005

4,834.6
164.0

1.85
1.83
3,736.4

80.3
844.6
924.9
0.44

$
$

$
$
$

$
$

2004

4,161.9
114.9

1.45
1.43
3,804.0

6.5
889.6
896.1
0.40

$
$

$
$
$

$
$

2003

3,593.3
132.0

1.71
1.68
3,440.6

235.2
748.2
983.4
0.36

$
$

$
$
$

$
$

(1) Net income and basic earnings per share decreased in 2004 primarily due to costs incurred in 2004 not considered reflective of the Company’s ongoing

operations, such as refinancing costs related to the redemption of non-controlling interests, restructuring costs and settlement of a legal claim.

(2) In 2004, the Company repaid its $75.0 million 8.35% debentures and its $150.0 million 7.75% MTN, both of which matured, with short-term borrowings on its

bank credit facilities. In December 2005, the Company issued a $150.0 million 4.64% MTN, maturing in 2011.

oUTSTANdING SHArE dATA

As at February 10, 2006

Common shares outstanding
Options outstanding

89,212,030
1,463,927

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mANAGEmENT’S rEPorT To THE SHArEHoLdErS

The accompanying Consolidated Financial Statements and Management’s Discussion and Analysis (MD&A) are the responsibility of Finning
International Inc.’s management. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in Canada which recognize the necessity of relying on some of management’s best estimates and informed judgements. Financial
information included elsewhere in this Annual Report is consistent with that in the financial statements.

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, Deloitte & Touche LLP, have audited the Consolidated Financial Statements, as reflected in their report
for 2005.

The Board of Directors oversees management’s responsibilities for the Consolidated Financial Statements primarily through the activities of its
Audit Committee. The Audit Committee of the Board of Directors is composed solely of directors who are neither officers nor employees of the
Company. The Committee meets regularly during the year with management of the Company and the Company’s independent auditors to review
the Company’s interim and annual financial statements and MD&A. The Audit Committee also reviews internal accounting controls, risk management,
internal and external audit results and accounting principles and practices. The Audit Committee is responsible for approving the remuneration and
terms of engagement of the Company’s independent auditors. The Audit Committee also meets with the independent auditors, without management
present, to discuss the results of their audit and the quality of financial reporting. On a quarterly basis, the Audit Committee reports its findings to the
Board of Directors, and recommends approval of the interim and annual Consolidated Financial Statements.

The Consolidated 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 the Consolidated Financial Statements.

D.W.G. Whitehead
President and Chief Executive Officer

February 15, 2006
Vancouver, BC, Canada

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, 2005 and 2004 and
the consolidated statements of income, retained earnings and cash flow for each of the years in the two year period ended December 31, 2005.
These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
Consolidated Financial Statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the Consolidated Financial Statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the Consolidated Financial Statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall Consolidated Financial Statement presentation.

In our opinion, these Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company as at December 31,
2005 and 2004, and the results of its operations and its cash flow for each of the years in the two year period ended December 31, 2005 in
accordance with Canadian generally accepted accounting principles.

DELOITTE & TOUCHE LLP, Chartered Accountants
February 15, 2006
Vancouver, BC, Canada

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CoNSoLIdATEd STATEmENTS oF INComE ANd rETAINEd EArNINGS

For the years ended December 31
($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

2005

2004

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

Cost of sales
Gross profit

Selling, general and administrative expenses

Other expenses (Note 2)
Earnings before interest, taxes and non-controlling interests

Finance costs (Notes 3 and 4)
Income before provision for income taxes and non-controlling interests

Provision for income taxes (Note 5)

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 9)
asic
Diluted

$ 1,625,669
359,002
430,840
1,001,124
1,409,854
8,089
4,834,578

3,443,455
1,391,123

1,103,577

2,261
285,285

76,863
208,422

44,392

–
164,030

850,321
164,030
(39,097)
–
975,254

1.85
1.83

$
$

1,218,432
273,456
391,239
1,009,760
1,237,046
31,974
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

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

1.45
1.43

Weighted average number of shares outstanding

88,851,343

79,018,683

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

CoNSoLIdATEd bALANCE SHEETS

As at December 31
($ THOUSANDS)

ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
On-hand equipment
Parts and supplies
Other assets (Note 10)
Total current assets

Finance assets (Note 11)
Rental equipment (Note 12)
Capital assets (Note 13)
Goodwill (Note 15)
Other assets (Note 10)

LIAbILITIES
Current liabilities
Short-term debt (Note 3)
Accounts payable and accruals
Income tax payable
Future income taxes (Note 5)
Current portion of long-term debt (Note 3)
Total current liabilities

Long-term debt (Note 3)
Long-term obligations (Note 16)
Future income taxes (Note 5)
Total liabilities

Commitments and Contingencies (Notes 22 and 23)

SHArEHoLdErS’ EqUITy
Share capital (Note 7)
Contributed surplus
Cumulative currency translation adjustments (Note 17)
Retained earnings
Total shareholders’ equity

Approved by the Directors:

D.W.G. Whitehead, Director

C.A. Pinette, Director

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

2005

2004

27,683
569,098

15,843
578,350

648,853
382,963
186,180
1,814,777

19,826
1,050,490
348,905
364,827
137,563
$ 3,736,388

306,792
886,179
50,758
–
80,294
1,324,023

844,638
98,083
56,666
2,323,410

641,366
346,490
176,905
1,758,954

16,236
1,163,976
342,472
386,257
136,116
3,804,011

471,811
919,612
4,354
2,773
6,460
1,405,010

889,623
108,055
75,118
2,477,806

568,121
2,739
(133,136)
975,254
1,412,978
$ 3,736,388

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

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CoNSoLIdATEd STATEmENTS oF CASH FLow

For the years ended December 31
($ THOUSANDS)

oPErATING ACTIVITIES
Net income
Add items not affecting cash
Depreciation and amortization
Future income taxes
Stock-based compensation
Other
Non-controlling interests

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 provided by (used in) operating activities

INVESTING ACTIVITIES
Net additions to capital assets
Net proceeds on sale of equity investment (Note 10)
Investment in equity investment (Note 10)
Proceeds on settlement of foreign currency forwards
Cash used in investing activities

FINANCING ACTIVITIES
Increase in (repayment of) short-term debt
Increase in (repayment of) long-term debt
Medium term note issue (Note 3)
Securitization of accounts receivable (Note 19)
Non-controlling interests distribution
Redemption of non-controlling interests (Note 6)
Common shares issued (Note 7)
Issue of common shares on exercise of stock options (Note 7)
Repurchase of common shares (Note 7)
Dividends paid
Cash provided by (used in) financing activities
Currency translation adjustments
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Cash flows include the following elements
Interest paid
Income taxes received (paid)

2005

2004

164,030

114,946

356,834
(2,627)
13,379
(10,100)
–
521,516

(39,781)
(39,177)
(47,646)
10,290
21,656
51,899
478,757
(310,669)
(9,784)
158,304

(60,135)
16,000
(9,479)
8,753
(44,861)

(157,902)
89,369
–
–
–
–
–
10,381
–
(39,097)
(97,249)
(4,354)
11,840
15,843
27,683

(81,528)
7,459

$
$

366,087
(2,321)
8,251
1,150
15,149
503,262

(127,247)
(217,612)
(85,326)
(4,648)
194,439
(15,446)
247,422
(441,352)
76,778
(117,152)

(76,832)
–
–
–
(76,832)

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

(98,736)
(21,380)

$
$

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

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

December 31, 2005 and 2004

1. 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), Finning’s wholly owned subsidiaries and investments in joint ventures. Principal operating subsidiaries include Finning (UK) Ltd., Finning
Chile S.A., Hewden Stuart plc (“Hewden”), Finning Argentina S.A. and Finning Soluciones Mineras S.A. (in Argentina), Finning Uruguay S.A. and Finning
Bolivia S.A.

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) foreign 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 the cumulative currency translation adjustments account on
the consolidated balance sheet.

(c) cash and cash equivalents
Short-term investments, consisting of highly rated and liquid 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.

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1. signifiCant aCCOunting pOliCies (continued)
(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 (the “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 in selling, general and administrative 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.

(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 remaining
inventory of parts and supplies.

(f) other assets
Costs incurred in 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.

Investments in which the Company exercises significant influence, but not control, are accounted for using the equity method. Other investments are
stated at cost. An investment is considered impaired if its fair value falls below its cost, and the decline is considered other than temporary.

(g) 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.

(h) finance assets
Finance assets are comprised of instalment notes receivables and equipment leased to customers.

Instalment notes receivable represents amounts due from customers relating to financing of equipment sold and are recorded net of unearned
finance charges.

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.

(i) 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.

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

(j) caPital assets
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:

uildings
General equipment
Automotive equipment

2% - 5%
10% - 33%
20% - 33%

Intangible assets with indefinite lives are not amortized. Intangible assets with finite lives are amortized on a straight-line basis over their estimated
useful lives to a maximum period of ten years.

(k) goodwill
Goodwill represents the excess cost of an investment over the fair value of the net assets acquired and is not amortized.

(l) asset imPairment
The Company reviews both long-lived assets to be held and used and identifiable intangible assets with finite lives whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate
of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived
assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas assets
to be disposed of are reported at the lower of carrying amount or fair value less estimated selling costs. During 2005, the Company recognized
asset impairment charges as described in Note 13. As at December 31, 2005, the Company determined that there were no other triggering events
requiring an impairment analysis.

Goodwill and intangible assets with indefinite lives 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 present value of expected discounted future 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.

(m) leases
Leases entered into are classified as either capital or operating leases. Leases where all of the benefits and risks of ownership of property rest with the
Company are accounted for as capital leases. Equipment under capital lease is depreciated on the same basis as capital assets. Gains or losses resulting
from sale/leaseback transactions are deferred and amortized in proportion to the amortization of the leased asset. Rental payments under operating
leases are expensed as incurred.

(n) asset retirement obligations
The Company recognizes its obligations to account for the retirement of certain tangible long-lived assets. The fair value of a liability for an asset
retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. In subsequent
periods, the asset retirement obligation is adjusted for the passage of time and any changes in the amount or timing of the underlying future cash
flows through charges to earnings. A gain or loss may be incurred upon settlement of the liability.

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1. signifiCant aCCOunting pOliCies (continued)
(o) 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 title to the equipment and significant risks of ownership passes to the customer,

which is generally at the time of shipment of the product 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.

(P) stock-based comPensation
The Company has stock option plans and other stock-based compensation plans for directors and certain eligible employees which are described
in Note 8. Stock-based awards are measured and recognized using a fair value-based method of accounting.

For stock options granted after January 1, 2003, fair value is determined on the grant date of the stock option and recorded as compensation expense
over the vesting period, with a corresponding increase to contributed surplus. For stock options granted prior to January 1, 2003, the Company
recorded no compensation expense and will continue to use the intrinsic value-based method of accounting for stock options. When stock options
are exercised, the proceeds received by the Company, together with the amount recorded in contributed surplus, are credited to share capital.

Compensation expense, which arises from fluctuations in the market price of the Company’s common shares underlying other stock-based
compensation plans, is recorded in selling, general and administrative expenses in the consolidated statement of income with a corresponding accrual
in long-term obligations or accounts payable and accruals on the consolidated balance sheet.

(q) derivative financial instruments
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 foreign exchange contracts and options as hedges against actual
underlying exposures. These instruments are always associated with a related risk position and are not 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 effective in offsetting changes in fair values or cash flows of hedged items. When
derivative instruments have been designated as a hedge and are highly effective in offsetting the identified risk characteristics of the specified hedge
exposure, hedge accounting is applied to these derivative instruments. Hedge accounting requires that gains, losses, revenue and expenses of a hedging
item be recognized in the same period that the associated gains, losses, revenue and expenses of the hedged item are recognized. 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 in current liabilities on the balance sheet and recognized in income in the period in which the underlying hedged

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

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.

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 recorded as assets or liabilities, as appropriate, and recognized in the cumulative currency translation account
on the balance sheet, 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.

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. As a result, hedge accounting treatment for interest rate swaps results in interest expense on the
related debt being reflected at hedged rates rather than the original contractual interest rates.

(r) emPloyee future benefits
The Company and its subsidiaries offer a number of benefit plans that provide pension and other benefits to many of its employees in the Canadian
and the UK operations. These plans include defined benefit and defined contribution plans.

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. The Company accrues its obligations to employees under these indemnity plans based on the actuarial valuation of anticipated
payments to employees.

The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets.

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 and salary escalation rate.

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

Actuarial gains and losses arise from the difference between the actual and expected long-term rate of return on plan assets for a period, or from
changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulated 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 Canadian Institute of Chartered Accountants 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 Finning (UK) 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.

(s) comParative figures
Certain comparative figures have been reclassified to conform to the 2005 presentation.

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NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

2. Other expenses
Other expenses (income) include the following items:

For years ended December 31
($ THOUSANDS)

Gain on sale of surplus properties in Canada and the U.K.
Restructuring and project costs
(Gain on sale of) loss from equity investment (Note 10)
Legal settlement (Note 23)
Recognition of deferred gain on the 2001 sale of the Canadian Materials Handling business

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

3. shOrt-term and lOng-term debt

December 31
($ THOUSANDS)

Short-term debt
Long-term debt:
Debenture
6.60% due December 8, 2006
Medium Term Notes
7.40% due June 19, 2008
4.64% due December 14, 2011
5.625% Eurobond due May 30, 2013
Other unsecured term loans(1)

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

2005

(8,274)
12,362
(1,827)
–
–
2,261
779
1,482

2004

(6,770)
15,989
461
7,863
(3,800)
13,743
5,264
8,479

2005

2004

306,792

471,811

75,000

200,000
150,000
400,720
99,212
924,932
80,294
844,638

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

(1) Other unsecured loans consists of U.S. $76.1 million of borrowings under a five-year committed bank facility that is classified as long-term debt,

and other unsecured term loans primarily from supplier merchandising programs.

SHORT-TERM DET
Short-term debt primarily consists of commercial paper borrowings and other short-term bank indebtedness.

The Company maintains a maximum authorized commercial paper program of $500.0 million which is utilized as its principal source of short-term
funding. This commercial paper program is backstopped by credit available under a new $800 million long-term committed credit facility. In addition,
the Company also maintains, as required, certain other unsecured bank credit facilities to support its local operations. As at December 31, 2005,
the Company had approximately $1,376.0 million of unsecured credit facilities, and including all bank and commercial paper borrowings drawn against
these facilities, approximately $970.0 million of capacity remained available.

Included in short-term debt is foreign currency denominated debt of U.S. $17.9 million (2004: U.S. $157.6 million), £nil (2004: £50.6 million) and
Chilean peso 23,614.1 million (2004: Chilean peso nil).

The average interest rate applicable to the consolidated short-term debt for 2005 was 4.7% (2004: 3.7%).

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

LONG-TERM DET
During the year, the Company entered into an $800 million unsecured syndicated revolving credit facility which replaced all of its Canadian bilateral
bank lines. The facility has a five year committed term with a one year extension option. The facility is available in multiple borrowing jurisdictions
and may be drawn by a number of the Company’s principal operating subsidiaries. Borrowings under this facility are available in multiple currencies
and at various floating rates of interest.

The Company’s Canadian dollar denominated debenture and medium term notes are unsecured, and interest is payable semi-annually with principal
due on maturity. The Company’s £200.0 million Eurobond is unsecured, and interest is payable annually with principal due on maturity. The Eurobond
is subject to early redemption at the option of the Company.

In December 2004, the Company issued a 7-year $150.0 million unsecured Medium Term Note (MTN). The MTN has a coupon interest rate of 4.64%
per annum, paid semi-annually. 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.

COVENANTS
The Company is required to maintain a certain debt to capitalization level covenant with respect to its bank credit facilities. As at December 31, 2005,
the Company is in compliance with these covenants.

LONG-TERM DET REPAYMENTS
Principal repayments on long-term debt in each of the next five years and thereafter are as follows:

($ THOUSANDS)

2006
2007
2008
2009
2010
Thereafter

FINANCE EXPENSE
Finance costs as shown on the consolidated statement of income is comprised of the following elements:

For years ended December 31
($ THOUSANDS)

Interest on debt securities:
Short-term debt
Long-term debt

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, other finance related expenses and sundry interest earned

80,294
2,224
202,966
–
88,725
550,723
924,932

2005

2004

27,729
51,380
79,109
(1,099)

–
(1,147)
76,863

15,519
59,846
75,365
16,283

14,514
11,938
118,100

In December 2004, the Company unwound its interest rate swaps that were not eligible for hedge accounting treatment and recorded a settlement
loss of $14.5 million.

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A
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T
N

G
N
N
N
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NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

4. finanCial instruments
FOREIGN EXCHANGE
The Company has an exposure to foreign currency exchange rates primarily because the net assets and earnings of certain investments are
denominated in foreign currencies. The Company utilizes perpetual cross-currency swaps and forward contracts to hedge a portion of the foreign
exchange exposure relating to these net investments. The Company also uses forward foreign exchange contracts to hedge foreign exchange
exposure to certain other liabilities, firm commitments or forecasted transactions.

INTEREST COSTS
The Company monitors its debt portfolio mix of fixed and variable rate instruments and at times, will use forward interest rate agreements, swaps
and collars to manage this balance of fixed and floating rate debt. At December 31, 2005 the Company has entered into a fixed to floating interest
rate swap, with a notional value of $100.0 million (2004: $100.0 million).

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 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 values of the derivatives below have been estimated using year-end market information as at December 31, 2005 and 2004. These fair values
approximate the amount the Company would receive or pay to terminate the contracts:

($ OR £ THOUSANDS)

2005
Interest rates
Interest rate swaps (CAD $ pay floating, receive fixed)

Foreign Exchange
Cross Currency Interest Rate Swap
Sell £ (buy CAD $); pay £ fixed / receive CAD $ fixed(1)
Forward uy U.S. $ (sell CAD $)
Forward uy CLP (sell U.S. $)
Forward Sell £ (buy CAD $)(2)

2004
Interest rates
Interest rate swaps (CAD $ pay floating, receive fixed)

Foreign Exchange
Cross Currency Interest Rate Swap
Sell £, (buy CAD $); pay £ fixed / receive CAD $ fixed
Forward uy U.S. $ (sell CAD $)
Forward Sell CLP (buy U.S. $)
Forward uy Euro (sell £)
Forward Sell £ (buy CAD $)(2)

Notional
Value

Term to
Maturity

Fair Value
Receive (Pay)

100,000

2.5 years

1,041

£
150,000
U.S. $ 237,170
U.S. $ 24,000
80,000
£

perpetual
1-12 months
1-12 months
perpetual

100,000

3.5 years

£
228,000
U.S. $ 173,545
322
U.S. $
576
£
95,560
£

perpetual
1-12 months
1 month
10 months
perpetual

$
$
$
$

$
$
$
$
$

25,497
(3,362)
1,739
4,147

3,258

(18,957)
(5,557)
(57)
42
(10,540)

(1) The perpetual cross currency interest rate swaps hedge a portion of the Company’s net investment in Hewden. At December 31, 2005,

$27.6 million of the positive fair value, representing the mark-to-spot rate gain on the forward foreign exchange component of the swap, has been
recognized on the balance sheet in long-term other assets and offset to cumulative currency translation adjustments (2004: a mark-to-spot rate
loss of $27.0 million was recognized on the balance sheet in long-term obligations and offset to cumulative currency translation adjustments).
(2) The forward foreign exchange contract hedges a portion of the Company’s net investment in Finning (UK). At December 31, 2005, $4.4 million of
the positive fair value, representing the mark-to-spot rate gain on the contract, has been recognized on the balance sheet in long-term other assets
and offset to cumulative currency translation adjustments (2004: $11.0 million was recorded in current liabilities).

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

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

December 31
($ THOUSANDS)

Long-term debt

2005

2004

book Value

Fair Value

ook Value

Fair Value

924,932

953,796

896,083

919,755

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 overly 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.

5. inCOme taxes
PROVISION FOR INCOME TAXES
As the Company operates in several tax jurisdictions, its income is subject to various rates of taxation. The components of the Company’s income tax
provision are as follows:

For years ended December 31
($ THOUSANDS)

Provision for income taxes
Current
Canada
International

Future
Canada
International

The following table summarizes income taxes charged directly to shareholders’ equity:

For years ended December 31
($ THOUSANDS)

Realized foreign currency gains
Share issuance costs

2005

2004

25,113
21,906
47,019

(3,386)
759
(2,627)
44,392

2005

6,433
–
6,433

(281)
20,148
19,867

(5,424)
3,103
(2,321)
17,546

2004

1,283
4,466
5,749

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A
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T
N

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N
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F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

5. inCOme taxes (continued)
The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income
before income taxes as follows:

For years ended December 31
($ THOUSANDS)

Combined Canadian federal and provincial income taxes
at the statutory tax rate
Increase / (decrease) resulting from:
Lower statutory rates on the earnings
of foreign subsidiaries
Large corporation tax
Income not subject to tax
Non-taxable capital gain
Other
Provision for income taxes

2005

2004

71,247

34.18%

46,597

35.17%

(27,297)
1,428
(779)
(1,120)
913
44,392

(13.10)%
0.68%
(0.37)%
(0.54)%
0.45%
21.30%

(28,679)
1,000
(156)
(1,687)
471
17,546

(21.65)%
0.75%
(0.12)%
(1.27)%
0.36%
13.24%

FUTURE INCOME TAX ASSET AND LIAILITY
Included in other assets on the consolidated balance sheets are a current future income tax asset and long-term future income tax asset of $35.0 million
(2004: $24.8 million) and $28,000 (2004: $31.1 million), respectively.

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

December 31
($ THOUSANDS)

Future income tax assets:
Accounting provisions currently not deductible for tax purposes
Loss carry-forwards
Other stock-based compensation
Goodwill of foreign subsidiaries
Other

Future income tax liabilities:
Capital, rental and leased assets
Employee benefits

Net future income tax liability

2005

2004

37,420
10,505
8,636
3,452
223
60,236

(65,873)
(16,013)
(81,886)
(21,650)

38,156
8,136
5,608
6,896
2,821
61,617

(68,732)
(14,865)
(83,597)
(21,980)

The Company has the following tax loss carry-forwards available to reduce future taxable income and capital gains expiring through 2015 for Canada
and available indefinitely for International:

December 31
($ THOUSANDS)

Canada
International

2005

15,521
18,116
33,637

2004

14,267
10,989
25,256

NoTES To THE 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 $425.0 million 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 $425.0 million. 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 issue costs and income taxes, of $296.8 million, 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,
$150.0 million unsecured Medium Term Note.

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 $15.1 million in 2004 (representing
a yield of 4.0%), up to the date of redemption of the partnership interest.

7. share Capital
The Company is authorized to issue an unlimited number of preferred shares without par value, of which 4.4 million are designated as cumulative
redeemable preferred shares. The Company had no preferred shares outstanding for the years ended December 31, 2005 and 2004.

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

For years ended December 31
($ THOUSANDS, EXCEPT SHARE AMOUNTS)

2005

2004

Amount

alance, beginning of year
Issued
Equity issue
Stock option plans
Repurchase of common shares
alance, end of year

88,389,881

557,740

77,754,985

248,939

–
811,783
–
89,201,664

–
10,381
–
568,121

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

296,769
13,095
(1,063)
557,740

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, at which time
the plan rights become exercisable. 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 2008.

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.

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A
N
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E
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N

G
N
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F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

7. share Capital (continued)
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 issue costs and income taxes, were $296.8 million.

REPURCHASE OF COMMON SHARES
In 2004, the Company repurchased 329,900 common shares, as part of a normal course issuer bid, 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. No common shares were
repurchased in 2005.

8. stOCK-based COmpensatiOn plans
The Company has a number of stock-based compensation plans, which are described below.

STOCK OPTIONS
The Company has several stock option plans for certain employees and directors with vesting occurring over a three-year period. The exercise price
of each option is based on the closing price of the common shares of the Company on the date of the grant. Options granted after January 1, 2004
are exercisable over a seven-year period. Options granted prior to January 1, 2004 are exercisable over a ten-year period. Details of the stock option
plans are as follows:

For years ended December 31

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

Exercisable at year-end

2005

weighted
Average
Exercise Price

$
$
$
$
$

15.08
32.47
12.79
31.67
19.54

14.64

options

2,016,058
290,800
(811,783)
(20,782)
1,474,293

1,043,383

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

In May 2005, the Company issued 290,800 common share options to senior executives and management of the Company under the New Option
Plan under the conditions specified in the 2005 Management Proxy Circular. The most notable change in the New Option Plan is that in general,
the new plan allows for a cashless exercise option which has a less dilutive effect on share capital at the time of exercising and involves the holder
giving up the right to exercise a number of vested options with a value equal to the purchase price of the common shares to be issued.

In April 2004, the Company issued 242,200 common share options to senior executives and management of the Company.

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 vesting period. 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

2005 Grant

2004 Grant

1.17%
24.15%
3.95%
7 years

1.12%
26.82%
3.95%
7 years

Stock option expense recognized as a result of granting stock options in 2005 was $1.9 million (2004: $0.9 million).

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

The following table summarizes information about stock options outstanding at December 31, 2005:

Range of exercise prices

$9 - 12
$12 - 15
$15 - 17
$29 - $33

Number
outstanding

112,250
615,335
241,441
505,267
1,474,293

options outstanding
weighted
Average
remaining
Contractual
Life (in years)

weighted
Average
Exercise
Price

2.8
4.6
1.7
5.9
4.5

$
$
$
$
$

10.41
12.95
16.36
31.11
19.54

options Exercisable
weighted
Average
remaining
Contractual
Life (in years)

weighted
Average
Exercise
Price

2.82
4.65
1.74
5.33
3.83

$
$
$
$
$

10.41
12.95
16.36
29.38
14.64

Number
outstanding

112,250
615,335
241,441
74,357
1,043,383

OTHER STOCK-ASED 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
common share 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 as they vest 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 long-term obligations. Details of these plans are as follows:

directors

DIrectors’ DeFerreD share unIt plan a (DDsu)
The Company offers a Deferred Share Unit Plan (DDSU) for members of the Board of Directors. Under the DDSU Plan, non-employee Directors
of the Company may elect to allocate all or a portion of their annual 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 for cash or shares 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. The value of the deferred share units when converted to cash will be equivalent to the market
value of the Company’s common shares at the time the conversion takes place.

Non-employee Directors of the Company were allocated a total of 14,886 share units in 2005 (2004: 19,950 share units).

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. This plan
utilizes notional units that 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.

No units have been awarded under the DSU-A plan since 2001.

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 vested partially on December 30th of the year following the year of retirement, death or disability or
at specified percentages if the Company’s common share price exceeds specified levels, for ten consecutive days, the common share price at the
date of grant. Vested deferred share units are redeemable for a period of 30 days after termination of employment, 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 from 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.

Executives of the Company were awarded 125,400 deferred share units under the DSU-B plan in 2005 (2004: 118,100 deferred share units).

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A
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N

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NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

8. stOCK-based COmpensatiOn plans (continued)
The specified levels and respective vesting percentages are as follows:

Vesting %

2005 Plan

2004 Plan

2003 Plan

2002 Plan

Common Share Price

0
25
50
75
100

$
$
$
$
$

32.44
35.68
38.93
42.17*
45.42*

$
$
$
$
$

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

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

*Unvested at December 31, 2005.

Details of the deferred share unit plans are as follows:

For years ended December 31

DSU-A

DSU-

DDSU

UNITS

2005

2004

2005

2004

2005

2004

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

LIAILITY
($ THOUSANDS)

52,716
637
(1,570)
51,783
52,716
637
(1,570)
51,783

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

723,301
132,400
(100,615)
755,086
388,050
365,190
(84,479)
668,761

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

163,072
23,511
(28,104)
158,479
163,072
23,511
(28,104)
158,479

132,390
30,682
–
163,072
132,390
30,682
–
163,072

alance, beginning of year
Expensed during year
Exercised/cancelled during year
alance, end of year

1,844
142
(63)
1,923

2,028
311
(495)
1,844

$ 13,578
14,402
(3,142)
$ 24,838

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

5,706
1,195
(1,015)
5,886

3,972
1,734
–
5,706

The value of the outstanding DSUs at December 31, 2005 was $32.6 million (2004: $21.1 million) and is included in long-term obligations on the
balance sheet.

management
Beginning in 2002, awards under the Share Appreciation Rights Plan (SAR) were granted to senior managers within Canada and the U.K. The exercise
price is determined based on the Company’s common share price on the Toronto Stock Exchange on the grant date. Under the SAR Plan, awards are
expensed over the vesting period of three years when the market price of the common shares exceeds the exercise price under the plan for vested
units. Changes, either increases or decreases, in the quoted market value of common 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 period. The SAR Plan uses notional
units that are valued based on the Company’s common share price on the Toronto Stock Exchange.

In 2005, 255,872 awards were granted to management in the U.K. and Canada at a grant price of $32.44 (2004: 237,129 awards at a grant price of $29.38).

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

Details of the SAR plans are as follows:

For years ended December 31
UNITS

LIAILITY

($ THOUSANDS)

alance, beginning of year
Expensed during period
Exercised/cancelled during period
alance, end of period

Exercise price ranges:

2005

2004

649,367
255,872
(190,239)
715,000
205,073
235,408
(153,781)
286,700

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

3,520
3,050
(1,915)
4,655

$26.05 - $32.44

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

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 and
the impact of new issues, including stock options, resulted in a charge to income in 2005 of $20.6 million (2004: $14.4 million). This amount was
recognized in selling, general and administrative expenses on the consolidated statement of income.

9. 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.

For years ended December 31
($ THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

2005
asic earnings per share: net income
Effect of dilutive securities: stock options
Diluted earnings per share: net income and assumed conversions

2004
asic earnings per share: net income
Effect of dilutive securities: stock options
Diluted earnings per share: net income and assumed conversions

Income

Per Share

164,030
–
164,030

88,851,343
1,043,383
89,894,726

114,946
–
114,946

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

1.85
–
1.83

1.45
–
1.43

C
N

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A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

10. Other assets

December 31
($ THOUSANDS)

other assets – current:
Future income taxes (Note 5)
Value Add Tax receivable
Prepaid expenses
Current portion of finance assets (Note 11)
Supplier claims receivable
Short-term swap contract receivable
Retained interest in transferred receivables (Note 19)
Income taxes recoverable
Other

other assets – long-term:
Accrued defined benefit pension asset
Long-term swap contracts receivable
Deferred financing costs
Investment in Maxim Power Corporation (a)
Investment in Energyst .V. (b)
Matreq S.A. receivable (c)
Deferred project costs
Future income taxes (Note 5)
Other

2005

2004

34,988
21,777
19,742
17,255
16,759
13,723
7,133
7,372
47,431
186,180

53,748
31,322
16,085
–
14,674
4,664
4,315
28
12,727
137,563

24,820
25,193
13,398
24,355
26,565
–
10,786
12,435
39,353
176,905

49,609
–
17,462
14,173
5,115
4,814
2,874
31,091
10,978
136,116

(a) In March 2005, the Company sold its 36% interest in Maxim Power Corporation for cash of $16.0 million, resulting in a pre-tax gain of

approximately $1.8 million.

(b) In April 2005, the Company increased its interest in Energyst B.V. (Energyst) by purchasing 100,000 new shares that were issued from treasury

for cash of $9.5 million (EUR 6.0 million). As a result of this transaction, the Company’s equity interest in Energyst increased to 24.4% from 15.2%.
The Company accounts for its investment in Energyst using the equity method of accounting.

(c) In April 2003, the Company acquired 100% of the voting shares of Matreq S.A. (subsequently renamed Finning Bolivia S.A.). Other consideration of
U.S. $4.0 million was advanced to the seller and is contingent upon this operation achieving certain future performance criteria to the end of 2010.

11. finanCe assets

December 31
($ THOUSANDS)

Instalment notes receivable
Equipment leased to customers
Less accumulated depreciation

Total finance assets
Less current portion of instalment notes receivable (Note 10)

2005

25,543
17,648
(6,110)
11,538
37,081
17,255
19,826

2004

37,234
25,307
(21,950)
3,357
40,591
24,355
16,236

Depreciation of equipment leased to customers for the year ended December 31, 2005 was $1.6 million (2004: $17.8 million). During 2004, the
Company sold $92.9 million of leases to Caterpillar Financial Services Limited, earning pre-tax income of $13.3 million.

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

12. rental eQuipment

December 31
($ THOUSANDS)

Cost
Less accumulated depreciation

2005

2004

$ 1,948,277
(897,787)
$ 1,050,490

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

Depreciation of rental equipment for the year ended December 31, 2005 was $317.3 million (2004: $314.9 million).

13. Capital assets

December 31
($ THOUSANDS)

Land

uildings and equipment
Less accumulated depreciation

Total land, buildings and equipment

Intangible assets subject to amortization
Customer contracts and related customer relationships
Software

Less accumulated amortization

Intangible assets with indefinite lives
Distribution rights
Total intangible assets
Capital assets

2005

2004

51,394

54,999

468,903
(187,793)
281,110
332,504

10,828
15,548
26,376
(10,621)
15,755

494,554
(222,938)
271,616
326,615

11,636
10,956
22,592
(9,701)
12,891

646
16,401
348,905

2,966
15,857
342,472

Depreciation of buildings and equipment for the year ended December 31, 2005 was $32.9 million (2004: $31.4 million).

The Company developed and purchased software for internal use of $4.6 million in 2005. Depreciation of intangible assets subject to amortization
for the year ended December 31, 2005 was $2.8 million (2004: $2.0 million).

Certain intangible assets are considered to have indefinite lives because they are expected to generate cash flows indefinitely. As a result of the
assessment of the recoverability of long-lived assets, management determined that the carrying amount of certain distribution rights were not
recoverable and recorded an impairment charge of $2.3 million in 2005.

14. aCQuisitiOns
During 2003, the Company acquired a materials handling business in the U.K., 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:

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

($ THOUSANDS)

Total assets
Total liabilities
Goodwill
Intangible assets
Net assets acquired and total purchase price

UK Operations: Lex Harvey

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

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

15. gOOdwill
The change in the carrying amount of goodwill is as follows:

December 31
($ THOUSANDS)

Goodwill
Goodwill, beginning of year
Argentina additional consideration
Lex Harvey final purchase price adjustment
Other acquisitions
Foreign exchange translation adjustment
Goodwill, end of year

2005

2004

386,257
24,732
–
17
(46,179)
364,827

393,109
–
(7,786)
1,872
(938)
386,257

In January 2003, the Company acquired 100% of the voting shares of Macrosa Del Plata S.A. (subsequently renamed Finning Argentina S.A.) and
Servicios Mineras S.A. (subsequently renamed Finning Soluciones Mineras S.A.), the Caterpillar dealerships in Argentina, and General Machinery
Co S.A. (subsequently renamed Finning Uruguay S.A.), the Caterpillar dealership in Uruguay. As part of this agreement, the sellers are entitled to
additional future consideration based on the realization of certain performance criteria over a six-year period ending December 31, 2008 for the
Argentina operations. Any additional consideration is payable only if certain performance criteria are achieved and maintained for a stipulated period.
The strong performance of the dealership in Argentina since acquisition to date indicates the maximum future consideration criteria will likely be
met, and has been recorded in accordance with the agreement as $24.7 million (U.S. $21.2 million) to goodwill. It is estimated a provisional payment
of approximately $14.0 million (U.S. $12.0 million) will be due early in 2006 and is recorded in accounts payable and accruals. The balance of
$10.7 million (U.S. $9.2 million), likely payable in 2007, is recorded as a long-term obligation.

During 2003, the Company acquired the business and assets of Lex Harvey. 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 $7.8 million.

During 2004, the Company acquired interests in smaller customer service operations in Canada and in Chile increasing goodwill by $1.3 million and
$0.6 million, respectively.

There was no adjustment to goodwill as a result of the Company’s impairment assessment during 2005 and 2004.

16. lOng-term ObligatiOns

December 31
($ THOUSANDS)

Stock-based compensation (Note 8)
Leasing obligations
Employee future benefit obligations
Sale leaseback deferred gain
Argentina additional consideration (Note 15)
Long-term swap contracts payable
Other

The comparative figures were previously classified in accounts payable and accruals.

2005

37,302
22,555
16,754
8,935
10,777
–
1,760
98,083

2004

24,648
15,834
14,585
10,158
–
41,977
853
108,055

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

17. Cumulative CurrenCY translatiOn adJustments

December 31
($ THOUSANDS)

alance, beginning of year
Translation adjustments for the year
alance, end of year

2005

(82,734)
(50,402)
(133,136)

2004

(65,471)
(17,263)
(82,734)

The Company operates in three functional 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 the Cumulative Currency Translation Adjustments
account on the consolidated balance sheet. Translation adjustments arise as a result of fluctuations in foreign currency exchange rates. The cumulative
currency translation adjustment for 2005 mainly resulted from the 13% weakening of the U.K. pound sterling against the Canadian dollar, and the
3% weakening of the U.S. dollar against the Canadian dollar.

The exchange rates of the Canadian dollar against the following foreign currencies were as follows:

Exchange rate as at December 31

U.S. dollar
U.K. pound sterling

Average exchange rates for years ended December 31

U.S. dollar
U.K. pound sterling

2005

1.1659
2.0036

1.2116
2.2066

2004

1.2036
2.3062

1.3015
2.3842

18. emplOYee future 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 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.

• Finning (UK) provides a defined benefit plan 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 the acquisition of the Lex Harvey business. These employees were allowed to join the Finning (UK) defined
benefit pension plan, for future service only.

• Hewden has a defined benefit plan that is open to eligible 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 benefit plans can join
a defined contribution plan.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

18. emplOYee future benefits (continued)
The defined contribution pension plans are registered pension plans that offer a base contribution rate for all members. For the defined contribution
plans, where applicable, the company will match contributions made by the plan members. For the Canadian plans, the Company will partially match
contributions subject to a maximum of 1% of employee 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. The Company has recorded a liability to employees based on an actuarial valuation of anticipated payments to employees. An
amount of $3.7 million was expensed in 2005 (2004: $4.3 million) for a total obligation of $12.5 million (2004: $11.1 million).

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

For years ended December 31
($ THOUSANDS)

Canada

2005
UK Hewden

Total

Canada

Hewden

Total

2004

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
recognized
Total

$ 9,815

920

255

$ 10,990

$ 8,008

553

279

$ 8,840

$ 6,375
15,636
(21,154)
42,824

$ 13,002
21,291
(54,042)
48,907

$ 2,663
9,952
(19,672)
18,041

$ 22,040
46,879
(94,868)
109,772

$ 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

43,681

29,158

10,984

83,823

15,456

50,893

21,432

87,781

3,967

32,408

10,607

46,982

5,062

5,948

(2,453)

8,557

(40,967)

(42,120)

(15,373)

(98,460)

(16,841)

(38,838)

(12,131)

(67,810)

298

–

298

–

298

1,047

(1,282)

1,640

1,405

1,047

(1,385)

1,771

1,433

8,026
$ 17,841

18,164
$ 19,084

7,858
$ 8,113

34,048
$ 45,038

5,022
$ 13,030

16,618
$ 17,171

8,619
$ 8,898

30,259
$ 39,099

Total cash payments for employee future benefits for 2005, consisting of cash contributed by the Company to its defined benefit plans and its defined
contribution plans was $49.0 million (2004: $38.0 million).

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

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

For years ended December 31
($ THOUSANDS)

Accrued benefit obligation
alance at beginning of year
Current service cost
Interest cost
enefits paid
Actuarial losses
Foreign exchange rate changes
Plan amendments(1)
alance at end of year

Canada

UK Hewden

Total

Canada

Hewden

Total

2005

2004

$ 256,462 $ 417,596
17,304
21,291
(15,733)
48,907
(60,162)
(13,416)
$ 307,646 $ 415,787

8,026
15,636
(15,302)
42,824
–
–

$ 193,160
4,065
9,952
(5,086)
18,041
(27,826)
–
$ 192,306

$ 867,218
29,395
46,879
(36,121)
109,772
(87,988)
(13,416)
$ 915,739

$ 228,841
7,069
14,951
(11,836)
17,437
–
–
$ 256,462

$ 351,208
16,117
20,662
(12,398)
44,315
(2,308)
–
$ 417,596

$ 170,264
4,745
10,104
(5,257)
14,110
(806)
–
$ 193,160

$ 750,313
27,931
45,717
(29,491)
75,862
(3,114)
–
$ 867,218

Plan assets
Fair value at beginning of year $ 249,187 $ 295,814
54,042
Actual return on plan assets
18,421
Employer contributions
4,303
Employees’ contributions
(15,733)
enefits paid
(44,429)
Foreign exchange rate changes
$ 269,358 $ 312,418
Fair value at end of year

21,154
12,668
1,651
(15,302)

–

$ 120,273
19,672
7,533
1,401
(5,086)
(17,945)
$ 125,848

$ 665,274
94,868
38,622
7,355
(36,121)
(62,374)
$ 707,624

$ 233,017
22,081
4,005
1,920
(11,836)
–
$ 249,187

$ 263,356
26,167
15,800
4,034
(12,398)
(1,145)
$ 295,814

$ 110,660
5,765
7,689
1,762
(5,257)
(346)
$ 120,273

$ 607,033
54,013
27,494
7,716
(29,491)
(1,491)
$ 665,274

Funded status – plan
surplus/(deficit)
Unamortized net
actuarial loss
Unamortized past service costs
Contributions remitted
after valuation date
Unamortized transitional
obligation/asset
Accrued benefit asset/
(liability)(2)

$ (38,288) $ (103,369) $ (66,458)$ (208,115)

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

79,962
2,663

119,208
–

52,588
–

251,758
2,663

42,961
2,960

141,084
–

56,020
–

240,065
2,960

517

1,364

591

2,472

–

1,656

1,261

2,917

926

(9,235)

9,056

747

1,974

(11,969)

12,137

2,142

$ 45,780 $

7,968

$ (4,223) $ 49,525

$ 40,620

$ 8,989

$ (3,469) $ 46,140

(1) The plan amendment of $13.4 million relates to a reduction in the accrued benefit obligation of the Finning (UK) defined benefit pension plans
due to pension benefit changes that have been agreed between Finning (UK) and the plans’ trustees and communicated with the employee
members of the plans. It has been agreed that employee members’ pension benefits will cease to be linked to their final pensionable salary after
April 2010. From April 2010, employee members’ pension benefits will increase broadly in line with inflation, as opposed to future salary increases.
This results in a reduction in the pension plans’ accrued benefit obligation because employee members’ pension benefits are now assumed to
increase in line with the salary increase assumption until April 2010 and then in line with the lower inflation assumption thereafter.

(2) Accrued benefit asset or liability is classified as either other assets or long-term obligations, respectively, on the consolidated balance sheets.

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:

For years ended December 31
($ THOUSANDS)

Canada

UK Hewden

Total

Canada

Hewden

Total

2005

2004

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

$ 251,154
207,513
$ 43,641

$ 415,787
312,418
$ 103,369

$ 192,306
125,848
$ 66,458

$ 859,247
645,779
$ 213,468

$ 214,333
188,499
$ 25,834

$ 417,596
295,814
$ 121,782

$ 193,160
120,273
$ 72,887

$ 825,089
604,586
$ 220,503

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

18. emplOYee future benefits (continued)
Plan assets are principally invested in the following securities at November 30, 2005:

Equity
Fixed-income

Canada

58%
42%

76%
24%

Hewden

75%
25%

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 $0.8 million at December 31, 2005 (2004: $0.7 million).

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

Accrued benefit obligation
as of December 31:
Discount rate
Expected long-term rate of
return on plan assets
Rate of compensation increase
enefit 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)

Canada

5.15%

7.25%
3.50%

6.00%

7.50%
3.20%

10-15

2005
UK

4.95%

7.00%
3.50%

5.40%

7.50%
3.25%

Hewden

Canada

2004
UK

Hewden

4.95%

7.25%
3.50%

5.40%

7.75%
3.50%

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%

5.40%

7.75%
3.50%

5.75%

7.25%
3.50%

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

Defined enefit Plan

Last Actuarial Valuation Date

Next Actuarial Valuation Date

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

December 31, 2003
December 31, 2004
December 31, 2003
December 31, 2004
January 1, 2004
December 31, 2002
January 1, 2005

December 31, 2006
December 31, 2005
December 31, 2006
December 31, 2005
January 1, 2006
December 31, 2005
January 1, 2008

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

19. aCCOunts reCeivable seCuritiZatiOn
The Company sold a $45.0 million co-ownership interest in a pool of eligible non-interest bearing trade receivables to a multi-seller securitization
trust (the “Trust”), net of overcollateralization. Under the terms of the agreement, which expires on November 29, 2007, the Company can sell
co-ownership interests of up to $120.0 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.

As at December 31, 2005, the Company is carrying a retained interest in the transferred receivables in the amount of $7.1 million (as at December 31,
2004: $10.8 million), which equals the amount of overcollateralization in the receivables it sold, and is reported on the consolidated balance sheet in
other current assets (Note 10). The servicing liability outstanding is approximately $47,000 as at December 31, 2005 (as at December 31, 2004: $49,000).

For the year ended December 31, 2005, the Company recognized a pre-tax loss of $1.4 million (2004: $1.0 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:

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, 2005

range for year ended 2005

2.96%
32.8
0.0092%
9.66%
2.0%
$6.9 million

2.81% - 3.49%
29.7 - 36.6
(0.0004)% - 0.084%
5.63% - 9.84%

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 $0.5 million and $1.1 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 $0.6 million and
$1.2 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 Trust:

For years ended December 31
($ THOUSANDS)

Proceeds from new securitization
Proceeds from revolving reinvestment of collections

2005

2004

$
$

–
495,456

$
$

15,000
354,520

20. 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.

C
N

L
A
N
O
T
A
N
R
E
T
N

G
N
N
N
I
F

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

21. 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:

The reportable operating segments are:

For year ended December 31, 2005
($ THOUSANDS)

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

For year ended December 31, 2004
($ THOUSANDS)

Canada

South America

Hewden

Other

Consolidated

$ 2,049,675
1,782,164
117,350
–
$ 150,161

$ 1,007,341
886,222
25,573
–
95,546

$ 1,122,471
1,026,939
77,869
–
17,663

$ 655,091
463,819
136,042
–
$ 55,230

–
31,054
–
2,261
$ (33,315)

$ 1,304,802
$
45,858
$ 208,490

$ 646,286
13,601
$
44,283
$

$ 748,976
5,756
$
96,762
$

$ 957,023
$ 15,607
$ 164,480

$ 79,301
289
$
–
$

$ 4,834,578
4,190,198
356,834
2,261
$ 285,285
76,863
44,392
–
$ 164,030
$ 3,736,388
$
81,111
$ 514,015

Canada

South America

Hewden

Other

Consolidated

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

$ 869,893
763,975
22,885
–
83,033

$ 1,043,485
923,370
85,941
–
34,174

$ 685,930
482,672
144,776
–
58,482

15
27,871
–
13,743
(41,599)

$ 1,130,378
$
52,908
$ 181,092

$ 652,152
22,659
$
34,607
$

$ 884,308
$
13,700
$ 140,777

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

$
$
$

47,916
–
–

$ 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
$ 546,616

NoTES To THE CoNSoLIdATEd FINANCIAL STATEmENTS

22. Operating leases
Payments due under various operating lease contracts are as follows:

For years ended December 31
($ THOUSANDS)

2006
2007
2008
2009
2010
Thereafter

68,112
60,692
51,410
43,432
39,712
183,385
446,743

23. COmmitments and COntingenCies
(a) Due to the size, complexity and nature of the Company’s operations, various legal and tax 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 £4.9 million 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 £1.5 million in January 2004. In addition, Hewden was responsible for the costs of the adjudication, trial and independent legal advice
of approximately £0.2 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 2004.

24. guarantees and indemnifiCatiOns
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, 2005, the total estimated value of these contracts
outstanding is $160.3 million coming due at periods ranging from 2006 to 2013. The Company’s experience to date has been that 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
$1.0 million.

In the normal course of operations, the Company has several long-term maintenance and repair contracts with various customers which contain
cost per hour guarantees.

During the year, the Company entered into various other commercial letters of credit in the normal course of operations.

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TEN yEAr FINANCIAL SUmmAry

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

REVENUE
Canadian operations
South American operations
UK operations
Hewden
International operations
TOTAL CONSOLIDATED

Earnings before interest and taxes (EIT)
As a percent of revenue
Net Income
As a percent of revenue

EARNINGS PER COMMON SHARE
asic
Diluted(1)

DIVIDENDS
Total paid to common shareholders
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)
ook 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

NUMER OF EMPLOYEES
Canada
South America
UK
Hewden
International
TOTAL

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

$ 2,049,675
$ 1,007,341
$ 1,122,471
655,091
$
$
–
$ 4,834,578

$
$

$
$
$

$
$

285,285
5.9%
164,030
3.4%

1.85
1.83

39,097
0.44

478,757
5.37
81,111

1.28
0.87:1
15.84
11.8%

41.39
32.25

89,202
377,554
12,810

3,316
3,377
2,471
3,603
38
12,805

$
$
$
$
$
$

$
$

$
$
$

$
$

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

265,741
6.4%
114,946
2.8%

1.45
1.43

31,181
0.40

247,422
2.80
106,202

1.15
1.03:1
15.00
11.0%

35.39
28.85

88,390
338,918
9,360

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

$
$
$
$
$
$

$
$

$
$
$

$
$

1,456,357
561,964
934,193
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
11,566

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

$
$
$
$
$
$

$
$

$
$
$

$
$

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

277,783
8.7%
132,253
4.1%

1.72
1.68

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

1,398,623

448,005

804,084

587,482

8,849

3,247,043

241,601

7.4%

103,917

3.2%

1.37

1.34

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

1,516

1,553

4,066

9,803

1,214,516

474,145

682,162

–

89,209

2,460,032

165,263

6.7%

73,391

3.0%

0.95

0.94

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

1,390

1,404

–

5,156

1,032,922

377,777

712,941

–

106,221

2,229,861

148,912

6.7%

59,600

2.7%

0.75

0.74

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

1,259

1,364

–

4,954

1,136,917

503,505

793,020

–

151,979

2,585,421

82,729

3.2%

3,185

0.1%

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

1,354

1,348

–

5,251

1,146,406

514,068

565,376

–

101,214

2,327,064

216,625

9.3%

103,695

4.5%

1.32

1.27

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

1,228

1,720

–

5,494

926,653

408,616

437,949

–

101,491

1,874,709

188,404

10.0%

88,184

4.7%

1.13

1.09

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

1,008

925

–

4,242

Certain comparative figures in 2004 have been reclassified to conform to the 2005 presentation. In addition, 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 applying the treasury stock method.

Diluted earnings for the years ended 1999 to 2005 have been stated using this method.
2. Equity ratios for the 2000 year do not include the Company’s investment in Hewden Stuart.
3. The 2001 to 2003 years included non-controlling interests that were treated as equity.

TEN yEAr FINANCIAL SUmmAry

Years ended December 31

($ THOUSANDS EXCEPT PER SHARE DATA)

REVENUE

Canadian operations

South American operations

UK operations

Hewden

International operations

TOTAL CONSOLIDATED

Earnings before interest and taxes (EIT)

As a percent of revenue

Net Income

As a percent of revenue

EARNINGS PER COMMON SHARE

asic

Diluted(1)

DIVIDENDS

Total paid to common shareholders

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)

ook value per common share

Return on average shareholders’ equity

Common Shares outstanding (THOUSANDS)

COMMON SHARE PRICE

High

Low

Revenue per employee

Net income per employee

NUMER OF EMPLOYEES

Canada

South America

Hewden

International

TOTAL

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

$ 2,049,675

$ 1,007,341

$ 1,122,471

655,091

–

$ 4,834,578

285,285

5.9%

164,030

3.4%

1.85

1.83

39,097

0.44

478,757

5.37

81,111

1.28

0.87:1

15.84

11.8%

41.39

32.25

89,202

377,554

12,810

3,316

3,377

2,471

3,603

12,805

1,562,584

869,893

1,043,485

685,930

4,161,907

265,741

6.4%

114,946

2.8%

1.45

1.43

31,181

0.40

247,422

2.80

106,202

1.15

1.03:1

15.00

11.0%

35.39

28.85

88,390

338,918

9,360

2,936

3,203

2,373

3,724

12,280

1,456,357

561,964

934,193

640,757

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

11,566

2,717

2,456

2,387

3,804

11,409

1,269,275

444,644

828,246

665,266

3,207,486

277,783

8.7%

132,253

4.1%

1.72

1.68

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

1,817

1,578

3,813

9,795

$
$
$
$
$
$

$
$

$
$
$

$
$

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

241,601
7.4%
103,917
3.2%

1.37
1.34

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

$
$
$
$
$
$

$
$

$
$
$

$
$

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

165,263
6.7%
73,391
3.0%

0.95
0.94

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
1,390
1,404
–
36
5,156

$
$
$
$
$
$

$
$

$
$
$

$
$

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

148,912
6.7%
59,600
2.7%

0.75
0.74

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
1,259
1,364
–
60
4,954

$
$
$
$
$
$

$
$

$
$
$

$
$

1,136,917
503,505
793,020
–
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
1,354
1,348
–
55
5,251

$
$
$
$
$
$

$
$

$
$
$

$
$

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

216,625
9.3%
103,695
4.5%

1.32
1.27

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
1,228
1,720
–
50
5,494

$
$
$
$
$
$

$
$

$
$
$

$
$

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

188,404
10.0%
88,184
4.7%

1.13
1.09

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
1,008
925
–
40
4,242

Certain comparative figures in 2004 have been reclassified to conform to the 2005 presentation. In addition, 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 applying the treasury stock method.

Diluted earnings for the years ended 1999 to 2005 have been stated using this method.

2. Equity ratios for the 2000 year do not include the Company’s investment in Hewden Stuart.

3. The 2001 to 2003 years included non-controlling interests that were treated as equity.

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boArd oF dIrECTorS

rICArdo bACArrEzA
Santiago, Chile
President, Proinvest S.A.
Director since: 1999
Member: Audit Committee; Environmental,
Health and Safety Committee

JAmES F. dINNING
Calgary, Alberta, Canada
Chairman of the Board, Western Financial Group.
Director of Shaw Communications Inc.,
Russell Metals Inc.
Director since: 1997
Member: Human Resources Committee; Environmental,
Health and Safety Committee

TImoTHy S. HowdEN
Marlow, Buckinghamshire, England
Director of Hyperion Insurance Group Ltd.
Director since: 1998
Member: Audit Committee; Environmental
Health and Safety Committee

JEFFErSoN J. mooNEy
Vancouver, British Columbia, Canada
Chairman, A&W Food Services of Canada Inc.
Director of A&W Canada Inc., A&W Trade Marks Inc.,
A&W Root Beer Beverages of Canada Inc., The Cadillac Fairview
Corporation Limited, Ontrea Inc. and Ontrasia Inc.
Director since: 2000
Member: Human Resources Committee (Chairman);
Corporate Governance Committee

doNALd S. o’SULLIVAN
Calgary, Alberta, Canada
President, O’Sullivan Resources Ltd.
Director of National Life Assurance Company of Canada Ltd.
Director since: 1991
Member: Corporate Governance Committee (Chairman);
Audit Committee

CoNrAd A. PINETTE (Chairman of the Board)
Vancouver, British Columbia, Canada
Director of A&W Revenue Royalties Income Fund, TimberWest
Forest Corporation and Northgate Minerals Corporation.
Director since: 1992
Member: Corporate Governance Committee

ANdrEw H. SImoN, obE
London, England
Director of SGL Carbon AG, Associated British Ports Plc,
Dalkia Plc and Brake Brothers Ltd.
Director since: 1999
Member: Audit Committee (Chairman); Corporate Governance
Committee

mICHAEL T. wAITES
Calgary, Alberta, Canada
Executive Vice President, Chief Financial Officer, Canadian
Pacific Railway and Chief Executive Officer, U.S. Network,
Canadian Pacific Railway
Director since: 2003
Member: Audit Committee; Human Resources Committee

doUGLAS w.G. wHITEHEAd
West Vancouver, British Columbia, Canada
President and Chief Executive Officer, Finning International Inc.
Director of Ballard Power Systems Inc., Kinder Morgan Inc.
and The Conference Board of Canada.
Director since: 1999
Member: Environmental, Health and Safety Committee

JoHN m. wILLSoN
Vancouver, British Columbia, Canada
Director of Nexen Inc., Pan American Silver Corporation
and Aber Diamond Corporation.
Director since: 2000
Member: Environmental, Health and Safety Committee (Chairman);
Human Resources Committee

Please refer to the Company’s management proxy circular for complete biographies of the Finning directors.

CorPorATE oFFICErS ANd EXECUTIVE mANAGEmENT

CoNrAd A. PINETTE
CHAIRMAN OF THE BOARD
FINNING INTERNATIONAL INC.

brIAN C. bELL
PRESIDENT
FINNING SOUTH AMERICA

doUGLAS w.G. wHITEHEAd
PRESIDENT AND CHIEF ExECUTIVE OFFICER
FINNING INTERNATIONAL INC.

NAdINE J. bLoCK
VICE PRESIDENT,
CORPORATE HUMAN RESOURCES
FINNING INTERNATIONAL INC.

SEbASTIAN T. GUrIdI
CORPORATE SECRETARY
FINNING INTERNATIONAL INC.

NICHoLAS b. LLoyd
MANAGING DIRECTOR
FINNING GROUP, UK

STEPHEN mALLETT
PRESIDENT,
FINNING POWER SYSTEMS
FINNING INTERNATIONAL INC.

ANNA P. mArKS
VICE PRESIDENT,
CORPORATE CONTROLLER
FINNING INTERNATIONAL INC.

THomAS m. mErINSKy
VICE PRESIDENT,
INVESTOR RELATIONS
FINNING INTERNATIONAL INC.

IAN m. rEId
PRESIDENT
FINNING (CANADA)

SHELLEy C. wILLIAmS
VICE PRESIDENT,
CORPORATE TREASURER
FINNING INTERNATIONAL INC.

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CorPorATE GoVErNANCE

The Corporation’s Board of Directors and management are committed to the highest standards of good corporate governance and believe that
such standards are central to the efficient and effective operation of the Corporation in a manner that ultimately enhances shareholder value.

OARD MANDATE AND COMPOSITION
The Board of Directors has overall responsibility for conduct of the business and affairs of the Corporation. The Board discharges this responsibility
both directly and through delegating certain authority to committees of the Board and to senior management of the Corporation.

The Board of Directors is currently made up of 10 members. All directors, other than Douglas W.G. Whitehead (who is the President and Chief
Executive Officer of the Corporation) are independent.

In order to ensure that the Board can function independently from management, the Corporation has separated the role of Chairman of the Board
(currently Conrad A. Pinette) and Chief Executive Officer (currently Douglas W.G. Whitehead).

Each year the Board (with the assistance of the Corporate Governance Committee) formally reviews its own performance, the performance of each
committee of the Board, the performance of the Chairman of the Board and the performance of the Chief Executive Officer. In addition, a formal
process of individual director peer assessment has been adopted.

COMMITTEES OF THE OARD OF DIRECTORS
There are currently 4 committees of the Board of Directors. Each committee operates in accordance with Board-approved terms of reference.

The Corporate Governance Committee
The mandate of the Corporate Governance Committee is to enhance 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 Audit Committee
The Audit Committee provides assistance to the Board of Directors in fulfilling its oversight responsibility to the shareholders with respect to the
Corporation’s: (a) financial statements; (b) financial reporting process; (c) systems of internal and disclosure controls; (d) internal audit function;
(e) external auditor function; (f) financial arrangements and liquidity; and (g) risk identification, assessment and management program. It is the
responsibility of the Committee to maintain an open avenue of communication between itself, the external auditors, the internal auditors and the
management of the Corporation. In performing its role, the Committee is empowered to investigate any matter brought to its attention, with full
access to all books, records, facilities and personnel of the Corporation. It is also empowered to retain outside counsel or other experts as required.

The Human Resources Committee
One of the key mandates of the Human Resources Committee is to establish a market competitive total compensation program for the executive
officers and other key employees. In addition, the Human Resources Committee reviews and approves the succession plan for the Chief Executive
Officer and for the executive leadership team; reviews and approves any significant changes to the organizational structure; and reviews engagement
of the workforce. The Committee also reviews, with the Corporation’s management pension committee: (a) the pension fund investment strategy;
(b) the choice of fund manager(s) for the Corporation’s pension funds; (c) the ongoing performance of the fund manager(s); (d) the design and
benefits of the Corporation’s pension plans; and (e) contribution levels and funding status of the Corporation’s pension plans.

The Environmental, Health and Safety Committee
The mandate of the Committee is to encourage, assist and counsel the management of the Corporation 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 Corporation, that the Corporation’s employees and contractors enjoy a safe and healthy workplace.

The Company’s management proxy circular issued in connection with the 2006 Annual General Meeting and the corporate governance section
of the website provide a full discussion of Finning’s corporate governance policies and practices.

STOCK EXCHANGES
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 urrard Street
Vancouver, Canada V6C 2X8
Telephone: 604-691-6444

ANNUAL GENERAL MEETING
May 10, 2006
11:00 am PDT

Crystal Pavilion
Pan Pacific Hotel
300 - 999 Canada Place
Vancouver, ritish Columbia

SHArEHoLdEr INFormATIoN

CORPORATE INFORMATION
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 urrard Street
2nd Floor
Vancouver, .C.
V6C 39

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

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