2015 ANNUAL REPORT
Table of Contents
About Finning
Value proposition
Message from chairman of the board
Message from president and CEO
Management’s discussion and analysis
Financial statements and notes
5-year financial summary
Board of directors and executive officers
Shareholder information
About Finning
Finning International (TSX: FTT) is the world’s largest Caterpillar dealer delivering unrivalled services for
over 80 years.
Finning sells, rents and provides parts and service for equipment and engines to customers in various
industries, including mining, construction, petroleum, forestry and a wide range of power systems
applications. Finning delivers solutions that enable customers to achieve the lowest cost of equipment
ownership and operations while maximizing uptime.
Headquartered in Vancouver, British Columbia, Canada, Finning employs approximately 13,000 people
worldwide and operates in three geographies:
• Western Canada: British Columbia, Alberta, Saskatchewan, Yukon, the Northwest Territories, and a
portion of Nunavut
• South America: Chile, Argentina, and Bolivia
• The United Kingdom and Ireland
2015 Financial Statistics
$ millions, except where specified
Revenue
EBITDA (1)(2)(3)
Free cash flow (1)
Invested capital (1)
Net debt (1)
Net debt to EBITDA ratio (1)(3)
Basic EPS (2)(3) ($)
Annual dividend per share ($)
Outstanding shares (# millions)
6,190
604
325
3,240
1,190
2.0
1.29
0.73
168
(1) These financial metrics do not have a standardized meaning under International Financial Reporting Standards, and may not be comparable to similar
measures used by other issuers. For additional information and definitions of these financial metrics, see “Description of Non-GAAP Measures” in
Finning’s Management’s Discussion and Analysis (MD&A).
(2) Earnings Before Finance Costs, Income Taxes, Depreciation and Amortization (EBITDA), Earnings per Share (EPS).
(3) Excluding significant items which management does not does not consider indicative of operational and financial trends either by nature or amount.
These significant items are described on page 3 of the MD&A ($10 million of these significant items was recorded in depreciation and amortization
expense). Reported EBITDA was $126 million; reported net debt to EBITDA ratio was 9.5; reported basic EPS was $(0.94).
2015 Revenue Profile (%)
By Region
By Line of Business
By Industry
New equipment deliveries
* Industrial segments and agriculture
Compelling Value Proposition
• Great products and territories
o Aligned with Caterpillar – world’s best heavy equipment company
o Operating in high-quality regions with significant growth opportunities
• Resilient business model
o Machine population drives stable product support business
o Customer diversification across many sectors
o Cost discipline and decisive actions to navigate through market downturn
o Advancing operational priorities to transform the business for sustainable profitability
• Relatively consistent EBITDA and strong free cash flow conversion throughout the business cycle
• Strong financial position and attractive dividend yield
$ millions, except where specified
EBITDA(1)
Net rental expenditures(2)
Net capital expenditures(3)
Free cash flow (FCF)
FCF conversion(4)
2013
737
(73)
(74)
441
60%
2014
749
(35)
(63)
483
64%
2015
604
(24)
(54)
325
54%
Net debt to EBITDA ratio(1)
Dividends as % of EBITDA(1)
Dividends as % of FCF
21%
16%
14%
2.0
1.7
1.3
2.5
2.0
1.5
1.0
0.5
0.0
25%
20%
15%
10%
5%
0%
38%
23%
24%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2013
2014
2015
2013
2014
2015
2013
2014
2015
(1) Excluding significant items in 2015 and 2014
(2) Additions to rental equipment less proceeds on disposal of rental equipment
(3) Additions to property, plant, and equipment, intangible assets, and distribution network less proceeds on disposal of property, plant, and equipment
(4) Free cash flow divided by EBITDA
Message from Chairman of the Board
In the nearly two decades that I have been
proudly associated with Finning, I have watched
the company move through dynamic markets and
ever-changing economic cycles. No matter what
the market delivers, Finning adapts and ultimately
emerges stronger and more resilient.
There are many examples of the company’s
evolution. Finning has continued to diversify and
grow and the acquisition of the Saskatchewan
dealership in 2015 furthers this strategy giving us
access to more geographic territories, end
markets and revenue streams. The product
support business has expanded in size and
sophistication, helping to sustain Finning through
economic downturns. And Finning’s enviable
business model continues to deliver strong
returns and strong cash flow even through the
down cycle. We saw this in 2015 as the company
generated strong EBITDA(1) and cash flow despite
the headwinds created by weak commodity
prices. I am very pleased with the structural
changes Finning’s leadership team is making to
move the company toward improved operating
performance.
Like the company, Finning’s Board of Directors
also evolves to meet changing needs. It is the
duty of the board to provide the strategic oversight
as Finning implements its strategies, and we are
charged with protecting and enhancing
shareholder value. We believe board renewal is
an essential ingredient in our ability to fulfill these
duties and provide sound corporate governance.
We must ensure the board has the optimal
composition to support the strategic priorities of
the business and reflect the diversity of our
stakeholders.
To this end, we have welcomed four new directors
to the Finning Board in the past two years, each
of whom brings a unique and extensive set of
skills and experience. Most recently, we
appointed Stuart Levenick as a director in March
2016. Stuart brings a wealth of corporate
executive experience gained over the course of
his 37-year career at Caterpillar, which included
10 years as Group President prior to his
retirement from the company. He has a strong
background in marketing and general
(1) Excluding significant items as described on page 3 of the Company’s MD&A.
management, as well as broad global experience
gained from assignments in the United States,
Canada, Russia, Asia Pacific and Japan. Stuart
has been a valuable partner to the Finning
organization in his past role and we look forward
to leveraging his direct industry experience and
knowledge to ensure Finning continues to deliver
value for its customers while advancing its
operational priorities.
In February 2016, we also announced that I will
be stepping down as Chairman of the Board and
Mike Wilson will be taking over this role. Mike
joined Finning's Board of Directors in January
2013 bringing decades of international and
executive leadership experience, including 10
years as President and Chief Executive Officer of
Agrium. I am confident that his vast experience
and skills will serve Mike well as he takes on this
role and continues to support management in
their commitment to driving shareholder value
creation.
It has been a pleasure serving as Chairman of the
Finning Board and to participate in the evolution
of this strong and resilient company. I also look
forward to my continued association with Finning
as a Board member.
In closing, I would like to thank Finning employees
for their dedication through a challenging but
successful year. I would also like to thank
Caterpillar for being a strong strategic partner and
my fellow Board members and the Finning
executive team for their ongoing leadership.
For more information about our corporate
governance policies, please review the Finning
management proxy circular and visit the corporate
governance section at www.finning.com
On behalf of your Board of Directors,
Doug Whitehead
Chairman of the Board
Message from President and CEO
Finning’s trademark resilience and determination
underlined our performance in 2015 as we took
decisive action to reduce our cost structure amidst
a challenging macro-economic backdrop while
accelerating the pace of implementing operational
improvements to set the stage for future success.
Due to our diligent focus on the factors we control,
we realized our best ever safety performance,
generated strong EBITDA(1) and free cash flow,
achieved sustainable operating improvements
and maintained a solid balance sheet.
Transforming the business for sustainable
profitability
Well before the drop in commodity prices, we
were working hard to make Finning a stronger
company by advancing an agenda focused on
safety and talent management, customer and
market leadership, service excellence, supply
chain, and asset utilization. Against a challenging
backdrop that saw oil and copper prices fall to
multi-year lows during the year, we made real
progress advancing these operational imperatives
to transform our business for sustainable
profitability. While we recognize that there is more
work ahead of us to improve our operating
performance over time as measured by an
increased return on invested capital, we have built
significant positive momentum and this was
reflected in an increase in customer loyalty in
each of our regions. I am also particularly proud of
the steps we have taken to strengthen the safety
of our operations. Through various initiatives and
increased collaboration, Finning achieved a 21
percent decline in total reportable injury frequency
in 2015 relative to 2014. This marks a new record
and moves us closer to our goal of ensuring every
one of our people goes home safely each and
every day.
Importantly, Finning also moved quickly to adjust
to the market conditions we faced in 2015. As
mining activity in South America and Canada
slowed, the impact on new equipment demand
was felt not only in the mining and oil and gas
sectors, but in general construction and other
market segments as well. Taking our cue from our
South American region’s 2014 market response,
we knew that having the right cost structure in
place would be essential to protecting Finning
through the market downturn. Facing lower
revenues, we made the difficult but disciplined
decision to reduce our global workforce by
approximately 15 percent in 2015. In light of
(1) Excluding significant items as described on page 3 of the Company’s MD&A.
continuing low commodity prices, we announced
a further reduction in February 2016. By mid-
2016, we will have reduced our global workforce
by 20 percent since peak employment levels in
2013.
Our initiatives also included an assessment of our
Canadian facilities to determine how we can
support our customers with a more effective and
efficient network. To this end, we are in the
process of closing 33 facilities effectively reducing
our Canadian facilities footprint by over 20
percent.
I am keenly aware that these are difficult
decisions for our employees. However, given the
environment and our view that markets will remain
depressed for a prolonged period, these moves
were necessary to ensure Finning is able to
deliver value for our customers. And while the
economic environment has been a catalyst for
these actions, we have been deliberate about how
we are restructuring and redistributing our
activities. We are reshaping Finning in a way that
maintains and improves our customer support
capabilities in line with our commitment to earning
customer loyalty. We are not just cutting costs.
We are structurally improving our processes,
transforming our supply chain and taking actions
to consistently deliver service excellence to our
customers.
We are creating a leaner, more agile organization
that can better support customers through
economic volatility. In the process, we expect to
improve our own profitability through the cycle
creating a company that is exceptionally well-
positioned when the challenges of today abate.
Committed to generating strong free cash flow
and returning capital to shareholders
At the outset of this letter, I noted that our 2015
achievements included strong cash flow
generation. Since 2013, Finning has generated
nearly $1.3 billion in free cash flow, including
$325 million in 2015. This strong performance
reflects our ability to convert EBITDA to free cash
flow through our capital discipline and focus on
working capital management. This in turn has
supported our ability to complete a strategic
acquisition and maintain our track record of
returning capital to shareholders while preserving
a strong financial position:
• During 2015, we acquired the Caterpillar
dealership in Saskatchewan for cash
consideration of $241 million. This
acquisition is a great strategic fit for
Finning, representing a compelling growth
opportunity for our employees, customers,
and shareholders. In addition, the
expansion into Saskatchewan offers a
diversification into new markets, including
agriculture, potash and uranium mining.
• We increased our annualized dividend by
2 cents to $0.73 per share.
• We also launched a share repurchase
program, acquiring over $90 million worth
of our shares through the year. We
consider share buybacks to be an
effective us of excess cash when our
shares are trading at a significant
discount.
As we move into 2016, we are on track to
continue generating strong free cash flow while
maintaining a healthy financial position.
Strengthening our company for future success
Looking ahead, we expect to see continued
uncertainty in the global economy. While we are
not immune to this reality, I am confident that the
step change in how we run our business will result
in Finning coming out of the downturn stronger
than ever. We are already on track to achieve
$150 million in permanent SG&A savings in our
Canadian business in 2016 relative to 2014
levels, and we expect further structural savings
from cost reductions announced in February
2016.
As we continue to strengthen Finning, we have a
strong team in place to guide us. In March 2015,
we welcomed Steve Nielsen as our Chief
Financial Officer. More recently, Chad Hiley was
appointed as our Chief Human Resources Officer,
and Kevin Parkes stepped into the role of
Managing Director for Finning UK & Ireland.
Ultimately, it is the 13,000 employees across all of
our operations who are the cornerstone of our
success and our commitment to our customers. I
thank every one of you for helping us do more for
our customers and doing it better than ever in
2015.
I would also like to take this opportunity to thank
Caterpillar for their ongoing partnership, our
customers and shareholders for your loyalty and
support, as well as our Board of Directors for their
guidance. I especially want to express my
gratitude to Doug Whitehead, who is stepping
down from his role as Chairman of the Board.
Prior to becoming the Chairman of the Board in
2008, Doug served as CEO of Finning and I look
forward to continuing to benefit from his valuable
experience in his role as a member of the Board.
We are on the right path to transforming our
business to drive long-term value. Our business
model is robust and we will control what we can.
We will continue to advance our operational
priorities to make Finning a leaner, more agile
organization focused on partnering with our
customers for mutual success.
Scott Thomson
President and Chief Executive Officer
2015 MANAGEMENT’S DISCUSSION & ANALYSIS
Finning International Inc.
2015 Annual Results
February 17, 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (MD&A) of Finning International Inc. (Finning or the Company) should
be read in conjunction with the audited annual consolidated financial statements for the year ended December 31,
2015 and the accompanying notes thereto, which have been prepared in accordance with International Financial
Reporting Standards (IFRS). All dollar amounts presented in this MD&A are expressed in Canadian dollars, unless
otherwise stated. Additional information relating to the Company, including its current Annual Information Form
(AIF), can be found on the SEDAR (System for Electronic Document Analysis and Retrieval) website at
www.sedar.com.
Finning International Inc. (TSX:FTT) is the world’s largest Caterpillar Inc. (Caterpillar) dealer delivering unrivalled
service for over 80 years. The Company sells, rents, and provides parts and service for equipment and engines to
customers in various industries, including mining, construction, petroleum, forestry, and a wide range of power
systems applications. Finning delivers solutions that enable customers to achieve the lowest equipment owning and
operating costs while maximizing uptime.
2015 Annual Highlights
(cid:120) Significant positive free cash flow(2) of $325 million during 2015 (2014: $483 million cash generation)
(cid:120) Revenue of $6.2 billion was down 11% from 2014 due to a 24% decrease in new equipment revenue, reflecting
lower demand from mining and construction sectors in the Company’s Canadian and South American operations,
a result of the decline in copper and oil prices.
(cid:120) Product support revenues and margins were comparable to the prior year despite challenging market conditions
reflecting improved service profitability as a result of operational excellence initiatives implemented throughout
the year.
(cid:120) EBIT(1) was a loss of $(105) million and EBIT margin(2) was (1.7)% in 2015. 2014 EBIT was $504 million and EBIT
margin was 7.3%. A difficult macro economic environment and prolonged weak market conditions in the current
and foreseeable future, together with the resultant actions taken by the Company to align its cost structure to
lower market activity and improve operational results in the long-term, had the following significant impacts to the
Company’s 2015 results:
(cid:120) $338 million impairment loss related to the shovels and drills distribution network and goodwill in the
Company’s South American and UK & Ireland operations
(cid:120) $53 million in costs relating to the restructuring of the facilities footprint, primarily in the Canadian
operations
(cid:120) $48 million in severance costs due to the global workforce reduction of approximately 1,900 people or 13%
(cid:120) $42 million of higher than usual inventory and other asset impairment charges
(cid:120) Excluding costs relating to the impairment loss, facilities restructuring, severance, inventory and asset
impairment charges noted above, as well as $7 million of net costs related to a foreign exchange loss in
Argentina and other investing activities, 2015 EBIT would have been $383 million and EBIT margin would have
been 6.2%. Operationally, after taking into account these significant adjustments, EBIT was down compared to
the prior year mainly due to reduced sales volumes in the mining and construction sectors, lower margins from
new, used and rental equipment as a result of challenging market conditions.
(cid:120) EBITDA(1)(2) in 2015 was $126 million with a net debt to EBITDA ratio(2) of 9.5x. Excluding the significant items
noted above (not included in depreciation and amortization), 2015 EBITDA would have been $604 million with a
net debt to EBITDA ratio of 2.0x, reflecting balance sheet strength.
(cid:120) During 2015 the Company repurchased 4.4 million of its common shares for cancellation at a cost of
approximately $91 million.
(cid:120) The Company acquired the operating assets of Kramer Ltd. for cash consideration of $241 million and became
the approved Caterpillar dealer in Saskatchewan. During Q4 2015 the Company sold its business in Uruguay and
recorded a gain on sale of $8 million.
(1) Earnings Before Finance Costs and Income Taxes (EBIT); Earnings Before Finance Costs, Income taxes, Depreciation and Amortization
(EBITDA).
(2) These financial metrics do not have a standardized meaning under IFRS, which are also referred to herein as Generally Accepted
Accounting Principles (GAAP). For additional information regarding these financial metrics, see the heading “Description of Non-GAAP
Measures” later in this MD&A. 2015 annual results were impacted by a number of significant items management does not consider
indicative of operational and financial trends either by nature or amount. These significant items are described on page 3 in this MD&A; of
the significant items described, $10 million was recorded in depreciation and amortization expense.
1
Operational Excellence Agenda & Key Performance Measures
Finning International Inc.
2015 Annual Results
The Company is focused on building
shareholder value by improving
return on invested capital. With
safety and talent management as the
foundation, management is executing
on the following operational priorities:
customer & market leadership;
supply chain optimization; service
excellence; and asset utilization.
These priorities are linked directly to
improving EBIT performance and
capital efficiency.
Years ended December 31
Return on Invested Capital (2) (%)
Consolidated
Canada
South America
UK & Ireland
EBIT (3) ($ millions)
Consolidated
Canada
South America
UK & Ireland
2015 (3)
2014
2013
2012
(restated)(1)
2011
(restated)(1)
(3.0)%
5.5%
(12.8)%
(1.4)%
(105)
98
(174)
(5)
15.3%
17.1%
14.6%
16.3%
504
284
196
50
15.7%
15.9%
17.6%
16.4%
521
263
249
43
16.5%
15.7%
19.7%
16.3%
489
231
239
45
16.0%
14.4%
20.0%
18.3%
374
167
195
47
7.3%
7.8%
8.8%
4.8%
7.7%
7.8%
9.9%
4.9%
6.3%
5.7%
9.2%
5.6%
7.4%
7.1%
9.9%
5.0%
3,106
1,475
1,348
284
3,240
1,760
1,122
321
(1.7)%
3.2%
(8.4)%
(0.5)%
EBIT Margin (%)
Consolidated
Canada
South America
UK & Ireland
Invested Capital (2) ($ millions)
Consolidated
Canada
South America
UK & Ireland
Invested Capital Turnover (2) (times)
Consolidated
Canada
South America
UK & Ireland
Inventory ($ millions)
Inventory Turns (times) (2)
Working Capital to Sales Ratio (2) (%)
Free Cash Flow ($ millions)
Net Debt to Invested Capital (2) (%)
EBITDA (2) ($ millions)
Net Debt to EBITDA (2) Ratio
(1) The 2012 and 2011 comparative results described in this table have been restated to reflect the Company’s adoption of the amendments to
2.53x
2.53x
2.18x
3.26x
1,443
2.95x
22.8%
(221)
42.0%
548
1.8
2.10x
2.19x
1.66x
3.43x
1,661
2.81x
26.1%
483
31.4%
720
1.4
2.04x
2.03x
1.78x
3.37x
1,756
2.74x
26.5%
441
40.8%
737
1.7
2.22x
2.22x
1.98x
3.25x
1,930
2.43x
24.5%
(37)
50.0%
701
2.2
1.75x
1.70x
1.52x
2.92x
1,800
2.26x
32.7%
325
36.7%
126
9.5
3,131
1,589
1,298
260
2,320
1,175
898
234
3,138
1,488
1,391
265
IAS 19, Employee Benefits, for the financial year beginning January 1, 2013.
(2) These financial metrics do not have a standardized meaning under IFRS. For additional information regarding these financial metrics,
(3)
including definitions, see the heading “Description of Non-GAAP Measures” later in this MD&A.
2015 reported financial metrics were impacted by a number of significant items management does not consider indicative of operational and
financial trends either by nature or amount. These significant items are described on page 3 in this MD&A; of the significant items described,
$10 million was recorded in depreciation and amortization expense. Excluding the significant items not included in depreciation and
amortization, annual 2015 EBITDA would have been $604 million and Net Debt to EBITDA ratio would have been 2.0x.
2
Finning International Inc.
2015 Annual Results
Annual Overview of Operations and Financial Performance
For the years ended December 31
2015
2014
2015
2014
($ millions)
(% of revenue)
Revenue
Gross profit
$
6,190
1,814
$
6,918
2,062
Selling, general & administrative expenses (SG&A)
(1,542)
(1,556)
Equity earnings of joint venture and associate
Other expenses
Other income
Impairment on distribution network and goodwill
EBIT
Finance costs
Recovery (provision) for income taxes
Net (loss) income
Basic earnings per share (EPS)
EBITDA
Free cash flow
5
(52)
8
(338)
(105)
(85)
29
(161)
(0.94)
126
325
$
$
$
$
12
(14)
—
—
504
(85)
(101)
318
1.85
720
483
$
$
$
$
29.3%
(24.9)%
0.1%
(0.8)%
0.1%
29.8%
(22.5)%
0.2%
(0.2)%
—
(5.5)%
—
(1.7)%
(1.4)%
0.5%
(2.6)%
7.3%
(1.2)%
(1.5)%
4.6%
2.0%
10.4%
Significant items that affected reported annual 2015 and 2014 results which are not considered by management to
be indicative of operational and financial trends included:
2015 significant items:
(cid:120) Due to a difficult macro economic environment in the current and foreseeable future, the Company recorded a
total impairment loss of $338 million related to its shovels and drills distribution network related and goodwill.
(cid:120) Restructured its facility footprint in all operations and recorded $53 million in costs related to facility closures and
consolidations.
(cid:120) Recorded severance costs of $48 million related to the global workforce reduction during the year as the
Company aligns its cost structure to lower market activity.
(cid:120) $42 million higher than usual inventory and other asset impairments primarily related to aged and industry
specific inventory and rental assets due to prolonged weak market conditions.
(cid:120) $12 million foreign exchange (FX) loss due to the significant devaluation of the Argentine peso (ARS) to the U.S.
dollar (USD)
(cid:120) $8 million gain on sale of Uruguay business; $3 million acquisition costs related to the purchase of Kramer Ltd.
(cid:120) Recognition of tax benefits from capital losses and higher tax expense from change in statutory tax rate in its
Canadian operations.
For the year ended December 31, 2015
($ millions except per share amounts)
Canada
South
America
UK &
Ireland
Other
Consol
Distribution network and goodwill impairment
Facility closures and restructuring costs
Severance costs
Inventory and other asset impairments
FX and tax impact on devaluation of ARS
Acquisition and disposal of businesses, net
—
48
27
16
—
—
324
3
15
10
12
—
14
2
6
16
—
—
—
—
—
—
—
(5)
Capital loss utilized and tax rate change
Impact of significant items(1) on EBIT and EPS: $
(5)
(1) Of the significant items described above, $10 million was recorded in depreciation and amortization expense.
364
91
38
—
—
—
—
$
$
$
EPS
1.54
0.23
0.21
0.19
0.14
(0.03)
(0.05)
338
53
48
42
12
(5)
—
$
488
$ 2.23
For the year ended December 31, 2014
($ millions except per share amounts)
Severance and labour disruption costs
ERP write-off in South American operations
Canada
South
America
UK &
Ireland
Other
Consol
6
—
10
12
22
1
—
—
—
$
1
$ —
$
17
12
29
EPS
0.07
0.06
$ 0.13
Impact of significant items on EBIT and EPS:
$
6
$
3
Revenue
The Company generated revenue of $6.2 billion during
2015, a decrease of 11% from 2014. Revenue was
down in all operations, particularly in new equipment
sales in the Company’s Canadian and South American
operations due to weaker market conditions resulting
from the downturn in commodity markets.
New equipment sales declined by 24% compared to
2014, driven by the Company’s Canadian and South
America operations as a result of the weaker
construction, mining and power systems sectors. The
decline in oil and copper prices have resulted in a
reduction in mining and construction activities and a
delay of investments in infrastructure projects.
Reflecting weak market conditions, equipment order
backlog (1) was $500 million at the end of 2015, down
from $1.0 billion at the end of 2014.
Product support revenue was comparable to the same
period in 2014. Increases in the Company’s South
American and UK & Ireland operations, as a result of
translating revenue with a weaker Canadian dollar,
were partially offset by an 8% decrease in the
Company’s Canadian operations due primarily to lower
activity levels from construction and mining sectors as
some customers delayed maintenance work.
Product support revenue in the Company’s South
American operations was down 7% in functional
currency (U.S. dollars), primarily due to a decrease in
parts revenue from the Chilean mining sector. Product
support revenue in the Company’s UK & Ireland
operations was down slightly in functional currency
(U.K. pound sterling) due to a decrease in parts
revenue in most sectors.
Used equipment revenue was up 26%, reflecting
market demand and efforts to reduce used equipment
inventory. An 18% decrease in rental revenue was a
result of the weaker short-term rental market and
increased competition in the Company’s Canadian
operations relative to a year ago. Rental revenue in
Finning International Inc.
2015 Annual Results
For years ended December 31
($ millions)
Line of Business
2014
2015
1
8
3
3
,
2
5
3
3
,
1
7
2
1
4
3
8
5
3
3
9
2
3,800
1,900
0
5
8
8
2
,
8
8
1
2
,
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
For years ended December 31
($ millions)
Operating Regions
2014
2015
4
3
6
,
3
4
5
0
,
3
7
2
2
,
2
9
5
0
,
2
7
5
0
,
1
7
7
0
,
1
3,800
1,900
0
3
2
6
1
Other
Canada
South America
UK & Ireland
South America and the UK & Ireland was largely
unchanged in 2015 compared to the prior year period.
Foreign currency translation of the results of the
Company’s South American and UK & Ireland
operations had a positive impact on revenue of
approximately $300 million, primarily due to the 16%
weaker Canadian dollar relative to the U.S. dollar and
7% weaker Canadian dollar relative to the U.K. pound
sterling in 2015 compared to last year. However, the
foreign currency translation impact on EBIT was
minimal.
1) These financial metrics do not have a standardized meaning under IFRS. For additional information regarding these financial metrics, including
definitions, see the heading “Description of Non-GAAP Measures” later in this MD&A.
4
Earnings Before Finance Costs and Income Taxes
For years ended December 31
($ millions)
2014 EBIT
Operating variance
Distribution network and goodwill impairment
Facility closures and restructuring costs
Inventory and other asset impairments
Higher severance costs
FX loss on devaluation of ARS
Acquisition and disposal of businesses
ERP write-off (2014)
2015 EBIT
Consol
$
504
(150)
(338)
(53)
(42)
(31)
(12)
5
12
$
(105)
Gross profit of $1.8 billion in 2015 was down 12%
compared to 2014 and in line with lower revenues, with
customers focusing on reducing operating costs in a
challenging economic environment and increased
competitive pressures.
Gross profit margin of 29.3% was down slightly from
2014 despite a revenue mix shift to higher margin
product support sales. Product support revenue
comprised 54% of total revenue in 2015 compared to
49% in 2014. Lower margins earned on new, used, and
rental equipment due to a competitive market were
partly offset by improved service margins earned from
all operations due to the implementation of operational
excellence initiatives. Contributing to lower gross profit
margins were higher than usual inventory and rental
asset impairments due to the prolonged weak global
market conditions, particularly in the mining and oil and
gas sectors.
SG&A costs in 2015 were slightly lower than the prior
year. Cost savings achieved from all operations as a
result of the execution of operational excellence
programs, cost reduction measures, and lower sales
volumes were offset by $31 million higher global
severance costs, a $12 million foreign exchange loss
on the significant devaluation of the Argentine peso,
and a $6 million write-off of an intangible asset.
Excluding severance, Argentine peso foreign exchange
loss and the impairment noted above, SG&A
decreased by approximately 5% from 2014. This
decrease reflects global cost savings from operational
improvements, headcount reductions and volume-
related decreases, partially offset by inflationary and
statutory salary increases.
The Company reported an EBIT loss of $(105) million
in 2015 compared to $504 million earned in 2014.
Excluding the significant items noted on page 3 of this
MD&A, 2015 EBIT would have been $383 million, lower
compared to the prior year period primarily due to the
Company’s Canadian and South American operations,
as a result of reduced mining and construction activity.
5
Finning International Inc.
2015 Annual Results
The Company’s EBIT margin was negative (1.7)% in
2015, compared to 7.3% earned in 2014. Excluding the
significant items noted on page 3 of this MD&A, EBIT
margin for 2015 would have been 6.2% and lower
compared to the prior year mainly due to SG&A costs
not decreasing as quickly as the revenue decline, as
benefits from cost and restructuring initiatives recently
implemented have not yet been fully realized.
Excluding the higher than usual inventory and rental
asset impairments recorded in the year, the total gross
profit margin would have been comparable to the prior
year, reflecting the benefit from a mix shift to higher
margin product support revenues.
EBITDA
EBITDA for 2015 was $126 million (2014: $720 million)
and net debt to EBITDA ratio was 9.5x. Excluding the
significant items (not included in depreciation and
amortization) noted on page 3 of this MD&A, EBITDA
for 2015 would have been $604 million and the net debt
to EBITDA ratio would have been 2.0x and was down
from the prior year period mainly due to the lower
earnings from the Company’s Canadian operations.
Finance Costs
Finance costs in 2015 were $85 million and
comparable to the prior year period. Prior year finance
costs included a $4 million gain on a foreign currency
swap contract.
Provision for Income Taxes
Income tax recovery for the year ended 2015 was $29
million (2014 tax expense: $101 million).
Finning’s effective income tax rate for 2015 was 15.7%,
down from 24.1% in the prior year, mainly due to non-
deductible goodwill impairment losses, partly offset by
a higher annual effective tax rate for Argentina due to
the significant devaluation of the Argentine peso.
The Company’s effective income tax rate will fluctuate
from period to period as a result of changes in the
source of income from various jurisdictions, estimate of
tax reserves, changes in tax rates and tax legislation.
Management expects the Company’s effective tax rate
to generally be within the 25-30% range on an annual
basis.
Net Income
The Company reported a net loss of $(161) million or
basic EPS of $(0.94) per share in 2015 compared to a
net income of $318 million or basic EPS of $1.85 per
share in 2014. Excluding the significant items noted on
page 3 of this MD&A, annual 2015 EPS would have
been $1.29, lower than the prior year primarily due to
lower sales volumes and compressed profit margins,
reflecting the challenging economic conditions in all
regions.
Invested Capital
($ millions,
unless otherwise stated)
December 31,
2015
September 30,
2015
Finning International Inc.
2015 Annual Results
Increase
(Decrease)
from
September 30,
2015
December 31,
2014
Increase
(Decrease)
from
December 31,
2014
Consolidated
Canada
South America
UK & Ireland
South America (U.S. dollar)
$
$
$
$
$
UK & Ireland (U.K. pound sterling) £
3,240
1,760
1,122
321
811
157
$
$
$
$
$
£
3,802
1,871
1,485
442
1,108
219
$
$
$
$
$
£
(562)
(111)
(363)
(121)
(297)
(62)
$
$
$
$
$
£
3,106
1,475
1,348
284
1,162
157
$
$
$
$
$
£
134
285
(226)
37
(351)
0
The $134 million increase in consolidated invested capital from 2014 to 2015 was affected by approximately $200
million of foreign exchange, as a result of the 19% weaker Canadian dollar (CAD) relative to the U.S. dollar (USD)
and the 13% weaker CAD relative to the U.K. pound sterling (GBP) in translating the Company’s South American
and UK & Ireland operations’ invested capital balances.
Excluding the impact of foreign exchange, consolidated invested capital decreased by $66 million from 2014
primarily driven by:
(cid:120) decrease in accounts receivable balances from the Company’s South American and Canadian operations
as a result of higher collections combined with lower sales volumes during the year
(cid:120) decrease in intangible assets reflecting the impairment loss recognized on the distribution network and
goodwill in the South American and UK & Ireland operations in 2015
(cid:120) decrease in fixed assets mainly due to facility closures in the Company’s Canadian operations
These decreases were partly offset by:
(cid:120) a decrease in accounts payable balances in the Company’s South American and Canadian operations as a
result of lower inventory purchases made during the year
(cid:120) higher equipment inventory levels in the Company’s Canadian operations, reflecting the slowdown in market
activity, were largely offset by lower parts levels in the Company’s Canadian and South American
operations due to the execution of supply chain initiatives
(cid:120)
the $241 million acquisition of the operating assets of Kramer Ltd. in the Company’s Canadian operations,
primarily made up of inventory, rental equipment and accounts receivable
Compared to December 2014, in functional currency, invested capital in the Company’s South American operations
was down 30% (down 17% in CAD) and was unchanged in the UK & Ireland operations (up 13% in CAD).
Consolidated invested capital decreased by $562 million from Q3 2015 to Q4 2015 primarily driven by:
(cid:120) decrease in intangible assets reflecting the impairment loss recognized on the distribution network and
goodwill in the South American and UK & Ireland operations in Q4 2015
(cid:120) decrease in inventory in all operations, primarily new equipment inventory in the South American and UK &
Ireland operations, and a reduction in parts inventory in the Canadian operations, reflecting a focused effort
to manage working capital and align inventory levels to current market demand
(cid:120) decrease in fixed assets as a result of facility closures and impairment on properties in all the operations
and a decrease in rental assets
6
Return on invested capital
Consolidated
Canada
South America
UK & Ireland
Invested Capital Turnover
Consolidated
Canada
South America
UK & Ireland
Finning International Inc.
2015 Annual Results
December 31,
2015
September 30,
2015
December 31,
2014
(3.0)%
5.5%
(12.8)%
(1.4)%
1.75x
1.70x
1.52x
2.92x
11.0%
10.9%
13.2%
10.5%
1.85x
1.92x
1.50x
2.91x
15.3%
17.1%
14.6%
16.3%
2.10x
2.19x
1.66x
3.43x
Return on invested capital (ROIC)
ROIC at Q4 2015 was (3.0)%, a decrease from Q3 2015 of 11.0% and Q4 2014 of 15.3%. The decline in ROIC
reflects the negative impact the downturn in resources and construction sectors have had on the Company’s
earnings. Also negatively impacting the Company’s 2015 ROIC were significant items as described on page 3 of this
MD&A. The Company will continue to monitor business conditions closely in all its operations and further align its
invested capital with expected activity levels when necessary.
(cid:120)
(cid:120)
In the Company’s Canadian operations, ROIC decreased to 5.5% from 10.9% in Q3 2015 and 17.1% in Q4
2014, driven primarily by lower earnings compared to the prior year period combined with a higher average
invested capital. Average invested capital levels were higher compared to the prior year period mainly due
to higher new equipment inventory levels and lower accounts payables, partly offset by lower accounts
receivables.
In the Company’s South American operations, ROIC of (12.8)% decreased compared to 13.2% in Q3 2015
and 14.6% in Q4 2014 primarily due to lower 2015 EBIT, which included a $324 million impairment loss on
its distribution network and goodwill. In functional currency, average invested capital decreased by US$165
million or 14% from Q4 2014 and was mainly due to the impairment loss on the shovels and drills
distribution network and goodwill, lower inventory levels and accounts receivables, partly offset by lower
accounts payables. In functional currency, there was a decrease in working capital balances compared to
the prior year period, reflecting the continued focus on inventory management.
(cid:120)
In the Company’s UK & Ireland operations, ROIC of (1.4)% in Q4 2015 was down compared to Q4 2014,
driven by the decline in EBIT for the last year, which included a $14 million goodwill impairment loss, as
average invested capital increased slightly compared to the prior year period.
Invested capital turnover
(cid:120)
Invested capital turnover at December 31, 2015 was 1.75 times, down from December 31, 2014 and
September 30, 2015, primarily due to reduced sales volumes in 2015 as well as higher invested capital
(driven by higher equipment inventories), reflecting the challenging market conditions. Compared to the prior
year, all operations reported a lower invested capital turnover.
7
Finning International Inc.
2015 Annual Results
Other developments
Effective July 1, 2015 the Company acquired the operating assets of Kramer Ltd. and became the approved
Caterpillar dealer in Saskatchewan. The acquired dealership business in Saskatchewan adds to Finning's Western
Canadian operations in British Columbia, Alberta, Yukon, the Northwest Territories, and part of Nunavut. This
diversifies the Company's revenue base into sectors such as potash and uranium and provides a platform for long-
term growth opportunities and diversification into new markets. Cash consideration of $241 million was paid at the
time of acquisition. The purchase price represents the fair value of assets acquired and liabilities assumed.
Acquisition costs of approximately $3 million were included in Q3 2015 results. The results of the newly acquired
dealership business in Saskatchewan have been included in the Company’s Canadian operations’ reportable
segment since the date of acquisition.
As part of a broader repositioning of the Caterpillar dealership network, on December 1, 2015, the Company sold
the shares of its wholly owned subsidiary, Finning Uruguay S.A. (Uruguay dealership) for proceeds of $22 million, of
which $15 million was received in cash and the remaining balance recognized as a receivable in the Company’s
statement of financial position. The sale resulted in a gain of approximately $8 million, including $4 million of foreign
cumulative translation gains reclassified to earnings.
Annual Results by Reportable Segment
The Company and its subsidiaries operate primarily in one principal business: the selling, servicing, and renting of
heavy equipment, engines, and related products in various markets worldwide as noted below. Finning’s reportable
segments are as follows:
(cid:120) Canadian operations: British Columbia, Alberta, Saskatchewan (beginning July 1, 2015), Yukon, the
Northwest Territories, and a portion of Nunavut.
(cid:120) South American operations: Chile, Argentina, Uruguay (up to December 1, 2015), and Bolivia.
(cid:120) UK & Ireland operations: England, Scotland, Wales, Northern Ireland, and the Republic of Ireland.
The table below provides details of revenue by operations and lines of business.
For year ended December 31, 2015
($ millions)
Canada
South
America
UK
& Ireland
Consolidated
Revenue
percentage
New equipment
Used equipment
Equipment rental
Product support
Other
Total
New equipment
Used equipment
Equipment rental
Product support
Other
Total
Revenue percentage by operations
49%
33%
18%
For year ended December 31, 2014
($ millions)
Canada
South
America
UK
& Ireland
Consolidated
Revenue
percentage
$
1,072
$
474
$
642
$
2,188
221
194
1,565
2
45
67
1,469
4
75
32
318
10
$
3,054
$
2,059
$
1,077
$
$
1,467
$
751
$
667
$
2,885
192
261
1,708
6
34
68
1,372
2
45
29
301
15
$
3,634
$
2,227
$
1,057
$
35%
6%
5%
54%
0%
100%
42%
4%
5%
49%
0%
100%
341
293
3,352
16
6,190
100%
271
358
3,381
23
6,918
100%
Revenue percentage by operations
53%
32%
15%
8
Finning International Inc.
2015 Annual Results
Canadian Operations
The Canadian reportable segment includes Finning (Canada), OEM Remanufacturing Company Inc. (OEM), and a
25% interest in Pipeline Machinery International (PLM). Finning (Canada) sells, services, and rents mainly
Caterpillar equipment and engines in British Columbia, Alberta, Saskatchewan, Yukon, the Northwest Territories,
and a portion of Nunavut. The Canadian operations’ markets include mining (including the oil sands), construction,
conventional oil and gas, forestry, and power systems.
Effective July 1, 2015, the Company acquired the operating assets of Kramer Ltd. in Saskatchewan which is
included in the results of the Company’s Canadian operations’ segment below.
The table below provides details of the results from the Canadian operations:
For years ended December 31
($ millions)
Revenue from external sources
Operating costs
Depreciation and amortization
Equity earnings of joint venture
Other expenses
EBIT
EBIT margin
EBITDA
Revenues for the year ended December 31, 2015 were
$3.1 billion, a 16% decline from the prior year, driven
by decreases in new equipment sales and product
support, reflecting the downturn in mining, energy, and
construction sectors. As a result of the volatility and
significant decline of oil prices through 2015, oil sands
customers reduced mining activity, delayed non-
essential maintenance work, and have insourced some
service-related activities. The downturn in commodity
markets also negatively impacted other sectors of the
economy, in particular, construction and oil and gas.
With reduced infrastructure projects and lower rig count
utilization, the demand for product support and capital
spending for equipment is lower.
New equipment revenue was down 27% compared with
2014, largely as a result of reduced construction and
mining activity in 2015. Deliveries exceeded order
intake for the fifth consecutive quarter, which resulted
in lower order backlog levels at December 31, 2015,
down 56% from December 2014.
Product support revenue was down 8% from 2014,
driven mainly by lower demand in the construction and
mining sectors partially offset by the positive
contribution from the Saskatchewan dealership.
Product support revenue comprised 51% of total
revenue in 2015 compared to 47% last year.
Rental revenues were down significantly from 2014 as
a result of weaker demand and more competition. Used
equipment revenue was up from the prior year mainly
due to market demand as customers looked for more
cost effective options.
Difficult market conditions, including lower commodity
prices and the weaker Canadian dollar, have led to
increased competition and challenging pricing
9
2015
2014
$
3,054
(2,793)
(121)
4
(46)
98
3.2%
219 $
$
3,634
(3,246)
(112)
8
—
284
7.8%
396
$
$
$
Canada – Revenue by Line of Business
For years ended December 31
($ millions)
2014
2015
1,800
900
0
8
0
7
,
1
5
6
5
,
1
7
6
4
,
1
2
7
0
,
1
2
9
1
1
2
2
1
6
2
4
9
1
New Equip Used Equip Equip Rental
6
2
Other
Product
Support
dynamics. Gross profit decreased compared to 2014,
reflecting lower sales volumes and lower margins
earned on most lines of business. Further affecting
gross profit in 2015 was a $16 million impairment
relating to aged and industry specific inventory and
rental assets due to prolonged weak market conditions.
Gross profit margin in 2015 was lower than the prior
year despite a revenue shift to higher margin product
support sales. This was a result of a higher proportion
of lower-margin equipment in the sales mix, pricing
pressures in the construction and mining sectors, a
weaker and competitive rental market and inventory
and rental asset impairments noted above.
Offsetting these declines in gross profit margin were
higher service margins in 2015 compared to the prior
year reflecting the implementation of operational
improvements.
Finning International Inc.
2015 Annual Results
Actions taken by the Company’s Canadian operations
in 2015 to reduce its cost structure to align with lower
market activity and to improve its service to customers
included:
(cid:120) workforce reduction of approximately 1,100 or 20%
which resulted in severance costs of $27 million
(2014: $6 million severance costs)
reduction of the Company’s footprint in Western
Canada by about 20% by late 2016 which resulted
in $48 million of facility closures and restructuring
costs: announced closures/consolidation of 32
facilities and branches, including the centralization
of the Canadian head office operations from two
buildings to one
(cid:120)
Severance costs were included in SG&A and facility
closure costs and other related costs were primarily
recorded in other expenses.
Excluding the severance and facility restructuring costs,
SG&A costs decreased nearly 12% compared to 2014.
Decrease in SG&A costs are primarily due to workforce
reductions, cost savings initiatives, the benefit from the
execution of the operational excellence agenda and
lower variable costs due to reduced sales activity,
partially offset by costs from the newly acquired
Saskatchewan business.
The Canadian operations contributed EBIT of $98
million in 2015, lower than the $284 million earned in
the same period of 2014. EBIT margin in 2015 was
3.2%, down from 7.8% earned in 2014. Excluding the
significant items summarized on page 3 of this MD&A,
2015 EBIT would have been $189 million and 2015
EBIT margin would have been 6.2%, reflecting the
decrease in sales activity and gross profit margins,
partially offset by lower SG&A costs.
South American Operations
Finning’s South American operations sell, service, and rent mainly Caterpillar equipment and engines in Chile,
Argentina, Uruguay and Bolivia. The South American operations’ markets include mining, construction, forestry, and
power systems.
As part of a broader repositioning of the Caterpillar dealership network, Finning sold its business in Uruguay
effective December 1, 2015, which generated approximately US$30 million in annual revenue.
The table below provides details of the results from the South American operations:
For years ended December 31
($ millions)
Revenue from external sources
Operating costs
Depreciation and amortization
Impairment of distribution network and goodwill
Capitalized ERP costs written off
Other expenses
EBIT
EBIT margin
EBITDA
In 2015, revenue decreased 8% to $2.1 billion
compared to 2014 (down 20% in functional currency).
This decrease was primarily driven by a 37% decline in
new equipment revenue (down 45% in functional
currency) reflecting reduced mining activity. Product
support revenue was up 7% (down 7% in functional
currency).
The positive translation impact on revenue in the year
from the weaker Canadian dollar relative to the U.S.
dollar was partially offset by the negative translation
impact from the weaker Chilean peso against the U.S.
dollar compared to 2014. As a result, the net positive
impact on revenue from foreign currency translation
was approximately $230 million.
2015
2014
2,059
(1,824)
(82)
(324)
—
(3)
(174)
(8.4)%
(92)
$
$
$
2,227
(1,945)
(72)
—
(12)
(2)
196
8.8%
268
$
$
$
South America – Revenue by Line of Business
For years ended December 31
($ millions)
2014
2015
9
6
4
,
1
2
7
3
,
1
1,400
700
1
5
7
4
7
4
4
3
5
4
8
6
7
6
0
New Equip Used Equip Equip Rental
2
4
Other
Product
Support
10
Gross profit, in functional currency, decreased
compared to 2014 reflecting lower sales volumes.
Contributing to the lower gross profit was a $4 million
impairment relating to aged, industry specific used
equipment inventory, reflecting challenging market
conditions. However, despite the downturn in market
conditions, gross profit margin increased in 2015
compared to last year, reflecting improved product
support margins as well as a mix shift to higher margin
product support revenues.
SG&A costs were up 9% in 2015 (down 6% in
functional currency). The Company’s South American
operations took the following actions in 2015 to align its
cost structure to reduced activity levels:
(cid:120)
reduced its workforce by approximately 700 people
or 10%, which resulted in severance costs of $15
million (2014: $10 million severance and labour
disruption costs)
(cid:120) optimized facility/branch network and recorded a
related impairment loss of $3 million in other
expenses
In December 2015, the new government in Argentina
removed controls on foreign exchange, resulting in a
significant 30% devaluation of the peso. As a result, the
Company’s South American operations recorded a
foreign exchange loss of approximately $12 million in
SG&A costs in the current year. 2015 SG&A also
included an intangible asset impairment of $6 million.
Excluding significant items noted above (such as
severance costs, the foreign exchange loss on
devaluation of the Argentine peso and the intangible
asset impairment), SG&A, in functional currency,
decreased by 10% from the prior year period. The
decrease in SG&A, in functional currency, was primarily
due to lower operating costs from the weaker Argentine
UK & Ireland Operations
Finning International Inc.
2015 Annual Results
and Chilean pesos relative to the U.S. dollar, lower
variable costs from reduced sales volumes, and cost
savings from the reduced workforce. These reductions
were partially offset by inflationary and statutory salary
increases.
Due to the difficult macro economic environment, the
Company recognized a total impairment loss of $324
million related to its shovels and drills distribution
network and goodwill in 2015:
(cid:120) $286 million impairment of the distribution network
in Chile
(cid:120) $38 million impairment of goodwill and distribution
network in Argentina and Bolivia
For more information on the key assumptions used by
the Company to value goodwill and intangible assets,
please see note 20 of the consolidated financial
statements.
For the year ended December 31, 2015, the
Company’s South American operations reported an
EBIT loss of $(174) million and an EBIT margin of
negative (8.4)%. Excluding the significant items
summarized on page 3 of this MD&A, EBIT in
functional currency would have decreased by 24%
compared to the prior year, reflecting lower sales
volumes and gross profit, partially offset by lower
SG&A costs. Excluding the significant items noted on
page 3 of this MD&A, EBIT margin for 2015 would have
been 9.3% and EBIT margin for 2014 would have been
9.8%.
The weaker Chilean and Argentine pesos relative to the
U.S. dollar, combined with the weaker Canadian dollar
against the U.S. dollar had a minimal foreign currency
translation impact on EBIT.
The Company’s UK & Ireland operations sell, service, and rent mainly Caterpillar equipment and engines in
England, Scotland, Wales, Northern Ireland, and the Republic of Ireland. The UK & Ireland operations’ markets
include mining, quarrying, construction, and power systems.
The table below provides details of the results from the UK & Ireland operations:
For years ended December 31
($ millions)
Revenue from external sources
Operating costs
Depreciation and amortization
Goodwill impairment
EBIT
EBIT margin
EBITDA
2015
2014
$
$
$
$
1,077
(1,040)
(28)
(14)
(5) $
(0.5)%
23
$
1,057
(975)
(32)
—
50
4.8%
82
11
UK & Ireland – Revenue by Line of Business
For years ended December 31
($ millions)
2014
2015
7
6
6
2
4
6
(cid:120)
700
350
0
5
7
5
4
9
2
2
3
1
0
3
8
1
3
5
1
0
1
New Equip
Used Equip Equip Rental Prod Support
Other
In 2015, revenue of $1.1 billion was comparable to the
same period last year. In functional currency, total
revenue was down 5% compared to 2014. A decrease
in new equipment revenue in the power systems sector
was partly offset by higher used equipment sales
during the year.
The weaker Canadian dollar relative to the U.K. pound
sterling had a positive foreign currency translation
impact on revenue of approximately $70 million in
2015, which was not significant at the EBIT level.
Gross profit, in functional currency, in 2015 was down
compared to 2014 by more than the revenue decline
due to competitive pressures resulting in lower margins
in all lines of business. Gross profit margin was down
compared to last year, primarily due to lower margins
on new and used equipment sales, mainly from the
power systems sector. Further affecting gross profit
margin was a $16 million impairment relating to aged
inventory and other assets due to weak market
conditions. Product support gross profit margins were
comparable to the prior year despite weaker market
conditions.
Corporate and Other Operations
Finning International Inc.
2015 Annual Results
The Company took actions to optimize its workforce
and branch network and align its cost structure to
current market conditions. As a result, the UK & Ireland
operations:
(cid:120)
reduced their workforce in 2015 by approximately
200 people or 9% which resulted in severance
costs of $6 million recorded in SG&A
recorded a property impairment loss of $2 million in
SG&A
SG&A costs were 12% higher in 2015 compared to
2014 (up 4% in functional currency), driven primarily by
higher employee-related costs such as severance and
a property impairment loss.
Excluding severance costs and the property impairment
loss, SG&A in functional currency was comparable to
the prior year. During the year ended December 31,
2015, the Company’s UK & Ireland operations
recognized a goodwill impairment loss of $14 million.
For information on the key assumptions used by the
Company to value goodwill and intangible assets,
please see note 20 in the consolidated financial
statements.
The UK & Ireland operations reported an EBIT loss of
$(5) million in 2015 compared to EBIT of $50 million in
2014. Excluding the significant items, as summarized
on page 3 of this MD&A, 2015 EBIT would have been
$33 million, reflecting lower gross profit from decreased
sales volumes and lower margins, a result of weak
business activity in the Company’s key markets in the
UK & Ireland region.
The UK & Ireland operations reported a negative EBIT
margin of (0.5)% in 2015 compared to 4.8% earned in
2014. Excluding the significant items noted on page 3
of this MD&A, 2015 EBIT margin would have been
3.1% and was lower than the prior year due to lower
gross profit margins on new and used equipment for
the reasons noted above.
Net operating costs before finance costs and income taxes from the Company’s Corporate and Other Operations
were $24 million in 2015 compared to $26 million in 2014. Included in this segment are corporate operating costs, as
well as equity earnings from the Company’s 28.8% investment in Energyst B.V. which were lower in 2015 compared
to the prior year period. Included in the 2015 results was the gain on the sale of the Uruguay business of $8 million
and costs of $3 million related to the acquisition of Kramer Ltd.
12
Fourth Quarter Overview
Revenue
Gross profit
SG&A
Equity earnings of joint venture and associate
Other expenses
Other income
Goodwill impairment
EBIT
Finance costs
Recovery (provision) for income taxes
Net (loss) income
Basic EPS
EBITDA
Free cash flow
(1)
Finning International Inc.
2015 Annual Results
Q4 2015 (1) Q4 2014
($ millions)
Q4 2015
Q4 2014
(% of revenue)
$
$
$
$
$
1,518
413
(390)
1
(43)
8
(338)
(349)
(22)
62
(309)
(1.82)
(282)
347
$
$
$
$
$
1,803
529
(393)
6
—
—
—
142
(20)
(15)
107
0.62
194
385
27.2%
(25.7)%
0.1%
(2.8)%
0.5%
(22.3)%
(23.0)%
(1.5)%
4.2%
(20.3)%
29.3%
(21.8)%
0.4%
—
—
—
7.9%
(1.1)%
(0.9)%
5.9%
(18.6)%
10.7%
Included in 2015 results are significant items that management does not consider indicative of operational and financial trends either by
nature or amount. These items are described on page 14 of this MD&A. Of the significant items described, $10 million was recorded in
depreciation and amortization expense.
2015 Fourth Quarter Highlights
(cid:120) Generated positive free cash flow of $347 million; reduced its Net Debt to Invested Capital ratio to 36.7%.
(cid:120) Revenue of $1.5 billion was down 16% from Q4 2014 due primarily to a 28% decrease in new equipment
revenue, reflecting lower demand from construction and mining sectors in the Company’s Canadian and South
American operations, a result of the continued weak market conditions.
(cid:120) Product support margins in Q4 2015 improved compared to the prior year period and Q3 2015. Service
profitability improvements were realized due to the execution of the operational excellence agenda.
(cid:120) EBIT loss of $(349) million and EBIT margin of (23.0)% reported in Q4 2015 was lower than the $142 million and
7.9% earned in Q4 2014. The difficult macro economic environment and weak market conditions in the current
and foreseeable future, coupled with actions taken by the Company to align its cost structure and improve
operational results in the long-term, had the following significant impacts to the Company’s Q4 2015 results:
(cid:120) $338 million impairment loss related to its shovels and drills distribution network and goodwill in the
Company’s South American and UK & Ireland operations
(cid:120) $45 million restructuring and property impairment costs related to the optimization of facilities and branch
networks in all operations and $2 million of severance costs
(cid:120) $42 million of higher than usual inventory and other asset impairment charges
(cid:120) Excluding costs relating to the impairment loss, facilities restructuring, severance, inventory and asset
impairment charges as noted above, as well as $4 million of net costs related to a foreign exchange loss in
Argentina and investment activities, Q4 2015 EBIT would have been $82 million and EBIT margin would have
been 5.4%. Earnings were down compared to prior year mainly due to reduced sales volumes in mining and
construction sectors and lower equipment and rental margins as a result of challenging market conditions.
(cid:120) Q4 2015 EBITDA loss was $(282) million. Excluding the significant items as noted above (not included in
(cid:120)
depreciation and amortization), EBITDA would have been $139 million, reflecting balance sheet strength.
In Q4 2015, the Company repurchased 1.2 million of its common shares for cancellation bringing the total share
repurchases in 2015 to 4.4 million common shares or $91 million.
(cid:120) During Q4 2015 the Company sold its wholly owned subsidiary in Uruguay and recorded a gain on sale of $8
million.
13
Finning International Inc.
2015 Annual Results
During the three months ended December 31, 2015, certain significant items affected the Company’s reported
results which are not considered by management to be indicative of operational and financial trends either by nature
or amount. The significant items that affected reported Q4 2015 and 2014 results are as follows:
Q4 2015 significant items:
(cid:120) Total impairment loss of $338 million related to its shovels and drills distribution network and goodwill in the
Company’s South American and UK & Ireland operations
(cid:120) Facility closure and restructuring costs of $45 million
(cid:120) $42 million higher than usual inventory and other asset impairments primarily related to aged and industry
specific inventory and rental assets due to prolonged weak market conditions
(cid:120) $12 million foreign exchange loss resulting from the significant devaluation of the Argentine peso and a higher
annual effective tax rate from the Company’s Argentine operations
(cid:120) $8 million gain on sale of Uruguay business
(cid:120) Severance costs of $2 million
For the 3 months ended December 31, 2015
($ millions except per share amounts)
Canada
South
America
UK &
Ireland
Other
Consol
Distribution network and goodwill impairment
Facility closures and restructuring costs
Inventory and other asset impairments
FX and tax expense on devaluation of ARS
Sale of business
—
40
16
—
—
324
3
10
12
—
14
2
16
—
—
—
—
—
—
(8)
Severance costs
Impact of significant items(1) on EBIT and EPS: $
(1) Of the significant items described above, $10 million was recorded in depreciation and amortization expense
34 $
349
56
—
—
$
$
2
—
(8)
EPS
1.56
0.19
0.19
0.14
(0.04)
0.01
338
45
42
12
(8)
2
$
431
$ 2.05
Q4 2014 significant items:
(cid:120) Positive tax impact from an inflation adjustment and lower than expected annual effective tax rate from the
Company’s Argentine operations ($0.07 per share).
14
Quarterly Key Performance Measures
The Company’s operational improvement priorities include: customer & market leadership; supply chain
optimization; service excellence; and asset utilization The Company’s 2015 incentive plans are aligned with the
following KPIs to consistently measure performance across the organization and monitor progress in improving
Return on Invested Capital.
Finning International Inc.
2015 Annual Results
2015
2014
Q4 (1)
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2013
Q4
(3.0)%
5.5%
(12.8)%
(1.4)%
11.0% 12.9% 14.1%
10.9% 13.9% 15.3%
13.2% 13.6% 14.4%
10.5% 13.2% 14.7%
15.3% 15.4% 16.0% 15.4%
17.1% 16.8% 16.6% 15.7%
14.6% 15.8% 17.4% 17.0%
16.3% 15.6% 15.9% 16.3%
15.7%
15.9%
17.6%
16.4%
ROIC
Consolidated
Canada
South America
UK & Ireland
EBIT ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBIT Margin
Consolidated
Canada
South America
UK & Ireland
Invested Capital ($ millions)
Consolidated
Canada
South America
UK & Ireland
Invested Capital Turnover (times)
Consolidated
Canada
South America
UK & Ireland
Inventory ($ millions)
Inventory Turns (times)
Working Capital to Sales Ratio
Free Cash Flow ($ millions)
Net Debt to Invested Capital Ratio
EBITDA
Net Debt to EBITDA Ratio
(349)
(17)
(303)
(31)
(23.0)%
(2.4)%
(57.5)%
(10.7)%
3,240
1,760
1,122
321
1.75x
1.70x
1.52x
2.92x
1,800
2.26x
32.7%
347
36.7%
(282)
9.5
63
34
32
7
4.2%
4.6%
6.4%
2.7%
3,802
1,871
1,485
442
106
53
51
11
6.4%
6.2%
9.5%
4.2%
3,536
1,745
1,402
381
75
29
45
7
5.0%
3.7%
9.3%
3.1%
3,541
1,794
1,417
330
142
73
59
11
7.9%
7.7%
9.8%
4.3%
3,106
1,475
1,348
284
114
80
32
14
137
77
57
14
111
54
50
12
145
69
76
8
7.8%
6.8%
9.2%
8.3%
6.2% 10.0%
5.1%
4.8%
6.6%
6.0%
9.0%
4.9%
8.1%
7.9%
11.3%
3.3%
3,340
1,714
1,298
344
3,334
1,756
1,274
309
3,414
1,682
1,443
296
2.03x
2.09x
1.62x
3.38x
1,973
2.57x
1.97x
1.85x
2.05x
1.92x
1.56x
1.50x
3.20x
2.91x
1,918
1,995
2.26x
2.30x
30.5% 28.6% 27.3%
69
38.7% 35.4% 36.0%
157
1.9
125
2.4
126
1.9
(232)
140
2.10x
2.19x
1.66x
3.43x
1,661
2.81x
26.1% 26.0% 25.5% 26.3%
2.12x
2.20x
1.74x
3.43x
1,835
2.56x
2.09x
2.15x
1.71x
3.43x
1,806
2.64x
2.06x
2.11x
1.73x
3.41x
1,945
2.61x
385
109
123
(134)
31.4% 39.4% 40.9% 42.9%
194
1.4
170
1.8
190
1.8
166
2.0
3,138
1,488
1,391
265
2.04x
2.03x
1.78x
3.37x
1,756
2.74x
26.5%
365
40.8%
200
1.7
(1) Q4 2015 financial metrics were impacted by significant items management does not consider indicative of operational and financial trends
either by nature or amount; these significant items are described on page 14 in this MD&A. Of the significant items described, $10 million
was recorded in depreciation and amortization expense. Excluding the significant items not included in depreciation and amortization, Q4
2015 EBITDA would have been $139 million and Net Debt to EBITDA ratio would have been 2.0x.
15
Finning International Inc.
2015 Annual Results
Revenue
For the three months ended December 31, 2015, the
Company generated revenue of $1.5 billion, a 16%
decrease over Q4 2014, reflecting lower revenues from
the Company’s Canadian and South American
operations. New equipment revenues were down 28%
due to weak economic conditions in all regions
compared to the prior year. Product support revenues
decreased by 7%, down in all operations in functional
currency.
New equipment sales were down compared to the prior
year primarily due to the Company’s Canadian
operations, driven by lower activity in the mining,
construction and power system sectors. Equipment
revenue was down in the Company’s South American
operations, primarily driven by lower activity in the
Chilean mining sector.
Product support revenue was down over the same
period in 2014 reflecting reduced demand for parts in
the mining sector in the Company’s South American
operations and reduced services in the Company’s
Canadian operations. Product support revenues in the
Company’s UK & Ireland operations were up slightly,
but modestly down in functional currency.
Foreign currency translation of the results of the
Company’s South American and UK & Ireland
operations had a positive impact on revenue of
Earnings Before Finance Costs and Income Taxes
For the 3 months ended December 31
($ millions)
Q4 2014 EBIT
Operating variance
Distribution network and goodwill impairment
Facility closures and restructuring costs
Inventory and other asset impairments
FX loss on devaluation of ARS
Sale of business
Severance costs
Q4 2015 EBIT
Consol
$
142
(60)
(338)
(45)
(42)
(12)
8
(2)
$
(349)
The Company reported an EBIT loss of $(349) million
for the three months ended December 31, 2015
compared to EBIT of $142 million in the prior year.
Excluding significant items described on page 14 in this
MD&A, Q4 2015 EBIT would have been $82 million,
down $60 million from Q4 2014, driven by lower
volumes across all lines of business as a result of lower
demand principally in the mining and construction
sectors in both the Company’s Canadian and South
American operations. Gross profit decreased by 22% to
$413 million compared to the same period in 2014, due
to lower volumes across all lines of business, except
used equipment. Also impacting gross profit were
Three months ended December 31
($ millions)
1,000
500
0
4
7
Line of Business
2014
2015
2
8
8
3
2
8
0
3
5
5
8
1
9
1
9
0
7
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
5
4
Other
Operating Regions
2014
2015
6
4
9
8
9
6
3
9
5
6
2
5
4
6
2
4
9
2
Canada
South America
UK & Ireland
0
1,000
500
0
approximately $100 million. Compared to the same
period last year, the Canadian dollar weakened 18%
relative to the U.S. dollar and 13% relative to the U.K.
pound sterling.
higher than usual inventory and other asset
impairments recorded in Q4 2015.
The Company’s EBIT margin in Q4 2015 was negative
(23.0)% compared to 7.9% earned in the prior year
period. Excluding the significant items described on
page 14 in this MD&A, the Company would have
earned a Q4 2015 EBIT margin of 5.4%, primarily due
to a lower gross profit margin reflecting pricing
pressures of a challenging economic environment. In
addition, benefits from cost and restructuring initiatives
recently implemented have not yet been fully realized.
Also contributing to the lower EBIT in Q4 2015 was $5
million lower equity earnings from Energyst compared
to the prior year period.
Gross profit margin was 27.2%, down from 29.3% in
the prior year quarter. Excluding the significant items
that affected gross profit, being $36 million higher than
usual inventory and other asset impairments recorded
in the quarter, total gross profit margin in Q4 2015
would have been comparable to the prior year period.
Approximately 50% of the $36 million adjustment
relates to used inventory and rental equipment.
Despite the challenging market conditions, the
Company’s product support business achieved higher
gross profit margins in Q4 2015 compared to the prior
16
year period. In particular, service profitability improved
in the Company’s Canadian and South American
operations, reflecting successful implementation of the
operational excellence and supply chain initiatives
throughout the year. The higher margins achieved from
the product support business were offset by:
(cid:120)
(cid:120)
(cid:120)
lower new equipment margins from all operations,
reflecting challenging market conditions and pricing
pressures
lower rental margins due to a weaker demand and
increased competition for short-term and heavy
rentals in the Canadian rental market
lower used equipment margins primarily due to low
margins in the UK & Ireland and South American
operations
SG&A costs were $390 million and comparable to the
same period last year. Cost savings from lower sales
volumes, headcount reductions, and operational
excellence programs were primarily offset by certain
significant costs from the Company’s South American
operations including $12 million of foreign exchange
loss on the significant devaluation of the Argentine
peso and $6 million impairment on other assets.
Excluding these significant items, consolidated SG&A
in Q4 2015 would have been 6% lower compared to the
prior year.
EBITDA
The Company reported an EBITDA loss of $(282)
million in Q4 2015 (Q4 2014: $194 million). Excluding
the significant items (not included in depreciation and
amortization) summarized on page 14 of this MD&A,
EBITDA for Q4 2015 would have been $139 million, a
decrease of 28% compared to the prior year period
mainly due to lower earnings from the Company’s
Canadian operations.
Finning International Inc.
2015 Annual Results
Finance Costs
Finance costs in the three months ended December 31,
2015 of $22 million were up slightly from the $20 million
reported in the fourth quarter of 2014.
Provision for Income Taxes
Income tax recovery for Q4 2015 totaled $62 million
(Q4 2014 income tax expense of $15 million).
The effective income tax rate for the fourth quarter of
2015 was 17.1%, up from 12.1% in the comparable
period of 2014. In Q4 2015, net income and EPS was
negatively impacted by a higher annual effective tax
rate in Argentina due to the significant devaluation of
the Argentine peso.
The low effective tax rate in Q4 2014 was primarily the
result of the Company applying an adjustment to
reduce taxable income in Argentina to compensate for
the loss of purchasing power due to inflation and a
lower annual effective tax rate in Argentina.
Net Income
The Company reported a net loss of $(309) million or
basic EPS of $(1.82) per share in Q4 2015, compared
to $107 million of net income or basic EPS of $0.62 per
share in the same period last year. The lower EPS was
primarily due to a number of significant items resulting
from a difficult macro economic environment and
prolonged weak market conditions.
Excluding the significant items as noted on page 14 of
this MD&A, EPS would have been $0.23 and lower
than the prior year period, primarily due to lower
volumes reflecting the challenging economic conditions
in all regions as well as costs related to reducing
Finning’s cost structure.
In Q4 2014, net income and EPS were positively
impacted by an inflation adjustment in the Company’s
Argentine operations and lower than expected annual
effective tax rate in Argentina ($0.07 per share).
17
Quarterly Results by Reportable Segment
The table below provides details of revenue by operations and lines of business and results by operations.
Finning International Inc.
2015 Annual Results
Revenue
%
35%
6%
5%
54%
0%
100%
UK
& Ireland
184
24
8
76
2
294
(304)
(7)
—
—
—
For three months ended
December 31, 2015 ($ millions)
Canada
South
America
Other
Consol
$
$
$
$
$
$
$
$
135
9
16
365
1
526
(477)
(25)
—
(3)
—
211
58
46
382
1
698
(642)
(35)
2
(40)
—
New equipment
Used equipment
Equipment rental
Product support
Other
Total revenues
Operating costs
Depreciation and amortization
Equity earnings
Other expenses
Other income
Distribution network and goodwill
impairment
Earnings (loss) before finance costs
and taxes (EBIT) (1)
Revenue percentage by operations
EBIT (1)
- percentage of revenue
EBITDA (1)
(1) 2015 results were impacted by significant items management does not consider indicative of operational and financial trends either by
530
91
70
823
4
1,518
(1,428)
(67)
1
(43)
8
—
—
—
—
—
—
(5)
—
(1)
—
8
(10.7)%
(24)
(57.5)%
(278)
(23.0)%
(282)
(2.4)%
18
(303) $
(17) $
(31) $
—
2
100%
(324)
(338)
(349)
46%
19%
35%
(14)
—
—
—
$
$
$
2
$
$
$
$
$
$
nature or amount; these significant items have been disclosed on page 14 in this MD&A.
For three months ended
December 31, 2014 ($ millions)
New equipment
Used equipment
Equipment rental
Product support
Other
Total revenues
Operating costs
Depreciation and amortization
Equity earnings
Earnings (loss) before finance costs
and taxes (EBIT)
Revenue percentage by operations
EBIT
- percentage of revenue
EBITDA
$
$
$
$
Canada
South
America
$
$
392
63
67
423
1
946
(849)
(26)
2
176
12
16
388
1
593
(516)
(18)
—
$
$
UK
& Ireland
172
10
8
71
3
264
(245)
(8)
—
$
$
Revenue
%
41%
5%
5%
49%
0%
100%
Other
Consol
$
$
—
—
—
—
—
—
(5)
—
4
740
85
91
882
5
1,803
(1,615)
(52)
6
142
100%
$
73
52%
$
59
33%
11
15%
$
(1) $
—
7.7%
99
$
9.8%
77
$
4.3%
19
$
—
(1)
$
7.9%
194
18
Quarterly Overview by Reportable Segment
Canada
Revenues were down 26% compared to the prior year
quarter reflecting weaker market conditions across all
sectors. The slowdown in the oil and gas and mining
sectors drove down new equipment sales and related
maintenance work. With reduced infrastructure
projects, the Canadian operations saw decreased
customer activity in the construction sector and
associated contractor businesses. The weaker demand
for rental assets continued into Q4 2015 negatively
impacting the Company’s rental business. Other factors
contributing to lower rental revenues in Q4 2015
compared to the prior year period were large power
contracts that expired and were not renewed and an
unseasonably warm winter in Alberta, which resulted in
reduced demand for heat products.
Gross profit was lower than Q4 2014, in line with lower
volumes. Gross profit margin was comparable to the
prior year as the benefit from a revenue mix shift to
higher margin product support (product support
revenues comprised 55% of revenues in Q4 2015
compared to 45% in the prior year) and improved
service margins were partly offset by higher inventory
impairments taken in the quarter. Service margins were
higher due to operational improvements implemented
during 2015. Excluding the higher inventory
impairments taken in Q4 2015, new equipment margins
would have been comparable to the prior year period.
Rental margins in the current year quarter were lower
compared to the prior year due to lower utilization of
short-term and heavy rentals reflecting the competitive
rental market and partly due to the rental asset
impairment taken in the current period.
SG&A expenses decreased by 11% compared to Q4
2014, reflecting cost savings initiatives, execution of the
Company’s operational excellence agenda, and lower
variable costs from reduced sales activity. These
reduced costs were partially offset by costs from the
newly acquired Saskatchewan business.
Q4 2015 EBIT included approximately $40 million of
facility closure-related costs and $16 million higher than
usual inventory impairments, primarily customized
equipment for the oil and gas sector and rental asset
impairments. Facility closure costs recorded were
higher than previously expected due to certain property
impairment charges finalized in Q4 2015. Excluding
these significant items as summarized on page 14 of
this MD&A, EBIT for Q4 2015 would have been $39
million and EBIT margin would have been 5.7%,
reflecting lower volumes as a result of difficult market
conditions. In Q4 2014, the Company’s Canadian
operations reported EBIT of $73 million and EBIT
margin of 7.7%.
Finning International Inc.
2015 Annual Results
South America
Revenues declined by 11% (down 24% in functional
currency) as market conditions in the region remained
challenging and mining customers have continued to
focus on reducing operating costs. New equipment
sales were down by 35% in functional currency, mainly
due to reduced demand from the mining sector.
Product support revenues were down 20% in functional
currency, driven by lower parts sales as mining
customers reduced and delayed maintenance work.
Product support margins in Q4 2015 were higher
compared to the prior year period, reflecting
improvements in cost efficiencies and service
profitability. Excluding the higher inventory impairments
taken in Q4 2015, gross profit margins would have
been higher compared to the prior year period,
reflecting improved product support profitability in
mining contracts.
Excluding the significant items noted on page 14 of this
MD&A, Q4 2015 EBIT would have been $46 million
compared to Q4 2014 EBIT of $59 million (down 31%
in functional currency). EBIT margin was negative
(57.5)% compared to 9.8% in the same period last
year. Excluding significant items noted on page 14 of
this MD&A, EBIT margin in Q4 2015 would have been
9.0% compared to 9.8% in the comparative period.
Although revenue decreased more quickly than the
realization of cost reductions, the South American
operations still earned a solid EBIT margin, excluding
the significant items previously noted, reflecting the
Company’s ability to manage costs and deliver strong
product support margins during challenging market
conditions.
UK & Ireland
Revenues increased by 11% but were down slightly in
functional currency as higher used equipment sales
were offset by lower new equipment and parts
revenues. New equipment sales were up 7% (down 6%
in functional currency) and product support revenues
were up 7% (down 5% in functional currency). The
decline in new equipment was driven by reduced
demand in the power systems sector. Higher used
equipment sales were a result of auctions held in the
current year quarter, although these were achieved at
significantly lower margins, contributing to the lower
EBIT margin compared to Q4 2014.
Q4 2015 EBIT margin of negative (10.7)% compared to
4.3% in Q4 2014. Excluding the significant items
summarized on page 14, Q4 2015 EBIT margin would
have been 0.8%, a result of lower sales from the
decline in many sectors, including mining, construction,
infrastructure and plant hire as well as lower used
equipment margins. Activity levels in the power
systems sectors were down as well.
19
Outlook
Canada
The mining outlook in Western Canada remains
uncertain due to lower commodity prices, specifically in
oil, gas and coal. As a result, the slow-down in the
economy is impacting all segments of our business:
mining, construction and power. Mining customers
continue to minimize capital and operating
expenditures in response to the low price of oil. As a
result, demand for mining equipment has remained
very slow. While current production levels are expected
to be maintained and a number of significant long-term
projects have been confirmed, the oil sands producers
continue to postpone non-production related mining
activities, such as overburden removal. Mining
customers have parked portions of their fleets,
insourced some service-related activities, and continue
to defer non-essential maintenance. This has
negatively impacted demand for parts and service. The
Company believes that the reduced spend on product
support is not sustainable in the long run.
In construction, demand for core equipment and
product support has declined further, most significantly
in Alberta, due to reduced customer activity as a result
of the broad economic consequences of low oil and
other commodity prices. In power systems, demand
has also slowed considerably across most sectors most
notably those related to oil field drilling and servicing.
Finning Canada continues to transform its business to
deliver improved financial and customer results. During
2015, the Company implemented significant workforce
reductions and facility closures to align its cost
structure to reduced business volumes and position the
organization for sustainable profitability. The Company
may take further cost reduction measures if weakened
business conditions were to continue for longer.
South America
In South America, concerns regarding lower demand
and price for copper continue to delay investments in
new projects. The Company has not yet seen any
significant benefit from the Chilean government’s
announced infrastructure spending. As a result, order
intake across the mining and construction sectors is
very low, and the overall demand for new equipment is
expected to remain weak.
Copper production levels have declined, and mining
customers continue to defer component purchases and
major repairs to reduce operating costs, which
negatively impacts demand for parts and service. In
response to a further decline in market activity across
all segments, the South American operations
announced significant workforce reductions during
Finning International Inc.
2015 Annual Results
2015. Going forward, the Company continues to focus
on capturing product support business and reducing
costs to maintain profitability during the downturn.
UK & Ireland
In the UK & Ireland, the equipment solutions division is
operating in the highly competitive general construction
segment. The demand for equipment in the Company’s
key markets has weakened, most notably in residential
and commercial construction, energy, rail, and plant
hire. In addition, some major infrastructure projects
have been delayed due to economic uncertainty. The
coal mining industry continues to be very weak, and the
steel industry has softened considerably. The
Company’s focus on reducing used equipment
inventory had a negative impact on margins in Q4
2015.
The outlook for power systems in the U.K. is uncertain.
The decline in the price of oil has negatively impacted
power systems activity at North Sea rigs. The marine
market remains mixed; however, the industrial market
is healthy and the Company continues to see electric
power generation opportunities for data centres.
During 2015, the Company implemented workforce
reductions and other cost initiatives to align its cost
structure to reduced sales volumes. Going forward, the
UK & Ireland operations are expected to return to
historic profitability levels.
Operational Focus
As the Company manages through the downturn, it
continues to advance on its operational excellence
agenda, particularly in Canada. Initiatives to increase
EBIT are primarily focused on growing market share
across all product lines, permanently reducing fixed
SG&A costs, and increasing the profitability of service
operations. The expected improvement in capital
efficiency will be driven through optimization of the
supply chain and facility network to reduce working
capital and improve asset utilization.
The Company remains committed to improving ROIC
over time; however, difficult and uncertain market
conditions across all operations continue to negatively
impact current ROIC performance.
The Company expects on-going volatility in foreign
exchange markets to continue impacting its results.
While the devaluation of the Canadian dollar increases
earnings translated from the Company’s foreign
subsidiaries, transactional gains or losses will be
dependent on hedging activities and general market
conditions.
20
Finning International Inc.
2015 Annual Results
Liquidity and Capital Resources
Management assesses liquidity in terms of Finning’s ability to generate sufficient cash flow, along with other sources
of liquidity including cash and borrowings, to fund its operations and growth in operations. Liquidity is affected by the
following items:
(cid:120) operating activities, including the level of accounts receivable, inventories, accounts payable, rental equipment,
and financing provided to customers;
(cid:120)
(cid:120)
investing activities, including property, plant, and equipment and intangible asset expenditures, acquisitions of
complementary businesses, and divestitures of non-core businesses; and
financing activities, including bank credit facilities, commercial paper, long-term debt, and other capital market
activities, providing both short and long-term financing.
For years ended December 31
($ millions, except percentage amounts)
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Free Cash Flow
2015
2014
$
$
$
$
379
(306)
(107)
325
$
$
$
$
546
(81)
(203)
483
Increase
(Decrease)
from 2014
(167)
(225)
96
(158)
The most significant contributors to the changes in cash flows over 2014 were as follows:
Cash provided by operating activities
lower by $167 million
(cid:120) primarily due to lower earnings from all operations
(cid:120) higher collections, partly offset by higher supplier payments
(cid:120)
lower cash generation from equipment inventory, partly offset by higher
cash generation from parts and supplies inventory
(cid:120) used $241 million of cash to acquire Kramer Ltd. in the Company’s
Canadian operations
Cash used in investing activities higher
by $225 million
(cid:120) $15 million of cash was received from the $22 million sale of the Uruguay
dealership (remaining $7 million to be received in 2016)
(cid:120) net capital expenditures were $9 million lower compared to the prior year
period
Cash used by financing activities lower
by $96 million
(cid:120) $110 million cash provided by short-term debt in 2015 ($84 million
repayment in 2014)
(cid:120) $124 million dividends paid in 2015 was slightly higher than 2014
(cid:120)
repurchase $91 million of common shares
Free Cash Flow generation lower by
$158 million
(cid:120)
(cid:120)
(cid:120)
due to lower earnings from all operations and lower cash generation from
inventory on hand, reflecting lower volumes as a result of difficult market
conditions
higher cash inflow from higher collections, partly offset by higher supplier
payments, reflecting the Company’s focus on supply chain management and
a strong balance sheet
net capital and rental expenditures lower compared to prior year, as a result
of the Company’s commitment to closely manage capital spend
Capital resources and management
To complement the internally generated funds from
operating and investing activities, the Company has
$1.9 billion in unsecured credit facilities. Included in this
amount are committed bank facilities totaling $1.1
billion with various Canadian, U.S., and South
American financial institutions. At December 31, 2015,
$0.9 million was available under these committed
facilities. In October 2015, the Company completed a
three-year extension to its $1.0 billion global operating
21
credit facility, extending the maturity date to October
2020 from the previous maturity in September 2017.
Based on the availability of these facilities, the
Company’s business operating plans, and the
discretionary nature of some of the cash outflows, such
as rental and capital expenditures, the Company
believes it continues to have sufficient liquidity to meet
operational needs.
Finning International Inc.
2015 Annual Results
The Company is rated by both Dominion Bond Rating
Service (DBRS) and Standard & Poor’s (S&P):
price. Execution of the NCIB is governed by rules
established by the Toronto Stock Exchange.
Long-term debt
Short-term debt
At Dec 31
2015
S&P
BBB+
2014
BBB+
2015
N/A
2014
N/A
Dividends paid to shareholders in 2015 were $124
million, up 5% compared to 2014, reflecting the 3%
increase to a quarterly dividend of $0.1825 per share
announced in May 2015.
DBRS
A (low)
A (low)
R-1 (low) R-1 (low)
Net Debt to Invested Capital
In November 2015, DBRS confirmed the Company’s
rating but changed the trend from Stable to Negative
noting the Company’s exposure to cyclical end markets
as a significant factor driving the trend change.
The Company continues to utilize the Canadian
commercial paper market, as well as borrowings under
its credit facilities as its principal sources of short-term
funding.
In the second quarter of 2015, the Company launched
a Normal Course Issuer Bid (NCIB) (1) to purchase its
common shares for cancellation. During 2015, the
Company repurchased 4.4 million Finning common
shares for cancellation at an average cost of $20.75.
The NCIB was implemented to take advantage of
Finning’s strong balance sheet and cash balance in
periods of broader market volatility and the resulting
negative impact on the Company’s share
Net Debt to
Invested capital %
Dec 31
2015
Sept 30
2015
Dec 31
2014
36.7%
38.7%
31.4%
Company’s target range 35-45%
Net Debt to Invested Capital ratio at December 31,
2015 decreased from September 30, 2015, primarily
due to strong free cash flow generation. Net debt to
invested capital ratio was up primarily due to the
acquisition of the Saskatchewan dealership (effective
July 1, 2015), from 31.4% at December 31, 2014, an
all-time low.
The Company is subject to a maximum Net Debt to
Invested Capital level of 62.5% pursuant to a covenant
within its syndicated bank credit facility. The Company
was in compliance with this covenant at the end of
2015.
Contractual Obligations
Payments on contractual obligations in each of the next five years and thereafter are as follows:
($ millions)
Short-term debt
2016
2017
2018
2019
2020
Thereafter
Total
- principal repayment
$
117
$
—
$
—
$
—
$
—
$
—
$
117
Long-term debt
- principal repayment
- interest
Operating leases (2)
Finance leases
—
70
74
6
—
70
53
6
350
59
38
6
—
48
30
5
214
48
23
11
984
301
84
16
1,548
596
302
50
Total contractual obligations
$ 2,613
(2) The Company recognized a liability of $16 million, $4 million in accrued liabilities and $12 million in non-current other liabilities, related to
$ 1,385
129
267
453
296
83
$
$
$
$
$
future minimum lease payments due under certain operating leases that were considered to be onerous at December 31, 2015 (2014: $nil).
The above table does not include obligations to fund
pension benefits, although the Company is making
regular contributions to its registered defined benefit
pension plans in Canada and the U.K. in order to fund
the pension plans as required. Funding levels are
monitored regularly and reset with new actuarial
funding valuations performed by the Company’s (or
plan Trustees’) actuaries that occur at least every three
years. In 2015, approximately $21 million was
contributed by the Company towards the defined
benefit pension plans. Defined benefit plan
contributions currently expected to be paid during the
financial year ended December 31, 2016 amount to
approximately $26 million.
(1) A copy of the NCIB notice is available on request. Direct your request to the Corporate Secretary, 1000-666 Burrard Street, Vancouver, BC
V6C 2X8.
22
Finning International Inc.
2015 Annual Results
Employee Share Purchase Plan
The Company has employee share purchase plans for
its Canadian and South American employees. Under
the terms of these plans, eligible employees may
purchase common shares of the Company in the open
market at the then current market price. The Company
pays a portion of the purchase price to a maximum of
2% of employee earnings. At December 31, 2015,
approximately 74%, 71% and 2% of eligible employees
in the Company’s Corporate, Canadian and South
American operations, respectively, were contributing to
these plans.
The Company also has an All Employee Share
Purchase Ownership Plan for its employees in Finning
UK & Ireland. Under the terms of this plan, the
Company will provide one common share, purchased in
the open market, for every three shares the employee
purchases. Finning (UK) employees may contribute up
to 10% of their salary to a maximum of £70 per month.
At December 31, 2015, approximately 30% of eligible
employees in Finning (UK) were contributing to this
plan. Finning (Ireland) employees may contribute from
€10 of their salary to a maximum of €70 per month. At
December 31, 2015, approximately 22% of eligible
employees in Finning (Ireland) were contributing to this
plan. These plans may be cancelled by Finning at any
time.
Related Party Transactions
Related party transactions and balances incurred in the
normal course of business between the Company and
its subsidiaries have been eliminated on consolidation
and are not considered material for disclosure.
Information on the Company’s wholly owned
subsidiaries and the main countries they operate in are
contained in note 2 of the consolidated financial
statements. Compensation of key management
personnel are disclosed in note 27 of the consolidated
financial statement.
Significant Accounting Estimates and Contingencies
Accounting, Valuation, and Reporting
Changes in the rules or standards governing
accounting can impact Finning’s financial reporting.
The Company employs professionally qualified
accountants throughout its finance group and all of the
operating unit financial officers have a reporting
relationship to the Company’s Chief Financial Officer
(CFO). Senior financial representatives are assigned to
all significant projects that impact financial accounting
and reporting. Policies are in place to ensure
completeness and accuracy of reported transactions.
Key transaction controls are in place, and there is a
segregation of duties between transaction initiation,
processing, and cash receipt or disbursement.
Accounting, measurement, valuation, and reporting of
accounts, which involve estimates and / or valuations,
are reviewed quarterly by the CFO and SVP, Corporate
Controller, as well as the Audit Committee of the Board
of Directors. Significant accounting and financial topics
and issues are presented and discussed with the Audit
Committee.
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 IFRS. The Company’s significant accounting
policies are contained in the notes to the consolidated
financial statements for the year ended December 31,
2015. Certain policies require management to make
judgments, estimates, and assumptions in respect of
the application of accounting policies and 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 there
is a likelihood that materially different amounts could be
reported under different conditions or using different
assumptions. The Company has discussed the
development, selection, and application of its key
accounting policies, and the critical accounting
estimates and assumptions they involve, with the Audit
Committee.
The more significant estimates include:
(cid:120)
recoverable values for goodwill and other asset
impairment tests
(cid:120) determination of the value of separable identifiable
intangible assets other than goodwill acquired in a
business combination
(cid:120) allowance for doubtful accounts
reserves for warranty
(cid:120)
(cid:120) provisions for income tax
(cid:120)
the determination of post-employment employee
benefits
(cid:120) provisions for inventory obsolescence
(cid:120)
the useful lives of the rental fleet and capital assets
and related residual values
revenues and costs associated with long term
contracts (primarily power systems and
maintenance and repair contracts)
revenues and costs associated with the sale of
assets with either repurchase commitments or
rental purchase options
(cid:120)
(cid:120)
(cid:120) determination of the functional currency of each
entity of the Company
(cid:120) estimation uncertainty for the fair value of certain
share-based payments
23
Goodwill and intangible assets
The Company performs impairment tests on its
goodwill and intangible assets with indefinite lives at
the appropriate level (cash generating unit or group of
cash generating units) at least annually or when events
or changes in circumstances indicate that their value
may not be fully recoverable. Any potential goodwill or
intangible asset impairment is identified by comparing
the recoverable amount of the cash generating unit to
its carrying value. If the recoverable amount of the cash
generating unit exceeds its carrying value, goodwill
and/or the intangible asset are considered not to be
impaired. If the recoverable amount of the cash
generating unit is less than the carrying amount, then
the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the cash
generating unit and then to the other assets of the cash
generating unit pro-rata on the basis of the carrying
amount of each asset in the cash generating unit. Any
impairment loss is recognized immediately in the
consolidated statement of income. Impairment losses
recognized for goodwill are never reversed.
The Company determines the recoverable amount of a
cash generating unit using a discounted cash flow
model. The process of determining these recoverable
amounts requires management to make estimates and
assumptions including, but not limited to, future cash
flows, growth projections, associated economic risk
assumptions and estimates of key operating metrics
and drivers, and the weighted average cost of capital
rates. Cash flow projections are based on financial
budgets presented to the Company’s Board of
Directors. Projected cash flows are discounted using a
weighted average cost of capital. These estimates are
subject to change due to uncertain competitive and
economic market conditions or changes in business
strategies.
The Company performed its assessment of goodwill
and intangible assets with indefinite lives and as a
result, recognized an impairment loss of $338 million as
at December 31, 2015 (no impairment at December 31,
2014). The South American operations recorded an
impairment loss of $324 million related to the
distribution network and goodwill and the UK & Ireland
operations recorded goodwill impairment loss of $14
Risk Factors and Management
Finning and its subsidiaries are exposed to market,
credit, liquidity, and other risks in the normal course of
their business activities which are further described in
this section. The Company’s Enterprise Risk
Management (ERM) process is designed to ensure that
such risks are identified, managed, and reported. This
ERM framework assists the Company in managing
business activities and risks across the organization in
order to achieve the Company’s strategic objectives.
The Company is dedicated to a strong risk
management culture to protect and enhance
Finning International Inc.
2015 Annual Results
million. Please refer to note 20 in the consolidated
financial statements for further details.
Income tax asset or liability
Estimations of the tax asset or liability require
assessments to be made based on the potential tax
treatment of certain items that will only be resolved
once finally agreed with the relevant tax authorities.
Significant judgment is required as income tax laws and
regulations can be complex and are potentially subject
to different interpretation between the Company and
the respective tax authority. Due to the number of
variables associated with the differing tax laws and
regulations across the multiple jurisdictions the
Company operates in, the precision and reliability of the
resulting estimates are subject to uncertainties and
may change as additional information becomes known.
Net income in subsequent periods may be impacted by
the amount that estimates differ from the final tax
return.
Deferred tax assets and liabilities comprise the tax
effect of temporary differences between the carrying
amount and tax basis of assets and liabilities, as well
as the tax effect of undeducted tax losses.
Assumptions underlying the composition of deferred tax
assets and liabilities include estimates of future results
of operations and the timing of reversal of temporary
differences as well as the substantively enacted tax
rates and laws in each respective jurisdiction at the
time of the expected reversal. The composition of
deferred tax assets and liabilities is reasonably likely to
change from period to period due to the uncertainties
surrounding these assumptions and changes in tax
rates or regimes could have a material adverse effect
on expected results.
New Accounting Pronouncements
The adoption of recent amendments to accounting
standards and new IFRS had no impact on the
Company’s financial position. For more details on
recent changes in accounting policy, please refer to
note 2 of the Company’s consolidated financial
statements. Future accounting pronouncements and
effective dates are also contained in note 2 of the
consolidated financial statements.
shareholder value. On a quarterly basis, the Audit
Committee reviews the Company’s process with
respect to risk assessment and management of key
risks, including the Company’s major financial risks and
exposures and the steps taken to monitor and control
such exposures. The Audit Committee also reviews the
adequacy of disclosures of key risks in the Company’s
AIF, MD&A, and consolidated financial statements. All
key financial risks are disclosed in the MD&A and other
key business risks are disclosed in the Company’s AIF.
For more information on the Company’s financial
24
instruments, including relevant risk sensitivities, please
refer to note 7 of the Company’s consolidated annual
financial statements.
Market Risk and Hedging
Market risk is the risk that changes in the market, such
as foreign exchange rates, interest rates and
commodity prices, will affect the Company’s income or
the fair value of its financial instruments. The objective
of market risk management is to manage and control
market risk exposures within acceptable parameters.
The Company utilizes derivative financial instruments
and foreign currency debt in order to manage its market
risks (such as foreign currency and interest rate
exposures).The Company uses derivative financial
instruments only in connection with managing related
risk positions and does not use them for trading or
speculative purposes. The Company continually
evaluates and manages risks associated with financial
derivatives, which includes counterparty credit
exposure. All such transactions are carried out within
the guidelines set by the Company and approved by
the Company’s Audit Committee. For more information
on the Company’s accounting policy on financial
instruments, please refer to note 7 of the consolidated
financial statements.
Foreign Exchange Risk
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
Canadian dollar (CAD), U.S. dollar (USD), U.K. pound
sterling (GBP), Chilean peso (CLP), and Argentine
peso (ARS). As a result, the Company has foreign
currency exposure with respect to items denominated
in foreign currencies which can be categorized into two
main types:
Translation Exposure
The Company’s consolidated financial statements are
presented in CAD; therefore, the most significant
foreign exchange impact to the Company’s net income
and other comprehensive income is the translation of
all the Company’s foreign subsidiaries’ operating
results (i.e. foreign currency based earnings and net
assets or liabilities) into CAD. Exchange rates in the
USD/CAD and GBP/CAD will impact the consolidated
results of the South American and UK & Ireland
operations in CAD terms. The results of the Company’s
South American operations, whose functional currency
is USD, are affected by changes in the USD/CLP and
USD/ARS relationships. The Company does not hedge
its exposure to foreign exchange risk with regard to
foreign currency earnings.
Foreign denominated net asset or net liability positions
may exist on an operation’s statement of financial
position. The Company does not fully hedge balance
sheet exposure so this may result in unrealized foreign
25
Finning International Inc.
2015 Annual Results
exchange gains or losses until the net position is
settled.
Transaction Exposure
Many of the Company’s operations purchase, sell, rent,
and lease products as well as incur costs in currencies
other than their functional currency. As exchange rates
fluctuate, this mismatch of currencies creates
transactional exposure at the operational level, which
may affect the Company’s profitability. For example,
the Company’s Canadian operating results are
exposed to volatility in USD/CAD exchange rates
between the timing of equipment and parts purchases
and the ultimate sale to customers. A portion of these
exposures are hedged through the use of forward
exchange contracts as well as managed through
pricing practices. In December 2015, the Company
started to apply hedge accounting to these hedges of
inventory purchases in its Canadian operations.
The CAD has historically been positively correlated to
commodity prices. In a scenario of declining commodity
prices, the Company’s resource industry customers
may curtail capital expenditures and decrease
production which can result in reduced demand for
equipment, parts, and services. At the same time, the
weaker CAD to USD positively impacts the Company’s
financial results when USD based revenues and
earnings are translated into CAD reported revenues
and earnings, although lags may occur.
The Company’s competitive position may also be
impacted as relative currency movements affect the
business practices and/or pricing strategies of the
Company’s competitors. The Company is also exposed
to currency risks related to the future cash flows on its
non-Canadian denominated short-term and long-term
debt. For further information on the Company’s foreign
exchange risk, refer to note 7 in the consolidated
financial statements.
Investment in Foreign Operations
Assets and liabilities of the Company’s foreign
operations, which have functional currencies other than
the CAD, are translated into CAD using the exchange
rates in effect at the statement of financial position
dates. Any unrealized translation gains and losses are
recorded as foreign currency translation adjustments in
other comprehensive income. Currency translation
adjustments arise as a result of fluctuations in foreign
currency exchange rates at the period reporting date
compared to the previous period reporting date. The
unrealized currency translation gain of $355 million
recorded in 2015 resulted primarily from the 19%
weaker CAD relative to the USD and 13% weaker
relative to the GBP at December 31, 2015 compared to
December 31, 2014. This was partially offset by $138
million (after-tax) of unrealized foreign exchange losses
on net investment hedges. For more details, refer to the
annual consolidated statements of comprehensive
income.
Finning International Inc.
2015 Annual Results
Key exchange rates that impacted the Company’s results were as follows:
December 31
December 31 – average
December 31 - average
Three months ended
Year ended
Exchange rate
2015
2014
Variance
2015
2014
Variance
2015
2014
Variance
CAD/USD
CAD/GBP
CLP/USD
ARS/USD
1.3840
1.1601
-19.3%
2.0407
1.8071
-12.9%
1.3354
2.0255
1.1356
-17.6%
1.7978
-12.7%
1.2787
1.9540
1.1045
-15.8%
1.8190
-7.4%
710.16
606.75
-17.0%
697.85
598.14
-16.7%
653.38
562.47
-16.2%
13.04
8.55
-52.5%
10.00
8.51
-17.5%
9.21
8.10
-13.8%
Interest Rate Risk
Changes in market interest rates will cause fluctuations
in the fair value or future cash flows of financial
instruments. The Company is exposed to changes in
interest rates on its interest bearing financial assets
including cash and cash equivalents and instalment
and other notes receivable. The short-term nature of
investments included in cash and cash equivalents
limits the impact to fluctuations in fair value, but
interest income earned will be impacted. Instalment
and other notes receivable bear interest at a fixed rate
thus their fair value will fluctuate prior to maturity but,
absent monetization, future cash flows do not change.
The Company is exposed to changes in interest rates
on its interest bearing financial liabilities primarily from
short-term and long-term debt. The Company’s debt
portfolio comprises both fixed and floating rate debt
instruments, with terms to maturity ranging up to June
2042. Floating rate debt, due to its short-term nature,
exposes the Company to limited fluctuations in
changes to fair value, but finance expense and cash
flows will increase or decrease as interest rates
change. The fair value of the Company’s fixed rate
debt obligations fluctuate with changes in interest
rates, but absent early settlement, related cash flows
do not change. The Company is exposed to changes in
future interest rates upon refinancing of any debt prior
to or at maturity.
The Company manages 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 may utilize
derivative instruments such as interest rate swaps to
adjust the balance of fixed and floating rate debt. For
more information on the Company’s interest-bearing
financial instruments and sensitivity analysis, refer to
note 7 of the consolidated financial statements.
Commodity Prices
The Company provides equipment, parts and service to
customers in resource and construction industries. In
the resource sector, fluctuations in commodity prices
and changes in long-term outlook for commodities
impact customer decisions for capital expenditures and
production levels, which determine demand for
equipment, parts and service. In the construction
sector, publicly funded infrastructure spending is
indirectly impacted by fluctuations in commodity prices,
particularly in regions with resource-based economies
(such as the prices of copper, gold and other metals;
the prices of coal, thermal and metallurgical; natural
gas, and lumber). In Canada, the Company’s
customers are exposed to the price of oil, mostly in the
oil sands in Northern Alberta. In South America, the
Company’s customers are primarily exposed to the
price of copper and, to a much lesser extent, the prices
of gold, other metals, and natural gas. In the U.K. and
Ireland, the Company’s resource sector customers
operate in thermal coal and off-shore oil & gas.
Significant fluctuations in these commodity prices could
have a material impact on the Company’s financial
results.
With significantly lower commodity prices, demand is
reduced as development of new projects is slowed or
stopped and production from existing projects can be
curtailed, both leading to less demand for equipment.
However, product support growth has been, and is
expected to continue to be, important in mitigating the
effects of downturns in the business cycle.
Alternatively, if commodity prices rapidly increase,
customer demand for Finning’s products and services
could increase and apply pressure on the Company’s
ability to supply the products or skilled technicians on a
timely and cost efficient basis. To assist in mitigating
the impacts of fluctuations in demand for its products,
Finning management works closely with Caterpillar to
ensure an adequate and timely supply of product or
offers customers alternative solutions and has
implemented human resources recruiting strategies to
ensure adequate staffing levels are achieved.
Credit Risk
Credit risk is the risk of financial loss to the Company if
a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises
principally in respect of the Company’s cash and cash
equivalents, short-term investments, receivables from
customers and suppliers, instalment and other notes
receivable, and derivative assets.
The Company manages risks associated with cash and
cash equivalents and short-term investments by
ensuring that these financial assets are held with major
financial institutions with strong investment grade
ratings and by monitoring the exposures with any single
institution. An ongoing review is performed to evaluate
the changes in the credit rating of counterparties. Credit
risk on receivables from customers and suppliers is
26
minimized because of the diversification of the
Company’s operations as well as its large diversified
customer base and its geographical dispersion.
Credit risk exposure arising from its derivative
instruments relating to counterparties defaulting on
their obligations is minimized by ensuring there is no
excessive concentration of credit risk with any single
counterparty, by active credit monitoring, and by
dealing primarily with major financial institutions that
have a credit rating of at least A from S&P and/or
Moody’s. For more information on the Company’s
financial assets and exposure to credit risk, refer to
note 7 of the consolidated financial statements.
Liquidity Risk
Liquidity risk is the risk that the Company will not be
able to meet its financial obligations as they fall due.
The Company’s approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient
liquid financial resources to fund its operations and
meet its commitments and obligations. The Company
maintains bilateral and syndicated bank credit facilities,
a commercial paper program, continuously monitors
actual and forecast cash flows, and manages maturity
profiles of financial liabilities. Based on the availability
of credit facilities, the Company’s business operating
plans, and the discretionary nature of some of the cash
outflows, such as rental and capital expenditures, the
Company believes it continues to have sufficient
liquidity to meet operational needs. For more
information on the Company’s financial liabilities and
liquidity risk, refer to note 7 of the consolidated financial
statements.
Contingencies and Guarantees
Due to the size, complexity, and nature of the
Company’s operations, various legal, customs, and tax
matters are pending. These include a number of claims
from the Argentina Customs Authority associated with
the export of agricultural product. The Company has
appealed these claims, believes they are without merit,
and is confident in its position.
These pending matters may take a number of years to
resolve. Should the ultimate resolution of these matters
differ from management’s assessment, a material
adjustment could arise and impact the Company’s
financial position. However, it is the current opinion of
management that these matters will not have a material
effect on the Company’s consolidated financial position
or results of operations.
The Company enters into contracts with rights of return,
in certain circumstances, for the repurchase of
Outstanding Share Data
As at February 12, 2016
Common shares outstanding
Options outstanding
Finning International Inc.
2015 Annual Results
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 operations is not sufficient to fund
future capital and debt repayment 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 the level of debt
financing may be limited by its financial covenants or its
credit rating objectives. Although the Company does
not anticipate any difficulties in raising necessary 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.
Share-Based Payment Risk
Share-based payment plans are an integral part of the
Company’s employee compensation program, and can
be in the form of the Company’s common shares or
cash payments that reflect the value of the shares.
Share-based payment plans are accounted for at fair
value, and the expense associated with these plans
can therefore vary as the Company’s share price, share
price volatility, and employee exercise behavior
change. For further details on the Company’s share-
based payments, please refer to note 10 of the
Company’s consolidated financial statements.
equipment sold to customers for an amount which is
generally based on a discount from the estimated
future fair value of that equipment. As at December 31,
2015, the total estimated value of these contracts
outstanding is $138 million (2014: $125 million) coming
due at periods ranging from 2016 to 2018. The
Company’s experience to date has been that the
equipment at the exercise date of the contract is
generally worth more than the repurchase amount. The
total amount recognized as a provision against these
contracts is $2 million (2014: $1 million).
For further information on the Company’s
contingencies, commitments, guarantees, and
indemnifications, refer to notes 29 and 30 of the notes
to the consolidated financial statements.
27
168,031,428
5,154,859
Controls and Procedures Certification
Disclosure Controls and Procedures
Management is responsible for establishing and
maintaining a system of controls and procedures over
the public disclosure of financial and non-financial
information regarding the Company. Such controls and
procedures are designed to provide reasonable
assurance that all relevant information is gathered and
reported to senior management, including the Chief
Executive Officer (CEO) and Chief Financial Officer
(CFO), on a timely basis so that appropriate decisions
can be made regarding public disclosure.
The CEO and the CFO, together with other members of
management, have designed the Company’s disclosure
controls and procedures in order to provide reasonable
assurance that material information relating to the
Company and its consolidated subsidiaries would have
been known to them, and by others, within those
entities.
The Company has a Disclosure Policy and a Disclosure
Committee in place to mitigate risks associated with the
disclosure of inaccurate or incomplete information, or
failure to disclose required information.
(cid:120) The Disclosure Policy sets out accountabilities,
authorized spokespersons, and Finning’s approach
to the determination, preparation, and dissemination
of material information. The policy also defines
restrictions on insider trading and the handling of
confidential information.
(cid:120) A Disclosure Committee, consisting of senior
management, and external legal counsel review all
financial information prepared for communication to
the public to ensure it meets all regulatory
requirements. The Disclosure Committee 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.
Internal Control over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial
reporting. Management has designed internal control
over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements in
accordance with IFRS. Except for the change noted
below, there has been no change in the design of the
Company’s internal control over financial reporting
during the year ended December 31, 2015, that would
materially affect, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Effective July 1, 2015 the Company acquired the
operating assets of Kramer Ltd. and became the
approved Caterpillar dealer in Saskatchewan. As part
of the post-closing integration, the Company is
Finning International Inc.
2015 Annual Results
engaged in harmonizing the internal controls and
processes of the acquired business with those of the
Company. In keeping with scope limitation provisions of
applicable securities laws, management has excluded
the design and operating effectiveness assessment
of internal control over financial reporting of the
business acquired from Kramer Ltd. from its annual
assessment of the effectiveness of the Company’s
internal control over financial reporting for 2015. During
this period of transition, the acquired dealership
business contributed revenues of $107 million and net
income of $6 million for the six months ended
December 31, 2015. Working capital assets of $119
million (comprising inventory, receivables and
payables), property, plant equipment and rental
equipment of $87 million, and intangible assets and
goodwill of $35 million (totalling $241 million) were
included in the Company’s balance sheet as at the
acquisition date.
Regular involvement of the Company’s internal audit
function and quarterly reporting to the Audit Committee
assist in providing reasonable assurance that the
objectives of the control system are met. While the
officers of the Company have designed the Company’s
disclosure controls and procedures and internal control
over financial reporting, they are aware that these
controls and procedures may not prevent all errors and
fraud. A control system, no matter how well conceived
or operated, can only provide reasonable, not absolute,
assurance that the objectives of the control system are
met.
Evaluation of Effectiveness
As required by National Instrument 52-109, Certification
of Disclosure in Issuers’ Annual and Interim Filings (NI
52-109) issued by the Canadian Securities regulatory
authorities, an evaluation of the design and testing of
the effectiveness of the operation of the Company’s
disclosure controls and procedures and internal control
over financial reporting were conducted as of
December 31, 2015, by and under the supervision of
management. In making the assessment of the
effectiveness of the Company’s disclosure controls and
procedures and internal control over financial reporting,
management used the criteria set forth by the
Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control –
Integrated Framework (2013 edition). The evaluation
included documentation review, enquiries, testing, and
other procedures considered by management to be
appropriate in the circumstances. Based on that
evaluation, excluding the disclosure controls and
procedures and internal control over financial reporting
of the business acquired from Kramer Ltd., the CEO
and CFO have concluded that the Company’s
disclosure controls and procedures and internal control
over financial reporting were effective as of December
31, 2015.
28
Finning International Inc.
2015 Annual Results
Description of Non-GAAP Measures
Non-GAAP Measures
Management believes that providing certain non-GAAP measures provides users of the Company’s consolidated
financial statements with important information regarding the operational performance and related trends of the
Company's business. By considering these measures in combination with the comparable IFRS measures set out
below, management believes that users are provided a better overall understanding of the Company's business and
its financial performance during the relevant period than if they simply considered the IFRS measures alone.
The non-GAAP measures used by management do not have any standardized meaning prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented by other issuers. Accordingly, these measures
should not be considered as a substitute or alternative for net income or cash flow, in each case as determined in
accordance with IFRS.
Net Debt to Invested Capital
Net Debt to Invested Capital is calculated as net debt divided by invested capital (both defined below), and is used
by management as a measurement of the Company’s financial leverage.
Net debt is calculated as short-term and long-term debt, net of cash. Invested capital is net debt plus all components
of shareholders’ equity (share capital, contributed surplus, accumulated other comprehensive income, and retained
earnings). Invested capital is also calculated as total assets less total liabilities, excluding net debt. Invested capital
is used by management as a measure of the total cash investment made in the Company and each operating
segment. Management uses invested capital in a number of different measurements in assessing financial
performance against other companies and between reportable segments.
The calculation of Net Debt to Invested Capital is as follows:
December 31
($ millions, except as noted)
Cash and cash equivalents
Short-term debt
Long-term debt
Net debt
Shareholders’ equity
Invested capital
Net debt to invested capital
2015
2014
$
(475)
$
(450)
117
1,548
1,190
2,050
3,240
$
7
1,418
975
2,131
3,106
36.7%
31.4%
$
EBITDA
EBITDA is defined as earnings before finance costs, income taxes, depreciation and amortization and is utilized by
management to assess and evaluate the financial performance of its operating segments. Management believes
that EBITDA improves comparability between periods by eliminating the impact of finance costs, income taxes,
depreciation, and amortization. EBITDA is also commonly regarded as an indirect measure of operating cash flow, a
significant indicator of success for many businesses and is a common valuation metric.
A reconciliation between net income and EBITDA is as follows:
($ millions)
Net (loss) income
Depreciation and amortization
Finance costs
Provision (recovery) for income taxes
EBITDA (1)
(1)
Three months ended
December 31
2015
2014
$
(309)
$
67
22
(62)
(282)
$
$
107
52
20
15
194
Twelve months ended
December 31
2015
2014
$
(161)
$
231
85
(29)
126
$
$
318
216
85
101
720
Included in 2015 results are significant items that management does not consider indicative of operational and financial
trends either by nature or amount. Of these significant items disclosed on pages 3 and 14 of this MD&A, $10 million was
recorded in depreciation and amortization expenses. Excluding these significant items not included in depreciation and
amortization, Q4 2015 EBITDA would have been $139 million and annual 2015 EBITDA would have been $604 million.
29
ROIC
Return on Invested Capital, or ROIC, is defined as earnings before finance costs and income taxes (EBIT) for the
last twelve months divided by invested capital, based on an average of the last four quarters.
Management views ROIC (at a consolidated and segment level), as a useful measure for supporting investment and
resource allocation decisions, as it adjusts for certain items that may affect comparability between certain
competitors and segments.
Finning International Inc.
2015 Annual Results
December 31
($ millions, except as noted)
EBIT – last twelve months
Invested capital – four quarter average
ROIC
2015
2014
$
$
(105)
3,530
(3.0)%
$
$
504
3,298
15.3%
Working Capital
Working capital is defined as total current assets (excluding cash) less total current liabilities (excluding short-term
debt and current portion of long-term debt). Management views working capital as a measure for assessing overall
liquidity.
December 31
($ millions)
Total current assets
Cash and cash equivalents
Total current assets (1)
Total current liabilities
Short-term debt
Total current liabilities (2)
Working capital
2015
2014
$
$
$
$
$
3,460
(475)
2,985
1,243
(117)
1,126
1,859
$
$
$
$
$
3,477
(450)
3,027
1,372
(7)
1,365
1,662
(1) Excluding cash and cash equivalents
(2) Excluding short-term debt and current portion of long-term debt
Free Cash Flow
Free cash flow is defined as cash flow provided by (used in) operating activities less net additions to property, plant,
and equipment and intangible assets, as disclosed in the Company’s consolidated statement of cash flow. Free cash
flow is a measure used by the Company to assess cash operating performance and the ability to raise and service
debt. A reconciliation of free cash flow is as follows:
($ millions)
Three months ended
December 31
2015
2014
Twelve months ended
December 31
2015
2014
Cash flow provided by operating activities
$
370
$
403
$
379
$
546
Additions to property, plant, and equipment
and intangible assets
Proceeds on disposal of property, plant, and
equipment
Free cash flow
(34)
11
347
$
(20)
2
385
$
(76)
22
325
$
(81)
18
483
$
Key Performance Indicators
Management uses key performance indicators to consistently measure performance against the Company’s
priorities across the organization. The Company’s KPIs include gross profit margin, EBIT margin, inventory turns,
invested capital turnover, working capital to sales ratio, order backlog, and net debt to EBITDA ratio. Although some
of these KPIs are expressed as ratios, they are non-GAAP financial measures that do not have a standardized
meaning under IFRS and may not be comparable to similar measures used by other issuers.
30
Finning International Inc.
2015 Annual Results
Gross Profit Margin
This measure is defined as gross profit divided by total revenue.
EBIT and EBITDA Margin
This measure is defined as EBIT divided by total revenue and EBITDA divided by total revenue and is utilized by
management to assess and evaluate the financial performance or profitability of its operating segments.
Inventory Turns
Inventory turns is the number of times the Company's inventory is sold and replaced over a period and is used by
management as a measure of asset utilization. Inventory turns is calculated as annualized cost of goods sold for the
last six months divided by average inventory, based on an average of the last two quarters.
December 31
($ millions, except as noted)
Cost of sales – annualized
Inventory – two quarter average
Inventory turns (number of times)
2015
2014
$
$
$
$
4,285
1,897
2.26
4,868
1,734
2.81
Invested Capital Turnover
Invested capital turnover is used by management as a measure of efficiency in the use of the Company’s invested
capital and is calculated as total revenue for the last twelve months divided by invested capital, based on an
average of the last four quarters.
December 31
($ millions, except as noted)
Revenue – last twelve months
Invested capital – four quarter average
Invested capital turnover
2015
2014
$
$
$
$
6,190
3,530
1.75
6,918
3,298
2.10
Working Capital to Sales Ratio
This ratio is calculated as working capital, based on an average of the last four quarters, divided by total revenue for
the last twelve months. This is a useful KPI for management in assessing the Company’s efficiency in its use of
working capital to generate sales.
December 31
($ millions, except as noted)
Working capital – four quarter average
Revenue – last twelve months
Working capital to sales
2015
2014
$
$
2,023
6,190
$
$
32.7%
1,807
6,918
26.1%
Order Backlog
The Company’s global order book, or order backlog, is defined as the retail value of new equipment units ordered by
customers for future deliveries. Management uses order backlog as a measure of projecting future new equipment
deliveries. There is no directly comparable IFRS measure for order backlog.
Net Debt to EBITDA Ratio
This ratio is calculated as net debt, defined and calculated above, divided by EBITDA for the last twelve months.
This ratio is used by management in assessing the Company’s operating leverage and ability to repay its debt. This
ratio approximates the length of time, in years, that it would take the Company to repay its debt, with net debt and
EBITDA held constant.
December 31
($ millions, except as noted)
Net debt
2015
2014
$
1,190
$
975
EBITDA – last twelve months
Net Debt to EBITDA (1)
1.4
(1) Included in 2015 results are significant items that management does not consider indicative of operational and financial trends
by nature of amount. Excluding these significant items (as disclosed on page 3 of this MD&A), Net Debt to EBITDA would have
been 2.0x.
720
9.5
126
$
$
31
Selected Annual Information
($ millions, except for share data)
Total revenue from external sources (1)
Net (loss) income (1)
Earnings Per Share (1)
Basic EPS
Diluted EPS
Total assets (1)
Long-term debt
Current
Non-current
Total long-term debt (2)
Cash dividends declared per common share
Finning International Inc.
2015 Annual Results
2015
6,190
(161)
(0.94)
(0.94)
5,108
—
1,548
1,548
0.7250
$
$
$
$
$
$
$
$
2014
6,918
318
1.85
1.84
5,273
—
1,418
1,418
0.6850
$
$
$
$
$
$
$
$
2013
6,756
335
1.95
1.94
5,058
1
1,366
1,367
0.5975
$
$
$
$
$
$
$
$
1)
In July 2015, the Company acquired the operating assets of Kramer Ltd. The results of the newly acquired dealership
business in Saskatchewan have been included in the Company’s Canadian operations segment since the date of
acquisition.
In December 2015, the Company sold its wholly owned subsidiary, Finning Uruguay S.A. (Uruguay dealership). The results
of the Uruguay dealership have been included in the Company’s South American operations segment up until the date of
sale.
Results in 2015 were impacted by the following significant items:
a) $338 million impairment loss recognized on the distribution network and goodwill in the Company’s South American
operations of $324 million and UK & Ireland operations of $14 million ($1.54 per share)
b) Facility closures and restructuring costs and impairment on other assets totalling $53 million ($0.23 per share)
c) Severance costs of $48 million recorded in all operations ($0.21 per share)
d) $42 million higher than usual inventory and other asset impairments, principally aged or customized inventories,
recorded in the year ($0.19 per share)
e) $12 million foreign exchange loss on the significant devaluation of the Argentine peso as well as a higher annual
effective tax rate in Argentina ($0.14 per share)
f) Sale of business in Uruguay in Q4 2015 resulted in a gain of $8 million ($0.04 per share); partly offset by
Saskatchewan acquisition costs of $3 million ($0.01 per share).
g) The Company benefited from previously unrecognized tax losses in Q1 2015 and recorded a tax rate change in the
Canadian operations in Q2 2015 (net positive impact of $0.05 per share)
h) For a complete description of significant items, please refer to page 3 of this MD&A.
In July 2014, the Company’s UK & Ireland operations acquired SITECH. The results of operations and financial position of
these acquired businesses have been included in the figures above since the date of acquisition.
Results in 2014 were negatively impacted by:
(a) write-off of previously capitalized ERP costs in the Company’s South American operations by $0.06 per share
(b) severance and labour disruption costs of $17 million recorded in operations ($0.07 per share)
Results in 2013 were impacted by:
a) a benefit from previously unrecognized tax losses of positive $0.03 per share
b) offset by the negative impact from the write-off of previously capitalized ERP costs in the Company’s UK & Ireland
operations of $0.02 per share
2)
In October 2015 the Company closed a three-year extension to its $1.0 billion global operating credit facility, extending the
maturity date to October 2020 from the previous maturity in September 2017.
In July 2013, the Company issued unsecured $200 million MTN due July 3, 2020. Proceeds from the issuance were used to
early redeem the Company’s $250 million MTN due September 30, 2013.
In May 2013, the Company refinanced its £70 million Eurobond, due May 30, 2013, with the issuance of £70 million in
unsecured notes in the U.S. private placement market.
32
Finning International Inc.
2015 Annual Results
Selected Quarterly Information
$ millions
(except for share and option data)
Revenue from operations (1)
Canada
South America
UK & Ireland
Total revenue
Net (loss) income (1) (2)
Earnings Per Share (1) (2)
Basic EPS
Diluted EPS
Total assets (1)
Long-term debt
Current
Non-current
Total long-term debt(3)
Cash dividends paid per common
share
2015
2014
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
698 $
727 $
848 $
526
294
507
264
538
270
781
489
249
$
946 $
866 $
930 $
593
264
517
287
568
270
891
550
235
$ 1,518 $ 1,498 $ 1,656 $ 1,519
$ 1,803 $ 1,670 $ 1,768 $ 1,676
$
(309) $
33 $
61 $
53
$
107 $
57 $
86 $
68
$ (1.82) $ 0.19 $ 0.36 $ 0.31
$ 0.62 $ 0.33 $ 0.50 $ 0.39
$ (1.82) $ 0.19 $ 0.36 $ 0.31
$ 0.62 $ 0.33 $ 0.50 $ 0.39
$ 5,108
$ 5,520
$ 5,324 $ 5,354
$ 5,273 $ 5,237 $ 5,196 $ 5,353
$ — $ — $ — $ —
$ — $
1 $
1 $
1
1,548
1,553
1,482
1,477
1,418
1,408
1,373
1,393
$ 1,548 $ 1,553 $ 1,482 $ 1,477
$ 1,418 $ 1,409 $ 1,374 $ 1,394
18.25¢
18.25¢
18.25¢
17.75¢
17.75¢
17.75¢
17.75¢
15.25¢
Common shares outstanding (000’s) 168,031
169,612
171,692
172,374
172,370
172,369
172,182
172,126
Options outstanding (000’s)
5,171
5,315
5,390
4,145
4,226
4,237
5,437
5,381
1)
In July 2015, the Company’s Canadian operations acquired the assets of Kramer Ltd. and became the approved
Caterpillar dealer in Saskatchewan. In July 2014, the Company’s UK & Ireland operations acquired SITECH. The results
of operations and financial position of these acquired businesses have been included in the figures above since the date
of acquisition.
2) Q4 2015 results were impacted by the following significant items:
a) $338 million impairment loss recognized on the distribution network and goodwill in the Company’s South
American operations of $324 million and UK & Ireland operations of $14 million ($1.56 per share)
b) Facility closures and restructuring costs and impairment on other assets totaling $45 million ($0.19 per share)
c) $42 million higher than usual inventory and other asset impairments, principally aged or customized
inventories, recorded in the year ($0.19 per share)
d) $12 million foreign exchange loss on the significant devaluation of the Argentine peso as well as a higher
annual effective tax rate in Argentina ($0.14 per share)
e) Sale of business in Uruguay in Q4 2015 resulted in a gain of $8 million ($0.04 per share)
f) Severance costs of $2 million ($0.01 per share)
g) For a complete description of significant items for Q4 2015, please see page 14 of this MD&A.
Q3 2015 results were negatively impacted by severance costs of $0.11 per share, loss on a building sublease of $0.03
per share and acquisition costs of $0.01 per share.
Q2 2015 results were negatively impacted by severance costs of $0.03 per share and higher tax rate change in the
Canadian operations of $0.01 per share.
Q1 2015 results were positively impacted from previously unrecognized tax losses ($0.06 per share), offset by severance
costs of $0.07 per share and facility closure costs of $0.01 per share.
Q4 2014 results were positively impacted by an inflationary adjustment to reduce income tax expense in Argentina by
$0.07 per share.
Q3 2014 results were negatively impacted by the write-off of previously capitalized ERP costs in the Company’s South
American operations by $0.06 per share, severance costs of $0.03 per share, a one-time revaluation adjustment of the
Company’s deferred income tax balances of $0.04 per share, labour disruption costs ($0.01 per share) and higher annual
effective tax rate in Argentina ($0.03 per share).
Q2 2014 results were negatively impacted by severance costs of $0.02 per share.
3) In October 2015 the Company closed a three-year extension to its $1.0 billion global operating credit facility, extending the
maturity date to October 2020 from the previous maturity in September 2017.
33
Forward-Looking Disclaimer
This report contains statements about the Company’s
business outlook, objectives, plans, strategic priorities
and other statements that are not historical facts. A
statement Finning makes is forward-looking when it
uses what the Company knows and expects today to
make a statement about the future. Forward-looking
statements may include words such as aim, anticipate,
assumption, believe, could, expect, goal, guidance,
intend, may, objective, outlook, plan, project, seek,
should, strategy, strive, target, and will. Forward-
looking statements in this report include, but are not
limited to, statements with respect to: expectations with
respect to the economy and associated impact on the
Company’s financial results; workforce reductions;
distribution network and goodwill impairment charges;
facility closures; expected revenue; expected free cash
flow; EBIT margin; expected range of the effective tax
rate; ROIC; market share growth; expected results from
service excellence action plans; anticipated asset
utilization; inventory turns and parts service levels; the
expected target range of the Company’s net debt to
invested capital ratio; and the expected financial impact
from acquisitions. All such forward-looking statements
are made pursuant to the ‘safe harbour’ provisions of
applicable Canadian securities laws.
Unless otherwise indicated by us, forward-looking
statements in this report reflect Finning’s expectations
at February 17, 2016. Except as may be required by
Canadian securities laws, Finning does not undertake
any obligation to update or revise any forward-looking
statement, whether as a result of new information,
future events, or otherwise.
Forward-looking statements, by their very nature, are
subject to numerous risks and uncertainties and are
based on several assumptions which give rise to the
possibility that actual results could differ materially from
the expectations expressed in or implied by such
forward-looking statements and that Finning’s business
outlook, objectives, plans, strategic priorities and other
statements that are not historical facts may not be
achieved. As a result, Finning cannot guarantee that
any forward-looking statement will materialize. Factors
that could cause actual results or events to differ
materially from those expressed in or implied by these
forward-looking statements include: general economic
and market conditions; foreign exchange rates;
commodity prices; the level of customer confidence and
spending, and the demand for, and prices of, Finning’s
products and services; Finning’s dependence on the
continued market acceptance of products and timely
supply of parts and equipment; Finning’s ability to
continue to improve productivity and operational
efficiencies while continuing to maintain customer
Finning International Inc.
2015 Annual Results
service; Finning’s ability to manage cost pressures as
growth in revenue occurs; Finning’s ability to reduce
costs in response to slowing activity levels; Finning’s
ability to attract sufficient skilled labour resources as
market conditions, business strategy or technologies
change; Finning’s ability to negotiate and renew
collective bargaining agreements with satisfactory
terms for Finning’s employees and the Company; the
intensity of competitive activity; Finning’s ability to raise
the capital needed to implement its business plan;
regulatory initiatives or proceedings, litigation and
changes in laws or regulations; stock market volatility;
changes in political and economic environments for
operations; the integrity, reliability, availability and
benefits from information technology and the data
processed by that technology. Forward-looking
statements are provided in this report for the purpose of
giving information about management’s current
expectations and plans and allowing investors and
others to get a better understanding of Finning’s
operating environment. However, readers are
cautioned that it may not be appropriate to use such
forward-looking statements for any other purpose.
Forward-looking statements made in this report are
based on a number of assumptions that Finning
believed were reasonable on the day the Company
made the forward-looking statements. Refer in
particular to the Outlook section of this MD&A. Some of
the assumptions, risks, and other factors which could
cause results to differ materially from those expressed
in the forward-looking statements contained in this
report are discussed in Section 4 of the Company’s
current AIF.
Finning cautions readers that the risks described in the
MD&A and the AIF are not the only ones that could
impact the Company. Additional risks and uncertainties
not currently known to the Company or that are
currently deemed to be immaterial may also have a
material adverse effect on Finning’s business, financial
condition, or results of operations.
Except as otherwise indicated, forward-looking
statements do not reflect the potential impact of any
non-recurring or other unusual items or of any
dispositions, mergers, acquisitions, other business
combinations or other transactions that may be
announced or that may occur after the date hereof. The
financial impact of these transactions and non-recurring
and other unusual items can be complex and depends
on the facts particular to each of them. Finning
therefore cannot describe the expected impact in a
meaningful way or in the same way Finning presents
known risks affecting its business.
34
2015 FINANCIAL STATEMENTS & NOTES
Finning International Inc.
2015 Annual Results
MANAGEMENT'S REPORT TO THE SHAREHOLDERS
The accompanying Consolidated Financial Statements and Management’s Discussion and Analysis (MD&A) are the
responsibility of the management of Finning International Inc. (the Company). The Consolidated Financial
Statements have been prepared in accordance with International Financial Reporting Standards which recognize the
necessity of relying on management's best estimates and informed judgments. The financial information presented
in the Company’s MD&A is consistent with that in the Consolidated Financial Statements. The Consolidated
Financial Statements and MD&A have, in management's opinion, been properly prepared within reasonable limits of
materiality.
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 LLP, have audited the Consolidated Financial Statements, as
reflected in their report for 2015.
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 Audit 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 consolidated 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.
/s/ L. Scott Thomson
/s/ Steven M. Nielsen
L. Scott Thomson
President and Chief Executive Officer
Steven M. Nielsen
Executive Vice President and Chief Financial Officer
February 17, 2016
1000-666 Burrard Street, Vancouver, BC, V6C 2X8, Canada
1
Finning International Inc.
2015 Annual Results
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Finning International Inc.
We have audited the accompanying consolidated financial statements of Finning International Inc., which comprise
the consolidated statements of financial position as at December 31, 2015 and December 31, 2014, and the
consolidated statements of net (loss) income, comprehensive (loss) income, shareholders’ equity and cash flow for
the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Finning International Inc. as at December 31, 2015 and December 31, 2014, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards.
/s/ Deloitte LLP
Chartered Professional Accountants
February 17, 2016
Vancouver, Canada
2
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31
(Canadian $ millions)
ASSETS
Current assets
Cash and cash equivalents (Note 24)
Accounts receivable
Service work in progress
Inventories (Note 11)
Other assets (Note 14)
Total current assets
Property, plant, and equipment (Note 16)
Rental equipment (Note 16)
Distribution network (Note 17)
Goodwill (Note 18)
Intangible assets (Note 19)
Investments in joint venture and associate (Note 15)
Other assets (Note 14)
Total assets
LIABILITIES
Current liabilities
Short-term debt (Note 6)
Accounts payable and accruals
Deferred revenue
Provisions (Note 21)
Other liabilities (Note 22)
Total current liabilities
Long-term debt (Note 6)
Net employee benefit obligations (Note 23)
Provisions (Note 21)
Other liabilities (Note 22)
Total liabilities
Commitments and contingencies (Notes 29 and 30)
SHAREHOLDERS’ EQUITY
Share capital (Note 9)
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
Approved by the Directors February 17, 2016
Finning International Inc.
2015 Annual Results
Consolidated Financial Statements
2015
2014
$
$
$
$
$
$
475
837
99
1,800
249
3,460
677
441
101
129
49
103
148
5,108
117
801
259
60
6
1,243
1,548
82
5
180
3,058
570
—
326
1,154
2,050
5,108
$
$
$
$
$
$
450
972
106
1,661
288
3,477
675
379
341
132
56
89
124
5,273
7
1,019
265
63
18
1,372
1,418
157
5
190
3,142
583
39
101
1,408
2,131
5,273
/s/ K. M. O’Neill
K.M. O’Neill, Director
/s/ D.W.G. Whitehead
D.W.G. Whitehead, Director
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
3
CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME
For years ended December 31
(Canadian $ millions, except share and per share amounts)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Other
Total revenue
Cost of sales
Gross profit
Selling, general, and administrative expenses
Impairment loss on distribution network and goodwill (Note 20)
Equity earnings of joint venture and associate (Note 15)
Other income (Note 5)
Other expenses (Note 5)
(Loss) earnings before finance costs and income taxes
Finance costs (Note 6)
(Loss) income before provision for income taxes
Recovery of (provision for) income taxes (Note 13)
Net (loss) income
(Loss) earnings per share (Note 4)
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
Finning International Inc.
2015 Annual Results
Consolidated Financial Statements
2015
2014
2,188
341
293
3,352
16
6,190
(4,376)
1,814
(1,542)
(338)
5
8
(52)
(105)
(85)
(190)
29
(161)
$
$
2,885
271
358
3,381
23
6,918
(4,856)
2,062
(1,556)
—
12
—
(14)
504
(85)
419
(101)
318
(0.94) $
(0.94) $
1.85
1.84
$
$
$
$
171,141,863
171,285,134
172,215,955
172,968,100
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For years ended December 31
(Canadian $ millions)
Net (loss) income
Other comprehensive income (loss), net of income tax
Items that may be subsequently reclassified to net income:
Foreign currency translation adjustments
Foreign currency translation adjustments, reclassified to earnings (Note 5)
Unrealized loss on net investment hedges
Income tax expense on foreign currency translation adjustments and net
investment hedges
Net gain on foreign currency translation and net investment hedges, net of
income tax
Unrealized loss on cash flow hedges
Realized loss on cash flow hedges, reclassified to earnings
Income tax expense on cash flow hedges
Gain on cash flow hedges, net of income tax
Items that will not be subsequently reclassified to net income:
Actuarial gain (loss) (Note 23)
Income tax (expense) recovery on actuarial gain (loss)
Actuarial gain (loss), net of income tax
Total comprehensive income
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Finning International Inc.
2015 Annual Results
Consolidated Financial Statements
2015
2014
$
(161)
$
318
355
(4)
(128)
(10)
213
(6)
10
(1)
3
77
(15)
62
117
$
138
—
(52)
—
86
(9)
10
—
1
(29)
6
(23)
382
$
Share Capital
(Canadian $ millions,
except share amounts)
Shares
Amount
Contributed
Surplus
Accumulated Other
Comprehensive Income
(Loss)
Foreign
Currency
Translation
and Loss
on Net
Investment
Hedges
Gain
(Loss) on
Cash Flow
Hedges
Retained
Earnings
Total
Balance, January 1, 2014
172,014,230 $
573
$
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
—
—
—
Issued on exercise of share options
356,025
Share option expense
Dividends on common shares
—
—
—
—
—
10
—
—
Balance, December 31, 2014
172,370,255 $
583
$
Net loss
Other comprehensive income
Total comprehensive income (loss)
Issued on exercise of share options
Share option expense
Repurchase of common shares
(Note 8)
Dividends on common shares
Adjustment for change in accounting
policy (Note 2d)
—
—
—
44,343
—
(4,383,170)
—
—
—
—
—
1
—
(14)
—
—
$
$
40
—
—
—
(10)
9
—
39
—
—
—
—
7
(46)
—
—
28
—
86
86
—
—
—
114
—
213
213
—
—
—
—
—
$
(14)
$
1,231
$
1,858
—
1
1
—
—
—
318
(23)
295
—
—
(118)
318
64
382
—
9
(118)
$
(13)
$
1,408
$
2,131
—
3
3
—
—
—
—
9
(161)
62
(99)
—
—
(31)
(124)
—
(161)
278
117
1
7
(91)
(124)
9
Balance, December 31, 2015
168,031,428 $
570
$
— $
327
$
(1)
$
1,154
$
2,050
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
5
CONSOLIDATED STATEMENTS OF CASH FLOW
For years ended December 31
(Canadian $ millions)
OPERATING ACTIVITIES
Net (loss) income
Adjusting for:
Depreciation and amortization
Gain on disposal of rental equipment and property, plant, and equipment
Impairment of distribution network and goodwill (Note 20)
Impairment long-lived assets (Note 16)
Derecognition of intangible assets (Note 5d)
Gain on disposal of subsidiary (Note 5a)
Equity earnings of joint venture and associate
Share-based payment expense
(Recovery of) provision for income taxes
Finance costs
Defined benefit and other post-employment benefit expense (Note 23)
Changes in operating assets and liabilities (Note 24)
Additions to rental equipment
Proceeds on disposal of rental equipment
Interest paid
Income tax paid
Cash flow provided by operating activities
INVESTING ACTIVITIES
Additions to property, plant, and equipment, intangible assets, and distribution
network
Proceeds on disposal of property, plant, and equipment
Proceeds on disposal of subsidiary (Note 5a)
Investment in and advances to associate
Net payment for acquisitions (Note 25)
Increase in short-term investments
Cash flow used in investing activities
FINANCING ACTIVITIES
Increase (decrease) in short-term debt
Decrease in long-term debt
Debt issuance costs
Repurchase of common shares (Note 8)
Dividends paid
Cash flow used in financing activities
Effect of currency translation on cash balances
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year (Note 24)
Finning International Inc.
2015 Annual Results
Consolidated Financial Statements
2015
2014
$
(161)
$
318
231
(34)
338
26
—
(8)
(5)
1
(29)
85
17
76
(231)
207
(73)
(61)
379
(76)
22
15
—
(243)
(24)
(306)
110
(1)
(1)
(91)
(124)
(107)
59
25
450
475
$
216
(27)
—
—
12
—
(12)
10
101
85
13
(18)
(264)
229
(70)
(47)
546
(81)
18
—
(4)
(14)
—
(81)
(84)
(1)
—
—
(118)
(203)
12
274
176
450
$
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
6
Finning International Inc.
2015 Annual Results
Index to the Notes to the Consolidated Financial Statements
1. GENERAL INFORMATION ............................................................................................................................................... 8
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS ................................................ 8
3. SEGMENTED INFORMATION ......................................................................................................................................... 13
4. EARNINGS PER SHARE ............................................................................................................................................... 15
5. OTHER INCOME AND OTHER EXPENSES ...................................................................................................................... 16
6. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS .......................................................................................... 17
7. FINANCIAL INSTRUMENTS ............................................................................................................................................ 19
8. MANAGEMENT OF CAPITAL ......................................................................................................................................... 28
9. SHARE CAPITAL ......................................................................................................................................................... 29
10. SHARE-BASED PAYMENTS ....................................................................................................................................... 30
11. INVENTORIES ........................................................................................................................................................... 35
12. POWER SYSTEMS CONSTRUCTION CONTRACTS ........................................................................................................ 35
13. INCOME TAXES ......................................................................................................................................................... 36
14. OTHER ASSETS ........................................................................................................................................................ 39
15. JOINT VENTURE AND ASSOCIATE .............................................................................................................................. 40
16. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT ................................................................................... 41
17. DISTRIBUTION NETWORK .......................................................................................................................................... 44
18. GOODWILL ............................................................................................................................................................... 44
19. INTANGIBLE ASSETS ................................................................................................................................................. 45
20. ASSET IMPAIRMENT .................................................................................................................................................. 47
21. PROVISIONS ............................................................................................................................................................. 49
22. OTHER LIABILITIES ................................................................................................................................................... 49
23. POST-EMPLOYMENT EMPLOYEE BENEFITS ................................................................................................................ 50
24. SUPPLEMENTAL CASH FLOW INFORMATION ............................................................................................................... 57
25. ACQUISITIONS .......................................................................................................................................................... 58
26. ECONOMIC RELATIONSHIPS ...................................................................................................................................... 60
27. RELATED PARTY TRANSACTIONS AND TOTAL STAFF COSTS ....................................................................................... 60
28. LEASES ................................................................................................................................................................... 61
29. COMMITMENTS AND CONTINGENCIES ........................................................................................................................ 62
30. GUARANTEES AND INDEMNIFICATIONS ....................................................................................................................... 62
7
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
1. GENERAL INFORMATION
Finning International Inc. (“Finning”) is a widely held, publicly traded corporation, listed on the Toronto Stock
Exchange (TSX: FTT). The registered and head office of the Company is located at Suite 1000, Park Place, 666
Burrard Street, Vancouver, British Columbia, Canada. The Company’s principal business is the sale of equipment,
power and energy systems, rental of equipment and providing product support including sales of parts and servicing
of equipment.
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS
These consolidated financial statements of Finning and its subsidiaries (together, the “Company”) have been
prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International
Accounting Standard Board (IASB) issued and effective as of February 17, 2016, the date these financial statements
were authorized for issuance by the Company’s Board of Directors. The Company has applied the same accounting
policies consistently to all periods presented unless otherwise noted.
The preparation of financial statements in conformity with IFRS requires management to make judgments,
estimates, and assumptions in respect of the application of accounting policies and the reported amounts of assets,
liabilities, income, and expenses. Actual results may differ from those judgments, estimates, and assumptions.
Certain of the Company’s accounting policies that relate to the financial statements as a whole, as well as estimates
and judgments it has made and how they affect the amounts reported in the consolidated financial statements, are
incorporated in this section. This note also describes new standards, amendments or interpretations that are
effective and applied by the Company during 2015 or are not yet effective. Where an accounting policy, estimate,
and judgment are applicable to a specific note to the accounts, they are described within that note.
These consolidated financial statements were prepared under the historical cost basis except for derivative financial
instruments, short-term investments, contingent consideration, and liabilities for share-based payment
arrangements, which have been measured at fair value.
(a) Principles of Consolidation
Accounting Policy
The consolidated financial statements include the accounts of the Company, which includes the Finning (Canada)
division and Finning’s wholly owned subsidiaries. Subsidiaries are those entities over which Finning has the power
over the investee, is exposed, or has rights, to variable returns from its involvement with the investee, and has the
ability to use its power to affect its returns, generally accompanying a shareholding that confers more than half of the
voting rights. The consolidated financial statements include the operating results of acquired or disposed
subsidiaries from the date the Company obtains control or the date control is lost.
The Company’s principal wholly owned subsidiaries, and the main countries in which they operate, are as follows:
Name
Finning (UK) Ltd
Finning Chile S.A.
Finning Argentina S.A.
Finning Soluciones Mineras S.A.
Moncouver S.A.
Finning Bolivia S.A.
OEM Remanufacturing Company Inc.
Principal place
of business
United Kingdom
Chile
Argentina
Argentina
Uruguay
Bolivia
Canada
% ownership
100%
100%
100%
100%
100%
100%
100%
Functional
currency
GBP
USD
USD
USD
USD
USD
CAD
In December 2015, the Company sold its wholly owned subsidiary, Finning Uruguay S.A.
All shareholdings are of ordinary shares or other equity capital. Other subsidiaries, while included in the
consolidated financial statements, are not material.
8
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS (CONTINUED
)
(b) Foreign Currency Translation
Accounting Policy
These consolidated financial statements are presented in Canadian dollars, which is the functional currency of the
parent company. 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:
(cid:120) Monetary items are translated at exchange rates in effect at the statement of financial position dates and non-
monetary items are translated at historical exchange rates; and
(cid:120) Foreign exchange gains and losses are included in income except where the exchange gain or loss arises from
the translation of monetary items designated as hedges. The effective portion of hedging gains and losses
associated with these cash flow hedges is recorded, net of tax, in other comprehensive income until it is
reclassified to include it in the initial carrying cost of the hedged asset or hedged liability and recognized in
earnings on the same basis as the hedged item.
Financial statements of foreign operations are translated from the functional currency of the foreign operation into
Canadian dollars as follows:
(cid:120) Assets and liabilities are translated using the exchange rates in effect at the statement of financial position
dates;
(cid:120) Revenue and expense items are translated at average exchange rates prevailing during the period that the
transactions occurred; and
(cid:120) Foreign currency translation adjustments and gains and losses on net investment hedges are reported within
other comprehensive income. Cumulative foreign currency translation adjustments, net of gains and losses on
net investment hedges, are recognized in net income upon the disposal of a foreign operation (i.e. a disposal of
the Company’s entire interest in a foreign operation, or a disposal that involves loss of control of a subsidiary
that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign
operation, or loss of significant influence over an associate that includes a foreign operation).
The Company has hedged some of its investments in foreign subsidiaries using foreign currency denominated
borrowings. Foreign exchange gains or losses arising from the translation of these hedging instruments are
accounted for as items of other comprehensive income and presented on the consolidated statement of financial
position. Foreign exchange gains or losses arising from net investment hedging instruments are recognized in net
income upon the disposal of a foreign operation. See Note 7 for further details on the Company’s hedge accounting
policy.
Areas of Significant Judgment
Management has made judgments with regard to the determination of the functional currency of each entity of the
Company.
9
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS (CONTINUED
)
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
(c) Revenue Recognition
Accounting Policy
Revenue recognition occurs when there is an arrangement with a customer, primarily in the form of a contract or
purchase order, a fixed or determinable sales price is established with the customer, performance requirements are
achieved, and it is probable that economic benefits associated with the transaction will flow to the Company.
Revenue is measured at fair value of the consideration received or receivable net of any incentives offered.
Revenue is recognized as performance requirements are achieved in accordance with the following:
(cid:120) Revenue from sales of equipment is recognized at the time title to the equipment and significant risks and
rewards of ownership passes to the customer, which is generally at the time of shipment of the product to the
customer;
(cid:120) 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;
(cid:120) Revenue from product support 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. Product support is also
offered to customers in the form of long-term maintenance and repair contracts. For these contracts, revenue is
recognized on a 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. Any losses estimated during the term of a long-term maintenance and repair
contract are recognized when identified.
(cid:120) The revenue recognition accounting policy for construction contracts with customers is described in Note 12.
If an arrangement with a customer involves the provision of multiple elements, the total arrangement value is
allocated to each element as a separate unit of accounting based on their fair values if:
a. The delivered item has value to the customer on a stand-alone basis;
b. There is objective and reliable evidence of the fair value of the undelivered item; and
c. The arrangement includes a general right of return relative to the delivered item and delivery or performance
of the undelivered item is considered probable and substantially in the control of the Company.
10
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS (CONTINUED
)
Areas of Estimation Uncertainty
Long-Term Contracts
Where the outcome of a long-term contract (primarily power systems and maintenance and repair contracts) can be
estimated reliably, revenue and costs are recognized by reference to the stage of completion of the contract activity
at the statement of financial position date and is measured primarily based on the proportion of contract costs
incurred for work performed to date relative to the estimated total contract costs. Variations in contract work, claims
and incentive payments are included to the extent that they have been agreed with the customer. Where the
outcome of a long-term contract cannot be estimated reliably, contract revenue is recognized in the current period to
the extent that it is probable that contract costs will be recoverable. Contract costs are recognized as expenses in
the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue,
the expected loss is recognized as an expense immediately.
Repurchase Commitments
Guaranteed residual values are periodically given in connection with repurchase commitments provided to
customers. The likelihood of the repurchase commitments being exercised is assessed at the inception of the
contract to determine whether significant risks and rewards have been transferred to the customer and if revenue
should be recognized. The likelihood of the repurchase commitments being exercised, and quantification of the
possible loss, if any, on resale of the equipment, is assessed at the inception of the contract and at each reporting
period thereafter. Significant assumptions are made in estimating residual values. These are assessed based on
past experience and take into account expected future market conditions and projected disposal values.
Areas of Significant Judgment
Rental Purchase Options
Rental purchase options (RPOs) are rental agreements with customers which include an option to purchase the
equipment at the end of the rental term. The Company periodically sells portfolios of RPOs to financial institutions,
and is required to make judgments as to whether the risks and rewards of ownership of the underlying assets have
been transferred in such circumstances. The level of residual value risk retained by the Company, the continuing
managerial involvement of the Company in the assets, and the transfer of title to the assets are all considered when
assessing whether the risks and rewards of ownership have been transferred to third parties and hence whether
revenue should be recognized on the sale of the assets and associated rental contracts.
11
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS (CONTINUED
)
(d) Changes in Accounting Policy
In December 2015, the Company started to apply hedge accounting to hedges of certain inventory purchases in its
Canadian operations. At the same time the Company voluntarily changed its accounting policy for its accounting
treatment of the effective portion of hedging gains and losses associated with cash flow hedges of non-financial
items. Previously, the Company recorded these amounts, net of tax, in other comprehensive income and reclassified
from accumulated other comprehensive income to earnings when the hedged item affects income. Under the new
policy, the effective portion of these hedges will be reclassified and included in the initial carrying cost of the hedged
asset or hedged liability (ie. basis adjustment) and therefore recognized in earnings on the same basis as the
hedged item. Management believes the new accounting policy is reliable and provides more relevant information
because the basis adjustment results in the hedged item being recognized at the hedged rate in the balance sheet.
In accordance with the requirements of IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors, the Company has retrospectively applied this change in accounting policy. In 2012, the Company’s Canadian
operations entered into a cash flow hedge to hedge the foreign currency risk related to its purchase from Caterpillar
of the distribution and support business formerly operated by Bucyrus International Inc. In accordance with the
Company’s previous accounting policy, the Company retained the effective portion of the hedge of $9 million in
accumulated other comprehensive income. The impact of retrospectively applying the new accounting policy is the
Company reclassified the effective portion out of accumulated other comprehensive income and increased the
carrying cost of goodwill (Note 18).
The Company has adopted the following amendments to standards:
(cid:120) Amendments to IFRS 8, Operating Segments (effective January 1, 2015) require disclosure of the judgments
made by management in aggregating operating segments. This includes a description of the segments which
have been aggregated and the economic indicators which have been assessed in determining that the
aggregated segments share similar economic characteristics. This amendment did not impact the Company’s
annual financial statement disclosures.
(e) Future Accounting Pronouncements
The Company has not applied the following amendments to standards and new standards that have been issued but
are not yet effective:
(cid:120) Amendments to IAS 19, Employee Benefits (effective January 1, 2016) clarify that the high quality corporate
bonds used in estimating the discount rate for post-employment employee benefits should be denominated in
the same currency as the benefits to be paid. This amendment will not have an impact on the Company’s
financial statements.
(cid:120) Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2016) are designed to
encourage companies to apply professional judgment in determining what information to disclose in their
financial statements. For example, the amendments make clear that materiality applies to the whole of financial
statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.
Management is currently assessing the impact of the amendment on its financial statement disclosures.
(cid:120)
(cid:120)
(cid:120)
IFRS 9, Financial Instruments (effective January 1, 2018) introduces new requirements for the classification and
measurement of financial assets and financial liabilities, impairment of financial assets, and hedge accounting.
Management is currently assessing the impact of the new requirements on its financial statements.
IFRS 15, Revenue from Contracts with Customers (effective date January 1, 2018) outlines a single
comprehensive model for companies to use in accounting for revenue arising from contracts with customers.
Management is currently assessing the impact of the new standard.
IFRS 16, Leases (effective January 1, 2019) introduces new requirements for the classification and
measurement of leases. Management is currently assessing the impact of the new requirements on its
consolidated financial statements.
12
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
3. SEGMENTED INFORMATION
The Company and its subsidiaries have operated primarily in one principal business during the year, that being the
selling, servicing, and renting of heavy equipment, engines, and related products.
Information reported to the chief operating decision maker for the purposes of resource allocation and assessment
of segment performance primarily focuses on the dealership territories in which the Company operates.
The reporting segments, which are the same as the Company’s operating segments, are as follows:
(cid:120) Canadian operations: British Columbia, Alberta, Saskatchewan, Yukon, the Northwest Territories, and a portion
of Nunavut.
(cid:120) South American operations: Chile, Argentina, and Bolivia.
(cid:120) UK & Ireland operations: England, Scotland, Wales, Northern Ireland, and the Republic of Ireland.
(cid:120) Other: corporate head office.
Revenue, results, and other information by reporting segment
For year ended December 31, 2015
($ millions)
Revenue from external sources
Operating costs
Depreciation and amortization
Impairment loss on goodwill and distribution
network
Equity earnings
Other income
Other expenses
Earnings (loss) before finance costs and
income taxes
Finance costs
Income tax recovery
Net loss
$
Canada
3,054
(2,793)
(121)
$
South
America
2,059
(1,824)
(82)
UK &
Ireland
Other
Consolidated
$
$
1,077
(1,040)
(28)
— $
(30)
—
6,190
(5,687)
(231)
—
4
—
(46)
(324)
—
—
(3)
(14)
—
—
—
—
1
8
(3)
$
98
$
(174) $
(5) $
(24) $
Invested capital (1)
Total assets
Capital and rental equipment (2)
Gross capital expenditures (3)
Gross rental asset expenditures (3)
(1)
(2) Capital includes property, plant and equipment, and intangibles
(3)
1,760
2,370
662
30
192
$
$
$
$
$
$
$
$
$
$
Invested capital is calculated as total assets less total liabilities, excluding net debt
Includes finance leases capitalized and excludes additions through business acquisitions
1,122
1,991
358
43
25
$
$
$
$
$
321
671
147
6
35
$
$
$
$
$
$
37 $
76 $
— $
— $
— $
(338)
5
8
(52)
(105)
(85)
29
(161)
3,240
5,108
1,167
79
252
13
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
Canada
South
America
UK &
Ireland
Other
$
3,634 $
2,227 $
(3,246)
(112)
8
—
(1,945)
(72)
—
(14)
1,057 $
(975)
(32)
—
—
Consolidated
6,918
(6,196)
(216)
12
(14)
— $
(30)
—
4
—
$
284 $
196 $
50 $
(26) $
3. SEGMENTED INFORMATION (CONTINUED
)
For year ended December 31, 2014
($ millions)
Revenue from external sources
Operating costs
Depreciation and amortization
Equity earnings
Other expenses
Earnings (loss) before finance costs and
income taxes
Finance costs
Provision for income taxes
Net income
504
(85)
(101)
318
3,106
5,273
1,110
84
264
Invested capital (1)
Total assets
Capital and rental equipment (2)
Gross capital expenditures (3)
Gross rental asset expenditures (3)
(1)
(2) Capital includes property, plant and equipment, and intangibles
(3)
1,475 $
2,400 $
643 $
37 $
230 $
$
$
$
$
$
Invested capital is calculated as total assets less total liabilities, excluding net debt
1,348 $
2,112 $
344 $
35 $
20 $
284 $
619 $
122 $
12 $
14 $
$
(1) $
142 $
1 $
— $
— $
Includes finance leases and borrowing costs capitalized and excludes additions through business acquisitions
Revenue and non-current assets (4) by location of operations
($ millions)
Canada
Chile
United Kingdom
Argentina
Other countries
(4) Non-current assets exclude deferred tax assets
Revenues
Year ended December 31
2015
2014
Non-current assets (4)
As at December 31
2014
2015
$
$
$
$
$
3,054 $
1,562 $
1,025 $
332 $
217 $
3,634 $
1,671 $
1,000 $
359 $
254 $
997 $
268 $
211 $
88 $
26 $
933
510
178
97
35
14
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
4. EARNINGS PER SHARE
Accounting Policy
Basic earnings per share (EPS) is calculated by dividing net income available to common shareholders by the
weighted average number of common shares outstanding during the year. Diluted EPS is determined by dividing net
income available to common shareholders by the weighted average number of common shares outstanding,
adjusted for the effects of all potentially dilutive common shares, which comprise share options granted to
employees.
($ millions, except share and per share amounts)
2015
Basic EPS:
Net loss
Effect of dilutive securities: share options
Diluted EPS:
Net loss and assumed conversions
2014
Basic EPS:
Net income
Effect of dilutive securities: share options
Diluted EPS:
Net income and assumed conversions
Income
Shares
Per
Share
$
(161)
—
171,141,863
143,271
$
(0.94)
—
$
(161)
171,285,134
$
(0.94)
$
318
—
172,215,955
752,145
$
1.85
—
$
318
172,968,100
$
1.84
Share options granted to employees of 4.0 million (2014: 1.7 million) are anti-dilutive and are excluded from the
weighted average number of ordinary shares for the purpose of calculating diluted earnings per share.
15
5. OTHER INCOME AND OTHER EXPENSES
For years ended December 31
($ millions)
Gain on sale of Uruguay dealership (a)
Total other income
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2015
2014
$
$
8
8
$
$
—
—
(a) On December 1, 2015, the Company sold the shares of its wholly owned subsidiary, Finning Uruguay S.A.
(Uruguay dealership) for proceeds of $22 million and received $11 million for the settlement of a payable due to
Finning Chile S.A. For the sale of the shares, the Company received $15 million in cash and the remaining
balance is recognized as a receivable in the Company’s statement of financial position. The sale resulted in a
gain of approximately $8 million, including a $4 million reclassification of foreign cumulative translation gains to
earnings.
For years ended December 31
($ millions)
Impairment loss on long-lived assets (b)
Provision for onerous contracts and restructuring costs (b)
Acquisition costs (c)
Derecognition of ERP implementation costs (d)
Project costs
Total other expenses
2015
2014
$
$
(24)
(25)
(3)
—
—
(52)
$
$
—
—
—
(12)
(2)
(14)
(b) As part of the actions taken by the Company to reduce costs, the Company reduced its global workforce and
exited a number of facilities, primarily in its Canadian operations. Impairment losses relate to exited properties
that are either owned or on finance lease (Note 16). Provisions are recognized for the unavoidable costs from
exited properties that are under an operating lease and for expenditures related to the Company’s restructuring
plans.
(c) Acquisition costs relate to the acquisition of the operating assets of Kramer Ltd (Note 25).
(d) Following an evaluation of the business needs of the Company’s South American operations and a capability
analysis, management determined that the implementation of a full ERP system in its South American
operations would not occur in the near future. Although existing system maintenance requirements are being
reviewed, the delay in the implementation of a full ERP system led to an accounting review and a decision to
derecognize the previously capitalized costs of $12 million.
16
6. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS
December 31
($ millions)
Short-term debt
Long-term debt:
6.02%, $350 million, due June 1, 2018
3.232%, $200 million, due July 3, 2020
5.077% $150 million, due June 13, 2042
3.98% U.S. $100 million, due January 19, 2022, Series A
4.08% U.S. $100 million, due January 19, 2024, Series B
4.18% U.S. $50 million, due April 3, 2022, Series C
4.28% U.S. $50 million, due April 3, 2024, Series D
4.53% U.S. $200 million, due April 3, 2027, Series E
3.40% £70 million, due May 22, 2023, Series F
Other term loans (a)
Total long-term debt
Non-current portion of long-term debt
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2015
2014
$
117 $
7
350
199
149
138
138
69
69
276
142
18
1,548
1,548 $
349
199
149
116
116
58
58
231
126
16
1,418
1,418
$
(a) Other term loans include $14 million (€9 million) (2014: €9 million) of unsecured borrowings under committed
bank facilities that are classified as long-term debt. Other term loans also include $4 million (£2 million) (2014:
£2 million) of unsecured term loans primarily from supplier merchandising programs.
The Company has an unsecured syndicated committed operating credit facility of up to $1.0 billion. 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 facility contains annual options, subject to mutual consent of the syndicate bank lenders and the
Company, to extend the maturity date on terms reflecting market conditions at the time of the extension. In October
2015, the Company completed a three-year extension to this facility, extending the maturity date to October 2020
from the previous maturity in September 2017.
Short-Term Debt
In 2015, short-term debt comprises foreign currency denominated unsecured term loans from supplier
merchandising programs of U.S. $6 million (Canadian equivalent $8 million) that matures within one year (2014:
U.S. $6 million (Canadian equivalent $7 million)).
The Company maintains a maximum authorized commercial paper program of $600 million which is utilized as the
Company’s principal source of short-term funding. As at December 31, 2015, there was $109 million of commercial
paper outstanding (2014: $nil). This commercial paper program is backstopped by credit available under the $1.0
billion committed credit facility. In addition, the Company maintains certain other committed and uncommitted bank
credit facilities, such as overdrafts and letters of credit, to support its subsidiary operations.
The average interest rate applicable to the consolidated short-term debt for 2015 was 2.9% (2014: 5.1%).
Long-Term Debt
The Company's Canadian dollar denominated Medium Term Notes (MTN) are unsecured, and interest is payable
semi-annually with the principal due on maturity.
At December 31, 2015, $14 million (2014: $13 million) was drawn on the global credit facility.
The average interest rate applicable to the consolidated long-term debt for 2015 was 4.5% (2014: 4.5%).
17
6. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS (CONTINUED
)
Long-Term Debt Repayments
Principal repayments of long-term debt (carrying amount) in each of the next five years and thereafter are as follows:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
December 31
($ millions)
2016
2017
2018
2019
2020
Thereafter
Finance Costs
$
$
—
—
350
—
214
984
1,548
Finance costs as shown on the consolidated statements of income comprise the following elements:
For years ended December 31
($ millions)
Interest on short-term debt
Interest on long-term debt
Interest on debt securities
Gain on foreign currency swap contracts
Net interest cost on post-employment benefit obligations (Note 23)
Other finance related expenses
Finance costs
2015
2014
$
$
4
67
71
—
5
9
85
$
$
12
63
75
(4)
5
9
85
18
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS
Finning and its subsidiaries are exposed to market, credit, liquidity, and other risks in the normal course of their
business activities. The Company’s Enterprise Risk Management (ERM) process is designed to ensure that such
risks are identified, managed, and reported. This ERM framework assists the Company in managing business
activities and risks across the organization in order to achieve the Company’s strategic objectives. The Company is
dedicated to a strong risk management culture to protect and enhance shareholder value. On a quarterly basis, the
Audit Committee reviews the Company’s process with respect to risk assessment and management of key risks,
including the Company’s major financial risks and exposures and the steps taken to monitor and control such
exposures. Changes to the key risks are reviewed by the Audit Committee. The Audit Committee also reviews the
adequacy of disclosures of key risks in the Company’s Annual Information Form, Management’s Discussion and
Analysis, and Consolidated Financial Statements.
This note presents information about the Company’s exposure to credit, liquidity, and market risks and the
Company’s objectives, policies, and processes for managing these risks.
(a) Financial Assets and Credit Risk
Accounting Policy
Classification and measurement
Cash and cash equivalents, accounts receivable, instalment and other notes receivable, and supplier claims
receivable are classified as loans and receivables. They are measured at amortized cost using the effective interest
method.
Financial assets that are measured at amortized cost are assessed for impairment at the end of each reporting
period. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of
impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an
increase in the number of delayed payments in the portfolio past the average credit period, as well as observable
changes in national or local economic conditions that correlate with default on receivables. The carrying amount of
trade receivables, is reduced through the use of an allowance account. Changes in the carrying amount of the
allowance account are recognized in net income. When the Company is satisified that no recovery of the amount
owing is possible; at that point the amount is considered not recoverable and the financial asset is written off.
Derivative assets and short-term investments are recorded on the consolidated statement of financial position at fair
value.
Areas of Estimation Uncertainty
Allowance for Doubtful Accounts
The Company makes estimates for allowances that represent its estimate of potential losses in respect of trade and
other receivables and service work in progress. The main components of these allowances are a specific loss
component that relates to individually significant exposures, and a collective loss component established for groups
of similar assets in respect of losses that may have been incurred but not yet specifically identified. The collective
loss allowance is estimated based on historical data of payment statistics for similar financial assets, adjusted for
current economic conditions.
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally in respect of the Company’s cash and cash equivalents, short-
term investments, receivables from customers and suppliers, instalment and other notes receivable, and derivative
assets.
19
7. FINANCIAL INSTRUMENTS (CONTINUED
)
Exposure to Credit Risk
The carrying amount of financial assets and service work in progress represents the maximum credit exposure. The
Company’s exposure to credit risk at the reporting date was:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
December 31
($ millions)
Cash and cash equivalents
Accounts receivable – trade
Accounts receivable – other
Service work in progress
Supplier claims receivable
Instalment notes receivable
Short-term investment
Value Added Tax receivable
Derivative assets
2015
2014
$
$
475
725
112
99
76
40
23
11
7
1,568
$
$
450
872
100
106
114
50
—
14
—
1,706
Cash and Cash Equivalents and Short-Term Investments
Credit risk associated with cash and cash equivalents and short-term investments is managed by ensuring that
these financial assets are held with major financial institutions with strong investment grade ratings and by
monitoring the exposures with any single institution. An ongoing review is performed to evaluate the changes in the
credit rating of counterparties.
Accounts Receivable, Service Work in Progress, and Other Receivables
Accounts receivable comprises trade accounts and non-trade accounts. Service work in progress relates to unbilled
work in progress for external customers and represents the costs incurred plus recognized profits, net of any
recognized losses and progress billings.
The Company has a large, diversified customer base, and is not dependent on any single customer or group of
customers. Credit risk associated with receivables from customers and suppliers is minimized because of the
diversification of the Company’s operations as well as its large customer base and its geographical dispersion.
The maximum exposure to credit risk for trade receivables at the reporting date by geographic location of customer
was:
December 31
($ millions)
Canada
Chile
U.K.
Argentina
Other
2015
2014
$
$
313
209
110
66
27
725
$
$
417
237
113
60
45
872
20
7. FINANCIAL INSTRUMENTS (CONTINUED
)
Impairment Losses
The aging of trade receivables at the reporting date was:
December 31
($ millions)
Not past due
Past due 1 – 30 days
Past due 31 – 90 days
Past due 91 – 120 days
Past due greater than 120 days
Total
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2015
2014
Gross
Allowance
Gross
$
$
528
134
53
10
23
748
$
$
—
—
1
2
20
23
$
$
611
182
57
10
35
895
Allowance
—
—
—
1
22
23
$
$
The movement in the allowance for doubtful accounts in respect of trade receivables during the year was as follows:
For years ended December 31
($ millions)
Balance, beginning of year
Additional allowance
Receivables written off
Foreign exchange translation adjustment
Balance, end of year
Derivative Assets
2015
2014
$
$
23
11
(14)
3
23
$
$
25
9
(11)
—
23
The Company does have a certain degree of credit exposure arising from its derivative instruments relating to
counterparties defaulting 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 monitoring, and by dealing
primarily with major financial institutions that have a credit rating of at least A from Standard & Poor’s and/or
Moody’s.
(b) Financial Liabilities and Liquidity Risk
Accounting Policy
Classification and measurement
Short-term and long-term debt and accounts payable are classified as other financial liabilities. They are measured
at amortized cost using the effective interest method.
Derivative liabilities are recorded on the consolidated statement of financial position at fair value.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquid financial
resources to fund its operations and meet its commitments and obligations. Based on this, the Company believes
that it has good access to capital markets. The Company maintains bilateral and syndicated bank credit facilities, a
commercial paper program, continuously monitors actual and forecast cash flows, and manages maturity profiles of
financial liabilities. At December 31, 2015, the Company had approximately $1,926 million (2014: $1,789 million) of
unsecured credit facilities. Included in this amount are committed bank facilities totaling $1,125 million (2014: $1,199
million) with various Canadian, U.S., and South American financial institutions. At December 31, 2015, $877 million
(2014: $987 million) was available under these committed facilities.
21
7. FINANCIAL INSTRUMENTS (CONTINUED
)
The following are the contractual maturities of non-derivative financial liabilities and derivative financial instruments.
The amounts presented represent the future undiscounted principal and interest cash flows, and therefore, do not
equate to the carrying amount on the consolidated statement of financial position.
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
Carrying amount
December 31, 2015
2016
Contractual cash flows
2019-2020
2017-2018
Thereafter
($ millions)
Non-derivative financial liabilities
Short-term debt
Unsecured $700 million MTN
U.S. $500 million Notes
£70 million Notes
Unsecured bank facilities
Other term loans
Finance lease obligations
Accounts payable and accruals (excluding
current portion of finance lease
obligations)
Total non-derivative financial liabilities
$
(117) $
(698)
(690)
(142)
(14)
(4)
(35)
(117) $
(35)
(30)
(5)
—
(1)
(6)
$
—
(410)
(59)
(10)
—
(1)
(12)
$
—
(228)
(59)
(10)
(14)
(1)
(16)
—
(314)
(816)
(155)
—
(2)
(16)
(797)
$
(2,497) $
(797)
(991) $
—
(492) $
—
(328) $
—
(1,303)
Derivatives
Forward foreign currency contracts and swaps
$
Sell CAD
Buy USD
Sell CAD
Buy USD
Sell USD
Buy CAD
Sell CLP
Buy USD
Sell USD
Buy CLP
Sell USD
Buy ARS
Total derivatives
$
2
—
—
—
—
—
—
—
(2)
—
5
—
5
$
$
(56) $
58
(49)
49
(3)
3
(56)
57
(17)
15
(24)
21
(2) $
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
Canadian dollar (CAD), United States dollar (USD), Chilean peso (CLP), Argentine peso (ARS)
22
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS (CONTINUED
)
(c) Hedging and Market Risk
Accounting Policy
Hedges
The Company utilizes derivative financial instruments and foreign currency debt in order to manage its foreign
currency and interest rate exposure. The Company uses derivative financial instruments only in connection with
managing related risk positions and does not use them for trading or speculative purposes.
The Company determines whether or not to formally designate, for accounting purposes, eligible hedging
relationships between hedging instruments and hedged items. This process includes linking derivatives to specific
risks from assets or liabilities on the statement of financial position or specific firm commitments or forecasted
transactions. For hedges designated as such for accounting purposes, the Company documents and formally
assesses, both at inception and on an ongoing basis, whether the hedging instrument is highly effective in offsetting
changes in fair value or cash flows associated with the identified hedged items. When derivative instruments have
been designated as a hedge and are highly effective in offsetting the identified hedged risk, hedge accounting is
applied to the derivative instruments. The ineffective portion of hedging gains and losses of highly effective hedges
is reported in net income.
Cash Flow Hedges
The Company uses foreign exchange forward contracts and, at times may use, options to hedge the currency risk
associated with certain foreign currency purchase commitments, payroll, and associated accounts payable and
accounts receivable for periods up to two years in advance. The effective portion of hedging gains and losses
associated with these cash flow hedges is recorded, net of tax, in other comprehensive income and recognized in
earnings in the same period as the hedged item. For cash flow hedges of non-financial items, these gains and
losses are reclassified and included in the initial carrying cost of the hedged asset or hedged liability. The gain or
loss relating to any ineffective portion is recognized immediately in the consolidated statement of income.
When a hedging instrument expires or is sold, or when a hedge is discontinued or no longer meets the criteria for
hedge accounting, any accumulated gain or loss recorded in other comprehensive income at that time remains in
accumulated other comprehensive income until the originally hedged transaction affects income. When a forecasted
transaction is no longer expected to occur, the accumulated gain or loss that was reported in other comprehensive
income is immediately recorded in the consolidated statement of income.
Gains and losses relating to foreign exchange forward contracts that are not designated as hedges for accounting
purposes are recorded in the consolidated statement of income as selling, general, and administrative expenses or
finance costs, as appropriate.
Net Investment Hedges
The Company typically uses foreign currency debt to hedge foreign currency gains and losses on its long-term net
investments in foreign operations. The effective portion of the gain or loss of such instruments associated with the
hedged risk is recorded in other comprehensive income. These gains or losses are recognized in net income upon
the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a
disposal that involves loss of control of a subsidiary that includes a foreign operation, loss of joint control over a
jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that
includes a foreign operation).
23
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS (CONTINUED
)
Market risk is the risk that changes in the market, such as foreign exchange rates and interest rates, will affect the
Company’s income or the fair value of its financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters.
Foreign Exchange Risk
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 CAD, USD, U.K. pound sterling
(GBP), CLP, and ARS.
As a result, the Company has foreign currency exposure with respect to items denominated in foreign currencies.
The main types of foreign exchange risk of the Company can be categorized as follows:
Translation Exposure
The most significant foreign exchange impact on the Company’s other comprehensive income is the translation of
foreign currency based earnings and net assets or liabilities into Canadian dollars, which is the Company’s
presentation currency. The Company’s South American and UK & Ireland operations have functional currencies
other than the Canadian dollar, and as a result foreign currency gains and losses arise in the cumulative translation
adjustment account from the translation of the Company’s net investment in these operations. Therefore, exchange
rate movements in the USD and GBP relative to the CAD will impact the consolidated results of the South American
and UK & Ireland operations in CAD terms. To the extent practical, it is the Company’s objective to manage this
exposure. The Company has hedged a portion of its foreign investments with foreign currency denominated loans.
The fair value of the Company’s long-term debt that is designated as net investment hedging instruments is $813
million (2014: $730 million).
Transaction Exposure
The most significant foreign exchange impact on the Company’s net income is the purchase, sale, rent, and lease of
products as well as costs denominated in currencies other than its functional currency. This mismatch of currencies
creates transactional exposure, which may affect the Company’s profitability as exchange rates fluctuate. For
example, the Company’s Canadian operating results are exposed to volatility in foreign exchange rates (USD/CAD)
between the timing of equipment and parts purchases and the ultimate sale to customers. A portion of this exposure
is hedged through the use of forward exchange contracts as well as managed through pricing practices. In
December 2015, the Company started to apply hedge accounting to these hedges of inventory purchases in its
Canadian operations. The Company’s competitive position may also be impacted as relative currency movements
affect the business practices and/or pricing strategies of the Company’s competitors.
The results of the Company’s operations are impacted by the translation of its foreign-denominated earnings; the
results of the Canadian operations are impacted by USD based earnings and the results of the South American
operations are impacted by CLP and ARS based revenues and costs. The Company does not hedge its exposure to
foreign exchange risk with regard to foreign currency earnings.
The Company is also exposed to currency risks related to the future cash flows on its foreign-denominated financial
assets and financial liabilities. The Company enters into forward exchange contracts to manage some mismatches
in foreign currency cash flows. Since management does not fully hedge balance sheet exposures, any un-hedged
positions result in unrealized foreign exchange gains or losses until the financial assets and financial liabilities are
settled.
The fair value of derivative instruments designated as cash flow hedging instruments is $2 million (2014: $4 million).
24
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS (CONTINUED
)
Exposure to Foreign Exchange Risk
The currencies of the Company’s significant financial instruments were as follows:
December 31, 2015
(millions)
Cash and cash equivalents
Accounts receivable
Short-term and long-term debt
Accounts payable and accruals
Net statement of financial position exposure
Foreign exchange forward contracts and swaps
December 31, 2014
(millions)
Cash and cash equivalents
Accounts receivable
Short-term and long-term debt
Accounts payable and accruals
Net statement of financial position exposure
Foreign exchange forward contracts and swaps
Sensitivity Analysis to Foreign Exchange Risk
CAD
USD
GBP
—
256
(822)
(210)
(776)
102
246
99
(504)
(129)
(288)
104
30
55
(72)
(70)
(57)
—
CAD
USD
GBP
170
378
(698)
(373)
(523)
(136)
146
112
(504)
(190)
(436)
105
21
64
(72)
(81)
(68)
—
CLP
23,403
107,158
—
(121,866)
8,695
21
CLP
23,403
124,113
—
(123,748)
23,768
(5,423)
ARS
63
—
—
(166)
(103)
—
ARS
131
—
—
(136)
(5)
—
As a result of foreign exchange gains or losses on the translation of foreign currency denominated financial
instruments, a 5% weakening of the CAD against the following currencies would increase (decrease) pre-tax income
and other comprehensive income by the amounts shown below. This analysis assumes that all other variables, in
particular volumes, relative pricing, interest rates, and hedging activities are unchanged.
December 31, 2015
($ millions)
CAD/USD
CAD/GBP
CAD/CLP
CAD/ARS
Other
Comprehensive
Income
Income
$
$
$
$
6
—
1
(1)
$
$
$
$
(35)
(7)
—
—
A 5% strengthening of the CAD against the above currencies relative to the December 31, 2015 month end rates
would have an equivalent but opposite effect on the above accounts in the amounts shown on the basis that all
other variables are unchanged.
25
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS (CONTINUED
)
Interest Rate Risk
Changes in market interest rates will cause fluctuations in the fair value or future cash flows of financial instruments.
The Company is exposed to changes in interest rates on its interest bearing financial assets including cash and
cash equivalents and instalment and other notes receivable. The short-term nature of investments included in cash
and cash equivalents limits the impact to fluctuations in fair value, but interest income earned will be impacted.
Instalment and other notes receivable bear interest at a fixed rate thus their fair value will fluctuate prior to maturity
but, absent monetization, future cash flows do not change.
The Company is exposed to changes in interest rates on its interest bearing financial liabilities, primarily from short-
term and long-term debt. The Company’s debt portfolio comprises both fixed and floating rate debt instruments, with
terms to maturity ranging up to June 2042. Floating rate debt, due to its short-term nature, exposes the Company to
limited fluctuations in changes to fair value, but finance expense and cash flows will increase or decrease as interest
rates change.
The fair value of the Company’s fixed rate debt obligations fluctuate with changes in interest rates, but absent early
settlement, related cash flows do not change. The Company is exposed to changes in future interest rates upon
refinancing of any debt prior to or at maturity.
The Company manages 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 may utilize derivative instruments
such as interest rate swaps to adjust the balance of fixed and floating rate debt.
Profile
At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments are as follows:
December 31
($ millions)
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
2015
2014
$
$
40
(1,566)
475
(135)
$
$
50
(1,421)
450
(24)
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Company does not account for any fixed rate financial assets and liabilities at fair value through the income
statement, and the Company does not currently have any derivatives designated as hedging instruments under a
fair value hedge accounting model, or any derivative interest rate instruments for which fair value changes are
recognized in other comprehensive income. Therefore a change in interest rates at the reporting date would not
affect net income or other comprehensive income.
Pre-tax Income Sensitivity Analysis for Variable Rate Instruments
The Company’s variable rate instruments are in a net asset position; therefore, an increase of 1.0% in interest rates
for a full year relative to the interest rates at the reporting date would have increased income by approximately $3
million with a 1.0% decrease having the opposite effect. This analysis assumes that all other variables, in particular
foreign currency exchange rates, remain constant.
26
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
7. FINANCIAL INSTRUMENTS (CONTINUED
)
(d) Fair Values
Financial instruments measured at fair value are grouped into Levels 1 to 3 based on the degree to which fair value
is observable:
Level 1 – quoted prices in active markets for identical securities
Level 2 – significant observable inputs other than quoted prices included in Level 1
Level 3 – significant unobservable inputs
The Company’s only financial instruments measured at fair value are derivative instruments, short-term investments,
and contingent consideration. All of the derivative instruments are measured at fair value using Level 2 inputs.
Contingent consideration is measured at fair value using Level 3 inputs. The Company did not move any
instruments between levels of the fair value hierarchy during the years ended December 31, 2015 and 2014.
Derivative Instruments and Short-Term Investments (Level 2)
The fair value of foreign currency forward contracts is determined by discounting contracted future cash flows using
a discount rate derived from swap curves for comparable assets and liabilities. Contractual cash flows are calculated
using a forward price at the maturity date derived from observed forward prices.
The fair values of other derivative instruments and short-term investments are determined using present value
techniques applied to estimated future cash flows. These techniques utilize a combination of quoted prices and
market observable inputs. Where appropriate, fair values are adjusted for credit risk based on observed credit
default spreads or fair market yield curves for counterparties for financial assets and based on the Company’s credit
risk when for financial liabilities. The Company’s credit risk is derived from yield spreads on the Company’s market
quoted debt.
Contingent Consideration (Level 3)
The fair value of the contingent consideration of $6 million (£3 million) was estimated by discounting cash flows
based on probability-adjusted profit in SITECH (Note 25).
Long-Term Debt
The carrying value and fair value of the Company’s long-term debt is estimated as follows:
December 31
($ millions)
Long-term debt
2015
2014
Carrying Value
1,548
$
Fair Value
$
1,578
Carrying Value
1,418
$
Fair Value
$
1,512
The fair value of the Company’s long-term debt is based on the present value of future cash flows required to settle
the debt which is derived from the actual interest accrued to date. The present value of future cash flows is
discounted using the yield to maturity rate as at the measurement date. This technique utilizes a combination of
quoted prices and market observable inputs (Level 2).
Accounts Receivable, Instalment Notes Receivables, Short-Term Debt, and Accounts Payable
The recorded values of accounts receivable, instalment notes receivable, short-term debt, and accounts payable
approximate their fair values due to the short-term maturities of these instruments.
27
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
8. MANAGEMENT OF CAPITAL
The Company’s objective when managing capital is to maintain a flexible capital structure which optimizes the cost
of capital at an acceptable risk. The Company includes cash and cash equivalents, short-term debt and long-term
debt, and shareholders’ equity in the definition of capital.
The Company manages its capital structure and makes adjustments to it in light of actual and forecast cash flows,
actual and anticipated capital expenditures and investments, changes in economic conditions and the risk
characteristics of its underlying assets. In order to maintain or adjust the capital structure, the Company may
purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, repay
debt, issue new debt to replace existing debt with different characteristics, or adjust the amount of dividends paid to
shareholders. During the year ended December 31, 2015, the Company launched a Normal Course Issuer Bid and
repurchased 4.4 million Finning common shares for cancellation at an average cost of $20.75 per share.
The Company monitors net debt to invested capital. The Company’s target range at December 31, 2015 is shown
below. The Company’s strategy is to meet target ranges over a longer-term average basis. Management is currently
in the process of reviewing its target ranges to ensure they continue to be appropriate and help to support access to
capital at a reasonable cost.
As at and for years ended December 31
Net debt to invested capital
Company
Targets
35 – 45%
2015
36.7%
2014
31.4%
Net debt to invested capital is calculated as net debt divided by invested capital. Net debt is calculated as short-term
and long-term debt, net of cash. Invested capital is net debt plus all components of shareholders’ equity (share
capital, contributed surplus, accumulated other comprehensive income, and retained earnings). Invested capital is
also calculated as total assets less total liabilities, excluding net debt.
December 31
($ millions)
Cash and cash equivalents
Short-term debt
Long-term debt
Net debt
Shareholders’ equity
Invested capital
Covenant
2015
2014
$
$
(475)
117
1,548
1,190
2,050
3,240
$
$
(450)
7
1,418
975
2,131
3,106
The Company is subject to a maximum net debt to invested capital level of 62.5% pursuant to a covenant within its
syndicated bank credit facility. As at December 31, 2015 and 2014, the Company is in compliance with this
covenant.
28
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
9. SHARE CAPITAL
Accounting Policy
Common shares repurchased by the Company are recognized as a reduction in share capital and contributed
surplus (and retained earnings once contributed surplus is fully drawn down) on the date of repurchase. A liability is
recognized for any committed repurchases but not yet settled at a reporting period end with a corresponding
reduction in contributed surplus (or retained earnings). The cash consideration paid to repurchase shares is
presented as a financing activity in the Statement of Cash Flows. Details of the transaction (number of shares
repurchased and amount deducted from equity) are disclosed in the Statement of Shareholder’s Equity.
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, 2015 and 2014.
The Company is authorized to issue an unlimited number of common shares. All issued shares have no par value
and are fully paid.
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. (Caterpillar) are
fundamental to its business and a change in control of Finning, which significantly impacts the Company, may result
in Caterpillar exercising its right to terminate those dealership agreements.
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. In May 2014, the
rights plan was extended for three years such that it will automatically terminate at the end of the Company’s Annual
Meeting of shareholders in 2017 unless further extended by the shareholders prior to that time.
The plan will not be triggered if a bid meets certain criteria (a permitted bid). These criteria include that:
(cid:120)
(cid:120) more than 50% of the voting shares have been tendered by independent shareholders pursuant to the bid
the offer is made for all outstanding voting shares of the Company;
(voting shares tendered may be withdrawn until taken up and paid for); and
the bid expires not less than 60 days after the date of the bid circular.
(cid:120)
29
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
10. SHARE-BASED PAYMENTS
Accounting Policy
The Company has share option plans and other share-based compensation plans for directors and certain eligible
employees. Total Shareholder Return Performance Share Units are measured at fair value using the Monte Carlo
model and all other share-based awards are measured at fair value using the Black-Scholes model.
For equity settled share-based payments, fair value is determined on the grant date of the share option and
recorded over the vesting period, based on the Company’s estimate of options that will vest, with a corresponding
increase to contributed surplus. When share options are exercised, the proceeds received by the Company,
together with any related amount recorded in contributed surplus, are credited to share capital.
Cash settled share-based compensation plans are recognized as a liability. Compensation expense which arises
from vesting and fluctuations in the fair value of the Company’s cash settled share-based compensation plans is
recognized in selling, general, and administrative expense in the consolidated statement of income with the
corresponding liability recorded on the consolidated statement of financial position in long-term obligations.
Areas of Estimation Uncertainty
The Company uses inputs in the option pricing models to determine the fair value of certain share-based payments.
Inputs to the model are subject to various estimates relating to volatility, interest rates, dividend yields and expected
life of the units issued. Fair value inputs are subject to market factors as well as internal estimates. The Company
considers historic trends together with any new information to determine the best estimate of fair value at the date of
grant. Separate from the fair value calculation, the Company is required to estimate the expected forfeiture rate of
equity-settled share-based payments. The Company has assessed forfeitures to be insignificant based on the
underlying terms of its payment plans.
In 2015 and 2014, long-term incentives for executives and senior management were a combination of share options,
performance share units, and deferred share units.
Share Options
The Company has one share option plan for certain employees with vesting occurring over a three-year period. The
exercise price of each option is based on the weighted average trading price of the common shares of the Company
on the date prior to the grant. Options granted after January 1, 2004 are exercisable over a seven-year period.
Options granted prior to January 1, 2004 were exercisable over a ten-year period. Under the 2005 Stock Option
Plan, the Company may issue up to 7.5 million common shares pursuant to the exercise of share options. At
December 31, 2015, 1 million common shares remain eligible to be issued in connection with future grants under
this Stock Option Plan.
Details of the share option plans are as follows:
For years ended December 31
Options outstanding, beginning of year
Granted
Exercised (a)
Forfeited
Options outstanding, end of year
Options
4,225,873
1,618,180
(139,880)
(533,484)
5,170,689
2015
Weighted Average
Exercise Price
24.65
25.33
15.57
27.79
24.78
$
$
$
$
$
Options
5,684,770
1,020,100
(1,654,280)
(824,717)
4,225,873
Exercisable at end of year
2,567,826
$
23.78
2,020,477
2014
Weighted Average
Exercise Price
$
$
$
$
$
$
24.93
29.23
25.22
31.09
24.65
23.24
(a) Share options exercised in 2015 comprised both cash and cashless exercises. Under the 2005 Stock Option
Plan, exercises generally utilize the cashless method, whereby the actual number of shares issued is
represented by the premium between the fair value at the time of exercise and the grant value, and the
equivalent value of the number of options up to the grant value is withheld. 139,880 options were exercised in
2015 under the 2005 Stock Option Plan resulting in 44,343 common shares issued; 95,537 options were
withheld and returned to the option pool for future issues/grants.
30
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
10. SHARE-BASED PAYMENTS (CONTINUED
)
In 2015, the Company granted 1,618,180 common share options to senior executives and management of the
Company (2014: 1,020,100 common share options). The Company’s practice is to grant and price share options
only when it is felt that all material information has been disclosed to the market.
The fair value of the options granted has been estimated on the date of grant using the following weighted-average
assumptions:
Dividend yield
Expected volatility (1)
Risk-free interest rate
Expected life
(1) Expected volatility is based on historical share price volatility of Finning shares
2015 Grant
2.33%
29.09%
1.16%
5.39 years
2014 Grant
2.39%
33.82%
1.65%
5.59 years
The weighted average grant date fair value of options granted during the year was $5.42 (2014: $7.58).
The following table summarizes information about share options outstanding at December 31, 2015:
Range of
exercise prices
$14.64 - $18.59
$18.60 - $25.52
$25.53 - $29.06
$29.07 - $30.72
$30.73 - $32.38
Options Outstanding
Weighted
Average
Remaining Life
Weighted
Average
Exercise Price
16.35
1.00 years $
24.27
5.13 years $
27.48
3.24 years $
29.17
5.39 years $
5.55 years $
31.09
4.63 years $ 24.78
Number
outstanding
445,697
3,299,466
518,009
876,987
30,530
5,170,689
Options Exercisable
Number
Outstanding
445,697
1,358,510
459,676
293,767
10,176
2,567,826
Weighted
Average
Exercise Price
16.35
$
23.68
$
27.67
$
29.17
$
$
31.09
$ 23.78
Other Share-Based Payment Plans
The Company has other share-based payment plans in the form of deferred share units and performance share
units that use notional common share units.
Details of the plans are as follows:
Directors
Directors’ Deferred Share Unit Plan A (DDSU)
The Company offers a Directors’ Deferred Share Unit Plan (DDSU) for members of the Board of Directors. Under
the DDSU Plan, non-employee Directors of the Company may also 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 cessation of service on the Board of Directors and must be
redeemed by December 31st of the year following the year in which the cessation 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 granted a total of 36,451 share units in 2015 (2014: 32,709 share
units), and expensed over the calendar year as the units were issued. An additional 28,133 (2014: 12,124) DDSUs
were issued in lieu of cash compensation payable for service as a Director. A further 9,310 (2014: 6,952) DDSUs
were granted to Directors during 2015 as payment for notional dividends.
31
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
10. SHARE-BASED PAYMENTS (CONTINUED
)
Executive
Deferred Share Unit Plan B (DSU-B)
Under the DSU-B Plan, executives of the Company may be awarded deferred share units as approved by the Board
of Directors. This plan utilizes notional units that may become vested in accordance with terms set at the time of
grant. Vested deferred share units are redeemable for a period of 30 days after cessation 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.
During 2015, 8,544 (2014: 5,825) DSU-Bs were granted to Executives as payment for notional dividends.
Performance Share Unit Plan (PSU)
Under the 2015 and 2014 PSU Plan, executives of the Company were awarded performance share units as
approved by the Board of Directors. This plan utilizes notional units that become vested dependent on achieving
future specified performance levels. All PSUs granted in 2014 and 2015 were divided equally into two categories.
Half of the awards are based on the extent to which the Company’s average return on invested capital achieves or
exceeds the specified performance levels over a three-year period (ROIC PSUs). The remaining half of the awards
is based on the performance of the Company’s share price over the three-year period relative to the performance of
the share prices of all companies in the S&P/TSX Capped Industrials Index (TSR PSUs). Under the PSU Plan prior
to 2014, awards vested based on the extent to which the Company’s average return on equity achieved or exceeded
the specified performance levels over a three-year period.
Vested performance share units are redeemable in cash based on the common share price at the end of the
performance period. Executives of the Company were granted a total of 451,450 performance share units in 2015,
based on 100% vesting (2014: 341,610 performance share units).
Compensation expense for the PSU Plan is recorded over the three-year performance period. The amount of
compensation expense is adjusted over the three-year performance period to reflect the fair value of the PSU units
and the number of PSU units anticipated to vest.
The specified levels and respective vesting percentages for the 2015 and 2014 grant are as follows:
TSR PSUs
Percentile Rank
TSR PSUs Vested
< 25th Percentile
0%
25th Percentile
50%
50th Percentile
100%
75th Percentile 100th Percentile
150%
200%
ROIC PSUs
The specified levels and respective vesting percentages for the 2015 grant are as follows:
Performance Level
Below Threshold
Threshold
Target
Maximum
Average Return on Invested Capital
(over three-year period)
< 15.5%
15.5%
16.5%
18.5% or more
Proportion of PSUs Vesting
Nil
50%
100%
200%
The specified levels and respective vesting percentages for the 2014 grant are as follows:
Performance Level
Below Threshold
Threshold
Target
Maximum
Average Return on Invested Capital
(over three-year period)
< 17%
17%
18.5%
21.5% or more
Proportion of PSUs Vesting
Nil
50%
100%
200%
32
10. SHARE-BASED PAYMENTS (CONTINUED
)
Details of the deferred share unit and performance share unit plans are as follows:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
For year ended December 31, 2015
Units
Outstanding, beginning of year
Additions (decreases) (1)
Exercised
Forfeited
Outstanding, end of year
Vested, beginning of year
Vested
Exercised
Vested, end of year
Liability
($ millions)
Balance, beginning of year
Recovery
Exercised
Forfeited
Balance, end of year
For year ended December 31, 2014
Units
Outstanding, beginning of year
Additions (decreases) (1)
Exercised
Forfeited
Outstanding, end of year
Vested, beginning of year
Vested
Exercised
Vested, end of year
DSU-B
DDSU
273,587
8,544
(9,389)
—
272,742
251,746
21,853
(9,389)
264,210
313,324
73,885
(110,066)
—
277,143
313,324
73,885
(110,066)
277,143
$
$
6
(1)
—
—
5
$
$
7
—
(3)
—
4
$
$
PSU
521,566
(351,668)
—
(6,454)
163,444
—
—
—
—
7
(5)
—
—
2
$
$
DSU-B
DDSU
PSU
267,762
5,825
—
—
273,587
241,655
10,091
—
251,746
316,939
51,785
(55,400)
—
313,324
316,939
51,785
(55,400)
313,324
1,007,672
(136,595)
(340,893)
(8,618)
521,566
—
340,893
(340,893)
—
Total
1,108,477
(269,239)
(119,455)
(6,454)
713,329
565,070
95,738
(119,455)
541,353
20
(6)
(3)
—
11
Total
1,592,373
(78,985)
(396,293)
(8,618)
1,108,477
558,594
402,769
(396,293)
565,070
Liability
($ millions)
Balance, beginning of year
Expense
Exercised
Forfeited
Balance, end of year
(1) The unit adjustment for PSUs (based on the performance level) is a decrease of 483,825 units for the year ended December
31, 2015 (2014: 338,497 units).
12
4
(9)
—
7
8
1
(2)
—
7
6
—
—
—
6
26
5
(11)
—
20
$
$
$
$
$
$
$
$
33
10. SHARE-BASED PAYMENTS (CONTINUED
)
The fair value of the DSU-B, DDSU, and PSU units outstanding has been estimated using the following weighted-
average assumptions:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
December 31, 2015
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Share price at December 31, 2015
Estimated fair value per unit at year-end
December 31, 2014
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Share price at December 31, 2014
Estimated fair value per unit at year-end
DSU-B
2.43%
29.65%
0.87%
5.92 years
DDSU
2.43%
29.57%
0.88%
6.04 years
PSU
2.69%
27.98%
0.49%
3.00 years
$
$
18.68
16.18
$
$
18.68
16.13
$
$
18.68
22.91
DSU-B
2.35%
34.59%
1.47%
6.77 years
DDSU
2.26%
28.64%
1.34%
4.87 years
PSU
2.34%
26.54%
1.07%
3.00 years
$
$
25.23
21.52
$
$
25.23
22.60
$
$
25.23
23.52
The impact of the share-based payment plans on the Company’s financial statements is as follows:
For years ended December 31
($ millions)
Consolidated statement of income
Compensation expense arising from equity-settled share option incentive plan
Compensation (recovery) expense arising from cash-settled share based
payments
Impact of variable rate share forward contract
Consolidated statement of financial position
Current liability for cash-settled share-based payments
Non-current liability for cash-settled share-based payments (to be incurred
within 1-5 years) (Note 22)
2015
2014
$
$
$
7
$
(6)
—
1
—
11
$
$
9
5
(4)
10
5
15
The total intrinsic value of vested but not settled share-based payments was $10 million (2014: $14 million).
34
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
11. INVENTORIES
Accounting Policy
Inventories are assets held for sale in the ordinary course of business, in the process of production for sale, or in the
form of materials or supplies to be consumed in the production process or in the rendering of services. Inventories
are stated at the lower of cost and net realizable value. Cost is determined on a specific item basis for on-hand
equipment, and on a weighted average cost basis for parts and supplies. The cost of inventories includes all costs of
purchase, conversion costs, and other costs incurred in bringing inventories to their existing location and condition.
In the case of internal service work in progress on equipment, cost includes an appropriate share of overhead costs
based on normal operating capacity.
Areas of Estimation Uncertainty
The Company makes estimates of the provision required to reflect slow-moving and obsolescence of inventory.
These estimates are determined on the basis of age, redundancy, and stock levels. For equipment inventory,
estimates are determined on a specific item basis.
December 31
($ millions)
On-hand equipment
Parts and supplies
Internal service work in progress
2015
2014
$
$
930
660
210
1,800
$
$
782
674
205
1,661
For the year ended December 31, 2015, on-hand equipment, parts, supplies, and internal service work in progress
recognized as an expense in cost of sales amounted to $4,027 million (2014: $4,489 million). For the year ended
December 31, 2015, the write-down of inventories to net realizable value, included in cost of sales, amounted to $84
million (2014: $52 million).
12. POWER SYSTEMS CONSTRUCTION CONTRACTS
Accounting Policy
Revenue from sales of equipment includes construction contracts with customers that involve the design,
installation, and assembly of power and energy equipment systems. Revenue is recognized on a percentage of
completion basis proportionate to the work that has been completed which is based on associated costs incurred,
except where this would not be representative of the stage of completion (when revenue is recognized in
accordance with the specific acts outlined in the contract). If it is expected that the overall contract will incur a loss,
this loss is recognized immediately in the income statement.
Periodically, amounts are received from customers under long-term contracts in advance of the associated contract
work being performed. These amounts are recorded on the consolidated statement of financial position as deferred
revenue.
Information about the Company’s long-term power system construction contracts is summarized below:
December 31
($ millions)
Aggregate of contract costs for contracts in progress
Aggregate of profits for contracts in progress
Advances from customers under construction contracts
Amounts due from customers under construction contracts
Amounts due to customers under construction contracts
Retentions held by customers for contract work
2015
2014
$
$
$
$
$
$
369
31
(2)
38
(3)
2
$
$
$
$
$
$
222
29
(14)
42
(6)
2
For the year ended December 31, 2015, the amount of contract revenue recognized in the year was $154 million
(2014: $156 million).
35
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
13. INCOME TAXES
Accounting Policy
The balance sheet liability method of tax allocation is used in accounting for income taxes. Under this method, the
carry forward of unused tax losses and unused tax credits and the temporary differences arising from the difference
between the tax basis of an asset and a liability and its carrying amount on the statement of financial position are
used to calculate deferred tax assets or liabilities. Deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be
available against which the carry forward of unused tax losses, unused tax credits, and the deductible temporary
differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference
arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither taxable profit nor the accounting profit. Deferred tax
liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Company is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets or liabilities are calculated using tax rates anticipated to be in effect in the periods that the asset
is expected to be realized or the liability is expected to be settled based on the laws that have been enacted or
substantively enacted by the reporting date. The effect of a change in income tax rates on deferred tax assets and
liabilities is recognized in income and/or equity in the period that the change becomes enacted or substantively
enacted.
The charge for current tax is based on the results for the year as adjusted for items which are non-assessable or
disallowed using tax rates enacted or substantively enacted by the statement of financial position date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Company intends to settle its tax assets and liabilities on a net basis.
Current and deferred tax are recognized in net income, except when they relate to items that are recognized in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other
comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination. The
Company records the deferred tax impact of foreign exchange gains or losses arising on the translation of foreign
denominated non-monetary assets and non-monetary liabilities in provision for income tax in the consolidated
statement of income.
Areas of Estimation Uncertainty
Estimations of the tax asset or liability require assessments to be made based on the potential tax treatment of
certain items that will only be resolved once finally agreed with the relevant tax authorities.
Assumptions underlying the composition of deferred tax assets and liabilities include estimates of future results of
operations and the timing of reversal of temporary differences as well as the substantively enacted tax rates and
laws in each respective jurisdiction at the time of the expected reversal. The composition of deferred tax assets and
liabilities change from period to period due to the uncertainties surrounding these assumptions and changes in tax
rates or regimes could have a material adverse effect on expected results.
Areas of Significant Judgment
Judgment is required as income tax laws and regulations can be complex and are potentially subject to different
interpretation between the Company and the respective tax authority. Due to the number of variables associated
with the differing tax laws and regulations across the multiple jurisdictions the Company operates in, the precision
and reliability of the resulting estimates are subject to uncertainties and may change as additional information
becomes known. Net income in subsequent periods may be impacted by the amount that estimates differ from the
final tax return.
36
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
13. INCOME TAXES (CONTINUED
)
Provision for Income Taxes
The components of the Company’s income tax provision are as follows:
For year ended December 31, 2015
($ millions)
Current
Adjustment for prior periods recognized in the current year
Total current tax
Deferred
Origination and reversal of timing differences
Increase due to tax rate changes
Adjustment for prior periods recognized in the current year
Total deferred tax
Recovery of income taxes
For year ended December 31, 2014
($ millions)
Current
Adjustment for prior periods recognized in the current year
Total current tax
Deferred
Origination and reversal of timing differences
Increase due to tax rate changes
Adjustment for prior periods recognized in the current year
Total deferred tax
Provision for income taxes
Canada
(3)
3
—
(6)
2
(3)
(7)
(7)
Canada
27
(5)
22
23
—
5
28
50
$
$
$
$
International
45
$
(1)
44
(56)
(12)
2
(66)
(22)
$
$
International
34
(2)
32
11
7
1
19
51
$
$
$
$
$
Total
42
2
44
(62)
(10)
(1)
(73)
(29)
Total
61
(7)
54
34
7
6
47
101
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
($ millions)
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
Income not subject to tax
Changes in statutory tax rates
Non-deductible goodwill impairment loss
Non-deductible share-based payment expense
Non-taxable capital gain
Recognition of capital tax losses
Unrecognized intercompany profits
Non-taxable/non-deductible foreign exchange in Argentina
Inflationary adjustment
Other
(Recovery) provision for income taxes
$
37
2015
2014
$
(50)
26.1%
$
106
25.3%
(3)
(3)
(10)
16
2
—
(12)
1
25
—
5
(29)
1.4%
1.9%
5.5%
(8.1)%
(1.1)%
—
6.4%
(0.3)%
(13.2)%
—
(2.9)%
15.7%
$
(13)
(8)
7
—
2
(1)
—
3
15
(9)
(1)
101
(3.0)%
(1.8)%
1.7%
—
0.4%
(0.2)%
—
0.6%
3.5%
(2.2)%
(0.2)%
24.1%
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
13. INCOME TAXES (CONTINUED
)
In addition to the increased combined statutory Canadian federal and provincial income tax rate referred to above,
the Company recognized the impact of the following substantively enacted corporate income tax rate changes:
(cid:120)
(cid:120)
In July 2015, the Alberta provincial government increased the provincial corporate income tax rate from 10% to
12% effective July 1, 2015
In November, 2015, UK government reduced its corporate tax rate from 20% to 19% effective April 1, 2017 and
18% effective April 1, 2020
Deferred Tax Asset and Liability
Temporary differences and tax loss carry-forwards that give rise to deferred tax assets and liabilities are as follows:
December 31
($ millions)
Deferred tax assets:
Accounting provisions not currently deductible for tax purposes
Employee benefits
Share-based payments
Loss carry-forwards
Deferred tax liabilities:
Property, plant and equipment, rental, leased, and other intangible assets
Distribution network
Other
Net deferred tax asset (liability)
2015
2014
$
$
56
17
1
6
80
(45)
(9)
(5)
(59)
21
$
$
41
32
3
3
79
(45)
(61)
(4)
(110)
(31)
Deferred taxes are not recognized on retained profits of approximately $1.6 billion (2014: $1.5 billion) of foreign
subsidiaries, as it is the Company’s intention to invest these profits to maintain and expand the business of the
relevant companies.
The Company has recognized the benefit of the following tax loss carry-forwards available to reduce future taxable
income of which $17 million do not expire and $5 million expire in 2018.
December 31
($ millions)
International
2015
2014
$
22
$
11
As at December 31, 2015, the Company has unrecognized net operating losses and capital loss carry-forwards of
$6 million and $74 million, respectively, to reduce future taxable income. These amounts do not expire.
The tax expense (recovery) relating to components of other comprehensive income is as follows:
For years ended December 31
($ millions)
Current tax
Deferred tax
Tax expense (recovery) recognized in other comprehensive income
2015
2014
$
$
10
16
26
$
$
—
(6)
(6)
38
14. OTHER ASSETS
December 31
($ millions)
Supplier claims receivable
Equipment deposits
Prepaid expenses
Current portion of finance assets
Short-term investments
Value Added Tax receivable
Income tax recoverable
Derivative assets
Indemnification asset (a)
Other
Total other assets - current
December 31
($ millions)
Deferred tax assets (Note 13)
Indemnification asset (a)
Prepaid expenses
Finance assets (b)
Other
Total other assets – non-current
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
2015
2014
76
28
48
35
23
11
1
7
6
14
249
$
$
114
45
43
44
—
14
13
—
6
9
288
2015
2014
58
34
29
20
7
148
$
43
38
22
16
5
124
$
$
$
(a) In 2012, the Company acquired from Caterpillar the distribution and support business formerly operated by
Bucyrus International Inc. (Bucyrus) in the Company’s dealership territories in South America, Canada and in
the U.K. As part of the acquisition, the Company assumed non-financial liabilities which were not previously
recognized by Bucyrus relating to long-term contracts, commitments related to prime product sales, and
employee related liabilities. Caterpillar agreed to indemnify the Company for any below market returns on
certain long term contracts (covering various periods up to 2023), to an amount equal to the liabilities assumed.
The liabilities were measured at fair value by using management’s best estimate, at the acquisition date, of the
difference between market-rate returns and the contracted returns expected under the long-term contracts. The
related indemnification asset was measured on the same basis as the liability up to an amount collectible from
Caterpillar.
(b) Finance assets include equipment leased to customers under long-term financing leases. Depreciation expense
for equipment leased to customers of $10 million was recorded in 2015 (2014: $15 million) and is recognized in
equal monthly amounts over the terms of the individual leases.
39
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
15. JOINT VENTURE AND ASSOCIATE
Accounting Policy
A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic
activity that is subject to joint control (i.e. when the strategic, financial and operating policy decisions relating to the
activities of the joint venture require the unanimous consent of the parties sharing control). An associate is an entity
over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is
not control or joint control over those policies.
The Company has a 25% interest in PipeLine Machinery International (PLM), a joint venture, and a 28.8% interest
in an associate, Energyst B.V. (Energyst). The Company accounts for its joint venture and associate in which the
Company has an interest using the equity method. The joint venture and associate follow accounting policies that
are materially consistent with the Company’s accounting policies. Where the Company transacts with its joint
venture or associate, unrealized profits or losses are eliminated to the extent of the Company’s interest in the joint
venture or associate.
Nature of Relationship
PLM is a strategic partnership that sells and rents both purpose-built pipeline and traditional Caterpillar products to
mainline pipeline construction customers worldwide.
Energyst is a pan-European company formed by Caterpillar and ten of its dealers to be the exclusive Caterpillar
dealer in Europe for innovative and responsive rental power and temperature control solutions. Energyst provides
coverage worldwide by collaborating with local Caterpillar dealers.
The Company’s proportion of ownership interest in its joint venture and associate is as follows:
December 31
Name of Venture
PLM
Energyst
Type of Venture
Jointly Controlled Entity
Associate
Principal place of
business/country of
incorporation
United States
Netherlands
Proportion of Ownership
Interest Held
2015
25.0%
28.8%
2014
25.0%
28.8%
Information about the Company’s joint venture and associate that are not considered individually material to the
Company:
For year ended December 31, 2015
($ millions)
Company’s share of profit
Carrying amount of the Company’s interests in joint
venture and associate
For year ended December 31, 2014
($ millions)
Company’s share of profit
Carrying amount of the Company’s interests in joint
venture and associate
Energyst
PLM
Total
$
$
$
$
1
40
Energyst
4
37
$
$
$
$
4
63
8
52
$
$
$
$
5
103
Total
12
89
PLM
40
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
16. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT
Accounting Policy
Property, plant, and equipment and rental equipment are recorded at cost, net of accumulated depreciation and any
impairment losses. Depreciation of property, plant and equipment is recorded in selling, general, and administrative
expenses for all assets except standby equipment, which is recorded in cost of sales, in the consolidated statement
of income. Depreciation of rental equipment is recorded in cost of sales in the consolidated statement of income.
Depreciation commences when the asset becomes available for use, and ceases when the asset is derecognized or
classified as held for sale. Rental equipment that becomes available for sale after being removed from rental fleets
is transferred to inventory. Where significant components of an asset have different useful lives, depreciation is
calculated on each separate part.
All classes of property, plant, and equipment and rental equipment are depreciated over their estimated useful lives
to their estimated residual value on a straight-line basis using the following:
Buildings
Equipment and vehicles
Rental equipment
10 - 50 years
3 - 10 years
2 - 5 years
Property, plant, and equipment and rental equipment held under finance lease are depreciated over the lesser of its
useful life or the term of the relevant lease.
Property, plant, and equipment and rental equipment are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs of disposal and value-in-use. Where an impairment loss is recognized for
an item of property, plant, and equipment and rental equipment, the asset is reviewed for possible reversal of the
impairment at the end of each subsequent reporting period.
Areas of Estimation Uncertainty
Depreciation expense is sensitive to the estimated useful life determined for each type of asset. Actual lives and
residual values may vary depending on a number of factors including technological innovation, product life cycles
and physical condition of the asset, prospective use, and maintenance programs.
41
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
16. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT (CONTINUED
)
December 31, 2015
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business
combinations (Note 25)
Transfers from inventory
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2015
($ millions)
Accumulated depreciation and
impairment losses
Balance, beginning of year
Depreciation for the year
Disposals
Impairment loss
Foreign exchange rate changes
Balance, end of year
($ millions)
Net book value
January 1, 2015
December 31, 2015
$
$
$
$
$
$
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
73
10
—
—
(3)
9
89
$
$
$
676
27
$
325
19
$
1,074
56
—
—
(12)
45
736
$
10
—
(38)
30
346
$
10
—
(53)
84
1,171
$
660
207
77
63
(305)
48
750
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
—
—
—
(5)
—
(5) $
(185) $
(214) $
(399) $
(28)
6
(21)
(14)
(35)
23
—
(21)
(63)
29
(26)
(35)
(242) $
(247) $
(494) $
(281)
(117)
112
—
(23)
(309)
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
73
84
$
$
491
494
$
$
111
99
$
$
675
677
$
$
379
441
Impairment losses
During the year ended December 31, 2015, the Company exited certain owned and finance-leased properties and
made the decision to prepare certain properties for sale. These decisions prompted management to review these
assets for impairment.
In total, the Company recognized $26 million of impairment losses, of which $24 million was recognized in other
expenses and $2 million recognized in selling, general, administrative expenses. An impairment loss of $21 million
related to the Company’s Canadian reporting segment, for a property under a finance lease and one owned
property. The remaining impairment losses of $3 million and $2 million relate to owned properties in the Company’s
South American and UK and Ireland reporting segments, respectively. In Canada, the property under a finance
lease was written down to its recoverable value, based on a value-in-use calculation utilizing sublease payments
secured for the remaining term of the lease contract. For owned properties, asset values were written down to its
recoverable value based on an independent valuation assessment. These valuations utilize unobservable inputs and
are classified as a level 3 fair value.
Finance leases
Land, buildings, and equipment under finance leases of $5 million (2014: $11 million), which are net of accumulated
depreciation of $1 million (2014: $4 million), are included above, of which $2 million (2014: $2 million) was acquired
during the year.
Rental equipment under finance leases of $23 million (2014: $1 million), which are net of accumulated depreciation
of $18 million (2014: $10 million), are included above.
Assets under construction
There were no property, plant and equipment assets under construction (2014: $9 million). No depreciation was
recognized on these assets under construction in 2014.
42
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
16. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT (CONTINUED
)
December 31, 2014
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business
combinations (Note 25)
Transfers from inventory / rental
equipment
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2014
($ millions)
Accumulated depreciation
Balance, beginning of year
Depreciation for the year
Disposals
Foreign exchange rate changes
Balance, end of year
($ millions)
Net book value
January 1, 2014
December 31, 2014
$
$
$
$
$
$
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
68
2
—
—
—
3
73
$
$
636
33
—
—
(7)
14
676
$
$
325
28
—
6
(49)
15
325
$
$
1,029
63
—
6
(56)
32
1,074
$
$
694
243
3
21
(318)
17
660
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
—
—
—
—
—
$
$
(160) $
(25)
3
(3)
(185) $
(201) $
(34)
30
(9)
(214) $
(361) $
(59)
33
(12)
(399) $
(280)
(112)
118
(7)
(281)
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
68
73
$
$
476
491
$
$
124
111
$
$
668
675
$
$
414
379
43
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
17. DISTRIBUTION NETWORK
Accounting Policy
Distribution network is recorded at the acquisition date fair value, net of any impairment losses. Distribution network
is an intangible asset with an indefinite life and therefore not amortized. The distribution network is estimated to
have an indefinite life because it is expected to generate cash flows indefinitely. Refer to Note 20 for the Company’s
policy on impairment reviews.
December 31, 2015
($ millions)
Balance, beginning of year
Acquired (a)
Impairment loss (Note 20)
Foreign exchange rate changes
Balance, end of year
Canada
South
America
$
$
94 $
4
—
—
98 $
UK & Ireland Consolidated
341
3 $
4
—
(288)
—
—
44
101
3 $
244 $
—
(288)
44
— $
(a) The Company acquired, from Caterpillar, the distribution rights for the shovels and drills business in Finning’s
dealership territory in Saskatchewan.
December 31, 2014
($ millions)
Balance, beginning of year
Foreign exchange rate changes
Balance, end of year
18. GOODWILL
Accounting Policy
Canada
South
America
UK & Ireland
$
$
94 $
—
94 $
223 $
21
244 $
Consolidated
320
21
341
3 $
—
3 $
Goodwill represents the excess of the acquisition-date fair value of consideration transferred over the fair value of
the identifiable net assets acquired in a business combination. Goodwill is not amortized. Refer to Note 20 for the
Company’s policy on impairment reviews.
December 31, 2015
($ millions)
Balance, beginning of year
Acquired (Note 25)
Adjustment (Note 2d)
Impairment loss (Note 20)
Foreign exchange rate changes
Balance, end of year
December 31, 2014
($ millions)
Balance, beginning of year
Acquired (Note 25)
Foreign exchange rate changes
Balance, end of year
$
$
$
$
Canada
South
America
51 $
25
9
—
—
85 $
UK & Ireland Consolidated
132
25
9
(50)
13
129
46 $
—
—
(14)
7
39 $
35 $
—
—
(36)
6
5 $
Canada
South
America
UK & Ireland
Consolidated
114
14
4
132
31 $
14
1
46 $
51 $
—
—
51 $
32 $
—
3
35 $
44
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
19. INTANGIBLE ASSETS
Accounting Policy
Intangible assets are recorded at cost, net of any accumulated depreciation and any impairment losses. Intangible
assets with finite lives are amortized on a straight-line basis over the periods during which they are expected to
generate benefits. Amortization is recorded in selling, general, and administrative expenses in the consolidated
statement of income using the following estimated useful lives:
Software and Technology
Contracts and Customer relationships
2 – 5 years
2 – 10 years
December 31, 2015
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business combinations (Note 25)
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2015
($ millions)
Accumulated depreciation
Balance, beginning of year
Depreciation for the year
Disposals
Foreign exchange rate changes
Balance, end of year
($ millions)
Net book value
January 1, 2015
December 31, 2015
Contracts and
Customer
relationships
Software
and
Technology
Total
$
$
95
5
9
—
15
124
$
$
72
15
1
(1)
3
90
Contracts and
Customer
relationships
Software
and
Technology
$
$
(61)
(27)
—
(11)
(99)
$
$
(50)
(14)
—
(2)
(66)
$
$
$
$
167
20
10
(1)
18
214
Total
(111)
(41)
—
(13)
(165)
Contracts and
Customer
relationships
Software
and
Technology
Total
$
$
34
25
$
$
22
24
$
$
56
49
45
19. INTANGIBLE ASSETS (CONTINUED
)
December 31, 2014
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business combinations (Note 25)
Disposals
Derecognized (Note 5d)
Foreign exchange rate changes
Balance, end of year
December 31, 2014
($ millions)
Accumulated depreciation
Balance, beginning of year
Depreciation for the year
Foreign exchange rate changes
Balance, end of year
($ millions)
Net book value
January 1, 2014
December 31, 2014
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
Contracts and
Customer
relationships
Software
Total
$
$
$
$
$
$
77
10
2
—
—
6
95
Contracts and
Customer
relationships
(40)
(18)
(3)
(61)
Contracts and
Customer
relationships
37
34
$
$
$
$
$
$
76
7
—
(1)
(12)
2
72
$
$
153
17
2
(1)
(12)
8
167
Software
Total
(37)
(12)
(1)
(50)
$
$
(77)
(30)
(4)
(111)
Software
Total
39
22
$
$
76
56
46
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
20. ASSET IMPAIRMENT
Accounting Policy
Goodwill and intangible assets with indefinite lives are subject to an assessment for impairment at least annually
and when events or changes in circumstances indicate that their value may not be fully recoverable, in which case
the assessment is done at that time. Assets which do not have separate identifiable cash flows are allocated to cash
generating units (CGUs). CGUs are subject to assessment for impairment whenever there is an indication they may
be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s CGUs or group
of CGUs expected to benefit from the acquisition. The level at which goodwill is allocated represents the lowest level
at which goodwill is monitored for internal management purposes and is not higher than an operating segment. If the
recoverable amount of the CGU is less than the carrying amount, then the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on
the basis of the carrying amount of each asset in the unit, unless the impairment loss would reduce the carrying
amount of an individual asset below the highest of its fair value less costs of disposal; its value-in-use; or, zero. Any
impairment is recognized immediately in the consolidated statement of net (loss) income.
Areas of Significant Judgment
Judgment is used in identifying an appropriate discount rate and growth rate for these calculations, identifying the
CGUs to which the intangible assets should be allocated to, and the CGU or group of CGUs at which goodwill is
monitored for internal management purposes.
Areas of Estimation Uncertainty
The impairment calculations require the use of estimates related to the future operating results and cash generating
ability of the assets.
Recoverable value
The recoverable amount of all CGUs and groups of CGUs are determined based on a value-in-use calculation. The
value-in-use calculation uses cash flow projections based on financial budgets which employ the following key
assumptions: future cash flows and growth projections, associated economic risk assumptions, and estimates of
achieving key operating metrics and drivers.
The cash flow projection key assumptions are based upon the Company’s financial budgets, which span a three-
year period and are discounted using post-tax weighted average cost of capital (WACC) rates. For 2015 annual
impairment testing valuation purposes, the cash flows subsequent to the three-year projection period are
extrapolated using growth rates based on estimated long-term real gross domestic product and inflation (where
appropriate) in the markets in which the Company operates.
Carrying amount and CGU allocation
Goodwill and distribution network was allocated to the following CGUs or groups of CGUs for impairment testing
purposes:
($ millions)
Goodwill (1)
Canada
85
$
Argentina
30
$
Chile
UK &
Ireland
UK &
Ireland
Damar
$
5
$
31
$
14
UK & Ireland
Power
Systems
8
$
Bolivia
$
6
($ millions)
Distribution network (1)
(1) Goodwill and distribution network translated at the December 2015 monthly average foreign exchange rates of USD/CAD
1.3705 and GBP/CAD 2.0534
286
Argentina
2
$
98
$
$
$
Canada
Mining
Chile
Mining
UK & Ireland
Equipment
Solutions
3
47
20. ASSET IMPAIRMENT (CONTINUED
)
Key assumptions
The significant assumptions used in the Company’s value-in-use calculations for each CGU or group of CGUs are
as follows:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
For years ended December 31
Canada
Canada Mining
Argentina
Chile
Chile Mining
UK & Ireland
UK & Ireland Damar
UK & Ireland Power Systems
UK & Ireland Equipment Solutions
Bolivia
Impairment losses
2015
Post-tax
WACC rate Growth rate
1.9%
1.9%
3.5%
2.4%
2.0%
2.1%
2.1%
2.1%
2.1%
3.5%
8.7%
8.8%
14.7%
10.2%
10.5%
9.6%
10.7%
9.7%
9.6%
13.0%
2014
Post-tax
WACC rate
9.9%
9.9%
15.5%
8.8%
8.8%
8.5%
—
8.5%
8.5%
11.5%
Growth rate
2.1%
2.1%
2.0%
3.7%
3.7%
2.4%
—
2.4%
2.4%
5.0%
Due to a difficult macro economic environment and prolonged weak market conditions in the current and
foreseeable future, including lower copper prices and the ongoing economic uncertainty, management anticipates a
weaker mining sector in South America as well as lower activity in UK & Ireland. Although lower commodity prices
were also anticipated in the prior year assumptions, management estimates that commodity prices will remain low
for a longer period of time and that impact has been included in its financial budgets. Growth in Chile is expected to
recover but is still below historically low levels. These are some of the key factors resulting in the carrying values of
the Chile Mining, Argentina, UK & Ireland Damar, and Bolivia CGUs exceeding their recoverable amounts. The
recoverable values in the annual impairment tests supported each of the remaining CGU carrying amounts.
During the year ended December 31, 2015, the Company recognized impairment losses of $324 million in the South
America reporting segment comprising:
(cid:120) $286 million distribution network in Chile Mining CGU
(cid:120) $2 million distribution network in the Argentina CGU
(cid:120) $30 million goodwill in the Argentina CGU
(cid:120) $6 million goodwill in the Bolivia CGU
The recoverable value of the Company’s Chile Mining CGU and Argentina CGU is estimated to be $623 million and
$218 million, respectively. The Company also recognized a goodwill impairment loss of $14 million in the UK &
Ireland reporting segment.
Sensitivities to key assumptions
Sensitivity testing was conducted as part of the 2015 annual impairment test, including stress testing the WACC rate
with all other assumptions being held constant. Except for the impairment losses identified, management believes
that any reasonable change in the key assumptions used to determine the recoverable amount would not cause the
carrying amount of any other cash generating unit or group of cash generating units to exceed its recoverable
amount. Management believes its assumptions are reasonable. If future events were to adversely differ from
management’s best estimate, key assumptions and associated cash flows could be materially adversely affected
and the Company could potentially experience future material impairment charges in respect of the intangibles with
indefinite lives and goodwill.
48
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
21. PROVISIONS
Accounting Policy
Provisions are made for estimated warranty claims in respect of certain equipment, spare parts, and service
supplied to customers which are still under warranty at the end of the reporting period. These claims are expected to
be settled in the next financial year.
Also, provisions are recognized if it is expected that a long-term service or construction contract will incur a loss. The
expected loss is recognized as a provision with a corresponding expense in the income statement.
Areas of Estimation Uncertainty
Management estimates the warranty provision based on claims notified and past experience. Factors that could
impact the estimated claim include the quality of the equipment and spare parts and labour costs.
For year ended December 31, 2015
($ millions)
Balance, beginning of year
New provisions
Charges against provisions
Foreign exchange rate changes
Balance, end of year
Current portion
Non-current portion
For year ended December 31, 2014
($ millions)
Balance, beginning of year
New provisions
Charges against provisions
Foreign exchange rate changes
Balance, end of year
Current portion
Non-current portion
22. OTHER LIABILITIES
December 31
($ millions)
Income tax payable
Derivative liabilities
Total other liabilities - current
December 31
($ millions)
Deferred revenue
Deferred tax liabilities (Note 13)
Liability for long-term contracts (Note 14a)
Finance leasing obligations (a) (Note 28)
Onerous contracts
Share-based payments (Note 10)
Other
Total other liabilities – non-current
Warranty
Claims
Other
Total
$
$
$
$
$
$
$
$
48
66
(78)
5
41
41
—
Warranty
Claims
80
105
(139)
2
48
48
—
$
$
$
$
$
$
$
$
$
$
$
$
20
50
(49)
3
24
19
5
Other
20
16
(17)
1
20
15
5
$
$
$
$
$
$
$
$
68
116
(127)
8
65
60
5
Total
100
121
(156)
3
68
63
5
2015
2014
4
2
6
2015
48
37
34
31
13
11
6
180
$
$
$
$
13
5
18
2014
42
74
38
17
—
15
4
190
(a) Finance leases were issued at varying rates of interest from 6% - 10% and mature on various dates up to 2078.
49
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS
The Company and its subsidiaries offer a number of benefit plans that provide pension and other benefits to many
of its employees in Canada, the U.K. and the Republic of Ireland. These plans include defined benefit and defined
contribution plans.
The defined benefit pension plans include both registered and non-registered pension plans that provide a pension
based on the members’ final average earnings and years of service while participating in the pension plan.
(cid:120) In Canada, closed defined benefit pension plans exist for eligible employees. Final average earnings are based on
the highest 3 or 5 year average salary depending on employment category and there is no standard indexation
feature. Effective July 1, 2004, non-executive members of the defined benefit pension plan were offered a
voluntary opportunity to convert their benefits to a defined contribution pension plan. The registered defined
benefit pension plan was subsequently closed to all new non-executive employees, who became eligible to enter
one of the Company’s defined contribution pension plans. Effective January 1, 2010, the defined benefit pension
plan was closed to new executive employees as well, who became eligible to join a defined contribution pension
plan. Pension benefits under the registered defined benefit pension plans’ formula that exceed the maximum
taxation limits are provided from a non-registered supplemental pension plan. Benefits under this plan are partially
funded by a Retirement Compensation Arrangement.
(cid:120) Finning (UK) provided a defined benefit pension plan for eligible employees hired prior to January 2003. Under
this plan, final average earnings are based on the highest 3-year period and benefits are indexed annually with
inflation subject to limits. Effective January 2003, this plan was closed to new employees who became eligible to
join a defined contribution pension plan. In December 2011, the UK defined benefit pension plan was further
amended to cease future accruals for existing members from April 2012 at which time affected members began
accruing benefits under a defined contribution pension plan.
The defined contribution pension plans are pension plans under which the Company pays fixed contributions, as a
percentage of earnings, into the plans, where an account exists for each plan member.
(cid:120) In Canada, the defined contribution pension plans are registered pension plans that offer a base Company
contribution rate for all members. The Company will also partially match non-executive employee contributions to
a maximum additional Company contribution of 1% of employee earnings. The registered defined contribution
pension plan for executive employees is supplemented by an unfunded supplementary accumulation plan. Where
contributions under the registered plan would otherwise exceed the maximum taxation limit, the excess
contributions are provided through this supplemental plan.
(cid:120) In the UK, the defined contribution pension plans offer a match of employee contributions, within a required range,
plus 1%. The Company’s Irish subsidiary has a defined contribution pension plan, which offers a match of
employee contributions at a level set by the Company.
The Company’s South American employees do not participate in employer pension plans but are covered by country
specific legislation with respect to post-employment benefit plans. The Company’s South American post-
employment benefit plans are not funded. The Company accrues its obligations to employees under these
arrangements based on the actuarial valuation of anticipated payments to employees.
50
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Accounting Policy
Defined benefit plans
The cost of pensions and other retirement benefits is determined by independent actuaries using the projected unit
credit method.
Current service costs and administration costs (net of employee contributions) are recognized in selling, general,
and administrative expenses and net interest costs are recognized finance costs in the consolidated statement of
income. Net interest cost is calculated by applying the discount rate at the beginning of the period to the net defined
benefit liability or asset and contributions to and benefit payments from the plan during the year.
Actuarial gains and losses arising from experience and changes in actuarial assumptions are recognized directly in
other comprehensive income in the period in which they occur.
The amount recognized in the consolidated statement of financial position represents the present value of the
defined benefit obligation reduced by the fair value of plan assets. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows using high-quality corporate bond yields
that approximate the timing of the related pension obligation.
Defined contribution plans
The cost of pension benefits includes the current service cost, which comprise the actual contributions made and
accrued by the Company during the year. These contributions are based on a fixed percentage of member earnings
for the year and are charged to the consolidated statement of income as they become due.
Areas of Significant Judgment
Actuarial valuations of the Company’s defined benefit and other post-employment benefit plans are based on
assumptions requiring significant judgment, such as mortality rates, inflation (which is particularly relevant in the
UK), estimates of future salary increases, and employee turnover. Judgment is exercised in setting these
assumptions. These assumptions combined with the high quality corporate bond yield, used to discount the
estimated future cash flows, impact the measurement of the net employee benefit obligation, the net benefit cost,
the actuarial gains and losses recognized in other comprehensive income, and funding levels in Canada and the
UK.
The net benefit cost for the Company’s post-employment benefit plans, primarily for pension benefits, is as follows:
For years ended December 31
($ millions)
Defined contribution (DC) pension
Canada
2015
UK &
Ireland
Total
Canada
2014
UK &
Ireland
Total
plans
Net benefit cost
Defined benefit (DB) pension plans
Current service cost, net of
employee contributions
Administration costs
Net interest cost
Net benefit cost
Net DC and DB benefit cost
recognized in net income
Actuarial (gain) loss on plan assets
Actuarial (gain) loss on plan liabilities
Total actuarial (gain) loss recognized
in other comprehensive income
$
34 $
10 $
44
$
37 $
9 $
46
9
—
2
11
—
2
2
4
45 $
14 $
9
2
4
15
59
(8) $
(9)
14 $
(78)
6
(87)
$
$
$
(17) $
(64) $
(81)
7
—
2
9
—
1
2
3
46 $
12 $
7
1
4
12
58
(29) $
49
(76) $
97
(105)
146
20 $
21 $
41
$
$
$
51
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Information about the Company’s defined benefit pension plans is as follows:
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
For years ended December 31
($ millions)
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurements:
- Actuarial (gain) loss from change
in demographic assumptions
- Actuarial (gain) loss from change
in financial assumptions
Experience (gain) loss
Foreign exchange rate changes
Balance, end of year
Plan assets
Fair value at beginning of year
Return on plan assets:
$
$
- Return on plan assets included in
net interest cost
- Actuarial gain (loss) on plan assets
Employer contributions
Employees contributions
Benefits paid
Administration costs
Foreign exchange rate changes
Fair value at end of year
Net defined benefit obligation
Canada
2015
UK
Total
Canada
2014
UK
Total
$
518 $
10
19
(26)
—
(6)
(3)
—
512 $
$
692 $ 1,210
10
44
(49)
—
25
(23)
459 $
8
21
(19)
574 $ 1,033
8
47
(38)
—
26
(19)
(5)
(5)
(38)
(35)
86
(44)
(38)
86
702 $ 1,214
7
51
(9)
—
$
518 $
—
7
96
1
14
147
(8)
14
692 $ 1,210
465 $
625 $ 1,090
$
415 $
521 $
936
17
8
9
1
(26)
—
—
$
$
474 $
38 $
23
(14)
12
—
(23)
(2)
81
40
(6)
21
1
(49)
(2)
81
702 $ 1,176
38
— $
19
29
20
1
(19)
—
—
$
$
465 $
53 $
24
76
11
—
(19)
(1)
13
43
105
31
1
(38)
(1)
13
625 $ 1,090
120
67 $
Included in the 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
($ millions)
Accrued benefit obligation
Fair value of plan assets
Funded status – plan deficit
Canada
$
$
507 $
467
40 $
2015
UK
Total
Canada
2014
UK
Total
702 $
702
— $
1,209 $
1,169
40 $
513 $
459
54 $
692 $
625
67 $
1,205
1,084
121
52
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Key Assumptions and Related Sensitivities
The significant actuarial assumptions used in the valuations of the Company’s defined benefit pension plans include:
2015
2014
For years ended December 31
Discount rate – obligation
Discount rate – expense (1)
Retail price inflation – obligation
Retail price inflation – expense (1)
(1) Used to determine the net interest cost and expense for the years ended December 31, 2015 and December 31, 2014.
Canada
3.9%
3.8%
n/a
n/a
Canada
3.8%
4.6%
n/a
n/a
UK
3.7%
3.4%
3.2%
3.2%
UK
3.4%
4.5%
3.2%
3.5%
Assumptions regarding future mortality are set based on management’s best estimate in accordance with published
statistics and experience in each country. During 2015 and 2014, the mortality tables were updated to reflect newly
available estimated mortality rates in the UK and Canada, respectively. These assumptions translate into an
average life expectancy (in years) as follows:
Life expectancy for male currently aged 65
Life expectancy for female currently aged 65
Life expectancy at 65 for male currently aged 45
Life expectancy at 65 for female currently aged 45
Canada
22
24
23
25
UK
22
25
24
26
Discount rates are determined based on high quality corporate bonds at the measurement date, December 31, 2015
and 2014. The accrued defined benefit pension obligation and expense are sensitive to changes in the discount
rate, among other assumptions. At the end of the most recent calendar year, the weighted average duration of the
obligation in Canada is 14 years and in the U.K. is 19 years. A 0.25% increase in the discount rate and in retail price
inflation would impact the defined benefit obligation by the amounts shown below.
Increased (decreased) defined benefit obligation
($ millions)
Discount rate
Retail price inflation
Change in assumption
+ 0.25%
+ 0.25%
Canada
UK
$ (17)
n/a
$ (31)
$ 24
A 0.25% decrease in the discount rate and retail price inflation would have an approximately equivalent but opposite
effect on the above accounts in the amounts shown.
The sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, as changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (i.e. present value
of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period)
has been applied as when calculating the pension liability recognized within the statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the
previous period.
53
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Funding and Valuations of Defined Benefit Plans
In Canada, the Company is funding its obligations in accordance with pension legislation requiring funding of going
concern deficits over a fifteen year period and solvency deficits over a five year period. In the U.K., at the last formal
valuation a ten year schedule was set out. The contributions expected to be paid during the financial year ended
December 31, 2016 amount to approximately $26 million for the defined benefit pension plans. Funding levels are
monitored regularly and reset with new valuations that occur at least every three years. Defined benefit pension
plans are country and entity specific. The valuation dates of the Company’s material defined benefit pension plans
are as follows:
Defined Benefit Pension Plan
Canada – BC Regular & Executive Plan
Canada – Executive Supplemental Income Plan
Canada – Alberta Defined Benefit Plan
Finning UK Defined Benefit Scheme
(1) The December 31, 2014 actuarial valuation is in progress as at February 17, 2016.
Last Actuarial
Valuation Date
December 31, 2013
December 31, 2015
December 31, 2013
December 31, 2014
(1)
Next Actuarial
Valuation Date
December 31, 2016
December 31, 2018
December 31, 2016
December 31, 2017
Plan Assets
The fair values of plan assets are determined using a combination of quoted prices and market observable inputs
except for investments in real estate and annuity contracts. The fair values of investments in real estate are
determined using un-quoted inputs. Annuity contracts invested in by the plan will have cashflows that exactly match
the amount and timing of certain benefits payable under the plans. The value of these contracts is deemed to be the
present value of the related obligations. Plan assets are principally invested in the following securities (segregated
by geography):
Canada
Canada
US
International
UK
Fixed-income (1)
Equity
Real estate
Cash and cash equivalents
(1) Fixed-income includes investments in annuity contracts in Canada.
63%
8%
4%
3%
—
12%
—
—
—
10%
—
—
59%
3%
8%
1%
UK
US
—
15%
—
—
International
—
14%
—
—
Plan assets do not include a direct investment in common shares of the Company at December 31, 2015 and 2014.
54
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Key Risks
Through its defined benefit pension plans, the Company is exposed to a number of risks, the most significant of
which are detailed below:
Investment Risk (i.e. asset volatility)
The plan liabilities are calculated using a discount rate set with reference to high quality corporate bond yields; if
plan assets underperform this yield, this will create a deficit. Both the Canadian and U.K. plans invest in various
asset categories including primarily equities, fixed income, and real estate. These investments, in aggregate, are
expected to outperform corporate bonds in the long-term but may result in volatility in the shorter-term.
To help mitigate this risk, in selecting the portfolios and the weightings in each category, the Company considers
and monitors how the duration and the expected yield of the investments match the expected cash outflows arising
from the pension obligations. A framework has been developed and adopted for each of the Canadian and U.K.
defined benefit pension plans whereby the investments will be adjusted over time as plan funding positions improve.
The planned adjustments are intended to improve the asset-liability match over time. This is to be accomplished
primarily by reducing the exposure to equity investments over time and increasing exposure to investments such as
long-term fixed interest securities with maturities that better match the benefit payments as they fall due. Recent
progress included investments in annuity contracts in Canada and liability matching funds in the U.K.
Equity investments still remain in the plans, as the Company believes that equities offer higher returns over the long
term with an acceptable level of risk considering the proportion of assets held in this category and the long-term
nature of the liabilities. Investments remain well diversified, such that the failure of any single investment would not
have a material impact on the overall level of assets.
Discount Rate Risk (i.e. changes in bond yields)
A decrease in corporate bond yields will increase the value placed on the plan liabilities. This risk is managed by
selecting certain investments that aim to better match assets and liabilities. For example, a liability increase that
results from a decrease in corporate bond yields will be partially offset by an increase in the value of the plans’ bond
holdings.
Inflation Risk
The majority of the pension obligations in the U.K. are linked to inflation. Higher inflation will lead to higher liabilities
(although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme
inflation). While some of the plan’s assets are either unaffected by (fixed interest bonds) or loosely correlated with
(equities) inflation, in recent years, the plan has increased its investments in assets that have a direct correlation
with inflation (e.g. real estate, index-linked gilts and liability matching funds) in order to further manage this risk.
In the Canadian plans, the pension payments are not linked to inflation, so this is not a direct risk. However, to the
extent that future benefits are based on final average earnings and salaries are generally linked to inflation to some
degree, an increase in inflation beyond expectations will result in higher liabilities. With a relatively small number of
employees still earning benefits in a defined benefit plan, this risk is limited. The risk is managed to some degree
through investments correlated with inflation (e.g. real estate, and, to a lesser degree, equities).
Longevity Risk (i.e. increasing life expectancy)
The plans provide benefits for the life of the member after retirement, so increases in life expectancy will result in an
increase in the plans’ liabilities. This is particularly significant in the U.K. plan, where inflationary increases result in
higher sensitivity to changes in life expectancy.
The Company has partially mitigated this risk in Canada with the purchase of annuity contracts which provide
cashflows that exactly match the amount and timing of certain benefit payments under the plans.
55
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
23. POST-EMPLOYMENT EMPLOYEE BENEFITS (CONTINUED
)
Other Post-Employment Benefit Obligations
Employment terms at some of the Company’s South American operations provide for a payment when an
employment contract comes to an end under certain conditions, which can be considered a post-employment
benefit. This is typically at the rate of one month of final salary for each year of service (subject in most cases to a
cap as to the number of qualifying years of service and a cap on the salary rate). This post-employment benefit
obligation is treated as an unfunded defined benefit pension plan, and the obligation recognized is based on
valuations performed and regularly updated through independent actuarial calculations by using the projected unit
credit method. The obligation recognized in the consolidated statement of financial position represents the present
value of the post-employment benefit obligation. Actuarial gains and losses are immediately recognized in the
consolidated statement of other comprehensive income.
The most recent actuarial valuation date was December 31, 2015.
The main assumptions used to determine the actuarial present value of the benefit obligation were as follows:
December 31
Discount rate – obligation
Rate of compensation increase
Average staff turnover
For years ended December 31
($ millions)
Movement in the present value of the other post-employment benefit
obligation was as follows:
Balance at the beginning of the year
Current service cost
Interest cost
Remeasurement (gains) losses recognized in other comprehensive income:
- Change in demographic assumptions
- Change in financial assumptions
- Experience gains
Paid in the year
Foreign exchange rate changes
Balance at the end of the year
Maturity Analysis
2015
1.5%
3.0%
6.0%
2014
2.2%
3.0%
13.2%
2015
2014
$
$
37
6
1
3
2
(1)
(6)
2
44
$
$
48
5
1
(12)
1
(1)
(5)
—
37
Expected maturity analysis of undiscounted pension and other post-employment benefit obligations of the
Company’s operations in Canada, U.K. and Ireland, and South America are as follows:
December 31, 2015
($ millions)
Defined benefit pension plans
Other post-employment benefits
Total
Less than
a year
$
$
45
9
54
Accumulated Remeasurement Losses
Between
1-2 years
46
5
51
$
$
Between
2-5 years
150
11
161
$
$
Over
5 years
Total
$
$
2,116
60
2,176
$
$
2,357
85
2,442
The accumulated actuarial loss, net of tax, of the post-employment benefit obligations in the Company’s operations
in Canada, U.K. and Ireland, and South America recognized directly in retained earnings is $215 million as at
December 31, 2015 (December 31, 2014: $277 million).
56
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
24. SUPPLEMENTAL CASH FLOW INFORMATION
Accounting Policy
Cash and cash equivalents comprise cash on hand together with short-term investments, consisting of highly rated
and liquid money market instruments with original maturities of three months or less, and are classified as loans and
receivables.
The components of cash and cash equivalents are as follows:
December 31
($ millions)
Cash
Cash equivalents
Cash and cash equivalents
The changes in operating assets and liabilities are as follows:
For years ended
($ millions)
Accounts receivable and other assets
Service work in progress
Inventories – on-hand equipment
Inventories – parts and supplies
Instalment notes receivable
Accounts payable and accruals and other liabilities
Income tax recoverable/payable
Changes in operating assets and liabilities
2015
2014
184
291
475
$
$
199
251
450
2015
2014
341
13
(17)
91
15
(382)
15
76
$
$
16
(1)
109
58
(14)
(183)
(3)
(18)
$
$
$
$
Dividends of $0.725 (2014: $0.685) per share were paid during the year. Subsequent to year end in February 2016,
the Board of Directors approved a quarterly dividend of $0.1825 per share payable on March 17, 2016 to
shareholders of record on March 3, 2016. This dividend will be considered an eligible dividend for Canadian income
tax purposes. As at December 31, 2015, the Company has not recognized a liability for this dividend.
57
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
25. ACQUISITIONS
Accounting Policy
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration for the acquisition of a subsidiary is:
(cid:120)
(cid:120)
fair values of the assets transferred, and
fair value of an asset or liability resulting from a contingent consideration arrangement
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at the acquisition-date fair value.
The excess of the consideration transferred over the fair value of the net identifiable assets acquired is recorded as
goodwill. Acquisition-related costs are expensed as incurred.
Saskatchewan dealership
Effective July 1, 2015 the Company acquired the operating assets of Kramer Ltd. for cash consideration of $241
million and became the approved Caterpillar dealer in Saskatchewan. The acquisition expands Finning’s Western
Canadian operations into a contiguous territory, diversifies the Company's revenue base into sectors such as potash
and uranium, and provides a platform for long-term growth opportunities and diversification into new markets.
This purchase is accounted for as a business combination. Management is currently in the process of estimating the
acquisition-date fair values of certain tangible assets acquired and measuring the acquired intangible assets. The
preliminary allocation of the purchase price, based on management’s best estimate at February 17, 2016, is as
follows:
Preliminary purchase price allocation ($ millions)
Inventory
Rental equipment
Accounts and other receivables
Property, plant, and equipment
Intangible assets
Service work in progress
Goodwill
Accounts payable and other liabilities
Deferred income tax liability
Net assets acquired
$
$
96
77
38
10
10
2
25
(16)
(1)
241
The intangible assets acquired represent customer relationships of $9 million and technology of $1 million and are
being amortized on a straight-line basis over their estimated life of 10 years and 3 years, respectively. Goodwill
relates to the expected synergies by combining complementary capabilities, customer bases and highly skilled
employees across Finning's territory in British Columbia, Alberta, Yukon, Northwest Territories and part of Nunavut
with Kramer's presence in Saskatchewan. The goodwill is assigned to the Company’s Canada operating segment.
Goodwill recognized is not deductible for tax purposes.
Acquisition costs of $3 million were paid on the transaction and recorded as an expense in the consolidated
statement of income of 2015.
Since the acquisition date to the end of the reporting period, the acquiree earned $107 million of revenue and $6
million in net income.
58
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
25. ACQUISITIONS (CONTINUED
)
SITECH
On July 4, 2014, the Company’s UK & Ireland operations acquired 100% of the shares of Reaction One Limited (UK)
and Alveton Limited (Ireland). With these acquisitions, the newly formed company named SITECH sells and
services Trimble Navigation Limited’s (Trimble) heavy and highway machine control and monitoring products in all of
its dealership territories (rights in the Company’s Canadian and South American dealership operations were
acquired in 2011). Trimble is Caterpillar’s global technologies joint venture partner in construction and other
industries.
The fair value of the total consideration at the acquisition date was $20 million (£11 million) with $14 million (£8
million) paid in cash at the time of acquisition. Further contingent consideration with a possible range of £nil - £4
million may be paid after acquisition, contingent upon the profitability of the acquired business over the next three
years. The Company recognized $6 million (£3 million) of contingent consideration as a liability on the consolidated
statement of financial position. Acquisition costs of $1 million (£0.4 million) were paid on the transaction and were
recorded as an expense in the consolidated statement of income of 2014.
The purchase has been accounted for as a business combination. The allocation of the purchase price is as follows:
Purchase price allocation ($ millions)
Working capital
Rental equipment
Intangible assets
Goodwill
Net assets acquired
$
$
1
3
2
14
20
The intangible assets acquired represent customer relationships valued at $2 million (£1 million) and are being
amortized on a straight-line basis over their estimated life of 2 years. Goodwill recognized relates to expected
synergies from combining the operations of Finning UK & Ireland and SITECH which will provide a total solutions
and technology strategy to ensure greater productivity to customers within the U.K. and Ireland. The goodwill is
assigned to the UK & Ireland Equipment Solutions cash-generating unit. Goodwill recognized is not deductible for
tax purposes.
Other acquisitions
Cash paid in relation to other acquisitions in 2015 totalled $2 million (2014: $nil).
59
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
26. ECONOMIC RELATIONSHIPS
The Company distributes and services heavy equipment, engines, and related products. The Company has
dealership agreements with numerous equipment manufacturers, of which the most significant are with subsidiaries
of Caterpillar. Distribution and servicing of Caterpillar products account for the major portion of the Company's
operations. Finning has a strong relationship with Caterpillar that has been ongoing since 1933.
27. RELATED PARTY TRANSACTIONS AND TOTAL STAFF COSTS
Balances and transactions between the Company and its subsidiaries, joint venture, and associate, which are
related parties, have been eliminated on consolidation and are not disclosed in this note.
The remuneration of the Board of Directors during the year was as follows:
For years ended December 31
($ millions)
Short-term benefits
Share-based payments
Total
2015
2014
$
$
1
—
1
$
$
1
1
2
The remuneration of key management personnel excluding the Board of Directors (defined as officers of the
Company and country presidents) during the year was as follows:
For years ended December 31
($ millions)
Salaries and benefits
Post-employment benefits
Share-based payments
Termination payments
Total
2015
2014
$
$
9
1
2
—
12
$
$
10
1
7
1
19
Total staff costs, including salaries, benefits, pension, share-based payments, termination payments, and
commissions are $1,306 million (2014: $1,404 million). This amount includes staff costs associated with key
management personnel noted above.
60
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
28. LEASES
Accounting Policy
Leases are classified as either finance or operating leases. Leases where substantially all of the benefits and risks
of ownership of property rest with the lessee are accounted for as finance leases; all other leases are classified as
operating leases.
The Company as Lessee
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability
to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Contingent rental payments are recognized as expenses in the
periods in which they are triggered.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives
are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a
straight-line basis over the term of the lease, except where another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed.
Future minimum lease payments due under finance lease contracts and payments due under various operating
lease contracts are as follows:
For years ended December 31
($ millions)
2016
2017
2018
2019
2020
Thereafter
Less imputed interest
Total finance lease obligation
Less current portion of finance lease obligation
Non-current portion of finance lease obligation
Operating
Leases (1)
74
53
38
30
23
84
302
$
$
Finance
Leases
6
6
6
5
11
16
50
(15)
35
(4)
31
$
$
$
(1) The Company recognized a liability of $16 million, $4 million in accrued liabilities and $12 million in non-current other
liabilities, related to future minimum lease payments due under certain operating leases that were considered to be onerous
at December 31, 2015 (2014: $nil).
Minimum lease payments recognized as lease expense for the year ended December 31, 2015 is $95 million (2014:
$109 million).
61
Finning International Inc.
Annual 2015 Results
Notes to the Consolidated Financial Statements
29. COMMITMENTS AND CONTINGENCIES
Due to the size, complexity, and nature of the Company’s operations, various legal, customs, and tax matters are
pending. These include a number of claims from the Argentina Customs Authority associated with export of
agricultural product. The Company has appealed these claims, believes they are without merit, and is confident in its
position.
These pending matters may take a number of years to resolve. Should the ultimate resolution of these matters differ
from management’s assessment, a material adjustment could arise and impact the Company’s financial position.
However, it is the current opinion of management, that these matters will not have a material effect on the
Company’s consolidated financial position or results of operations.
30. 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 which is generally based on a discount from the estimated future fair value of that
equipment. As at December 31, 2015, the total estimated value of these contracts outstanding is $138 million (2014:
$125 million) coming due at periods ranging from 2016 to 2018. The Company’s experience to date has been that
the equipment at the exercise date of the contract is generally worth more than the repurchase amount. The total
amount recognized as a provision against these contracts is $2 million (2014: $1 million).
The Company has issued certain guarantees to Caterpillar Finance to guarantee certain borrowers’ obligations. The
guarantees would be enforceable in the event that the borrowers defaulted on their obligations to Caterpillar
Finance, to the extent that any net proceeds from the recovery and sale of collateral securing repayment of the
borrowers’ obligations is insufficient to meet those obligations. As at December 31, 2015, the maximum potential
amount of future payments that the Company could be required to make under the guarantees, before any amounts
that may possibly be recovered under recourse or collateralization provisions in the guarantees, is $26 million,
covering various periods up to 2022. As at December 31, 2015 and 2014, the Company has not recognized a
liability for these guarantees.
The Company has also issued guarantees for certain equipment sold to third parties to guarantee their residual
values. The guarantees would be enforceable in the event that the market value of equipment at the time of its
ultimate disposal is below the residual value guarantee issued by the Company. As at December 31, 2015, the
maximum potential amount of future payments that the Company could be required to make under the guarantees is
$17 million, covering various periods up to 2020. As at December 31, 2015, the Company has recognized a liability
of $5 million for these guarantees (2014: $2 million).
As part of the Hewden Purchase and Sale Agreement in 2010, the Company provided indemnifications to the third
party purchaser, covering breaches of representation and warranties as well as litigation and other matters set forth
in the agreement. Claims may be made by the third party purchaser under the agreement for various periods of time
depending on the nature of the claim, up to six years. The maximum potential exposure of the Company under these
indemnifications is 100% of the purchase price. As at December 31, 2015, the Company has not recognized a
liability for these indemnifications.
In connection with the sale of the Materials Handling Division in 2006, the Company provided a guarantee to a third
party with respect to a property lease. If the lessee were to default, the Company would be required to make the
annual lease payments of approximately $1 million to the end of the lease term in 2020. The Company has not
recognized a liability for this guarantee in 2015 or 2014.
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. The total issued and outstanding letters of credit at December 31, 2015 was $126 million (2014: $199
million) all related to letters of credit issued in Chile (2014: $198 million), principally related to performance
guarantees on delivery for prepaid equipment and other operational commitments.
62
Five Year Financial Summary
For years ended December 31
2015 (1)
2014
2013
2012
2011
OPERATING RESULTS ($ millions)
Revenue (2) (3) (4)
Canadian operations
South American operations (4)
UK & Ireland
Other
Total consolidated
EBITDA (2) (3) (5)
As a percent of revenue (EBITDA margin)
EBIT (2) (3) (5)
As a percent of revenue (EBIT margin)
Net income (2) (3) (5)
As a percent of revenue
Invested capital
Inventory
Free cash flow
RATIOS (7)
Return on invested capital
Invested capital turnover
Inventory turns
Working capital to sales
Net debt to invested capital
Net debt to EBITDA
SHARE AND PER SHARE DATA
Earnings per common share (2) (3) (5)
Basic
Diluted
$
3,054
$
3,634
$
3,358
$
3,278
$
2,944
2,059
1,077
2,227
1,057
2,514
884
2,397
901
2,120
831
$
6,190
$
6,918
$
6,756
$
6,576
$
5,895
$
126
$
720
$
737
$
701
$
548
2.0%
(105)
$
(1.7)%
10.4%
504
$
7.3%
10.9%
521
$
7.7%
10.7%
489
$
7.4%
$
9.3%
374
6.3%
$
(161)
$
318
$
335
$
327
$
251
(2.6)%
4.6%
5.0%
5.0%
4.3%
$
3,240
$
1,800
$
3,106
$
1,661
$
3,138
$
1,756
$
3,131
$
1,930
$
2,320
$
1,443
$
325
$
483
$
441
$
(37)
$
(221)
(3.0)%
1.75x
2.26x
32.7%
36.7%
9.5
15.3%
2.10x
2.81x
26.1%
31.4%
1.4
15.7%
2.04x
2.74x
26.5%
40.8%
1.7
16.5%
2.22x
2.43x
24.5%
50.0%
2.2
16.0%
2.53x
2.95x
22.8%
42.0%
1.8
$
(0.94)
$
(0.94)
$
1.85
$
1.84
$
1.95
$
1.94
$
1.90
$
1.90
$
1.47
$
1.46
Dividends per common share
$
0.7250
$
0.6850
$
0.5975
$
0.55
$
0.51
Common Share Price
High
Low
Year end
$
25.67
$
17.60
$
18.68
$
33.90
$
23.09
$
25.23
$
27.68
$
20.37
$
27.15
$
29.97
$
21.68
$
24.57
$
30.25
$
18.55
$
22.21
Common shares outstanding (thousands)
168,031
172,370
172,014
171,910
171,574
NUMBER OF EMPLOYEES (6)
Canada
South America
UK and Ireland
Head Office
Total
Revenue per employee (7) (8)
Net income per employee (7) (8)
5,017
6,253
1,660
73
13,003
5,703
6,937
1,790
65
14,495
5,698
7,463
1,677
86
14,924
6,061
7,422
1,814
85
15,382
5,435
6,453
1,626
78
13,592
$
476
$
(12)
$
477
$
22
$
453
$
22
$
427
$
21
$
434
$
18
These results have been prepared in accordance with International Financial Reporting Standards.
(1) 2015 reported financial metrics were impacted by a number of significant items management does not consider indicative of operational and financial
trends either by nature or amount. These significant items are described on page 3 of the Management Discussion & Analysis; of the significant items described,
$10 million was recorded in depreciation and amortization expense. Excluding the significant items not included in depreciation and amortization annual 2015 EBITDA
would have been $604 million and Net Debt to EBITDA ratio would have been 2.0x.
(2) In July 2015, the Company’s Canadian operations acquired the operating assets of Kramer Ltd., the results of the acquired dealership business in Saskatchewan have been
included in the Company's Canadian operations segment since the date of acquisition. In July 2014, the Company’s UK & Ireland operations acquired SITECH.
In February 2012, the Company acquired Damar, an engineering company specializing in the water utility sector in the U.K. In May 2012, the Company acquired the former
Bucyrus distribution and support business in its dealership territories of South America and in the U.K. In October 2012, the Company acquired the former Bucyrus distribution
and support business in its Canadian dealership territory. The results of operations and financial position of these acquired businesses have been included in the figures above
since the date of acquisition.
(3) In December 2015, the Company sold its wholly owned subsidiary, Finning Uruguay S.A. (Uruguay dealership). The results of the Uruguay dealership have been included in the
Company's South American operations segment up until the date of sale.
(4) The Company's South American operations began to export an agricultural product from Argentina in 2012 in response to the Argentinean government's efforts to balance imports
and exports and to manage access to foreign currency exchange. In 2013, the Company reclassified the export revenues and expenses to other income and other expenses and
has restated the results for the year ended December 31, 2012. The Company has not exported agricultural product since Q3 2013.
(5) In 2013, the Company retrospectively applied the amendments to IAS 19, Employee Benefits to January 1, 2010, the date of IFRS adoption and have restated the results for 2012
and 2011.
(6) Number of employees includes all employees up to the point of sale or since acquisition.
(7) These financial metrics do not have a standardized meaning under IFRS, and may not be comparable to similar measures used by other issuers.
(8) Revenue/net income per employee is calculated as revenue/net income divided by total number of employees.
Board of Directors and Executive Officers
As of February 18, 2016
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
David W. Cummings
Executive Vice President and Chief Information
Officer, Finning International Inc.
Chad Hiley
Chief Human Resources Officer, Finning
International Inc. and Senior Vice President,
Human Resources, Finning Canada
Marcello Marchese
President, Finning South America
Anna P. Marks
Senior Vice President, Corporate Controller and
Treasurer, Finning International Inc.
Steven M. Nielsen
Executive Vice President and Chief Financial
Officer, Finning International Inc.
Kevin Parkes
Managing Director, Finning UK & Ireland
J. Gail Sexsmith
Corporate Secretary, Finning International Inc.
L. Scott Thomson
President and Chief Executive Officer, Finning
International Inc.
Juan Carlos Villegas
President, Finning Canada and Chief Operating
Officer, Finning International Inc.
Marcelo A. Awad
Santiago, Chile
Director since: 2014
James E.C. Carter, O.C.
Edmonton, AB, Canada
Director since: 2007
Jacynthe Côté
Candiac, PQ, Canada
Director since: 2014
Nicholas Hartery
Limerick, Republic of Ireland
Director since: 2014
Kevin A. Neveu
Calgary, AB, Canada
Director since: 2013
Kathleen M. O’Neill
Toronto, ON, Canada
Director since: 2007
Christopher W. Patterson
Bonita Springs, FL, USA
Director since: 2010
John M. Reid
Vancouver, BC, Canada
Director since: 2006
L. Scott Thomson
Vancouver, BC, Canada
Director since: 2013
Douglas W.G. Whitehead
North Vancouver, BC, Canada
Director since: 1999
Board Chair
Michael M. Wilson
Bragg Creek, AB, Canada
Director since: 2013
Company Name
Finning International Inc.
Exchange / Symbol
Toronto Stock Exchange (TSX: FTT)
Filings
SEDAR
Head Office
Suite 1000, 666 Burrard Street
Vancouver, British Columbia
Canada V6C 2X8
604-691-6444
www.finning.com
Auditors
Deloitte LLP
Solicitors
Borden Ladner Gervais LLP
Transfer Agent and Registrar
Computershare Investor Services Inc.
1-800-564-6253 (North America)
514-982-7555 (International)
service@computershare.com
www.computershare.com
Shareholder Information
Corporate Information
Finning prepares an Annual Information Form
which is filed with the securities commission. The
Annual Information Form and quarterly reports
are available in the Investors section of
www.finning.com.
Corporate Governance Information
Please refer to Finning’s management proxy
circular in connection with the 2016 Annual
Meeting of Shareholders and the Governance
section of Finning’s website at www.finning.com
for a full discussion of Finning’s corporate
governance and corporate policies and practices.
Code of Conduct
One important way that Finning promotes our
values and communicates the behaviours and
actions expected from our employees is through
our Code of Conduct. The Code provides a
common set of principles and key policies to help
guide day-to-day behaviour in support of our
values. All employees are required to review the
Code and affirm that they understand their role in
upholding Finning’s ethical standards. The Code
of Conduct is available in the Governance section
of www.finning.com.
Annual General Meeting
May 4, 2016
2:00 pm Pacific Time
Terminal City Club
837 West Hastings Street
Vancouver, British Columbia
Investor Contact Information
For inquiries related to Finning’s operating
activities and financial performance:
Mauk Breukels
Vice President, Investor Relations and Corporate
Affairs
604-331-4934
investor_relations@finning.ca
For inquiries related to shares or dividends:
Computershare Investor Services Inc.