Finning International Inc.
Suite 300 – 565 Great Northern Way
Vancouver, British Columbia V5T 0H8
finning.com
2020
FINNING INTERNATIONAL INC.
Financial report
Finning International Inc.
2020 Annual Results
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A should be read in conjunction with our Annual Financial Statements and the accompanying notes
thereto for the year ended December 31, 2020, which have been prepared in accordance with IFRS. In this MD&A,
unless context otherwise requires, the terms we, us, our, and Finning refer to Finning International Inc. and/or its
subsidiaries. All dollar amounts presented in this MD&A are expressed in CAD, unless otherwise stated. Additional
information relating to Finning, including our AIF and MD&A, can be found under our profile on the SEDAR website
at www.sedar.com and in the investors section of our website at www.finning.com.
February 9, 2021
Finning (TSX:FTT) is the largest dealer of Caterpillar products in the world delivering service to customers for over
85 years. We sell, rent, and provide parts and service for Caterpillar equipment and engines and complementary
equipment on three continents to customers in various industries, including mining, construction, petroleum, forestry,
and a wide range of power systems applications. We aim to consistently deliver solutions that enable customers to
achieve the lowest equipment owning and operating costs while maximizing uptime.
A glossary of defined terms is included on page 56. The first time a defined term is used in this MD&A, it is
shown in bold italics.
Annual Overview
($ millions, except for per share amounts)
Revenue
Net revenue (1)
Gross profit
SG&A
Equity earnings of joint ventures
Other income
Other expenses
EBIT
Net income
Basic EPS
EBITDA (1)
Free cash flow (1)
Adjusted EBIT (1)(2)
Adjusted net income (1)(2)
Adjusted basic EPS (1)(2)
Adjusted EBITDA (1)(2)
Gross profit as a % of net revenue (1)
SG&A as a % of net revenue (1)
EBIT as a % of net revenue (1)
EBITDA as a % of net revenue (1)
Adjusted EBIT as a % of net revenue (1)(2)
Adjusted EBITDA as a % of net revenue (1)(2)
Adjusted ROIC (1)(2)
2020
2019
% change
fav (unfav)
(21)%
(21)%
(13)%
8%
(76)%
n/m
n/m
(8)%
(4)%
(3)%
(3)%
n/m
(28)%
(31)%
(31)%
(15)%
$
$
$
$
$
$
$
$
$
$
$
$
6,196 $
5,768 $
1,570 $
(1,245)
3
115
(51)
392 $
232 $
1.43 $
700 $
870 $
328 $
186 $
1.14 $
636 $
27.2%
21.6%
6.8%
12.1%
5.7%
11.0%
9.6%
7,817
7,290
1,799
(1,360)
15
—
(29)
425
242
1.48
718
42
457
269
1.65
750
24.7%
18.7%
5.8%
9.9%
6.3%
10.3%
12.0%
(1) These are “non-GAAP financial measures”. See “Description of Non-GAAP Financial Measures and Reconciliations” later in this MD&A.
(2) Reported financial metrics may be impacted by significant items described on pages 5 and 42 - 44 of this MD&A. Financial metrics that
have been adjusted to take into account these items are referred to as “Adjusted” metrics. See “Description of Non-GAAP Financial
Measures and Reconciliations” later in this MD&A.
1
Finning International Inc.
2020 Annual Results
Recent Developments
On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The most
significant impacts on our operations related to COVID-19 during the year ended December 31, 2020, particularly in
the second quarter of the year, included postponed equipment orders and deliveries, lower equipment utilization
hours, temporary shutdowns of customer operations, and postponement of some projects. In addition, product
support revenue was impacted by parked truck fleets and support equipment, deferral of non-essential maintenance,
lower parts sales in the construction sector, lower labour recovery at our branches due to shift separation and
physical distancing measures, and temporary closure of certain facilities in South America. Our results were also
impacted by volatility in oil and other commodity prices. Although the timing and pace of market recovery from the
effects of both COVID-19 and volatile oil and other commodity prices are unclear, we saw end market improvements
in Q4 2020. These challenging market conditions had a material negative impact on our 2020 financial results.
Measures taken to slow the spread of COVID-19 in the jurisdictions where we operate have allowed for a phased
reopening of those economies and an increase in associated business activity.
In response to the negative economic impact of COVID-19, various government programs were announced to
provide financial relief to affected businesses. The Government of Canada introduced the CEWS program, which
subsidizes a portion of employee wages (up to a specified maximum) for Canadian employers whose businesses
have met eligibility criteria. The program is intended to help employers rehire previously laid off workers, prevent
further job losses, and better position Canadian businesses to resume normal operations. To encourage companies
to retain employees, the Government of the UK introduced the CJRS to pay a portion of salaries for employees (up
to a specified maximum) who were furloughed (on paid leave). The CJRS support was recorded in SG&A to offset a
portion of the salaries of furloughed employees. As required by the UK government program, we did not derive any
benefit from employees while they were on furlough. We have utilized CEWS and CJRS, as well as tax deferral
programs that governments in most regions where we operate have made available. These government programs
have supported us in retaining key technical talent and positioned us well for an economic recovery.
Refer to the Outlook, Risk Factors and Management sections later in this MD&A, and in our AIF for further
discussion of the potential impact of the COVID-19 pandemic and volatile commodity prices on our operations and
financial results.
Annual Highlights
2020 revenue of $6.2 billion and net revenue of $5.8 billion were down 21% from 2019, reflecting reduced market
activity. Net revenue was lower in all of our operations and most lines of business, primarily new equipment
revenue.
2020 EBIT was $392 million and EBIT as a percentage of net revenue was 6.8%. Excluding significant items not
considered indicative of operational and financial trends, Adjusted EBIT was $328 million and Adjusted EBIT as a
percentage of net revenue was 5.7%, compared to $457 million and 6.3%, respectively, in 2019. 2020 Adjusted
EBIT reflected lower market activity resulting in reduced gross profit partially offset by lower SG&A, reflecting the
successful execution of global productivity initiatives and strong management of costs.
Adjusted EBITDA of $636 million was 15% lower than $750 million in 2019. 2020 Adjusted EBITDA as a
percentage of net revenue of 11.0% improved from 10.3% in 2019. This improvement was the result of an
increase in gross profit as a percentage of net revenue in all of our operations due to operational improvements
and a revenue mix shift to product support revenue. This was partially offset by higher SG&A as a percentage of
net revenue due to a lower revenue base.
2020 basic EPS was $1.43 compared to 2019 basic EPS of $1.48. Excluding significant items not considered
indicative of operational and financial trends, 2020 Adjusted basic EPS was $1.14, 31% lower than 2019.
Strong EBITDA to free cash flow conversion (1) resulted in $870 million of free cash flow in 2020, higher than the
$42 million free cash flow generated in 2019, which significantly strengthened our financial position. Financing
costs in 2020 of $85 million were 21% lower than 2019 and the net debt to Adjusted EBITDA (1)(2) ratio at
December 31, 2020 of 1.4 times improved from 2.0 times at December 31, 2019.
Adjusted ROIC at December 31, 2020 was 9.6%, a decrease from Adjusted ROIC of 12.0% at December 31,
2019, driven by a decline in Adjusted EBIT in the last twelve months which exceeded the reduction in invested
capital. Lower Adjusted ROIC in our UK & Ireland and Canadian operations was partially offset by an
improvement in our South American operations.
(1) These are “non-GAAP financial measures”. See “Description of Non-GAAP Financial Measures and Reconciliations” later in this MD&A.
(2) Reported financial metrics may be impacted by significant items described on pages 5 and 42 - 44 of this MD&A. Financial metrics that
have been adjusted to take into account these items are referred to as “Adjusted” metrics. See “Description of Non-GAAP Financial
Measures and Reconciliations” later in this MD&A.
2
Finning International Inc.
2020 Annual Results
Table of Contents
Annual Overview .......................................................................................................................................................... 1
Recent Developments ................................................................................................................................................. 2
Annual Highlights ......................................................................................................................................................... 2
Strategic Framework .................................................................................................................................................... 4
Adjusted Metrics .......................................................................................................................................................... 5
Annual Key Performance Measures ............................................................................................................................ 6
Annual Results ............................................................................................................................................................. 8
Invested Capital ......................................................................................................................................................... 10
Adjusted Return on Invested Capital and Invested Capital Turnover ....................................................................... 11
Annual Results by Reportable Segment.................................................................................................................... 12
Other Developments .................................................................................................................................................. 17
Fourth Quarter Overview ........................................................................................................................................... 18
Fourth Quarter Highlights .......................................................................................................................................... 18
Fourth Quarter Adjusted Metrics ............................................................................................................................... 19
Quarterly Key Performance Measures ...................................................................................................................... 20
Fourth Quarter Results ............................................................................................................................................. 22
Market Update and Business Outlook ....................................................................................................................... 27
Liquidity and Capital Resources ................................................................................................................................ 29
Accounting and Estimates ......................................................................................................................................... 32
Risk Factors and Management .................................................................................................................................. 34
Contingencies and Guarantees ................................................................................................................................. 39
Outstanding Share Data ............................................................................................................................................ 39
Controls and Procedures Certification ....................................................................................................................... 40
Description of Non-GAAP Financial Measures and Reconciliations ......................................................................... 41
Selected Annual Information ..................................................................................................................................... 51
Selected Quarterly Information .................................................................................................................................. 52
Forward-Looking Information Disclaimer ................................................................................................................... 53
Glossary of Defined Terms ........................................................................................................................................ 56
3
Finning International Inc.
2020 Annual Results
Strategic Framework
Our customer-centric growth strategy is based on three pillars – Develop, Perform, and Innovate – which provide a
strong foundation for our five global strategic priorities:
Customer Centricity – be our customers’ trusted partner by providing consistent and innovative services that
add value to their business;
Lean & Agile Global Finning – maintain relentless focus on productivity, efficiency, and our customers’ total
cost of equipment ownership;
Global Supply Chain – transform our globally-leveraged supply chain to enhance the omni-channel
customer experience while increasing working capital efficiencies and generating free cash flow;
Digital Enterprise – advance the use of technology to improve our customers’ experience, enable
data-driven decisions, and reduce cost to serve; and,
Growth & Diversification – achieve profitable and capital efficient growth.
Our strategic framework is founded in our values, which have been articulated with the input of our employees and
are: we are trusted, collaborative, innovative and passionate.
Strategic Focus Areas
Our focus areas to support our strategy are: to capture growth in mining through a focus on lowest total cost of
ownership and in construction through aftermarket leadership; and to improve performance through transforming
service, accelerating supply chain capabilities and lowering our cost to serve. Our decisions about capital
investments and allocation of resources are focused on initiatives that we believe best align with our global strategic
priorities and our strategic areas of focus.
Sustainability
Sustainability is an integral part of our business, and is woven through our strategy and operations. We live our
values every day, and they guide our behaviour in every interaction we have. Living our values means that how we
do things is just as important as what we do.
Our approach to sustainability is closely aligned with our purpose and covers all of our material sustainability topics.
Our Sustainability Report can be found in the sustainability section of our website at www.finning.com.
In 2020, we took decisive measures to protect the interests of all our stakeholders and further strengthen our
financial position as we navigated through the impacts of the COVID-19 pandemic and volatility in commodity prices.
Our teams have successfully advanced our strategic priorities by staying focused on controlling what we can in a
difficult and uncertain environment. We are confident that our resilient business model, improving execution,
financial flexibility, and cost and capital discipline will serve us well as markets recover and position us for
opportunities that lie ahead.
4
Finning International Inc.
2020 Annual Results
Adjusted Metrics
Reported financial metrics may be impacted by significant items we do not consider indicative of operational and
financial trends by either nature or amount; these are referred to as “Adjusted metrics”. Adjusted metrics are
considered non-GAAP financial measures and do not have a standardized meaning under IFRS, and therefore may
not be comparable to similar measures presented by other issuers. For additional information regarding these
financial metrics, including definitions and reconciliations from each of these Adjusted metrics to their most directly
comparable measure under GAAP, where available, see the heading “Description of Non-GAAP Financial Measures
and Reconciliations” on pages 41 - 50 of this MD&A.
Significant items that affected our reported annual 2020 and 2019 results, which we do not consider to be indicative
of operational and financial trends, either by nature or amount, are detailed below.
2020 significant items:
Finning qualified for CEWS, which was introduced by the Government of Canada in response to COVID-19 for
eligible entities that meet specific criteria. This government program has supported us in retaining key technical
talent and positioned us well for an economic recovery.
We accelerated existing strategies to further improve employee and facility productivity. As a result, we
incurred:
Severance costs related to workforce reductions in all of our operations; and,
Restructuring and impairment losses in our Canadian and South American operations.
2019 significant items:
Severance costs related to workforce reductions and restructuring costs related to planned facility closures in
Canada and South America.
Acquisition costs related to the purchase of 4Refuel.
The ARS experienced a significant devaluation relative to the USD in the third quarter of 2019 losing
approximately 35% of its value (annual devaluation of approximately 60%). This devaluation resulted in higher
tax expense due to the revaluation of deferred taxes in September 2019.
The following table shows the magnitude of these significant items and provides reconciliations of the Adjusted
metrics to their most directly comparable GAAP measures:
EBIT
Net
Income
EPS
For year ended December 31, 2020
($ millions, except for per share amounts) Canada America Ireland Consol (1) Consol (1) Consol (1)
EBIT, net income, and basic EPS
1.43
288 $
Significant items:
CEWS support
Severance costs
Facility closure related restructuring costs
(115)
42
(108)
20
(85)
32
(0.53)
0.20
—
17
—
4
South
UK &
121 $
392 $
232 $
16 $
$
and impairment losses
5
4
—
9
7
0.04
Adjusted EBIT, Adjusted net income, and
Adjusted basic EPS
$
205 $
142 $
20 $
328 $
186 $
1.14
EBIT
Net
Income
EPS
For year ended December 31, 2019
($ millions, except for per share amounts)
EBIT, net income, and basic EPS
Significant items:
Severance costs
Facility closure related restructuring costs
and impairment losses
Acquisition costs
Tax impact of devaluation of ARS
Adjusted EBIT, Adjusted net income, and
Adjusted basic EPS
(1)
Includes Other segment
South
UK &
Ireland
Canada America
$
296 $
120 $
Consol (1) Consol (1) Consol (1)
1.48
425 $
242 $
46 $
10
10
—
20
14
0.09
7
—
—
1
—
—
—
—
—
8
4
—
5
4
4
0.03
0.03
0.02
$
313 $
131 $
46 $
457 $
269 $
1.65
5
Annual Key Performance Measures
We utilize the following KPIs to enable consistent measurement of performance across the organization.
For years ended December 31
2020
2019
2018 (1)
2017
(Restated) (1)(2)
2016 (1)(2)
Finning International Inc.
2020 Annual Results
ROIC (3)(4) (%)
Consolidated
Canada
South America
UK & Ireland
EBIT (3) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBIT as a % of net revenue (3)
Consolidated
Canada
South America
UK & Ireland
EBITDA (3) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBITDA as a % of net revenue (3)
Consolidated
Canada
South America
UK & Ireland
Invested capital (4) ($ millions)
Consolidated
Canada
South America
UK & Ireland
Invested capital turnover (4) (times)
Consolidated
Canada
South America
UK & Ireland
Inventory ($ millions)
Inventory turns (dealership) (4) (times)
Working capital (4) to net revenue (4)
Free cash flow ($ millions)
Net debt (4) to EBITDA ratio (3)(4) (times)
11.4%
14.6%
11.0%
4.5%
392
288
121
16
6.8%
9.7%
6.3%
1.8%
700
473
204
53
12.1%
16.0%
10.6%
6.0%
3,067
1,819
931
327
1.68
1.50
1.75
2.49
1,477
2.79
28.3%
870
1.2
11.2%
13.7%
9.6%
12.1%
425
296
120
46
5.8%
7.5%
5.4%
4.1%
718
470
201
82
9.9%
12.0%
9.0%
7.2%
3,591
2,026
1,192
361
1.92
1.81
1.78
2.98
1,990
2.53
27.8%
42
2.1
12.8%
16.6%
12.2%
14.2%
423
297
142
51
6.0%
8.1%
6.6%
4.4%
610
393
204
79
8.7%
10.7%
9.4%
6.9%
3,163
1,675
1,190
336
2.12
2.05
1.86
3.22
2,061
2.68
26.6%
78
1.7
13.1%
13.3%
17.8%
12.8%
392
225
184
37
6.3%
7.3%
8.5%
3.6%
576
324
242
63
9.2%
10.6%
11.2%
6.1%
2,830
1,621
983
250
2.09
1.82
2.09
3.56
1,708
2.82
27.4%
165
1.5
5.6%
5.3%
13.3%
(4.5)%
165
87
137
(12)
2.9%
3.1%
7.4%
(1.1)%
357
187
199
18
6.3%
6.6%
10.7%
2.0%
2,797
1,595
996
216
1.90
1.70
1.80
3.54
1,601
2.49
30.4%
370
2.5
(1) Comparative results prior to 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning
January 1, 2019.
(2) Comparative results prior to 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9,
Financial Instruments effective for the financial year beginning January 1, 2018.
(3) Certain of these reported financial metrics have been impacted in some years in this table by significant items management does not
consider indicative of operational and financial trends either by nature or amount. Financial metrics that have been adjusted to take into
account these items are referred to as “Adjusted” metrics and are summarized on page 7 of this MD&A.
(4) These are “non-GAAP financial measures”. See “Description of Non-GAAP Financial Measures and Reconciliations” later in this MD&A.
6
Adjusted KPIs
KPIs may be impacted by significant items described on pages 5 and 42 - 44 of this MD&A. KPIs that have been
adjusted to take these items into account are referred to as “Adjusted” KPIs and were as follows:
For years ended December 31
2020
2019
2018 (1)
2017
(Restated) (1)(2)
2016 (1)(2)
Finning International Inc.
2020 Annual Results
Adjusted ROIC (%)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBIT ($ millions)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBIT as a % of net revenue
Consolidated
Canada
South America
UK & Ireland
Adjusted EBITDA ($ millions)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBITDA as a % of net revenue
Consolidated
Canada
South America
UK & Ireland
Net debt to Adjusted EBITDA ratio (times)
9.6%
10.5%
12.9%
5.5%
328
205
142
20
5.7%
7.0%
7.4%
2.2%
636
390
225
57
11.0%
13.2%
11.7%
6.5%
1.4
12.0%
14.4%
10.5%
12.1%
457
313
131
46
6.3%
8.0%
5.9%
4.1%
750
487
212
82
10.3%
12.4%
9.5%
7.2%
2.0
13.5%
16.2%
12.2%
14.2%
446
290
142
51
6.4%
7.9%
6.6%
4.4%
633
386
204
79
9.0%
10.5%
9.4%
6.9%
1.7
13.1%
13.2%
18.1%
12.8%
393
224
186
37
6.3%
7.3%
8.7%
3.6%
577
323
244
63
9.2%
10.5%
11.3%
6.1%
1.5
9.3%
9.3%
15.0%
5.9%
273
154
155
16
4.9%
5.5%
8.4%
1.8%
465
254
217
46
8.3%
9.0%
11.7%
4.8%
1.9
(1) Comparative results prior to 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning
January 1, 2019.
(2) Comparative results prior to 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9,
Financial Instruments effective for the financial year beginning January 1, 2018.
7
Finning International Inc.
2020 Annual Results
Annual Results
Revenue
Net Revenue by Line of Business and by Operation
For years ended December 31
($ millions)
Net Revenue by Line of Business
2020
2019
3
9
7
3
,
3
7
4
3
,
8
0
3
1
6
3
6
9
1
6
4
2
0
2
1
4
1
1
6
7
7
2
,
1
7
6
1
,
3,800
1,900
0
Net Revenue by Operation
2020
2019
7
2
9
3
,
9
5
9
2
,
6
2
2
2
,
2
2
9
1
,
7
3
1
1
,
7
8
8
4,000
2,000
0
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
Fuel and
Other
Canada
South America
UK & Ireland
Revenue was $6.2 billion in the twelve months ended December 31, 2020 compared to $7.8 billion during 2019. Net
revenue of $5.8 billion decreased 21% from the prior year, down in all of our operations due to lower customer
demand as a result of volatility in commodity prices and weaker market conditions globally due to COVID-19. The
reduction in net revenue was largely driven by lower new equipment sales with a smaller decline in product support
due to the resiliency of that line of business.
New equipment revenue in 2020 was 40% lower than the prior year period, down in all operations. The decline in
volumes reflected lower capital spending by our customers in 2020 and deliveries of large equipment packages in
2019.
Equipment backlog (1) of $0.8 billion at December 31, 2020 was up over 10% from December 31, 2019 and up
almost 20% from September 30, 2020. In 2020 order intake (1) outpaced equipment deliveries, primarily in UK &
Ireland and South America.
Product support revenue in 2020 was 8% lower than 2019, primarily due to lower activity in all operations with some
customers reducing equipment utilization and deferring non-essential maintenance.
EBIT and EBITDA
Gross profit in 2020 of $1.6 billion was 13% lower than the comparative prior year period largely due to 21% lower
net revenues. Overall gross profit as a percentage of net revenue of 27.2% was higher than 2019 primarily due to a
higher proportion of product support revenue in all of our operations, which generates higher margins.
SG&A in 2020 was $1.2 billion, 8% lower than the prior year reflecting the benefit of cost reduction initiatives
including lower people-related costs due to restructuring initiatives as well as lower travel during the year, strong
cost control in all of our operations, and the benefit from the devaluation of the CLP relative to the USD in the year
ended 2020 compared to 2019. This decline was partially offset by higher costs in Canada related to jobs and
technical capabilities being preserved during the pandemic with government support programs. Although SG&A
decreased, SG&A as a percentage of net revenue was up in all of our operations reflecting the fixed nature of
certain SG&A costs on a significantly lower revenue base.
(1) These are “non-GAAP financial measures”. See “Description of Non-GAAP Financial Measures and Reconciliations” later in this MD&A.
8
Finning International Inc.
2020 Annual Results
Adjusted EBIT and Adjusted EBITDA by Operation (1)
For years ended December 31
($ millions)
330
3
1
3
165
5
0
2
0
Adjusted EBIT
2019
2020
2
4
1
1
3
1
6
4
0
2
Adjusted EBITDA
2020
2019
7
8
4
0
9
3
5
2
2
2
1
2
2
8
7
5
500
250
0
Canada
South America
UK & Ireland
Canada
South America
UK & Ireland
(1) Excluding Other operations
EBIT was $392 million and EBIT as a percentage of net revenue was 6.8% in 2020, compared to $425 million and
5.8%, respectively, in 2019. Excluding significant items not indicative of financial and operational trends described
on page 5, Adjusted EBIT in 2020 was $328 million and Adjusted EBIT as a percentage of net revenue was 5.7%,
lower than $457 million and 6.3%, respectively, in 2019. Lower earnings in Canada and UK & Ireland were partially
offset by improved earnings and profitability in South America.
2020 Adjusted EBITDA was $636 million, down
from $750 million in 2019. This 15% decrease was
primarily due to lower volumes partially offset by
lower SG&A. Adjusted EBITDA as a percentage of
net revenue of 11.0% increased from 10.3% earned
in the prior year. This was largely driven by an
improvement in gross profit as a percentage of net
revenue in all of our operations, primarily in Canada
and South America as a result of a higher mix of
product support revenue.
The net debt to Adjusted EBITDA ratio at December 31, 2020 was 1.4 times, down from 2.0 times at December 31,
2019, primarily due to a significant decline in average net debt levels, which reduced more than the decline in
Adjusted EBITDA. This ratio remains below our long-term target of < 3.0 times.
Finance Costs
Finance costs for 2020 were $85 million, 21% lower than $107 million in 2019 due to strong free cash flow which
contributed to a reduction in average debt levels.
Provision for Income Taxes
The effective income tax rate for 2020 of 24.4% was comparable to 24.0% for 2019.
We expect our effective tax rate generally to be within the 25-30% range on an annual basis. The rate may fluctuate
from period to period as a result of changes in the relative income from the various jurisdictions in which we carry on
business, sources of income, changes in the estimation of tax reserves, outcomes of any tax audits, or tax rates and
tax legislation.
Net Income and Basic EPS
Net income was $232 million and basic EPS was $1.43 in 2020, compared to $242 million and $1.48, respectively,
in 2019. Excluding the significant items not indicative of financial and operational trends described on page 5,
Adjusted net income in 2020 was $186 million and Adjusted basic EPS was $1.14, lower than $269 million and
$1.65, respectively, in 2019. The reduction in 2020 earnings was driven by lower customer demand as a result of
volatility in commodity prices and COVID-19.
9
Finning International Inc.
2020 Annual Results
Invested Capital
($ millions,
unless otherwise stated)
Consolidated
Canada
South America
UK & Ireland
South America (USD)
UK & Ireland (GBP)
(Decrease)
Decrease from
Increase from
December 31, September 30, September 30, December 31, December 31,
2020
2019
2020
2019
2020
$
$
$
$
$
£
3,067 $
1,819 $
931 $
327 $
731 $
188 £
3,284 $
1,921 $
1,035 $
323 $
776 $
188 £
(217) $
(102) $
(104) $
4 $
(45) $
— £
3,591 $
2,026 $
1,192 $
361 $
918 $
210 £
(524)
(207)
(261)
(34)
(187)
(22)
Compared to September 30, 2020:
The $217 million decrease in consolidated invested capital from September 30, 2020 to December 31, 2020
includes a foreign exchange impact of $41 million in translating the invested capital balances of our South American
and UK & Ireland operations. The foreign exchange impact was primarily the result of the 5% stronger CAD relative
to the USD at December 31, 2020 compared to September 30, 2020.
Excluding the impact of foreign exchange,
consolidated invested capital decreased by $176
million from September 30, 2020 to December
31, 2020 mainly due to a decrease in inventories
in all regions, primarily equipment and parts, as
a result of strong inventory management.
Compared to December 31, 2019:
The $524 million decrease in consolidated invested capital from December 31, 2019 to December 31, 2020 includes
a foreign exchange impact of $15 million in translating the invested capital balances of our South American and UK
& Ireland operations. The foreign exchange impact was primarily the result of the 2% stronger CAD relative to the
USD at December 31, 2020 compared to December 31, 2019.
Excluding the impact of foreign exchange, consolidated invested capital decreased by $509 million from December
31, 2019 to December 31, 2020 reflecting:
a decrease in inventory levels in all operations, primarily new equipment and parts inventory driven by strong
inventory management;
lower accounts receivable in all
regions, primarily due to a decrease
in sales activity and strong
collections;
lower capital expenditures on
property, plant, and equipment in all
regions; partially offset by,
lower accounts payable, mainly in
South America and Canada, from
reduced inventory purchases.
10
Adjusted ROIC and Invested Capital Turnover
Finning International Inc.
2020 Annual Results
December 31, September 30, December 31,
2020
2019
2020
Adjusted ROIC
Consolidated
Canada
South America
UK & Ireland
Invested Capital Turnover (times)
Consolidated
Canada
South America
UK & Ireland
Adjusted ROIC
9.6%
10.5%
12.9%
5.5%
1.68
1.50
1.75
2.49
9.3%
10.8%
11.3%
3.9%
1.68
1.56
1.67
2.39
12.0%
14.4%
10.5%
12.1%
1.92
1.81
1.78
2.98
On a consolidated basis, Adjusted ROIC at December 31, 2020 was lower than December 31, 2019 primarily due to
the reduction in Adjusted EBIT for the last twelve-month period outpacing a reduction in average invested capital
levels, primarily in our Canadian and UK & Ireland operations. Adjusted ROIC at December 31, 2020 in South
America was up 240 basis points from December 31, 2019 due to the generation of higher Adjusted EBIT in the last
twelve-month period combined with lower average invested capital levels.
On a consolidated basis, Adjusted ROIC at December 31, 2020 was higher than September 30, 2020, driven by the
improvement in Adjusted ROIC in South America and UK & Ireland as Adjusted EBIT for the last twelve-month
period increased, combined with the benefit of a reduction in average invested capital levels. In Canada, Adjusted
ROIC declined slightly from September 30, 2020 as the reduction in Adjusted EBIT for the last twelve-month period
outpaced the reduction in average invested capital levels.
Invested Capital Turnover
Consolidated invested capital turnover at December 31, 2020 was down from December 31, 2019 with the decline in
net revenue over the last twelve-month period in all of our operations outpacing the reduction in average invested
capital levels. The decrease in invested capital turnover in all of our operations was largely driven by the negative
impact of the COVID-19 pandemic on net revenues.
Consolidated invested capital turnover at December 31, 2020 was comparable with September 30, 2020 with the
improvement in South America and UK & Ireland offset by lower invested capital turnover in Canada.
11
Annual Results by Reportable Segment
We operate primarily in one principal business: the sale, service, and rental of heavy equipment, engines, and
related products in various markets on three continents as described on pages 13 - 17. Our reportable segments are
Canada, South America, UK & Ireland, and Other segment.
The table below provides details of net revenue by lines of business for our Canadian, South American, and UK &
Ireland operations.
Finning International Inc.
2020 Annual Results
South
America
$
UK
& Ireland
$
Consol
Net Revenue
%
For year ended December 31, 2020
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Net revenue % by operation
For year ended December 31, 2019
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Net revenue % by operation
Canada
$
725
169
133
1,812
120
2,959
Canada
$
1,375
224
164
2,054
110
3,927
$
$
$
51%
33%
South
America
$
UK
& Ireland
$
426
73
37
1,386
—
1,922
685
47
47
1,447
—
2,226
520
66
26
275
—
887
16%
716
90
35
292
4
1,137
$
$
$
54%
30%
16%
$
$
1,671
308
196
3,473
120
5,768
100%
29%
5%
4%
60%
2%
100%
Consol
Net Revenue
%
$
$
2,776
361
246
3,793
114
7,290
100%
38%
5%
3%
52%
2%
100%
12
Canada Operations
Our Canadian reporting segment includes Finning (Canada), OEM, a 25% interest in PLM, and 4Refuel since its
acquisition on February 1, 2019. Our Canadian operations sell, service, and rent mainly Caterpillar equipment and
engines in British Columbia, Alberta, Saskatchewan, the Yukon Territory, the Northwest Territories, and a portion of
Nunavut, and also provide mobile refueling services in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,
Quebec, New Brunswick and Nova Scotia and in Texas, US. Our Canadian operations’ markets include mining
(including the oil sands), construction, conventional oil and gas, forestry, and power systems.
The table below provides details of the results from our Canadian operations:
Finning International Inc.
2020 Annual Results
For years ended December 31
($ millions)
Net revenue
Operating costs
Equity earnings of joint ventures
Other income
Other expenses
EBITDA
Depreciation and amortization
EBIT
Adjusted EBITDA
Adjusted EBIT
EBITDA as a % of net revenue
EBIT as a % of net revenue
Adjusted EBITDA as a % of net revenue
Adjusted EBIT as a % of net revenue
2020 Annual Overview
2020
2019
$
$
$
$
2,959
(2,572)
3
108
(25)
473
(185)
288
390
205
16.0%
9.7%
13.2%
7.0%
$
$
$
$
3,927
(3,455)
15
—
(17)
470
(174)
296
487
313
12.0%
7.5%
12.4%
8.0%
2020 net revenue of $3.0 billion was 25% lower than 2019,
with challenging market conditions affecting all lines of
business as customers were impacted by COVID-19 and low
oil prices.
Net Revenue by Line of Business
Canadian Operations
For years ended December 31
($ millions)
New equipment revenue was down 47% in 2020 compared
to 2019. This decline reflected the impact of COVID-19 and
low oil prices on customer purchasing decisions with
customers taking cost containment measures, as well as
lower demand in gas compression combined with project
delays. By contrast, 2019 benefited from deliveries of large,
lower margin mining equipment packages to oil sands
customers. Equipment backlog at December 31, 2020 was
down from December 31, 2019 as deliveries outpaced order
intake during the year.
2,100
1,050
0
2020
2019
4
5
0
,
2
2
1
8
,
1
5
7
3
,
1
5
2
7
9
6
1
4
2
2
3
3
1
4
6
1
0
2
1
0
1
1
Product support revenue in 2020 was down 12% compared
to the same prior year period, as reduced equipment
utilization across the mining and construction sectors led to
reduced customer spend on parts and service. During the second quarter of the year, some customers temporarily
shut down or reduced operations, parked equipment, lowered equipment utilization, and/or deferred major
component rebuilds and non-essential maintenance. Product support revenue steadily improved in the second half
of 2020 as oil sands producers gradually put their truck fleets back to work and oil sands contractors started to
increase activity.
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
Fuel and
Other
Gross profit in 2020 was lower than 2019, primarily driven by lower revenue across all of our lines of business.
Overall gross profit as a percentage of net revenue increased in 2020 compared to 2019 due to a revenue mix shift
to product support and improved operating efficiencies.
13
Finning International Inc.
2020 Annual Results
2020 SG&A was down 8% compared to the prior year, reflecting the benefit of strategies taken to improve employee
and facility productivity, as well as strong management of costs. In 2020, we recorded $108 million in wage
subsidies under the CEWS program, which allowed us to preserve jobs and technical capabilities in Canada through
a unique period of uncertainty. The costs related to retained employees were included in SG&A and offset some of
the reductions noted above, and the CEWS benefit was included in other income. SG&A as a percentage of net
revenue was up compared to the prior year period driven by certain costs that are fixed or semi-variable in nature
combined with higher costs related to retained employees on significantly lower revenues.
Excluding significant items not indicative of financial and operational trends described on page 5, our Canadian
operations contributed Adjusted EBITDA of $390 million in 2020, down 20% from the same period in the prior year
on 25% lower net revenues. Adjusted EBITDA as a percentage of net revenue in 2020 was 13.2%, higher than the
12.4% in 2019. This increase was driven by higher gross profit as a percentage of net revenue, which was partially
offset by higher SG&A as a percentage of net revenue.
South America Operations
Our South American operations sell, service, and rent mainly Caterpillar equipment and engines in Chile, Argentina,
and Bolivia. Our South American operations’ markets include mining, construction, forestry, and power systems.
The table below provides details of the results from our South American operations:
For years ended December 31
($ millions)
Net revenue
Operating costs
Other expenses
EBITDA
Depreciation and amortization
EBIT
Adjusted EBITDA
Adjusted EBIT
EBITDA as a % of net revenue
EBIT as a % of net revenue
Adjusted EBITDA as a % of net revenue
Adjusted EBIT as a % of net revenue
2020
2019
$
$
$
$
$
1,922
(1,697)
(21)
204
(83)
121
225
142
10.6%
6.3%
11.7%
7.4%
$
$
$
$
$
2,226
(2,017)
(8)
201
(81)
120
212
131
9.0%
5.4%
9.5%
5.9%
14
Finning International Inc.
2020 Annual Results
The weaker CAD relative to the USD on average in 2020 compared to 2019 had a favourable foreign currency
translation impact on 2020 net revenue of approximately $20 million and was not significant at the EBITDA level.
All $ figures in this section are in CAD as this is our reporting currency. All variances and ratios in this section are
based on the functional currency of our South American operations, which is the USD.
2020 Annual Overview
2020 net revenue was 15% lower than 2019. Net
revenue declined across most lines of business due to
significant COVID-19 related business interruptions.
New equipment revenue in 2020 was 38% lower than
2019, down in all countries. 2019 benefited from
deliveries of large equipment packages to construction
and mining customers in Chile. Equipment backlog at
December 31, 2020 was up 37% from December 31,
2019 as order intake exceeded deliveries through the
year. Order intake in 2020 was driven by demand from
mining and construction sectors.
Product support revenue in 2020 was down 5% from
2019, primarily in the mining sector in Chile, which was
negatively impacted by a slowdown primarily due to
COVID-19.
2020 used equipment revenue increased 53% from the
prior year driven by sales of surplus used equipment.
Net Revenue by Line of Business
South America Operations
For years ended December 31
($ millions)
2020
2019
1,500
750
0
7
4
4
,
1
6
8
3
,
1
5
8
6
6
2
4
3
7
7
4
7
3
7
4
New Equipment Used Equipment
Equipment
Rental
Product Support
Gross profit in 2020 was lower than the same period in the prior year primarily due to lower volumes. Gross profit as
a percentage of net revenue in 2020 was higher than 2019 benefitting from a higher proportion of product support
revenue.
2020 SG&A was down 13% from 2019 driven by the benefit from the devaluation of the CLP and ARS relative to the
USD, lower people-related costs from actions taken to improve employee and facility productivity, strong
management of costs, and lower variable costs. 2020 SG&A as a percentage of net revenue increased slightly from
2019.
Excluding significant items not indicative of financial and operational trends described on page 5, 2020 Adjusted
EBITDA of $225 million improved from Adjusted EBITDA in 2019 of $212 million. A reduction in gross profit due to
lower volumes was more than offset by lower SG&A. 2020 Adjusted EBITDA as a percentage of net revenue of
11.7% improved by 220 basis points from 2019 driven by a higher gross profit as a percentage of net revenue due to
a higher proportion of product support revenue as well as the benefit of a lower cost base from leveraging one
common technology system.
15
UK & Ireland Operations
Our UK & Ireland operations sell, service, and rent mainly Caterpillar equipment and engines in England, Scotland,
Wales, Northern Ireland, and the Republic of Ireland. Our UK & Ireland operations’ markets include construction,
power and energy, and quarrying.
The table below provides details of the results from our UK & Ireland operations:
Finning International Inc.
2020 Annual Results
For years ended December 31
($ millions)
Net revenue
Operating costs
Other expenses
EBITDA
Depreciation and amortization
EBIT
Adjusted EBITDA
Adjusted EBIT
EBITDA as a % of net revenue
EBIT as a % of net revenue
Adjusted EBITDA as a % of net revenue
Adjusted EBIT as a % of net revenue
$
$
$
$
$
2020
2019
887
(830)
(4)
53
(37)
16
57
20
6.0%
1.8%
6.5%
2.2%
$
$
$
$
$
1,137
(1,055)
—
82
(36)
46
82
46
7.2%
4.1%
7.2%
4.1%
The weaker CAD relative to the GBP on average in 2020 compared to 2019 had a favourable foreign currency
translation impact on 2020 net revenue of approximately $15 million and was not significant at the EBITDA level.
All $ figures in this section are in CAD as this is our reporting currency. All variances and ratios in this section are
based on the functional currency of our UK & Ireland operations, which is the GBP.
2020 Annual Overview
2020 net revenue was 23% lower than the same period in
2019 as COVID-19 affected market demand. This
reduction was across all lines of business.
New equipment revenue was 28% lower than 2019, driven
primarily by significantly lower deliveries to the
construction and power system sectors. Equipment
backlog at December 31, 2020 was 30% higher than
December 31, 2019 and includes orders from construction
customers preparing for HS2 and orders for electric power
projects in the power systems sector.
Net Revenue by Line of Business
UK & Ireland Operations
For years ended December 31
($ millions)
2020
2019
750
375
0
2
5
6
1
7
Used equipment revenue in 2020 was 28% lower than
2019, primarily due to lower activity in the construction
sector.
0
6
6
0
9
6
2
5
3
5
7
2
2
9
2
0
4
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
Fuel and
Other
2020 gross profit was down compared to 2019 driven by
lower sales volumes. Overall gross profit as a percentage
of net revenue increased from the prior year reflecting a higher proportion of product support revenue partially offset
by lower gross profit margins.
SG&A was down 8% in 2020 compared to 2019 reflecting the benefit of strategies to improve employee productivity,
strong cost management, and government support for furloughed employees. SG&A as a percentage of net revenue
was higher in 2020 compared to 2019 primarily due to the fixed nature of certain SG&A costs on lower revenues.
2020 Adjusted EBITDA of $57 million and Adjusted EBITDA as a percentage of net revenue of 6.5% were lower
than 2019 EBITDA of $82 million and EBITDA as a percentage of net revenue of 7.2%. EBITDA as a percentage of
net revenue was lower in 2020 compared to the prior year period primarily due to higher SG&A relative to net
revenue.
16
Finning International Inc.
2020 Annual Results
Other Segment
Our Other segment includes corporate operating costs.
2020 EBITDA of this segment was a loss of $30 million, an improvement from a loss of $35 million in 2019.
Excluding $7 million of the CEWS benefit in 2020 and $4 million of costs relating to the acquisition of 4Refuel in
2019, 2020 EBITDA loss was $37 million in 2020 and $31 million in 2019. This increase was primarily due to higher
long-term incentive plan expense mainly due to a higher vesting of performance share units in 2020.
Other Developments
Energyst was the exclusive Caterpillar dealer in Europe for rental power and temperature control solutions. In
December 2020, the shareholders of Energyst, including Finning, decided to restructure the company and convert
its rental activities into four separate regional organizations. As part of this restructuring, our interest in Energyst
changed from 28.8% to 31.4% and on January 7, 2021, Finning UK & Ireland acquired the Energyst businesses in
the UK and Ireland for gross consideration of $15 million (€9 million) and is now the authorized supplier of rental
services for Caterpillar power generation in these territories. Other Caterpillar dealers acquired the other three
regional organizations. At December 31, 2020, the fair value of Energyst was estimated to be $3 million (€2 million)
(2019: $nil) representing the repayment of the outstanding subordinated shareholder loan which was settled on
January 7, 2021.
17
Fourth Quarter Overview
($ millions, except for per share amounts)
Revenue
Net revenue
Gross profit
SG&A
Equity earnings of joint ventures
Other income
EBIT
Net income
Basic EPS
EBITDA
Free Cash Flow
Adjusted EBIT
Adjusted net income
Adjusted basic EPS
Adjusted EBITDA
Gross profit as a % of net revenue
SG&A as a % of net revenue
EBIT as a % of net revenue
EBITDA as a % of net revenue
Adjusted EBIT as a % of net revenue
Adjusted EBITDA as a % of net revenue
Adjusted ROIC
Fourth Quarter Highlights
Finning International Inc.
2020 Annual Results
Q4 2020
Q4 2019
% change
fav (unfav)
(13)%
(12)%
(2)%
3%
n/m
n/m
11%
44%
45%
9%
(24)%
(3)%
24%
25%
1%
$
$
$
$
$
$
$
$
$
$
$
$
1,666 $
1,551 $
418 $
(324)
—
14
108 $
72 $
0.45 $
185 $
292 $
94 $
62 $
0.38 $
171 $
26.9%
20.9%
6.9%
11.9%
6.1%
11.0%
9.6%
1,911
1,757
428
(334)
3
—
97
50
0.31
170
386
97
50
0.31
170
24.3%
19.0%
5.5%
9.7%
5.5%
9.7%
12.0%
Q4 2020 revenue was $1.7 billion and Q4 2020 net revenue of $1.6 billion was 12% lower than Q4 2019. This
reduction reflected reduced market activity in Canada and South America partially offset by a revenue increase in
the UK & Ireland from higher project deliveries to power system customers. Compared to Q3 2020, net revenue
increased 7%, with growth in all regions.
Q4 2020 EBIT was $108 million and EBIT as a percentage of net revenue was 6.9%. Excluding significant items
not considered indicative of operational and financial trends, Adjusted EBIT was $94 million and Adjusted EBIT as
a percentage of net revenue was 6.1%, compared to $97 million and 5.5%, respectively in Q4 2019. Q4 2020
Adjusted EBIT was affected by lower market activity resulting in a reduction in gross profit partially offset by lower
SG&A, reflecting the successful execution of productivity initiatives and strong management of costs.
Adjusted EBITDA was $171 million and Adjusted EBITDA as a percentage of net revenue was 11.0% in Q4 2020,
compared to $170 million and 9.7%, respectively, in Q4 2019. Q4 2020 Adjusted EBITDA as a percentage of net
revenue improved from Q4 2019, as a result of higher profitability in all operations driven by a lower cost base,
stable gross profit margins, and the resiliency of our product support business.
Q4 2020 basic EPS of $0.45 represented a 45% increase from Q4 2019. Excluding significant items not
considered indicative of operational and financial trends, Q4 2020 Adjusted basic EPS increased 25% from Q4
2019 on 12% lower net revenue as a result of improved profitability in all of our operations as well as a 40%
reduction in our Q4 2020 finance costs due to very strong free cash flow and lower net debt levels. Q4 2020
Adjusted basic EPS was $0.38, representing a 3% increase from Q3 2020.
18
Fourth Quarter Adjusted Metrics
The significant item that affected our reported results for the three months ended December 31, 2020 which we do
not consider to be indicative of operational and financial trends, either by nature or amount, is detailed below.
Q4 2020 significant item:
CEWS from the Canadian government for eligible entities
Finning International Inc.
2020 Annual Results
3 months ended December 31, 2020
($ millions, except per share amounts)
EBIT, net income, and basic EPS
Significant item:
CEWS support
Adjusted EBIT, Adjusted net income, and
Adjusted basic EPS
(1)
Includes Other segment
EBIT
South
UK &
Net
Income
Basic
EPS
Canada America Ireland Consol (1) Consol (1) Consol (1)
0.45
$
108 $
41 $
11 $
72 $
72 $
(13)
—
—
(14)
(10)
(0.07)
$
59 $
41 $
11 $
94 $
62 $
0.38
There were no significant items identified by management that affected our results for the three months ended
December 31, 2019.
19
Quarterly Key Performance Measures
We utilize the following KPIs to enable consistent measurement of performance across the organization.
Finning International Inc.
2020 Annual Results
ROIC (2) (%)
Consolidated
Canada
South America
UK & Ireland
EBIT (2) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBIT as a % of net revenue (2)
Consolidated
Canada
South America
UK & Ireland
EBITDA (2) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBITDA as a % of net revenue (2)
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 (Dealership) (times)
Working Capital to Net Revenue
Free Cash Flow ($ millions)
Net Debt to EBITDA Ratio (2) (times)
2020
2019
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2018 (1)
Q4
11.4%
14.6%
11.0%
4.5%
10.7%
14.3%
9.5%
2.9%
10.0%
13.3%
9.3%
3.7%
11.9%
14.2%
11.9%
8.4%
11.2%
13.7%
9.6%
12.1%
11.3%
14.2%
8.1%
14.1%
10.7%
14.5%
7.9%
14.5%
10.8%
14.6%
8.6%
14.8%
12.8%
16.6%
12.2%
14.2%
108
72
41
11
138
93
40
9
52
63
2
(5)
6.9%
9.3%
8.3%
3.7%
9.6%
12.8%
8.2%
4.1%
3.9%
8.9%
0.5%
(3.2)%
185
119
61
20
215
141
59
18
130
110
24
4
94
60
38
1
6.6%
7.9%
7.8%
0.5%
170
103
60
11
97
72
31
5
5.5%
7.4%
6.0%
1.9%
170
114
51
15
129
82
42
14
7.1%
8.5%
7.3%
5.1%
201
125
62
22
137
92
41
14
6.9%
8.5%
6.5%
4.8%
213
138
62
23
62
50
6
13
3.6%
5.5%
1.2%
4.4%
134
93
26
22
11.9%
15.4%
12.2%
7.0%
14.9%
19.3%
12.2%
7.9%
9.7%
15.6%
5.2%
2.7%
11.8%
13.7%
12.4%
5.2%
9.7%
11.8%
10.0%
5.4%
11.1%
12.8%
10.8%
8.3%
10.7%
12.9%
9.8%
7.7%
7.8%
10.2%
5.2%
7.3%
3,067
1,819
931
327
1.68
1.50
1.75
2.49
1,477
2.79
28.3%
292
1.2
3,284
1,921
1,035
323
1.68
1.56
1.67
2.39
1,626
2.30
29.2%
316
1.6
3,495
2,037
1,106
349
1.71
1.63
1.67
2.32
1,893
1.97
29.9%
312
2.0
3,883
2,093
1,330
428
1.83
1.75
1.73
2.60
2,152
2.25
28.9%
(50)
2.2
3,591
2,026
1,192
361
1.92
1.81
1.78
2.98
1,990
2.53
27.8%
386
2.1
3,907
2,209
1,276
416
1.99
1.91
1.77
3.18
2,215
2.49
26.9%
165
2.6
3,964
2,285
1,287
390
2.04
1.95
1.80
3.27
2,366
2.36
26.7%
(162)
3.0
3,753
2,148
1,243
361
2.06
1.98
1.78
3.25
2,356
2.46
26.7%
(347)
2.9
91
71
12
12
4.9%
7.1%
2.5%
3.7%
140
97
29
18
7.6%
9.7%
5.8%
5.7%
3,163
1,675
1,190
336
2.12
2.05
1.86
3.22
2,061
2.68
26.6%
418
1.7
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning
January 1, 2019.
(2) Certain of these reported financial metrics have been impacted in some quarters in this table by significant items management does not
consider indicative of operational and financial trends either by nature or amount. Financial metrics that have been adjusted to take into
account these items are referred to as “Adjusted” metrics and are summarized on page 21 of this MD&A.
20
Adjusted KPIs
KPIs may be impacted by significant items described on pages 5, 19, and 42 - 44 of this MD&A. KPIs that have
been adjusted to take these items into account are referred to as “Adjusted” KPIs and were as follows:
Finning International Inc.
2020 Annual Results
Adjusted ROIC
Consolidated
Canada
South America
UK & Ireland
Adjusted EBIT ($ millions)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBIT as a % of net revenue
Consolidated
Canada
South America
UK & Ireland
Adjusted EBITDA ($ millions)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBITDA as a % of net revenue
Consolidated
Canada
South America
UK & Ireland
Net Debt to Adjusted EBITDA Ratio (times)
2020
2019
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
9.6%
9.3%
9.7% 12.0%
10.5% 10.8% 11.6% 14.2%
12.9% 11.3% 11.2% 12.2%
8.4%
5.5%
3.9%
4.6%
12.0% 12.2% 12.3% 12.5%
14.4% 15.0% 15.4% 15.5%
10.5%
9.2%
12.1% 14.1% 14.5% 14.8%
8.5%
9.0%
2018 (1)
Q4
13.5%
16.2%
12.2%
14.2%
94
59
41
11
101
58
40
9
39
28
23
(1)
6.1%
7.7%
8.3%
3.7%
7.0%
8.1%
8.2%
4.1%
2.9%
4.0%
5.1%
(1.0)%
171
106
61
20
178
106
59
18
117
75
45
8
94
60
38
1
6.6%
7.9%
7.8%
0.5%
170
103
60
11
97
72
31
5
132
82
45
14
137
92
41
14
5.5%
7.4%
6.0%
1.9%
7.3%
8.5%
7.8%
5.1%
6.9%
8.5%
6.5%
4.8%
170
114
51
15
204
125
65
22
213
138
62
23
91
67
14
13
5.3%
7.4%
2.7%
4.4%
163
110
34
22
11.0% 12.3%
8.8% 11.8%
13.7% 14.6% 10.6% 13.7%
12.2% 12.2%
9.8% 12.4%
5.2%
4.9%
7.9%
2.2
2.1
1.7
7.0%
1.4
9.7% 11.2% 10.7%
9.4%
11.8% 12.8% 12.9% 12.1%
6.7%
10.0% 11.2%
7.3%
8.3%
2.6
2.5
9.8%
7.7%
2.8
5.4%
2.0
91
71
12
12
4.9%
7.1%
2.5%
3.7%
140
97
29
18
7.6%
9.7%
5.8%
5.7%
1.7
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning
January 1, 2019.
21
Finning International Inc.
2020 Annual Results
Fourth Quarter Results
Revenue
Net Revenue by Line of Business and by Operation
3 months ended December 31
($ millions)
Net Revenue by Line of Business
2020 2019
2
2
9
7
7
8
9
4
6
0
0
5
3
9
9
9
9
4
5
5
2
3
2
3
1,000
500
0
1,000
500
0
Net Revenue by Operation
2020
2019
8
6
9
1
7
7
6
9
4
8
1
5
4
8
2
1
7
2
New
Equipment
Used
Equipment
Equipment
Rental
Product
Support
Fuel and
Other
Canada
South America
UK & Ireland
Revenue was $1.7 billion in the fourth quarter of 2020 and $1.9 billion in Q4 2019. Q4 2020 net revenue of $1.6
billion was 12% lower than Q4 2019, primarily due to a decline in new equipment sales in our Canadian operations.
Net revenue was down in Q4 2020 primarily due to lower market activity, which has been recovering since the onset
of COVID-19 in March 2020. Compared to Q3 2020, net revenue increased 7%, up in all operations.
Fourth quarter 2020 new equipment revenue was 23% lower than the same prior year period driven by lower
demand for new equipment in Canada reflecting challenging market conditions and reduced customer spending
across all market sectors. This was partially offset by higher sales to power systems customers in the UK & Ireland.
Compared to Q3 2020, new equipment revenue increased 15%, up in our operations in the UK & Ireland and
Canada.
Product support revenue was down 5% in Q4 2020 from the same prior year period, lower in the mining sectors of
Canada and South America. We continue to see resiliency of our product support business and have seen a gradual
ramp up of customer demand since the outbreak of COVID-19, although industry activity has not yet returned to pre-
COVID-19 levels. Q4 2020 product support revenue was up 4% from Q3 2020, higher in our operations in Canada
and South America.
EBIT and EBITDA
Q4 2020 gross profit of $418 million was 2% lower than the same period in the prior year. Overall gross profit as a
percentage of net revenue of 26.9% in Q4 2020 was 260 basis points higher than Q4 2019, due to operational
improvements in most lines of business and a revenue mix shift to product support revenue (Q4 2020: 57%
compared to Q4 2019: 52%).
SG&A in Q4 2020 of $324 million was 3% lower than Q4 2019, driven by the benefit of measures taken to reduce
cost to serve and lower discretionary spend, partially offset by higher long-term incentive plan expense. Although
SG&A was down compared to Q4 2019, the fixed and semi-variable nature of certain SG&A costs on a much lower
revenue base resulted in a 190 basis points increase in SG&A as a percentage of net revenue.
22
Finning International Inc.
2020 Annual Results
Adjusted EBIT and Adjusted EBITDA by Operation (1)
3 months ended December 31
($ millions)
Adjusted EBIT
2019
2020
2
7
9
5
1
4
1
3
1
1
5
80
40
0
120
60
0
Adjusted EBITDA
2020
2019
4
1
1
6
0
1
1
6
1
5
0
2
5
1
Canada
South America
UK & Ireland
Canada
South America
UK & Ireland
(1) Excluding Other operations
Q4 2020 EBIT was $108 million and EBIT as a percentage of net revenue was 6.9%. Excluding the significant item
described on page 19, Q4 2020 Adjusted EBIT was $94 million and Adjusted EBIT as a percentage of net revenue
was 6.1%, compared to EBIT and EBIT as a percentage of net revenue of $97 million and 5.5%, respectively, in Q4
2019. Q4 2020 Adjusted EBIT was only slightly below Q4 2019 EBIT on 12% lower net revenue. Adjusted EBIT as a
percentage of net revenue increased from the same prior year period, driven by improved profitability in all
operations as we benefited from our productivity and efficiency initiatives and strong cost control.
Adjusted EBITDA in Q4 2020 was $171 million,
comparable to Q4 2019, with higher earnings in South
America and UK & Ireland, partially offset by lower
earnings in Canada. Adjusted EBITDA as a percentage
of net revenue in Q4 2020 was 11.0%, up 130 basis
points from Q4 2019. Adjusted EBITDA as a
percentage of net revenue improved in all of our
operations.
Finance Costs
Finance costs in Q4 2020 were $18 million, down $12 million from Q4 2019 on lower average debt levels.
Provision for Income Taxes
The effective income tax rate in Q4 2020 was 19.8%, lower than 25.2% in Q4 2019. The lower effective income tax
rate in Q4 2020 was due to a higher proportion of earnings from lower tax jurisdictions and a positive revaluation of
current and deferred tax balances resulting from the acceleration of a tax rate reduction in Alberta, which was
substantively enacted in the quarter.
Net Income and Basic EPS
Net income was $72 million and basic EPS was $0.45 in Q4 2020. Q4 2020 Adjusted net income was $62 million
and Adjusted basic EPS was $0.38, higher than $50 million and $0.31, respectively, in Q4 2019. Q4 2020 results
were up from Q4 2019 driven by lower finance and tax costs.
23
The table below provides details of net revenue by operation and lines of business and results by operations.
Finning International Inc.
2020 Annual Results
Net Revenue
%
32%
6%
3%
57%
2%
100%
For 3 months ended
December 31, 2020 ($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Operating costs
Other income
EBITDA
Depreciation and amortization
EBIT
Net revenue percentage by operation
Adjusted EBITDA
Adjusted EBIT
EBITDA as a % of net revenue
EBIT as a % of net revenue
Adjusted EBITDA as a % of net revenue
Adjusted EBIT as a % of net revenue
South
UK
Canada America
$
191 $
54
36
458
32
771 $
(665)
13
119 $
(47)
72 $
& Ireland Other
194 $
16
4
70
—
284 $
(264)
—
20 $
(9)
11 $
115 $
23
9
349
—
496 $
(435)
—
61 $
(20)
41 $
Consol
500
— $
93
—
49
—
877
—
—
32
— $ 1,551
(1,380)
(16)
14
1
185
(15) $
(1)
(77)
108
(16) $
100%
—
50%
32%
18%
106 $
59 $
61 $
41 $
20 $
11 $
(16) $
(17) $
171
94
15.4%
9.3%
13.7%
7.7%
12.2%
8.3%
12.2%
8.3%
7.0%
3.7%
7.0%
3.7%
11.9%
6.9%
11.0%
6.1%
$
$
$
$
$
Canada
South
America
UK
& Ireland
Other
Consol
Net Revenue
%
For 3 months ended
December 31, 2019 ($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Operating costs
Equity earnings
EBITDA
Depreciation and amortization
EBIT
Net revenue percentage by operation
$
$
$
$
357 $
58
35
487
31
968 $
(857)
3
114 $
(42)
72 $
55%
130 $
10
11
367
—
518 $
(467)
—
51 $
(20)
31 $
30%
EBITDA as a % of net revenue
EBIT as a % of net revenue
11.8%
7.4%
10.0%
6.0%
37%
6%
3%
52%
2%
100%
162 $
31
9
68
1
271 $
(256)
—
15 $
(10)
5 $
15%
5.4%
1.9%
— $
649
—
99
—
55
—
922
32
—
— $ 1,757
(1,590)
(10)
3
—
170
(10) $
(73)
(1)
97
(11) $
100%
—
9.7%
5.5%
24
Finning International Inc.
2020 Annual Results
All variances and ratios in this section are based on the functional currency of each operation (Canada: CAD, South
America: USD, UK & Ireland: GBP).
Canada Operations
Q4 2020 net revenue of $771 million was 20% lower than Q4 2019, with challenging market conditions and reduced
customer spending across all lines of business. New equipment revenue was down 47% in Q4 2020 compared to
Q4 2019, down in all market sectors. By contrast, Q4 2019 revenue included deliveries of large mining equipment
packages and power system projects. Product support revenue in Q4 2020 was down 6% compared to the same
prior year period, largely driven by lower customer demand in the mining sector. Compared to Q3 2020, net revenue
grew 6% driven by improving market activity in the mining sector and power systems deliveries.
Gross profit in Q4 2020 was lower than Q4 2019, mostly driven by lower volumes across all lines of business.
Overall gross profit as a percentage of net revenue increased in Q4 2020 compared to Q4 2019 due to a revenue
mix shift to product support, less large mining equipment in the sales mix, and improved operating efficiencies.
Q4 2020 SG&A was 7% lower than Q4 2019, reflecting cost savings from improved processes and efficiencies.
However, these savings were partially offset by higher service and overhead costs, as new equipment preparation
work was down significantly from Q4 2019. We continued to qualify for CEWS, which allowed us to preserve jobs
and technical capabilities in Canada. The costs related to retained employees were included in SG&A and the wage
subsidy was recorded in other income in Q4 2020. SG&A as a percentage of net revenue was up compared to the
prior year period driven by certain costs that are fixed or semi-variable in nature, on significantly lower revenues.
Excluding the $13 million benefit of CEWS, our Canadian operations contributed Adjusted EBITDA of $106 million in
Q4 2020, down 7% from the same period in the prior year on 20% lower net revenues. Adjusted EBITDA as a
percentage of net revenue in Q4 2020 was 13.7%, higher than the 11.8% in Q4 2019. This increase was driven by
higher gross profit as a percentage of net revenue, which was partially offset by higher SG&A as a percentage of net
revenue.
South America Operations
Q4 2020 net revenue was down 3% from Q4 2019. Product support revenue in Q4 2020 was down 4% from Q4
2019, primarily in the mining sector in Chile, which was impacted by COVID-19 restrictions on mining operations.
New equipment revenue in Q4 2020 was 10% lower than the prior year quarter, reflecting reduced market activity in
the construction and power systems sectors in Chile as a result of the pandemic. Equipment backlog at December
31, 2020 was up 41% from September 30, 2020 as order intake, driven by demand in mining and construction
sectors, exceeded deliveries. Used equipment revenue more than doubled from the prior year comparable period
driven by sales of surplus equipment. Compared to Q3 2020, net revenue is up 6%, primarily product support
revenue reflecting a recovery of repair and maintenance work for Chilean mining customers.
Gross profit in Q4 2020 increased from Q4 2019 despite lower volumes. Gross profit as a percentage of net revenue
improved in the current period reflecting improved productivity and efficiencies in most lines of business.
Q4 2020 SG&A was down 3% from Q4 2019 driven by the benefit of lower people-related costs from measures
taken earlier in 2020 to improve employee productivity, strong cost control, and lower variable costs. Q4 2020 SG&A
as a percentage of net revenue was comparable to Q4 2019.
Q4 2020 EBITDA was $61 million, up from Q4 2019 primarily due to the benefit of a lower cost base from leveraging
one common technology system and restructuring measures. Q4 2020 EBITDA as a percentage of net revenue of
12.2% was 220 basis points higher than Q4 2019 due to the improvement in gross profit as a percentage of net
revenue.
25
Finning International Inc.
2020 Annual Results
UK & Ireland Operations
Fourth quarter 2020 net revenue was 4% higher than the same period in 2019, largely driven by an 18% increase in
new equipment sales, attributable to higher deliveries of power systems projects to the data centre and electricity
capacity markets partially offset by lower used equipment sales. Equipment backlog at December 31, 2020 was up
20% from September 30, 2020.
Q4 2020 gross profit was up compared to the same prior year period driven by a shift in equipment product mix to
higher margin power system projects and an improvement in the quality of equipment inventory.
SG&A was up 5% in Q4 2020 compared to the prior year period in line with higher volumes, and SG&A as a
percentage of net revenue in Q4 2020 was comparable to Q4 2019.
Q4 2020 EBITDA was higher than Q4 2019 primarily driven by higher sales volumes as well as improved profitability
and effective cost control. EBITDA as a percentage of net revenue was 7.0%, up from 5.4% in Q4 2019 primarily
due to improved gross profit as a percentage of net revenue.
26
Finning International Inc.
2020 Annual Results
Market Update and Business Outlook
Canada Operations
Oil sands production and capital expenditures are expected to increase in 2021 compared to 2020 in response to
strengthened oil prices and the Alberta government’s removal of production curtailments. We expect product support
activity in the oil sands to continue to improve, with higher fleet utilization driving increased demand for maintenance
and rebuilds.
The outlook for copper, precious metals and other metals has improved, supporting increased activity in this mining
sector. Diamond mining activity is expected to return to full capacity in the first quarter after selected shut-downs in
2020. We are actively quoting on multiple RFPs for equipment and product support, including projects in the Golden
Triangle of British Columbia, which represent significant green-field opportunities. Higher demand for metallurgical
coal is expected to be partly offset by lower thermal coal production.
We are well positioned to help our mining customers reduce cost per ton and improve operating efficiencies through
initiatives such as autonomy and leveraging our technology solutions. The large and aging mining equipment
population in Western Canada is expected to drive opportunities for future fleet renewals, rebuilds, autonomy
conversions, and continued demand for product support.
We are encouraged by significant infrastructure investments being made in both the public and private sectors.
Large fiscal stimulus programs in each province are expected to provide a near-term positive impact on construction
activity, including investments in Alberta’s light rail projects and British Columbia Highway works. Other planned
investments, such as the orphaned well abandonment program in Alberta and irrigation expansion in Alberta and
Saskatchewan are expected to support a medium-term growth outlook for the construction sector. The significant
private sector investment in LNG and power sectors will continue to provide opportunities for equipment, product
support, heavy rentals, and prime and standby electric power generation in 2021. Cancellation of the Keystone XL
pipeline is not expected to have a material impact on our business. We are seeing an increase in order intake for
construction equipment. However, in the near term, COVID-19 mitigation measures are expected to continue
impacting activity levels. Our focus remains on capturing product support market share in construction sectors by
leveraging our technology solutions to strengthen relationships with our customers.
South America Operations
We are optimistic about mining recovery in Chile. A positive long-term outlook for copper, increasing copper
production forecasts, and an aging equipment population are expected to drive improved demand for product
support and higher RFP activity in Chilean mining. We are actively quoting on multiple opportunities for new mining
equipment and autonomy solutions for both brownfield expansions and greenfield projects. We are seeing an
increasing commercial momentum for copper and gold mines in Chile and Argentina with significant projects
advancing though feasibility studies. According to Cochilco, the Chilean Copper Commission, copper production in
Chile is expected to increase to 7.1 million tons by 2029 from 5.8 million tons in 2020. Chile’s portfolio of mining
projects includes a total investment of USD $74 billion in 49 projects, mainly in copper, gold, iron, lithium, and
industrial minerals. Opportunities in the Lithium Triangle region, covering Chile, Argentina, and Bolivia, represent
significant growth potential as lithium production is expected to continue increasing rapidly with the transition to
electric vehicles.
We expect mining product support revenue to recover in 2021 as customers are ramping up major maintenance
work and preparing their equipment fleets to meet increasing production targets. However, COVID-19 related
restrictions are expected to continue to limit the capacity of mining operations in the near term. While we have
reached agreements with our own unions, we are monitoring the upcoming customer union negotiations closely.
The outlook for a recovery in the Chilean construction industry is positive. The Chilean government announced USD
$34 billion of public investment in infrastructure over 2020-2022 to jumpstart the economy. As a result, we expect to
see improved activity and strong order intake in the construction and power systems markets in Chile in 2021.
Although currently muted, we continue to monitor the potential for social unrest heading into the elections in
November 2021.
In Argentina, we expect stability in gold mining and oil and gas, and some recovery in construction activity in 2021.
We expect the overall business environment in Argentina to remain challenging, and are actively managing key
risks, including ARS devaluation. We are maintaining a minimal level of investment in this region to manage risks
and support our customers.
27
Finning International Inc.
2020 Annual Results
UK & Ireland Operations
A new trade deal between the UK and the European Union reached in December 2020 is expected to remove
uncertainty in our end markets, with no additional tariffs imposed and continued access to the single European
market. We have completed significant planning ahead of the Brexit leave date in conjunction with Caterpillar to
mitigate potential supply chain risks, and we are well positioned to meet our customer needs. Economic activity in
the UK & Ireland continues to be affected by COVID-19 mitigation measures. However, since we provide services to
industries that are deemed essential, we do not anticipate the latest lockdowns to impact the sectors we serve in a
material way.
The outlook for general construction equipment markets in the UK is positive, driven by the HS2 project and the
government’s investment in other infrastructure initiatives to support the economy. After some delays, we expect a
strong ramp-up in HS2 construction activity in 2021. Our backlog at December 31, 2020 includes some initial
equipment orders related to HS2, and we expect to start delivering equipment to this project in Q2 2021.
We expect continued strong demand for our power systems solutions, particularly in the data centre market, with the
timing of project deliveries expected to be phased towards the second half of 2021.
Improved Earnings Capacity in a Recovery
Our overall outlook for 2021 remains positive. Led by strong recoveries in Chile and the UK, we expect revenue
growth in 2021, however remaining below 2019 levels. COVID-19 mitigation measures are expected to continue
impacting our business in the first quarter of 2021. We are seeing some restrictions at construction sites in Canada
and our mining customers in Chile are currently operating at reduced capacity.
The execution of our global cost initiatives is on track to deliver more than $100 million of annualized cost savings.
Our goal is to reduce SG&A as a percentage of net revenue to about 17% in mid-cycle.
In 2021, we expect to benefit from several profitability drivers, including operating leverage in a recovering market,
product support growth in all regions, significant progress towards our mid-cycle SG&A target, and effective
allocation of capital. Assuming an undisrupted market recovery and the successful execution of our profitability
drivers, we expect 2021 earnings to exceed 2019.
We will be making strategic capital investments in our Canadian facility network and our digital capabilities in 2021,
and expect our net capital expenditures and net rental fleet additions to be in the $170 million to $210 million range
this year, dependent on the pace of market recovery.
We expect to deliver strong annual free cash flow in 2021. However, with increased inventory purchases, our
EBITDA to free cash flow conversion is projected to be modestly below 50% for the year.
28
Finning International Inc.
2020 Annual Results
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate sufficient cash flow, along with other sources of liquidity
including cash and borrowings, to fund operations and growth. Liquidity is affected by operating, investing, and
financing activities.
Cash flows provided by (used in) each of these activities were as follows:
3 months ended
December 31
Years ended
December 31
($ millions)
Operating activities
Investing activities
Financing activities
Free cash flow
2020
2019
317 $ 438 $
$
(52) $
(32) $
$
$ (173) $ (361) $
292 $ 386 $
$
(Decrease)
Increase
(121) $
20 $
2020
2019
962 $ 191 $
(99) $ (378) $
23 $
42 $
Increase
(Decrease)
771
279
(596)
828
188 $ (573) $
870 $
(94) $
The most significant contributors to the changes in cash flows for 2020 over 2019 were as follows (all events
described were in the current quarter or annual period, unless otherwise stated):
Quarter over Quarter
Year over Year
lower collections due to reduced sales
volumes, across all of our operations
partially offset by lower spend, mainly in
Canada and South America, due to lower
demand as well as strong inventory and cost
management
lower inventory spend, primarily equipment and
parts, across all of our operations mainly driven
by strong inventory management
the receipt of government wage subsidies
primarily in Canada
partially offset by lower collections due to
reduced sales volumes in all our operations
lower net spend on capital expenditures
$229 million net cash consideration paid to
approximately $120 million repayment of
short-term debt in Q4 2020 compared to
approximately $300 million in 2019
acquire 4Refuel in 2019
lower net spend on capital expenditures
approximately $130 million repayment of short-
term debt in 2020 compared with approximately
$75 million increase in short-term borrowings in
2019
repayment of $200 million long-term debt in
2020 compared with approximately $200 million
increase in long-term borrowings in 2019
Operating
activities
Investing
activities
Financing
activities
Free cash
flow
lower cash generated from operating
higher cash generated from operating activities
activities for the reasons outlined above
for the reasons outlined above
29
Finning International Inc.
2020 Annual Results
Capital resources and management
Our cash and cash equivalents balance at December 31, 2020 was $539 million (December 31, 2019: $268 million).
At December 31, 2020, to complement internally generated funds from operating and investing activities, we had
approximately $2.6 billion in unsecured committed and uncommitted credit facilities. Included in this amount is a
committed revolving credit facility totaling $1.3 billion with various Canadian and global financial institutions as well
as an additional $500 million committed revolving credit facility for general corporate purposes, of which
approximately $1.7 billion was available at December 31, 2020. We are subject to certain covenants as it relates to
our committed revolving credit facilities and were in compliance with these covenants as at December 31, 2020.
We are closely evaluating the impact of COVID-19 on our business and are adapting and adjusting daily to changes.
We continuously monitor actual and forecasted cash flows, manage the maturity profiles of our financial liabilities
and maintain committed and uncommitted credit facilities. We believe that based on cash on hand, available credit
facilities and the discretionary nature of certain cash flows, such as rental and capital expenditures, we have
sufficient liquidity to meet operational needs.
Refer to the Risk Factors and Management section later in this MD&A for further discussion of our exposure to
liquidity risk.
Finning is rated (1) by both DBRS and S&P:
DBRS
S&P
Long-term debt
Short-term debt
Dec 31,
2020
BBB (high)
BBB+
Dec 31,
2019
BBB (high)
BBB+
Dec 31,
2020
R-2 (high)
n/a
Dec 31,
2019
R-2 (high)
n/a
In March 2020, S&P placed Finning's BBB+ rating on CreditWatch with negative implications. In June 2020, S&P
removed Finning from CreditWatch and assigned a negative outlook while affirming our BBB+ rating.
In August 2020, DBRS reconfirmed Finning’s BBB (high) long-term rating and R-2 (high) commercial paper rating
both with stable trends.
During the first quarter of 2020, we repurchased 1,215,617 common shares for $23 million (at costs ranging from
$12.15 to $22.22 per share and an average cost of $19.25 per share) through an NCIB (2). During 2019, we
repurchased 1,073,354 common shares for $27 million (at costs ranging from $23.17 to $26.37 per share and an
average cost of $24.75 per share). We ceased repurchases under our NCIB upon the onset of the COVID-19
pandemic.
Net Debt to Adjusted EBITDA
We monitor net debt to Adjusted EBITDA to assess our operating leverage and ability to repay debt. This ratio
approximates the length of time, in years, that it would take to repay our debt, with net debt and Adjusted EBITDA
held constant.
December 31
Net debt to Adjusted EBITDA ratio (times)
Finning
long-term target
< 3.0
2020
1.4
2019
2.0
(1) A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the
rating organization.
(2) We renewed our NCIB for a further year effective May 11, 2020. A copy of the NCIB notice is available on request directed to the Corporate
Secretary, 300 – 565 Great Northern Way, Vancouver, BC V5T 0H8.
30
Contractual Obligations
Payments on contractual obligations in each of the next five years and thereafter are as follows:
Finning International Inc.
2020 Annual Results
($ millions)
Short-term debt
Long-term debt
Leases
Total contractual obligations
2021
2022
2023
2024
2025
Thereafter Total
$
$
92 $ — $ — $ — $ — $
250
92
434 $
232
73
305 $
157
51
208 $
220
37
257 $
24
26
50 $
— $
753
55
92
1,636
334
808 $ 2,062
The above table does not include obligations to fund pension benefits. We make regular contributions to our
registered defined benefit pension plans in Canada and the UK in order to fund the pension obligations as required.
Funding levels are monitored regularly and reset with new actuarial funding valuations at least every three years. In
2020, we contributed $14 million towards the defined benefit pension plans. Based on the most recent valuations
completed, we expect to contribute approximately $11 million to the defined benefit pension plans during the year
ended December 31, 2021.
Capital and Rental Expenditures
Our net spend on capital expenditures and rental fleet additions during the year ended December 31, 2021 is
expected to be in the range of $170 million to $210 million depending on the pace of market recovery. These are
planned, but not legally committed expenditures and include strategic capital investments in our Canadian facility
network, our digital capabilities, and rental fleet additions.
Employee Share Purchase Plans
We have employee share purchase plans for our Canadian and South American employees. Under the terms of
these plans, eligible employees may purchase common shares of Finning in the open market at the then current
market price. We pay a portion of the purchase price to a maximum of 2% of employee earnings. At December 31,
2020, approximately 73%, 78% and 3% of eligible employees in our Corporate, Canadian and South American
operations, respectively, were contributing to these plans.
We also have an All Employee Share Purchase Ownership Plan for our employees in Finning UK & Ireland. Under
the terms of this plan, we provide one common share, purchased in the open market, for every three shares
purchased by Finning (UK) employees and for every one share purchased by Finning (Ireland) employees. Finning
(UK) employees may contribute from £10 to £150 of their salary per month. At December 31, 2020, approximately
30% of eligible employees in Finning (UK) were contributing to this plan. Finning (Ireland) employees may contribute
from €10 to €70 of their salary per month. At December 31, 2020, approximately 14% of eligible employees in
Finning (Ireland) were contributing to this plan.
We may cancel these plans at any time.
31
Finning International Inc.
2020 Annual Results
Accounting and Estimates
We employ professionally qualified accountants throughout our finance group globally and all of our operating unit
financial officers report directly to our 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, the SVP, Corporate
Controller, and the Audit Committee. Significant accounting and financial topics and issues are presented to and
discussed with the Audit Committee.
Management’s discussion and analysis of our financial condition and results of operations is based on our Annual
Financial Statements, which have been prepared in accordance with IFRS. Our significant accounting policies are
contained in the notes to the Annual Financial Statements for the year ended December 31, 2020. 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. We have discussed the development, selection,
and application of our key accounting policies, and the critical accounting estimates and assumptions involved, with
the Audit Committee.
The critical estimates and judgments involved in preparing our Annual Financial Statements for the year ended
December 31, 2020 were:
determination of the functional currency of each entity of Finning;
revenues and costs associated with long-term product support contracts and complex power and energy
systems;
revenues and costs associated with the sale of assets with repurchase commitments or rental equipment with
purchase options;
the fair value of derivative financial instruments;
inputs to the models to determine the fair value of certain share-based payments;
allowance for doubtful accounts;
provisions for slow-moving and obsolete inventory;
provisions for income tax;
provisions for warranty; and,
the determination of post-employment benefits.
the useful lives and residual values of property, plant, and equipment, rental equipment, and intangible assets;
the determination of lease term;
identifying the CGU to which assets should be allocated for impairment testing;
recoverable values for goodwill and other indefinite-lived intangible assets;
For additional information on the above judgments, estimates, and assumptions made, please refer to the notes to
the Annual Financial Statements for the year ended December 31, 2020.
Goodwill and intangible assets with indefinite lives
We perform impairment tests on goodwill and intangible assets with indefinite lives at the appropriate level (CGU or
group of CGUs). These impairment tests are performed at least annually or more frequently 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 CGU to its carrying value. If the
recoverable amount of the CGU exceeds its carrying value, goodwill and/or the intangible asset are considered not
to be impaired. 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 CGU and then to the other assets of the
CGU pro-rata on the basis of the carrying amount of each asset in the CGU. Any impairment loss is recognized
immediately in the consolidated statement of income. Impairment losses recognized for goodwill are never reversed
but impairment losses on indefinite-lived intangible assets may be reversed. If any indication that the circumstances
leading to the impairment loss of an indefinite-lived intangible asset no longer exists or may have decreased, the
recoverable value of the CGU is estimated. Indicators of a recovery may include sustainable improvement of the
economic performance of the CGU and positive trend in the forecast or budgeted results of the CGU. If the
recoverable amount exceeds the carrying amount, then a previously recognized impairment loss is considered to
have been reversed (either fully or in part). Any reversal of an impairment loss is recognized immediately in the
consolidated statement of net income.
32
Finning International Inc.
2020 Annual Results
The recoverable amount of each CGU was estimated using a discounted cash flow model. The process of
determining these recoverable amounts requires 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 WACC rates. Cash flow projections are based on financial budgets approved by our Board. Projected cash
flows are discounted using WACC rates. These estimates are subject to change due to uncertain competitive and
economic market conditions or changes in business strategies.
The annual impairment tests were completed to support April 1, 2020 net asset values. In addition to testing CGUs
or groups of CGUs with goodwill or distribution network, recent economic uncertainty and financial performance
triggered an impairment review of our Argentina CGU. No impairment losses were identified in these annual
impairment tests. At December 31, 2020, we reviewed recent cash flow projections (which incorporate the potential
impact of COVID-19) and macro-economic conditions (including key assumptions used in WACC rates) and did not
identify any indicators of impairment. Based on this review, we concluded there were no impairments of our CGUs at
December 31, 2020. Also, we reviewed if there was any indication that the circumstances leading to the previously
recognized impairment loss on our indefinite-lived intangible asset no longer existed or may have decreased. No
reversal of impairment losses was considered appropriate at December 31, 2020 and 2019. Refer to note 21 in the
Annual Financial Statements for further details.
Income tax asset or liability
Estimations of tax assets or liabilities 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 jurisdiction at the time of the expected reversal. The composition of deferred tax assets and liabilities
changes from period to period due to the uncertainties surrounding these assumptions and changes in tax rates or
regimes which could have a material effect on expected results.
Judgment is required as income tax laws and regulations can be complex and are potentially subject to a different
interpretation between us and the respective tax authority. Due to the number of variables associated with the
differing tax laws and regulations across the multiple jurisdictions in which we operate, 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 or from
any subsequent re-assessment.
Financial Instruments
Cash and cash equivalents, accounts receivable, unbilled receivables, supplier claims receivable, and instalment
and other notes receivable are classified and measured at amortized cost using the effective interest method.
Derivative financial instruments are classified and measured at fair value through profit or loss and are recorded on
the consolidated statement of financial position at fair value. Changes in fair value are recognized in the
consolidated statement of net income except for the effective changes in fair value related to derivative financial
instruments which are designated as hedging instruments, which are recognized in other comprehensive income.
Short-term and long-term debt, accounts payable and accruals, and lease liabilities are classified and measured at
amortized cost using the effective interest method.
Related Party Transactions
Related party transactions incurred in the normal course of business between us and our subsidiaries have been
eliminated on consolidation and are not considered material for disclosure. Information on our wholly owned
subsidiaries and the main countries in which they operate is contained in note 2 of the Annual Financial Statements.
Compensation of key management personnel is disclosed in note 28 of the Annual Financial Statements.
New Accounting Pronouncements
The adoption of recent amendments to accounting standards and new IFRS had no impact on our financial position.
For more details on recent changes in accounting policy, please refer to note 2 of our Annual Financial Statements.
Future accounting pronouncements and effective dates are also contained in note 2 of our Annual Financial
Statements.
33
Finning International Inc.
2020 Annual Results
Risk Factors and Management
Finning and its subsidiaries are exposed to market, credit, liquidity, and other risks in the normal course of business
activities. Our ERM process is designed to ensure that these risks are identified, managed, and reported. The ERM
framework assists us in managing risks and business activities to mitigate these risks across the organization in
order to achieve our strategic objectives.
We maintain a strong risk management culture to protect and enhance shareholder value. On a quarterly basis, a
Board level committee reviews our processes for business risk assessment and the management of key business
risks, any changes to key risks and exposures, and the steps taken to monitor and control such exposures. This
review is reported to the Board quarterly. The Board reviews, in detail, all material risks on an annual basis. The
Board also reviews the adequacy of disclosures of key risks in our AIF, MD&A, and financial statements on a
quarterly and annual basis. All key financial risks are disclosed in our MD&A and other key business risks are
disclosed in our AIF. For more information on our financial instruments, including accounting policies, description of
financial risks, and relevant financial risk sensitivities, please refer to note 8 of the Annual Financial Statements.
Pandemic Outbreak and Impact on Financial Results
Epidemic and pandemic diseases, such as the outbreak of COVID-19, may have a significant impact on us. We
continue to adapt to the impacts of COVID-19 on the business, with the health and safety of employees, customers,
and communities as the highest priority. Since the World Health Organization’s declaration of the global pandemic in
March 2020, we successfully expedited our business continuity program, however, a risk of this nature may still
have a material adverse impact on our business, results of operations and financial condition.
The outbreak of COVID-19 has caused and continues to cause considerable disruption to the world economy,
including financial markets and commodity prices. In periods of significantly lower commodity prices, development of
new projects can be slowed or stopped and production from existing projects can be curtailed, leading to less
demand for equipment or services we supply. In 2020, some of our customers requested to delay equipment
deliveries as a result of their halted operations, parked equipment fleets, or delayed projects, and some equipment
orders were also cancelled. These effects had a significant negative effect on our 2020 financial results.
Similarly, our financial results could continue to be negatively impacted by the actions taken by governments,
customers, and/or suppliers, including business disruptions, customer credit risk, force majeure, and/or supply chain
constraints in response to the ongoing pandemic, and uncertainty remains as to the severity and duration of any
resulting adverse impact on our business, results of operations, and financial condition. For instance, the impact of
COVID-19 on the future supply of products is unknown and there can be no assurance that Caterpillar will continue
to be able to supply its products in the quantities and timeframes required by our customers. To date we have not
experienced any material negative impacts on our supply of Caterpillar products due to the pandemic. Further, as a
result of COVID-19, many governments made wage subsidy programs available for eligible entities who meet
qualifying criteria and provided other relief programs, such as rent subsidy or tax deferral programs. There can be
no assurance that these programs will be effective in adequately supporting us or our customers in the intended
manner. In particular, to the extent that any of our customers are dependent upon these programs, the modification
or cessation of these programs could increase our risk of customer credit default, with a resulting negative impact on
our results. The extent, duration and availability of government support programs is highly uncertain and cannot be
predicted with confidence at this time.
Our operations and the operations of many of our customers have been deemed essential services during the
pandemic and have remained open. A localized outbreak of a contagious illness such as COVID-19 could impact
operations, risk the health of our employees who continue to work in branches or on customer sites, and result in the
temporary closure of one or more of our major facilities or the facilities of our customers. We are following the
requirements and advice of government and health authorities in each jurisdiction where we operate. We eliminated
non-critical travel during the peak of the pandemic in 2020 and are taking a cautious approach to relaxing travel
restrictions, in line with these requirements and advice. We have applied a risk-based approach to assessing each
facility in our global operations. A series of preventative measures have been developed and executed at each
facility that at a minimum include communication on the COVID-19 response protocol, awareness training, personal
and facility specific hygiene practices, physical distancing, and work-from home arrangements where possible.
Rules in all jurisdictions continue to change and further government intervention or quarantine restrictions could
impede our ability to continue to manage the business.
34
Finning International Inc.
2020 Annual Results
In light of these ongoing uncertainties, we continue to evaluate and adapt our business plans as the situation
evolves. This has included implementing numerous new tools, technologies, training and security monitoring and
detection services to mitigate the heightened risk of experiencing a cybersecurity incident due to the increase in
employees working remotely. We are also continuing to manage costs in line with expected changes in business
activity levels in each region.
The extent to which COVID-19 continues to affect our business will depend on future events which are highly
uncertain and cannot be predicted, including the geographic spread and duration of the pandemic, actions taken by
governmental authorities in response to the pandemic, and the impacts on global and regional markets, our
customers, suppliers and contracts. As a result, no assurance can be given as of the date of this MD&A as to the
potential impact that COVID-19 may have on our business, results of operations, cash flows and financial condition.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the
effect of heightening many of the other risks described in the Risk Factors and Management section of this MD&A
and in our AIF, which may also have an adverse material impact on our future operating and financial results.
Commodity Prices
We are affected by fluctuations in the prices of commodities, such as copper, gold, and other metals, metallurgical
coal, natural gas, oil, and lumber. We provide equipment and 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 regarding 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. In
Canada, our customers, mostly in the oil sands in Northern Alberta, are exposed to the price of oil. In South
America, our 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 UK & Ireland, our resource sector customers operate in off-shore oil & gas.
Significant fluctuations in these commodity prices could have a material impact on our financial results.
In periods of significantly lower commodity prices, demand is reduced as development of new projects is slowed or
stopped and production from existing projects can be curtailed, 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 our products and
services could increase and apply pressure on our 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 our products and services,
management works closely with Caterpillar to achieve an adequate and timely supply of product and has
implemented human resources recruiting strategies to achieve adequate staffing levels.
Financial Instruments Risk
We are exposed to risks through our operations that arise from the use of financial instruments, which include credit
risk and liquidity risk. Under the normal course of operations, we have mitigation strategies to minimize these risks.
In the current economic climate, we have heightened exposure to these risks.
Credit Risk
Credit risk is the risk of financial loss to us if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally in respect of our cash and cash equivalents, receivables from
customers, receivables from suppliers, and derivative assets.
Credit risk associated with cash and cash equivalents 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.
Credit risk associated with accounts receivable, unbilled receivables, and instalment notes receivable from
customers is minimized because of the diversification of our operations as well as our large customer base and
geographical dispersion. Also, we have policies in place to manage credit risk, including maintaining credit limits for
customers taking into account factors such as projected purchase values, credit worthiness of the customer, and
payment performance.
35
Finning International Inc.
2020 Annual Results
The COVID-19 pandemic has resulted in significant disruptions in financial markets, regional economies, and the
world economy. It is likely that the pandemic will continue to adversely affect the economies, financial markets, and
social stability of many regions and countries in which our customers operate. There can be no assurance that these
disruptions will not negatively affect the financial performance of our customers and our ability to collect customer
receivables. The extent and duration of the impact of the COVID-19 pandemic on our customers is unknown at this
time. This will depend on future developments and the availability of government support programs, all of which are
highly uncertain and cannot be predicted with confidence. As a result, credit risk exposure related to our accounts
receivable has increased in 2020 but to mitigate this risk, management worked closely with customers with liquidity
constraints throughout 2020. No assurance can be given that our provision for potential losses on customer
receivables will be sufficient or that we will not suffer material credit losses that will adversely affect our results. This
remains an area that we will continue to monitor closely.
We are exposed to risk on supplier claims receivable, primarily from Caterpillar, with whom we have had an ongoing
relationship since 1933.
We have credit exposure arising from our derivative instruments relating to counterparties defaulting on their
obligations. However, we minimize 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 S&P and/or A3 by Moody’s and/or A- by Fitch and/or A (low) by DBRS.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. Our approach to
managing liquidity is to ensure, as far as possible, that we will have sufficient liquid financial resources to fund
operations and meet commitments and obligations. We maintain uncommitted bilateral and committed revolving
credit facilities, continuously monitor actual and forecast cash flows, and manage maturity profiles of financial
liabilities. Based on the availability of credit facilities, our business operating plans, and the discretionary nature of
some cash outflows, such as rental and capital expenditures, we believe we continue to have sufficient liquidity to
meet operational needs.
We will require capital to finance future growth and to refinance outstanding debt obligations as they come due for
repayment. If the cash generated from our operations is not sufficient to fund future capital and debt repayment
requirements, we will require additional debt or equity financing in the capital markets. Our ability to access capital
markets on terms that are acceptable will be dependent upon prevailing market conditions, as well as our financial
condition. Further, our ability to increase the level of debt financing may be limited by financial covenants or credit
rating objectives. The outbreak of COVID-19 globally has caused and continues to cause considerable disruptions in
the world economy, including financial markets and commodity prices and could adversely impact our ability to carry
out our plans and raise capital. The ability to raise additional financing for future activities may be impaired, or such
financing may not be available on favourable terms, due to conditions beyond our control, such as uncertainty in the
capital markets, depressed commodity prices or country risk factors.
Market Risk and Hedging
Market risk is the risk that changes in the market, such as foreign exchange rates and interest rates, will affect our
net income or the fair value of our financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters.
We utilize derivative financial instruments and foreign currency debt in order to manage our foreign currency and
interest rate exposures. We use derivative financial instruments only in connection with managing related risk
positions and do not use them for trading or speculative purposes. All such transactions are carried out within the
guidelines set by us and approved by the Audit Committee. For more information on our accounting policy on
financial instruments, please refer to note 8 of the Annual Financial Statements.
Foreign Exchange Risk
We are geographically diversified, with significant investments in several different countries. We transact business in
multiple currencies, the most significant of which are the CAD, USD, GBP, CLP, and ARS. The functional currency
of our South American operations is USD and the functional currency of our UK & Ireland operations is primarily
GBP (Finning Ireland’s functional currency is the Euro). As a result, we have foreign currency exposure with respect
to items denominated in foreign currencies. Our main types of foreign exchange risk can be categorized as follows:
36
Finning International Inc.
2020 Annual Results
Translation Exposure
The most significant foreign exchange impact on our net income and other comprehensive income is the translation
of foreign currency based earnings and net assets or liabilities into CAD, which is our presentation currency. Our
South American and UK & Ireland operations have functional currencies other than the CAD and, as a result,
exchange rate movements between the USD/CAD and GBP/CAD will impact the consolidated results of the South
American and UK & Ireland operations in CAD terms. We do not hedge our exposure to foreign exchange risk with
regard to foreign currency earnings.
Assets and liabilities of our South American and UK & Ireland operations are translated into CAD using the
exchange rates in effect at the statement of financial position dates. Any translation gains and losses are recorded
as foreign currency translation adjustments in other comprehensive income. To the extent practical, it is our
objective to manage this exposure. We hedged a portion of our foreign investments with foreign currency
denominated loans. The currency translation loss of $20 million recorded in 2020 resulted primarily from the 2%
stronger CAD relative to the USD partially offset by the 1% weaker CAD relative to the GBP at December 31, 2020
compared to December 31, 2019. This was partially offset by a $10 million unrealized foreign exchange gain on net
investment hedges.
Transaction Exposure
Many of our operations purchase, sell, rent, and lease products as well as incur costs in currencies other than their
functional currency. This mismatch of currencies creates transactional exposure, which may affect our profitability as
exchange rates fluctuate. For example, our Canadian operating results are exposed to volatility in USD/CAD rates
between the timing of equipment and parts purchases that are made in USD and the ultimate sale to customers
made in CAD. A portion of this exposure is hedged through the use of forward exchange contracts as well as
managed through pricing practices. We apply hedge accounting to hedges of certain inventory purchases and new
equipment sales in our Canadian and UK operations, respectively.
The results of our operations are impacted by the translation of foreign-denominated transactions; the results of our
Canadian operations are impacted by USD based revenue and costs and the results of our South American
operations are impacted by CLP and ARS based revenues and costs.
We are also exposed to foreign currency risks related to the future cash flows of our foreign-denominated financial
assets and financial liabilities and foreign-denominated net asset or net liability positions on our statement of
financial position. We enter into forward exchange contracts to manage some mismatches in foreign currency cash
flows but do not fully hedge balance sheet exposure, so this may result in unrealized foreign exchange gains or
losses until the financial assets and financial liabilities are settled.
The CAD has historically been positively correlated to certain commodity prices. In a scenario of declining
commodity prices, our 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 our financial results when USD based revenues and earnings are translated into CAD reported
revenues and earnings, although lags may occur.
The results of our South American operations are affected by changes in the USD/CLP and USD/ARS relationships.
Historically, the CLP has been positively correlated to the price of copper. As the price of copper declines, the value
of the CLP versus the USD declines as well. In such an environment, our revenue may be impacted as mining
customers curtail their equipment and product support spend. Our SG&A in South America, which is largely
denominated in local currency, is reduced when translated into USD, partly offsetting the impact on revenue. The
reverse holds true in an environment where the copper price strengthens, although generally there is a lag between
the increase in SG&A and the improvement in revenue. These impacts are partially offset by our hedging programs.
Our competitive position may also be impacted as relative currency movements affect the business practices and/or
pricing strategies of our competitors.
37
Key exchange rates that impacted our results were as follows:
Finning International Inc.
2020 Annual Results
Exchange
rate
USD/CAD
GBP/CAD
USD/CLP
USD/ARS
December 31
December 31 – average
December 31 – average
3 months ended
12 months ended
2020
1.2732
1.7381
711.24
84.15
2019 Change 2020
1.2988
1.7174
744.62
59.89
2 %
(1)%
4 %
(41)%
1.3030
1.7206
761.70
79.96
2019 Change 2020
1.3200
1.6994
753.41
59.34
1 %
(1)%
(1)%
(35)%
1.3415
1.7199
791.84
69.82
2019 Change
(1)%
1.3269
(2)%
1.6945
(13)%
700.61
(49)%
46.77
The impact of foreign exchange due to fluctuations in the value of CAD relative to USD, GBP, CLP, and ARS is
expected to continue to affect our results.
Interest Rate Risk
Changes in market interest rates can cause fluctuations in the fair value or future cash flows of financial instruments.
We are exposed to changes in interest rates on our interest-bearing financial assets. Our floating-rate financial
assets comprise cash and cash equivalents. Due to the short-term nature of cash and cash equivalents, the impact
of fluctuations in fair value is limited but interest income earned can 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.
We are exposed to changes in interest rates on our interest-bearing financial liabilities, primarily from short-term
and long-term debt. Our debt portfolio comprises both fixed and floating rate debt instruments, with terms to
maturity ranging up to 2042. Our floating rate debt is short term in nature and, as a result, we are exposed 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 our fixed rate debt obligations fluctuates with changes in interest rates, but absent early settlement,
related cash flows do not change. We are exposed to changes in future interest rates upon refinancing of any debt
prior to or at maturity.
We manage our interest rate risk by balancing our portfolio of fixed and floating rate debt, as well as managing the
term to maturity of our debt portfolio.
Share-Based Payment Risk
Share-based payment plans are an integral part of our employee compensation program and can be in the form of
our common shares or cash payments that reflect the value of our shares and the extent we are able to achieve or
exceed specified performance levels. Share-based payment plans are accounted for at fair value, and the expense
associated with these plans can therefore vary as our share price, share price volatility, performance, and employee
exercise behaviour change. For further details on our share-based payment plans, please refer to note 11 of the
Annual Financial Statements.
38
Finning International Inc.
2020 Annual Results
Contingencies and Guarantees
Due to the size, complexity, and nature of our operations, various legal, customs, and tax matters are pending. It is
not currently possible for management to predict the outcome of such matters due to various factors, including: the
preliminary nature of some claims, incomplete factual records and uncertainty concerning procedures and their
resolution by the courts, customs, or tax authorities. However, subject to these limitations, management is of the
opinion, based on legal assessments and information presently available, that, except as stated below, it is not likely
that any liability would have a material effect on our financial position or results of operations.
We began to export an agricultural animal feed product from Argentina in the third quarter of 2012 in response to the
Argentine government’s efforts to balance imports and exports and to manage access to foreign currency. These
exports enabled us to import goods into Argentina to satisfy customer demand, while meeting the government’s
requirements. We have not exported agricultural animal feed product from Argentina since the third quarter of
2013.The Argentina Customs Authority has made a number of claims against us associated with the export of this
agricultural product over this period and has also issued an order that could result in up to a one-year suspension of
imports into Argentina by a portion of the business. We are appealing these claims and the order, believe they are
without merit, and are confident in our position. Mitigation measures are also available to us. These pending matters
may take a number of years to resolve. Should the ultimate resolution of these matters differ from our assessment
and the mitigation measures not be effective, this could result in a material negative impact on our financial position.
We enter into contracts with rights of return (at the customer’s discretion), in certain circumstances, for the
repurchase or trade-in 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, 2020, the total estimated value of these
contracts outstanding was $139 million (2019: $148 million) coming due at periods ranging from 2021 to 2026. Our
experience to date has been that the estimated fair value of the equipment at the exercise date of the contract is
generally greater than the repurchase price or trade-in amount, however, there can be no assurance that this
experience will continue in the future. The total amount recognized as a provision against these contracts at
December 31, 2020 and 2019 was $1 million.
For further information on our contingencies, commitments, guarantees, and indemnifications, refer to notes 29 and
30 of the notes to the Annual Financial Statements.
Outstanding Share Data
As at February 5, 2021
Common shares outstanding
Options outstanding
162,108,691
3,675,318
39
Finning International Inc.
2020 Annual Results
Controls and Procedures Certification
Disclosure Controls and Procedures
We are responsible for establishing and maintaining a system of controls and procedures over the public disclosure
of our financial and non-financial information. Such controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to senior management, including the CEO and
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 our disclosure controls and
procedures in order to provide reasonable assurance that material information relating to Finning and its
consolidated subsidiaries is made known to them in a timely manner.
We have a Corporate 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.
The Corporate Disclosure Policy sets out accountabilities, authorized spokespersons, and our approach to the
determination, preparation, and dissemination of material information. The policy also defines restrictions on
insider trading and the handling of confidential information.
The Disclosure Committee, consisting of senior management, including legal counsel, reviews all financial
information prepared for communication to the public to ensure it meets all regulatory requirements. The
Disclosure Committee is responsible for raising any outstanding issues it believes require the attention of the
Audit Committee for the Audit Committee’s approval prior to recommending disclosure, subject to legal
requirements applicable to disclosure of material information.
Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. We have
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. In March 2020, we instituted remote
work arrangements for the majority of our finance workforce due to the COVID-19 pandemic. Although this has
continued through subsequent financial close periods, there has been no change in the design of our internal control
over financial reporting during the year ended December 31, 2020 that would materially affect, or is reasonably likely
to materially affect, our internal control over financial reporting. We have taken additional steps to ensure key
financial internal controls remained in place during the financial reporting period and these controls were completed
electronically.
Regular involvement of our 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 our officers have designed our
disclosure controls and procedures and internal control over financial reporting to provide reasonable assurance that
the objectives of the control systems are met, 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 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 was
conducted as of December 31, 2020, 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,
we used the criteria set forth by the COSO in Internal Control – Integrated Framework (2013 edition). The evaluation
included documentation review, enquiries, testing, and other procedures considered by us to be appropriate in the
circumstances.
Based on that evaluation, 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, 2020.
40
Finning International Inc.
2020 Annual Results
Description of Non-GAAP Financial Measures and Reconciliations
Non-GAAP Financial Measures
We believe that providing certain non-GAAP financial measures provide users of our MD&A and consolidated
financial statements with important information regarding the operational performance and related trends of our
business. The non-GAAP financial measures used by management do not have any standardized meaning
prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.
Accordingly, these measures should not be considered as a substitute or alternative for GAAP measures as
determined in accordance with IFRS. By considering these measures in combination with the comparable IFRS
financial measures (where available) we believe that users are provided a better overall understanding of our
business and financial performance during the relevant period than if they simply considered the IFRS financial
measures alone.
We use KPIs to consistently measure performance against our priorities across the organization. KPIs, including
those that are expressed as ratios, are non-GAAP financial measures.
There may be significant items that we do not consider indicative of our operational and financial trends, either by
nature or amount. We exclude these items when evaluating our operating financial performance. These items may
not be non-recurring, but we believe that excluding these significant items from GAAP results provides a better
understanding of our financial performance when considered in conjunction with the GAAP results. Financial metrics
that have been adjusted to take into account these significant items are referred to as “Adjusted” metrics. Adjusted
metrics are non-GAAP financial measures and are intended to provide additional information to readers of the
MD&A.
A description of the non-GAAP financial measures used by us in this MD&A is set out below. A quantitative
reconciliation from each non-GAAP financial measure to their most directly comparable measure, where available,
specified, defined, or determined under GAAP and used in our consolidated financial statements (GAAP measures)
can be found on pages 42 - 50 of this MD&A.
Adjusted net income and Adjusted basic EPS
Adjusted net income excludes from net income the after-tax amounts of significant items that are not considered to
be indicative of operational and financial trends either by nature or amount to provide a better overall understanding
of our underlying business performance. The tax impact of each significant item is calculated by applying the
relevant applicable tax rate for the jurisdiction in which the significant item occurred.
Adjusted basic EPS is calculated by dividing Adjusted net income by the weighted average number of common
shares outstanding during the period.
A reconciliation between net income and basic EPS (the most directly comparable GAAP measure) and Adjusted
net income and Adjusted basic EPS can be found on pages 5 and 19 of this MD&A.
EBITDA, Adjusted EBITDA, and Adjusted EBIT
EBITDA is defined as earnings before finance costs, income taxes, depreciation, and amortization. We use EBITDA
to assess and evaluate the financial performance of our reportable segments. We believe that EBITDA improves
comparability between periods by eliminating the impact of finance costs, income taxes, depreciation, and
amortization.
Adjusted EBIT and Adjusted EBITDA exclude items that are not considered to be indicative of operational and
financial trends, either by nature or amount, to provide a better overall understanding of our underlying business
performance.
EBITDA is calculated by adding depreciation and amortization to EBIT. Adjusted EBITDA is calculated by adding
depreciation and amortization to Adjusted EBIT.
The most directly comparable GAAP measure to EBITDA is EBIT.
41
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our consolidated operations for the last nine quarters and years ended
December 31, 2018, 2017, and 2016 is as follows:
Finning International Inc.
2020 Annual Results
3 months ended
($ millions)
EBIT (1)(2)
Depreciation and amortization (1)
EBITDA (1)(2)
EBITDA – last 12 months (1)(2)
EBIT
Significant items:
CEWS support
Severance costs
Facility closures, restructuring costs,
and impairment losses
Acquisition costs related to 4Refuel
Write-off and loss related to Energyst
Impact from Alberta wildfires
– insurance proceeds
– unavoidable costs
Power systems project provisions,
estimated loss on disputes and alleged
fraudulent activity by a customer
Gain on investment
Loss on sale of non-core business
Adjusted EBIT (1)(2)
Depreciation and amortization (1)
Adjusted EBITDA (1)(2)
Adjusted EBIT – last 12 months (1)(2)
Adjusted EBITDA – last 12 months (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
94
76
170
754
52
78
130
671
138
77
215
685
108
77
185
700
2019
Dec 31 Sep 30 Jun 30 Mar 31
62
72
134
587
137
76
213
629
129
72
201
688
97
73
170
718
2018
Dec 31
91
49
140
610
Years ended Dec 31
2016
2017
165
392
192
184
357
576
357
576
2018
423
187
610
610
108
138
52
94
97
129
137
62
(14)
—
(37)
—
(64)
42
—
—
—
—
—
—
—
—
94
77
171
328
636
—
—
—
—
—
—
—
—
101
77
178
331
635
9
—
—
—
—
—
—
—
39
78
117
362
661
—
—
—
—
—
—
—
—
—
—
94
76
170
460
757
—
—
—
—
—
—
—
—
—
—
97
73
170
457
750
—
2
1
—
—
—
—
—
—
—
132
72
204
451
720
—
—
—
—
—
—
—
—
—
—
137
76
213
442
688
—
18
7
4
—
—
—
—
—
—
91
72
163
431
646
91
—
—
—
—
—
—
—
—
—
—
91
49
140
446
633
423
392
165
—
—
—
—
30
(7)
—
—
—
—
446
187
633
446
633
—
5
—
—
—
(4)
—
—
—
—
393
184
577
393
577
—
41
36
—
—
—
11
20
(5)
5
273
192
465
273
465
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
42
Finning International Inc.
2020 Annual Results
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our Canadian operations for the last nine quarters and years ended December 31, 2018,
2017, and 2016 is as follows:
3 months ended
($ millions)
EBIT (1)(2)
Significant items:
CEWS support
Severance costs
Facility closures, restructuring costs,
and impairment losses
Impact from Alberta wildfires
– insurance proceeds
– unavoidable costs
Adjusted EBIT (1)(2)
Depreciation and amortization (1)
Adjusted EBITDA (1)(2)
Adjusted EBIT – last 12 months (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
60
63
93
72
2019
Dec 31 Sep 30 Jun 30 Mar 31
50
72
82
92
2018 (1)
Dec 31
71
Years ended Dec 31
2016
2017
2018
87
225
297
(13)
—
(35)
—
(60)
20
—
—
—
—
5
—
—
—
59
47
106
205
—
—
58
48
106
218
—
—
28
47
75
242
—
—
60
43
103
306
—
—
—
—
—
72
42
114
313
—
—
—
—
—
82
43
125
312
—
—
—
—
—
92
46
138
308
—
10
7
—
—
67
43
110
293
—
—
—
—
—
71
26
97
290
—
—
—
(7)
—
290
96
386
290
—
3
—
(4)
—
224
99
323
224
—
24
32
—
11
154
100
254
154
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our South American operations for the last nine quarters and years ended December 31,
2018, 2017, and 2016 is as follows:
3 months ended
($ millions)
EBIT (1)(2)
Significant items:
Severance costs
Facility closures, restructuring costs,
and impairment losses
Estimated loss on alleged fraudulent
activity by a customer
Adjusted EBIT (1)(2)
Depreciation and amortization (1)
Adjusted EBITDA (1)(2)
Adjusted EBIT – last 12 months (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
38
40
41
2
2019
Dec 31 Sep 30 Jun 30 Mar 31
6
41
42
31
2018
Dec 31
12
Years ended Dec 31
2016
2017
137
184
2018
142
—
—
—
41
20
61
142
—
—
—
40
19
59
132
17
—
4
—
—
23
22
45
137
—
38
22
60
155
—
—
—
31
20
51
131
2
1
—
45
20
65
112
—
—
—
41
21
62
104
8
—
—
14
20
34
110
—
—
—
12
17
29
142
—
—
—
142
62
204
142
2
—
—
186
58
244
186
8
—
10
155
62
217
155
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
43
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our UK & Ireland operations for the last nine quarters and years ended December 31,
2018, 2017, and 2016 is as follows:
Finning International Inc.
2020 Annual Results
3 months ended
($ millions)
EBIT (1)(2)
Significant items:
Severance costs
Facility closures and restructuring costs
Power systems project provisions and
estimated loss on disputes
Disposal of business
Adjusted EBIT (1)(2)
Depreciation and amortization (1)
Adjusted EBITDA (1)(2)
Adjusted EBIT – last 12 months (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
1
(5)
11
9
2019
Dec 31 Sep 30 Jun 30 Mar 31
13
14
14
5
2018
Dec 31
12
Years ended Dec 31
2016
2017
37
2018
51
(12)
—
—
—
—
11
9
20
20
—
—
—
—
9
9
18
14
4
—
—
—
(1)
9
8
19
—
—
—
—
1
10
11
34
—
—
—
—
5
10
15
46
—
—
—
—
14
8
22
53
—
—
—
—
14
9
23
54
—
—
—
—
13
9
22
54
—
—
—
—
12
6
18
51
—
—
—
—
51
28
79
51
—
—
—
—
37
26
63
37
9
4
10
5
16
30
46
16
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
EBITDA to Free Cash Flow Conversion
EBITDA to free cash flow conversion is calculated as free cash flow (defined and calculated on page 45) divided by EBITDA (defined and calculated on pages
41 - 42). We use EBITDA to free cash flow conversion to assess our efficiency in turning EBITDA into cash.
Equipment Backlog and Order Intake
Our global equipment backlog is defined as the retail value of new equipment units ordered by customers for future deliveries. Order intake represents
committed new equipment orders. We use equipment backlog and order intake as measures of projecting future new equipment deliveries. There are no
directly comparable IFRS measures for equipment backlog and order intake.
44
Finning International Inc.
2020 Annual Results
Free Cash Flow
Free cash flow is defined as cash flow provided by or used in operating activities less net additions to property, plant, and equipment and intangible assets, as
disclosed in our Annual Financial Statements. We use free cash flow to assess cash operating performance and the ability to raise and service debt. A
reconciliation of free cash flow is as follows:
3 months ended
($ millions)
Cash flow provided by (used in) operating
activities (1)
Additions to property, plant, and equipment
and intangible assets (1)
Proceeds on disposal of property, plant,
and equipment (1)
Free cash flow (1)
Free cash flow – last 12 months (1)
2020
Dec 31 Sep 30 Jun 30 Mar 31
2019
Dec 31 Sep 30 Jun 30 Mar 31
2018
Dec 31
Years ended Dec 31
2016
2017
2018
317
340
319
(14)
438
204
(127)
(324)
490
260
283
440
(34)
(26)
(17)
(38)
(54)
(40)
(37)
(23)
(77)
(201)
(121)
(92)
2
316
10
312
2
(50)
9
292
870
1
165
2
(162)
—
(347)
2
386
42
5
418
78
19
78
78
3
165
165
22
370
370
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
45
Inventory Turns (Dealership)
Inventory turns (dealership) is the number of times our dealership inventory is sold and replaced over a period. We use this metric to measure asset utilization.
Inventory turns (dealership) is calculated as annualized cost of sales (excluding cost of sales related to the mobile refueling operations) for the last six months
divided by average inventory (excluding fuel inventory), based on an average of the last two quarters, as follows:
Finning International Inc.
2020 Annual Results
($ millions, except as noted)
Cost of sales (3 months ended) (1)(2)
Cost of sales related to mobile refueling
operations (3 months ended)
(124)
Cost of sales related to the dealership (3 months ended) (1)(2) 1,119 1,039
(129)
2020
2016
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31 Dec 31
1,248 1,163 1,075 1,140 1,483 1,500 1,655 1,380 1,429 1,299 1,111
2018
2017
2019
(133)
(95)
—
(156)
980 1,007 1,315 1,344 1,499 1,281 1,429 1,299 1,111
(156)
(168)
(99)
—
—
Inventory (2)
Fuel inventory
Inventory related to the dealership (2)
Cost of sales related to the dealership – annualized (1)(2)
Inventory related to the dealership – 2 quarter average (2)
Inventory turns (dealership) (number of times) (1)(2)
Invested Capital
1,477 1,626 1,893 2,152 1,990 2,215 2,366 2,356 2,061 1,708 1,601
—
1,474 1,624 1,891 2,149 1,987 2,212 2,363 2,353 2,061 1,708 1,601
(3)
(3)
(3)
(3)
(3)
(2)
(2)
(3)
—
—
4,319 4,039 3,973 4,644 5,317 5,686 5,559 5,420 5,470 4,862 4,150
1,549 1,757 2,020 2,068 2,099 2,287 2,359 2,208 2,039 1,726 1,663
2.49
2.49
2.25
2.46
2.68
2.36
2.82
2.30
2.53
1.97
2.79
Invested capital is calculated as net debt plus shareholders’ equity. Invested capital is also calculated as total assets less total liabilities, excluding net debt. Net
debt is calculated as short-term and long-term debt, net of cash and cash equivalents. We use invested capital as a measure of the total cash investment made
in Finning and in each reportable segment. We use invested capital in a number of different measurements in assessing financial performance against other
companies and between reportable segments. Invested capital is calculated as follows:
($ millions, except as noted)
Cash and cash equivalents
Short-term debt
Current portion of long-term debt
Long-term debt
Net debt
Shareholders’ equity (1)(2)
Invested capital (1)(2)
2020
2019
2018
(539)
92
201
(453)
217
200
2016
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31 Dec 31
(593)
2
—
1,354 1,296 1,487
896
856
1,054
2,109 1,974 1,901
3,163 2,830 2,797
(290)
658
—
1,107 1,136 1,348 1,381 1,318 1,325 1,321 1,341
861 1,100 1,368 1,650 1,476 1,805 1,912 1,709
2,206 2,184 2,127 2,233 2,115 2,102 2,052 2,044
3,067 3,284 3,495 3,883 3,591 3,907 3,964 3,753
(260)
329
200
(454)
154
—
(458)
18
—
(160)
751
—
(252)
532
200
(338)
158
200
(268)
226
200
2017
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
46
Invested Capital Turnover
We use invested capital turnover to measure the efficiency of our invested capital and is calculated as net revenue (defined and calculated on page 48) for the
last twelve months divided by invested capital (defined and calculated on page 46) based on an average of the last four quarters, as follows:
Finning International Inc.
2020 Annual Results
($ millions, except as noted)
Consolidated
Net revenue – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
Invested capital turnover (number of times) (1)(2)
Canada
Net revenue – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
Invested capital turnover (number of times) (1)(2)
South America
Net revenue – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
Invested capital turnover (number of times) (1)(2)
UK & Ireland
Net revenue – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
Invested capital turnover (number of times) (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
2019
Dec 31 Sep 30 Jun 30 Mar 31
2018
2016
2017
Dec 31 Dec 31 Dec 31
5,768 5,974 6,350 7,010
3,432 3,563 3,719 3,836
1.83
1.71
1.68
1.68
2,959 3,156 3,406 3,775
1,967 2,019 2,091 2,153
1.75
1.63
1.56
1.50
1,922 1,944 2,042 2,199
1,100 1,166 1,226 1,271
1.73
1.67
1.67
1.75
7,290 7,375 7,311 7,045
3,804 3,697 3,578 3,427
2.06
1.99
2.04
1.92
3,927 3,964 3,896 3,729
2,167 2,079 1,999 1,888
1.98
1.91
1.95
1.81
2,226 2,217 2,198 2,123
1,250 1,249 1,223 1,195
1.78
1.77
1.80
1.78
887
357
2.49
874
365
2.39
902 1,036
399
389
2.60
2.32
1,137 1,194 1,217 1,193
368
3.25
376
3.18
373
3.27
382
2.98
6,996 6,256 5,628
3,295 2,993 2,960
1.90
2.09
2.12
3,674 3,072 2,821
1,795 1,690 1,656
1.70
1.82
2.05
2,170 2,157 1,857
1,169 1,032 1,030
1.80
2.09
1.86
1,152 1,027
288
3.56
358
3.22
950
268
3.54
Net Debt to EBITDA Ratio and Net Debt to Adjusted EBITDA Ratio
These ratios are calculated, respectively, as net debt (defined and calculated on page 46) divided by EBITDA, and net debt divided by Adjusted EBITDA, for
the last twelve months. We use these ratios to assess operating leverage and ability to repay debt. These ratios approximate the length of time, in years, that it
would take us to repay debt, with net debt and EBITDA or Adjusted EBITDA held constant. These ratios are calculated as follows:
($ millions, except as noted)
Net debt
EBITDA – last 12 months (1)(2)
Adjusted EBITDA – last 12 months (1)(2)
Net debt to EBITDA ratio (1)(2)
Net debt to Adjusted EBITDA ratio (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
861 1,100 1,368 1,650
754
700
757
636
2.2
1.2
2.2
1.4
671
661
2.0
2.1
685
635
1.6
1.7
2019
Dec 31 Sep 30 Jun 30 Mar 31
1,476 1,805 1,912 1,709
587
646
2.9
2.6
688
720
2.6
2.5
718
750
2.1
2.0
629
688
3.0
2.8
2018
2016
2017
Dec 31 Dec 31 Dec 31
896
357
465
2.5
1.9
1,054
610
633
1.7
1.7
856
576
577
1.5
1.5
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
47
Net Revenue, Gross Profit as a % of Net Revenue, SG&A as a % of Net Revenue, EBITDA as a % of Net Revenue, and EBIT as a % of Net Revenue
Net revenue is defined as total revenue less the cost of fuel related to the mobile refueling operations in our Canadian operations. As these fuel costs are pass-
through in nature for this business, we view net revenue as more representative in assessing the performance of the business because the rack price for the
cost of fuel is fully passed through to the customer and is not in our control.
Prior to 2019, net revenue from all operations was the same as total revenue and our non-GAAP financial measures, including KPIs and ratios, were calculated
using total revenue. Effective Q1 2019, these financial measures are calculated using net revenue. For our South American and UK & Ireland operations, net
revenue is the same as total revenue.
We use these measures, including KPIs and ratios, to assess and evaluate the financial performance or profitability of our reportable segments. We may also
calculate these financial measures using an Adjusted EBITDA and Adjusted EBIT to exclude significant items that are not considered to be indicative of
operational and financial trends either by nature or amount to provide a better overall understanding of our underlying business performance.
The most directly comparable GAAP measure to net revenue is total revenue. The ratios are calculated, respectively, as gross profit divided by net revenue,
SG&A divided by net revenue, EBITDA divided by net revenue, and EBIT divided by net revenue. Net revenue and these ratios are calculated as follows:
Finning International Inc.
2020 Annual Results
3 months ended
($ millions, except as noted)
Total revenue (1)(2)
Cost of fuel
Net revenue (1)(2)
Gross profit (1)(2)
Gross profit as a % of net revenue (1)(2)
SG&A (1)(2)
SG&A as a % of net revenue (1)(2)
EBITDA (1)(2)
EBITDA as a % of net revenue (1)(2)
2020
2019
2018
Annual
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 2020 2019 2018 2017 2016
1,842 6,196 7,817 6,996 6,256 5,628
1,666 1,553 1,419 1,558
(115)
—
(119)
1,842 5,768 7,290 6,996 6,256 5,628
1,551 1,443 1,335 1,439
1,911 1,959 2,137 1,810
(154)
(91)
1,757 1,819 1,995 1,719
(527) —
(142)
(140)
(110)
(428)
(84)
—
—
418
418
26.9% 27.0% 25.7% 29.1%
390
344
428
430
24.3% 25.3% 24.1% 25.0%
482
459
324
325
20.9% 20.1% 22.9% 22.6%
290
306
334
343
19.0% 18.3% 17.5% 20.0%
333
350
413 1,570 1,799 1,768 1,654 1,473
22.4% 27.2% 24.7% 25.3% 26.4% 26.2%
324 1,245 1,360 1,327 1,271 1,280
17.6% 21.6% 18.7% 19.0% 20.3% 22.7%
185
170
11.9% 14.9% 9.7% 11.8%
130
215
201
134
170
9.7% 11.1% 10.7% 7.8%
213
357
140
7.6% 12.1% 9.9% 8.7% 9.2% 6.3%
718
576
610
700
Adjusted EBITDA (1)(2)
170
Adjusted EBITDA as a % of net revenue (1)(2) 11.0% 12.3% 8.8% 11.8%
171
178
117
204
170
163
9.7% 11.2% 10.7% 9.4%
213
140
465
7.6% 11.0% 10.3% 9.0% 9.2% 8.3%
577
750
633
636
EBIT (1)(2)
EBIT as a % of net revenue (1)(2)
Adjusted EBIT (1)(2)
Adjusted EBIT as a % of net revenue (1)(2)
108
6.9%
94
6.1%
138
94
52
9.6% 3.9% 6.6%
101
94
39
7.0% 2.9% 6.6%
97
5.5%
97
5.5%
129
62
137
7.1% 6.9% 3.6%
132
91
137
7.3% 6.9% 5.3%
91
4.9%
91
4.9%
425
392
165
423
6.8% 5.8% 6.0% 6.3% 2.9%
392
457
328
273
446
5.7% 6.3% 6.4% 6.3% 4.9%
393
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
48
ROIC and Adjusted ROIC
ROIC is defined as EBIT for the last twelve months divided by invested capital (calculated on page 46) based on an average of the last four quarters,
expressed as a percentage.
We view ROIC 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. We may also calculate an Adjusted ROIC using Adjusted EBIT to exclude significant items that are not considered
to be indicative of operational and financial trends either by nature or amount to provide a better overall understanding of our underlying business performance.
ROIC and Adjusted ROIC are calculated as follows:
Finning International Inc.
2020 Annual Results
($ millions, except as noted)
Consolidated
EBIT – last 12 months (1)(2)
Adjusted EBIT – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
ROIC (1)(2)
Adjusted ROIC (1)(2)
Canada
EBIT – last 12 months (1)(2)
Adjusted EBIT – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
ROIC (1)(2)
Adjusted ROIC (1)(2)
South America
EBIT – last 12 months (1)(2)
Adjusted EBIT – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
ROIC (1)(2)
Adjusted ROIC (1)(2)
UK & Ireland
EBIT – last 12 months (1)(2)
Adjusted EBIT – last 12 months (1)(2)
Invested capital – 4 quarter average (1)(2)
ROIC (1)(2)
Adjusted ROIC (1)(2)
2020
Dec 31 Sep 30 Jun 30 Mar 31
2019
Dec 31 Sep 30 Jun 30 Mar 31
392
328
372
362
381
331
457
460
3,432 3,563 3,719 3,836
11.4% 10.7% 10.0% 11.9%
9.7% 12.0%
9.3%
9.6%
288
218
277
242
288
205
306
306
1,967 2,019 2,091 2,153
14.6% 14.3% 13.3% 14.2%
10.5% 10.8% 11.6% 14.2%
113
137
121
142
111
132
152
155
1,100 1,166 1,226 1,271
9.3% 11.9%
11.0%
12.9% 11.3% 11.2% 12.2%
9.5%
425
457
383
442
419
451
372
431
3,804 3,697 3,578 3,427
11.2% 11.3% 10.7% 10.8%
12.0% 12.2% 12.3% 12.5%
296
313
291
308
295
312
276
293
2,167 2,079 1,999 1,888
13.7% 14.2% 14.5% 14.6%
14.4% 15.0% 15.4% 15.5%
120
131
96
104
101
112
102
110
1,250 1,249 1,223 1,195
8.6%
9.2%
9.6%
10.5%
8.1%
9.0%
7.9%
8.5%
16
20
357
4.5%
5.5%
10
14
365
2.9%
3.9%
15
19
389
3.7%
4.6%
34
34
399
8.4%
8.4%
46
46
382
53
53
376
54
54
368
12.1% 14.1% 14.5% 14.8%
12.1% 14.1% 14.5% 14.8%
54
54
373
2018
2017
Dec 31 Dec 31 Dec 31
2016
423
446
165
392
273
393
3,295 2,993 2,960
5.6%
12.8% 13.1%
9.3%
13.5% 13.1%
297
290
87
225
154
224
1,795 1,690 1,656
5.3%
16.6% 13.3%
9.3%
16.2% 13.2%
142
142
137
184
155
186
1,169 1,032 1,030
12.2% 17.8% 13.3%
12.2% 18.1% 15.0%
51
51
358
(12)
37
16
37
268
288
14.2% 12.8% (4.5)%
5.9%
14.2% 12.8%
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
49
Working Capital & Working Capital to Net Revenue Ratio
Working capital is defined as total current assets (excluding cash and cash equivalents) less total current liabilities (excluding short-term debt and current
portion of long-term debt). We view working capital as a measure for assessing overall liquidity.
The working capital to net revenue ratio is calculated as working capital, based on an average of the last four quarters, divided by net revenue for the last
twelve months. We use this KPI to assess the efficiency in our use of working capital to generate net revenue.
The working capital to net revenue ratio is calculated as follows:
Finning International Inc.
2020 Annual Results
($ millions, except as noted)
Total current assets (1)(2)
Cash and cash equivalents
Total current assets in working capital (1)(2)(3)
Total current liabilities (1)(2)
Short-term debt
Current portion of long-term debt
Total current liabilities in working capital (1)(2)(4)
2020
Dec 31 Sep 30 Jun 30 Mar 31
3,214 3,261 3,416 3,828
(260)
(539)
2,675 2,808 3,078 3,568
(453)
(338)
2019
Dec 31 Sep 30 Jun 30 Mar 31
3,659 3,959 4,217 4,187
(290)
(268)
3,391 3,707 4,057 3,897
(252)
(160)
1,623 1,717 1,735 2,112
(329)
(92)
(200)
(201)
1,330 1,300 1,377 1,583
(158)
(200)
(217)
(200)
2,026 2,331 2,584 2,574
(658)
(226)
(200)
—
1,600 1,599 1,833 1,916
(532)
(200)
(751)
—
2018
2016
2017
Dec 31 Dec 31 Dec 31
3,924 3,531 3,378
(593)
(458)
(454)
3,470 3,073 2,785
1,992 1,545 1,233
(2)
(154)
—
—
1,838 1,527 1,231
(18)
—
Working capital
1,345 1,508 1,701 1,985
1,791 2,108 2,224 1,981
1,632 1,546 1,554
Working capital – 4 quarter average (1)(2)
Net revenue – last 12 months (1)(2)
Working capital to net revenue (1)(2)
1,635 1,746 1,896 2,026
5,768 5,974 6,350 7,010
28.3% 29.2% 29.9% 28.9%
2,026 1,986 1,950 1,878
7,290 7,375 7,311 7,045
27.8% 26.9% 26.7% 26.7%
1,859 1,712 1,709
6,996 6,256 5,628
26.6% 27.4% 30.4%
(1) Comparative results prior to Q1 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) Comparative results prior to Q1 2017 have not been restated for our adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments effective for the financial
year beginning January 1, 2018.
(3) Excluding cash and cash equivalents.
(4) Excluding short-term debt and current portion of long-term debt.
50
Selected Annual Information
($ millions, except for share and option data)
Revenue from operations
Canada (2)
South America
UK & Ireland
Total revenue
Net income (2)(3)
Earnings Per Share (2)(3)
Basic EPS
Diluted EPS
Total assets (2)
Long-term debt
Current
Non-current
Total long-term debt (4)
Cash dividends declared per common share
Finning International Inc.
2020 Annual Results
2020
2019
2018 (1)
$ 3,387 $ 4,454 $ 3,674
1,922 2,226 2,170
887 1,137 1,152
$ 6,196 $ 7,817 $ 6,996
232
$
232 $
242 $
1.43 $
1.43 $
1.38
$
1.38
$
$ 5,458 $ 5,990 $ 5,696
1.48 $
1.48 $
$
1,107
200 $
201 $
—
1,354
$ 1,308 $ 1,518 $ 1,354
0.79
$
0.82 $ 0.815 $
1,318
(1) Comparative results prior to 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial
year beginning January 1, 2019.
(2)
In February 2019, Finning acquired 4Refuel in its Canadian reportable segment. The results of operations and financial
position of this acquired business have been included in the figures since the date of acquisition.
(3) Results in 2020, 2019, and 2018 were impacted by the following significant items:
($ millions except per share amounts)
CEWS support
Severance costs
Facility closures, restructuring costs, and impairment losses
Acquisition costs related to 4Refuel
Write-off and loss related to Energyst
Insurance proceeds from Alberta wildfires
Impact of significant items on EBIT
Significant items impacting EBIT - impact on basic EPS
Significant items impacting net income only - impact on basic EPS:
Tax impact of devaluation of ARS (a)
Impact of significant items on basic EPS:
2020
2019
2018
$
(115) $
42
9
—
—
—
(64) $
— $
20
8
4
—
—
32 $
—
—
—
—
30
(7)
23
$
$
$
$
(0.29) $
0.15 $
0.15
— $
(0.29) $
0.02 $
0.17 $
0.12
0.27
(a) Tax impact of devaluation of ARS in 2019 ($4 million) and 2018 ($20 million).
(4)
In July 2020, we settled our 3.232%, $200 million note which was due July 3, 2020.
In April 2020, we secured an additional $500 million committed revolving credit facility, which provides further financial
flexibility and liquidity. This facility has a term of two years, can be used for general corporate purposes, and has
substantially the same terms and conditions of the existing $1.3 billion committed revolving credit facility.
In December 2019, we amended the credit facility which was set to fully mature in December 2023 by, among other things,
extending the maturity date to December 2024.
In August 2019, we issued $200 million of 2.626% senior unsecured notes due August 14, 2026. Proceeds of the issuance
were used to reduce outstanding short-term debt under our syndicated committed credit facility.
51
Selected Quarterly Information
Finning International Inc.
2020 Annual Results
($ millions, except for share,
per share, and option
amounts)
Revenue from operations
Canada (1)
South America
UK & Ireland
Total revenue
Net 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
Common shares
outstanding (000’s)
Options outstanding (000’s)
2020
2019
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
886 $
496
284
838 $
479
236
998
505
307
$ 1,666 $ 1,553 $ 1,419 $ 1,558 $ 1,911 $ 1,959 $ 2,137 $ 1,810
$
28
54 $
874 $ 1,122 $ 1,118 $ 1,216 $
478
206
789 $
469
161
626
295
577
264
518
271
72 $
18 $
76 $
88 $
50 $
88 $
0.45 $
0.44 $
$
0.17
$
0.17
$ 5,458 $ 5,535 $ 5,716 $ 6,255 $ 5,990 $ 6,253 $ 6,473 $ 6,459
0.33 $
$
0.33
0.54 $
0.54 $
0.31 $
0.31 $
0.12 $
0.12 $
0.46 $
0.46 $
0.54 $
0.54 $
$
201 $
200 $
—
1,341
$ 1,308 $ 1,336 $ 1,548 $ 1,581 $ 1,518 $ 1,525 $ 1,321 $ 1,341
200 $
1,381
200 $
200 $
200 $
1,107
1,348
1,325
1,321
1,136
1,318
— $
20.5¢
20.5¢
20.5¢
20.5¢
20.5¢
20.5¢
20.5¢
20.0¢
162,107 162,104 162,104 162,104
3,353
3,683
3,758
3,760
163,319 163,310 163,310 163,310
3,055
3,416
3,550
3,547
(1)
In February 2019, Finning acquired 4Refuel in its Canadian reportable segment. The results of operations and financial
position of this acquired business have been included in the figures since the date of acquisition.
(2) Results were impacted by the following significant items:
($ millions except per share amounts)
CEWS support
Severance costs
Facility closures, restructuring costs, and impairment losses
Acquisition costs related to 4Refuel
Impact of significant items on EBIT (a)
Significant items impacting EBIT - impact on basic EPS (b)
Significant items impacting net income only - impact on basic EPS (b):
Tax impact of devaluation of ARS (c)
Impact of significant items on basic EPS (b):
2020
Q3
Q4
2019
Q2
Q3
Q1
(14) $
—
—
—
(14) $
(37) $
—
—
—
(37) $
(64) $
42
9
—
(13) $
— $
2
1
—
3 $
—
18
7
4
29
(0.07) $
(0.17) $
(0.06) $
0.01 $
0.13
—
(0.07) $
—
(0.17) $
—
(0.06) $
0.02
0.03 $
—
0.13
$
$
$
$
(a) There were no significant items in Q1 2020, Q4 2019, and Q2 2019.
(b) The per share impact for each quarter has been calculated using the weighted average number of shares issued and outstanding
during the respective quarters; therefore, quarterly amounts may not add to the annual or year to date total.
(c) Tax impact of devaluation of ARS Q3 2019 ($4 million).
(3)
In July 2020, we settled our 3.232%, $200 million note which was due July 3, 2020.
In April 2020, we secured an additional $500 million committed revolving credit facility, which provides further financial
flexibility and liquidity. This facility has a term of two years, can be used for general corporate purposes, and has
substantially the same terms and conditions of the existing $1.3 billion committed revolving credit facility.
In December 2019, we amended the credit facility which was set to fully mature in December 2023 by, among other things,
extending the maturity date to December 2024.
In August 2019, we issued $200 million of 2.626% senior unsecured notes due August 14, 2026. Proceeds of the issuance
were used to reduce outstanding short-term debt under our committed revolving credit facility.
52
Finning International Inc.
2020 Annual Results
Forward-Looking Information Disclaimer
This report contains information about our business outlook, objectives, plans, strategic priorities and other
statements that is not historical fact. Information is forward-looking when we use what we know and expect today
to give information about the future. Forward-looking information may include terminology such as aim, anticipate,
assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should,
strategy, strive, target, and will, and variations of such terminology. Forward-looking information in this report
includes, but is not limited to, the following: we are positioned well for an economic recovery; expected results from
execution of our strategic framework, including our global strategic priorities, strategic pillars, and strategic focus
areas; our resilient business model, improving execution, financial flexibility, and cost and capital discipline will
serve us well as markets recover and position us for opportunities that lie ahead; our effective tax rate will
generally be within the 25-30% range on an annual basis; our outlook for our Canadian operations, including: oil
sands production and capital expenditures are expected to increase in 2021 compared to 2020, expected
continued improvement in product support activity in the oil sands, with higher fleet utilization driving increased
demand for maintenance and rebuilds (all assuming sustainment of strengthened oil prices and the Alberta
government will not re-impose production curtailments); expected return of diamond mining to full capacity in the
first quarter after selected shut-downs in 2020 (assumed based on the improved outlook for copper and precious
and other metals); that the Golden Triangle of British Columbia represents significant greenfield opportunities
(assumed based on quoting activity for RFPs for equipment and product support); higher demand for metallurgical
coal is expected to be offset by lower thermal coal production; the large and aging mining equipment population in
Western Canada is expected to drive opportunities for future fleet renewals, rebuilds and autonomy conversions,
and continued demand for product support; large fiscal stimulus and public and private infrastructure programs in
Alberta, British Columbia and Saskatchewan are expected to provide near-term and medium-term positive impact
and growth in the construction sector; significant private sector investment in LNG and power sectors will continue
to provide opportunities for equipment, product support, heavy rentals, and prime and standby electric power
generation in 2021; and in the near term, COVID-19 mitigation measures are expected to continue impacting
activity levels; our outlook for our South America operations, including we are optimistic about mining recovery in
Chile; our expectation that the positive long-term outlook for copper, increasing copper production forecasts, and
aging equipment population will drive improved demand for product support and higher RFP activity in Chilean
mining; increasing commercial momentum for copper and gold mines in Chile and Argentina (assuming positive
outcomes of feasibility studies for significant projects in progress); significant growth potential from opportunities in
the Lithium Triangle as lithium production is expected to continue increasing rapidly with the transition to electronic
vehicles; our expectation that mining product support revenue will to recover in 2021 as customers resume major
maintenance work and prepare their equipment fleets to meet increasing production targets; that COVID-19 related
restrictions will continue to limit the capacity of mining operations; our positive outlook for recovery in the Chilean
construction industry, including our expectation for improved activity and stronger order intake in the construction
and power systems markets in Chile in 2021; and, in Argentina, our expectation for stability in gold mining and oil
and gas, and some recovery in construction activity in 2021, and that Argentina will remain challenging; our outlook
for our UK and Ireland operations, including: our expectation that the trade deal between the UK and the European
Union reached in December 2020 will remove uncertainty in our end markets, with no additional tariffs imposed
and continued access to the single European market and that we are well positioned to meet our customer needs
given the significant planning ahead of the Brexit leave date in conjunction with Caterpillar to mitigate potential
supply chain risks; our expectation that the latest lockdowns will not materially impact the sectors we served
(assumed the industries we serve will continue to be deemed essential and not covered by the lockdown orders);
our positive outlook for general construction equipment markets in the UK; our expectation of a strong ramp-up in
HS2 construction activity in 2021 and that we will start delivering equipment to the HS2 project in Q2 2021; and our
expectation for continued strong demand for our power systems solutions, particularly in the data centre market,
with project deliveries expected to be phased towards the second half of 2021; statements regarding our improved
earnings capacity in a recovery, including: our overall positive outlook for 2021 and expected revenue growth in
2021 (assuming strong recoveries particularly in Chile and the UK), however remaining below 2019 levels; our
expectation that COVID-19 mitigation measures will continue impacting our business in the first quarter of 2021;
that our global cost initiatives are on track to deliver more than $100 million of annualized cost savings; our goal to
reduce SG&A as a percentage of net revenue to about 17% in mid-cycle; our expectation to benefit in 2021 from
profitability drivers, including: operating leverage in a recovering market, product support growth in all regions,
significant progress towards our mid-cycle goal of 17% SG&A as a percentage of net revenue, and effective
allocation of capital and that our 2021 earnings will exceed 2019 (we are assuming an undisrupted market
recovery, for example, undisrupted by COVID-19 impacts, commodity price volatility or social unrest, and
successful execution of our profitability drivers); our plans to make strategic capital investments in our Canadian
facility network and digital capabilities in 2021 and our expectation that our 2021 net capital expenditures and net
53
Finning International Inc.
2020 Annual Results
rental fleet additions will be in the $170 million to $210 million range this year, dependent on the pace of market
recovery; and our expectation that we will deliver strong free cash flow in 2021, but that with increased inventory
purchases, our EBITDA to free cash flow conversion will be modestly below 50% in 2021; that we continue to have
sufficient liquidity to meet operational needs; that we expect to contribute approximately $11 million to our
registered defined benefit pension plans in Canada and the UK during the year ended December 31, 2021; our
confidence in our position that the claims made by the Argentina Customs Authority, and the order issued by it, are
without merit and that we have mitigation measures also available to us; about the expected impact of the COVID-
19 pandemic on our operations; and about our plans to manage the risks and uncertainties associated with the
spread of COVID-19.
All such forward-looking information is provided pursuant to the ‘safe harbour’ provisions of applicable Canadian
securities laws. Unless otherwise indicated by us, forward-looking information in this report reflects our
expectations at the date in this MD&A. Except as may be required by Canadian securities laws, we do not
undertake any obligation to update or revise any forward-looking information, whether as a result of new
information, future events, or otherwise.
Forward-looking information, by its very nature, is subject to numerous risks and uncertainties and is based on a
number of assumptions which give rise to the possibility that actual results could differ materially from the
expectations expressed in or implied by such forward-looking information and that our business outlook,
objectives, plans, strategic priorities and other information that is not historical fact may not be achieved. As a
result, we cannot guarantee that any forward-looking information will materialize.
Factors that could cause actual results or events to differ materially from those expressed in or implied by this
forward-looking information include: the impact and duration of the COVID-19 pandemic and measures taken by
governments, customers and suppliers in response; general economic and market conditions and economic and
market conditions in the regions where we operate; foreign exchange rates; commodity prices; the impact of
changes in the UK’s trade relationship with the European Union as a result of Brexit; the level of customer
confidence and spending, and the demand for, and prices of, our products and services; our ability to maintain our
relationship with Caterpillar; our dependence on the continued market acceptance of our products, including
Caterpillar products, and the timely supply of parts and equipment; our ability to continue to improve productivity
and operational efficiencies while continuing to maintain customer service; our ability to manage cost pressures as
growth in revenue occurs; our ability to negotiate satisfactory purchase or investment terms and prices, obtain
necessary approvals, and secure financing on attractive terms or at all; our ability to manage growth strategy
effectively; our ability to effectively price and manage long-term product support contracts with customers; our
ability to reduce costs in response to slowing activity levels; our ability to drive continuous cost efficiency in a
recovering market; our ability to attract sufficient skilled labour resources as market conditions, business strategy
or technologies change; our ability to negotiate and renew collective bargaining agreements with satisfactory terms
for both Finning and our employees; the intensity of competitive activity; our ability to maintain a safe and healthy
work environment across all regions, our ability to raise the capital needed to implement our business plan;
regulatory initiatives or proceedings, litigation and changes in laws, regulations, or policies; stock market volatility;
changes in political and economic environments in the regions where we carry on business; our ability to respond
to climate change-related risks; the occurrence of one or more natural disasters, pandemic outbreaks, geo-political
events, acts of terrorism, social unrest or similar disruptions; fluctuations in defined benefit pension plan
contributions and related pension expenses; the availability of insurance at commercially reasonable rates; the
adequacy of insurance to cover all liability or loss that we incur; the potential of warranty claims being greater than
we anticipate; the integrity, reliability and availability of, and benefits from, information technology and the data
processed by that technology; our ability to protect our business from cybersecurity threats or incidents; and the
actual impact of the COVID-19 pandemic and our ability to respond to and manage the evolving risks. Forward-
looking statements are provided in this report to give information about management’s current expectations and
plans and allow investors and others to get a better understanding of our 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 we believed were
reasonable on the day we made the forward-looking statements including but not limited to: the specific
assumptions stated above; that we will be able to successfully manage our business through the current
challenging times involving the effects of the COVID-19 response and low and/or volatile commodity prices and
successfully implement our COVID-19 risk management plans; that our cost actions to drive earnings capacity in a
recovery can be sustained; that our action plan to minimize the impact of Brexit will be successful; that general
economic and market conditions will improve; that the level of customer confidence and spending, and the demand
for, and prices of, our products and services will be maintained; our ability to successfully execute our plans and
intentions; our ability to successfully attract and retain skilled staff; market competition will remain at similar levels;
the products and technology offered by our competitors will be as expected; that identified opportunities for growth
will result in revenue; consistent and stable legislation in the various countries in which we operate; no disruptive
54
Finning International Inc.
2020 Annual Results
changes in the technology environment and that our current good relationships with Caterpillar, our customers and
our suppliers, service providers and other third parties will be maintained. Refer in particular to the Market Update
and Business Outlook section of this MD&A for forward-looking statements. Some of the assumptions, risks, and
other factors, which could cause results to differ materially from those expressed in the forward-looking information
contained in this report, are discussed in Section 4 of the current AIF and in the annual MD&A for the financial
risks.
We caution readers that the risks described in the MD&A and the AIF are not the only ones that could impact us.
We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations,
financial condition or the demand for our services, due in part to the uncertainties relating to the ultimate
geographic spread of the virus, the severity of the disease, the duration of the outbreak, the steps our customers
and suppliers may take in current circumstances, including slowing or halting operations, the duration of travel and
quarantine restrictions imposed by governments and other steps that may be taken by such governments to
respond to the pandemic. Additional risks and uncertainties not currently known to us or that are currently deemed
to be immaterial may also have a material adverse effect on our business, financial condition, or results of
operation.
Except as otherwise indicated, forward-looking information does 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 of this report. 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. We therefore cannot describe the expected impact in a meaningful way or in the same way we
present known risks affecting our business.
55
Glossary of Defined Terms
Finning International Inc.
2020 Annual Results
4Refuel Canada and 4Refuel US
Annual Information Form
4Refuel
AIF
Annual Financial Statements Audited annual consolidated financial statements
ARS
Argentine Peso
Audit Committee
Audit Committee of the Board of Directors of Finning
Board
Board of Directors of Finning
Brexit
Withdrawal of the UK from the European Union
CAD
Canadian dollar
Caterpillar
Caterpillar Inc.
CEO
Chief Executive Officer
CEWS
Canadian Emergency Wage Subsidy
CFO
Chief Financial Officer
CGU
Cash-generating unit
CJRS
Coronavirus Job Retention Scheme
CLP
Chilean Peso
Consol
Consolidated
COSO
Commission of Sponsoring Organizations of the Treadway Commission
COVID-19
Novel Coronavirus
DBRS
Dominion Bond Rating Service
EBIT
Earnings (loss) before finance costs and income tax
EBITDA
Earnings (loss) before finance costs, income tax, depreciation, and amortization
Energyst
Energyst B.V.
EPS
Earnings per share
ERM
Enterprise risk management
fav
Favourable
Finning
Finning International Inc.
Finning (Canada)
A division of Finning, with dealer territories in British Columbia, Alberta, Saskatchewan, the
Yukon Territory, the Northwest Territories, and a portion of Nunavut
Generally accepted accounting principles
UK pound sterling
High Speed 2, a partly planned high speed railway in the UK
International Financial Reporting Standards
Key performance indicator
Management’s Discussion and Analysis
not applicable
% change not meaningful
Normal course issuer bid
OEM Remanufacturing Company Inc.
PipeLine Machinery International ULC
Request for proposal
Return on invested capital
Standard and Poor’s
System for Electronic Document Analysis
Selling, general, and administrative costs
Senior Vice-President
Toronto Stock Exchange
United Kingdom
Unfavourable
United States of America
US dollar
Weighted average cost of capital
GAAP
GBP
HS2
IFRS
KPI
MD&A
n/a
n/m
NCIB
OEM
PLM
RFP
ROIC
S&P
SEDAR
SG&A
SVP
TSX
UK
unfav
US
USD
WACC
56
Finning International Inc.
2020 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 2020.
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/ Greg Palaschuk
L. Scott Thomson
President and Chief Executive Officer
Greg Palaschuk
Executive Vice President and Chief Financial Officer
February 9, 2021
300-565 Great Northern Way, Vancouver, BC, V5T 0H8, Canada
1
Finning International Inc.
2020 Annual Results
Independent Auditor’s Report
To the Shareholders and the Board of Directors of
Finning International Inc.
Opinion
We have audited the consolidated financial statements of Finning International Inc. (the “Company”), which
comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated
statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and
notes to the consolidated financial statements, including a summary of significant accounting policies (collectively
referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of
the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”).
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the financial
statements for the year ended December 31, 2020. This matter was addressed in the context of our audit of the
financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on
this matter.
Revenue from sales of parts and labour when servicing equipment under long-term contracts and revenue
from sales of complex power and energy systems - Refer to Note 4 to the financial statements
Key Audit Matter Description
The Company recognizes long-term contracts revenue in a manner that best reflects the Company’s performance
over-time for revenue from sales of parts and labour when servicing equipment under long-term contracts and
revenue from sales of complex power and energy systems, which are presented as product support and new
equipment revenue, respectively, in the financial statements.
Revenue is recorded primarily based on the proportion of contract costs incurred for work performed to-date relative
to the estimated total contract costs. The accounting for servicing equipment under long-term contracts and for
complex power and energy system contracts that are not complete at the reporting date (collectively the
“uncompleted contracts”) involves significant judgments to estimate total contract costs. This required extensive
audit effort and a high degree of auditor attention in applying the audit procedures to audit management’s estimates
and evaluating the results of those procedures.
2
Finning International Inc.
2020 Annual Results
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimated total contract costs for uncompleted contracts included the
following, among others:
For a selection of uncompleted contracts, we:
o Obtained and inspected the executed contract agreements, amendments and confirmed key terms
with management and contract personnel.
o Conducted inquiries with management and operational personnel to gain an understanding of the
status of contract activities.
o Evaluated costs to complete by testing key components of the estimated total contract costs,
including parts and labour.
o Compared management’s estimated total contract costs to those of similar contracts, when
applicable.
o Evaluated management’s ability to achieve the estimated total contract costs by performing
corroborative inquiry with the Company’s operational personnel and by comparing the estimates to
management’s work plans and costs incurred to date.
Evaluated management’s ability to estimate total contract costs accurately by comparing actual costs to
management’s historical estimates for completed contracts.
Other Information
Management is responsible for the other information. The other information comprises:
● Management’s Discussion and Analysis; and
● The information, other than the financial statements and our auditor’s report thereon, in the Financial Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any
form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to
read the other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work
we have performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
The Financial Report is expected to be made available to us after the date of the auditor’s report. If, based on the
work we will perform on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with
IFRS, and for such internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
3
Finning International Inc.
2020 Annual Results
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
● Obtain an understanding of internal control relevant to the audit 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
Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Raj S. Bhogal.
/s/ Deloitte LLP
Chartered Professional Accountants
February 9, 2021
4
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31
(Canadian $ millions)
ASSETS
Current assets
Cash and cash equivalents (Note 25)
Accounts receivable (Note 8)
Unbilled receivables (Note 4)
Inventories (Note 12)
Other assets (Note 14)
Total current assets
Property, plant, and equipment (Note 16)
Rental equipment (Note 16)
Goodwill (Note 18)
Intangible assets (Note 20)
Distribution network (Note 19)
Investment in joint ventures and associate (Note 15)
Other assets (Note 14)
Total assets
LIABILITIES
Current liabilities
Short-term debt (Note 7)
Accounts payable and accruals (Note 8)
Deferred revenue (Note 4)
Current portion of long-term debt (Note 7)
Other liabilities (Note 22)
Total current liabilities
Long-term debt (Note 7)
Long-term lease liabilities
Net post-employment obligation (Note 24)
Other liabilities (Note 22)
Total liabilities
Commitments and contingencies (Note 29)
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders' equity
Approved by the Directors February 9, 2021
Finning International Inc.
2020 Annual Results
Consolidated Financial Statements
2020
2019
$
$
$
$
539
730
231
1,477
237
3,214
867
430
205
322
100
85
235
5,458
92
761
374
201
195
1,623
1,107
216
97
209
3,252
566
1
218
1,421
2,206
5,458
$
$
$
$
268
919
246
1,990
236
3,659
971
457
204
321
100
94
184
5,990
226
1,040
360
200
200
2,026
1,318
273
76
182
3,875
570
2
228
1,315
2,115
5,990
/s/ S.L. Levenick
S.L. Levenick, Director
/s/ H.N. Kvisle,
H.N. Kvisle, Director
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
5
CONSOLIDATED STATEMENTS OF NET INCOME
For years ended December 31
(Canadian $ millions, except share and per share amounts)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue (Note 4)
Cost of sales
Gross profit
Selling, general, and administrative expenses
Equity earnings of joint ventures and associate (Note 15)
Other income (Note 6)
Other expenses (Note 6)
Earnings before finance costs and income taxes
Finance costs (Note 7)
Income before provision for income taxes
Provision for income taxes (Note 13)
Net income
Earnings per share (Note 5)
Basic
Diluted
Weighted average number of shares outstanding (Note 5)
Basic
Diluted
Finning International Inc.
2020 Annual Results
Consolidated Financial Statements
2020
2019
$
$
$
$
1,671
308
196
3,473
548
6,196
(4,626)
1,570
(1,245)
3
115
(51)
392
(85)
307
(75)
232
1.43
1.43
$
$
$
$
2,776
361
246
3,793
641
7,817
(6,018)
1,799
(1,360)
15
—
(29)
425
(107)
318
(76)
242
1.48
1.48
162,289,564
162,336,436
163,427,006
163,499,026
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For years ended December 31
(Canadian $ millions)
Net income
Other comprehensive income, net of income tax
Items that may be subsequently reclassified to net income:
Foreign currency translation adjustments
Share of foreign currency translation adjustments of joint ventures and associate (Note 15)
Gain on net investment hedges
Impact of foreign currency translation and net investment hedges, net of income tax
Gain (loss) on cash flow hedges
Loss (gain) on cash flow hedges, reclassified to statement of net income
(Provision for) recovery of income taxes on cash flow hedges
Impact of cash flow hedges, net of income tax
Items that will not be subsequently reclassified to net income:
Actuarial gain (loss) (Note 24)
(Provision for) recovery of income taxes on actuarial gain (loss)
Actuarial gain (loss), net of income tax
Total comprehensive income
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Finning International Inc.
2020 Annual Results
Consolidated Financial Statements
2020
2019
$
232
$
242
(20)
1
10
(9)
1
1
(1)
1
29
(6)
23
247
$
(83)
(1)
35
(49)
(3)
(1)
1
(3)
(29)
4
(25)
165
$
Share Capital
Accumulated Other
Comprehensive
Income (loss)
(Canadian $ millions,
except number of shares)
Balance, January 1, 2019
Net income
Other comprehensive loss
Total comprehensive (loss) income
Exercise of share options
Share option expense
Hedging gain transferred to
Number of
Shares
164,381,967
—
—
—
10,507
—
Amount
$ 573
—
—
—
1
—
Impact of
Foreign
Currency
Translation
Impact of
and Net
Contributed Investment Cash Flow
Hedges
$
Surplus
$
Hedges
$
—
—
—
—
(1)
3
279
—
(49)
(49)
—
—
Total
$
Equity
Retained Shareholders'
Earnings
1,254
$
242
(25)
217
—
—
2,109
242
(77)
165
—
3
3
—
(3)
(3)
—
—
statement of financial position
Repurchase of common shares (Note 9)
Dividends on common shares
Balance, December 31, 2019
Net income
Other comprehensive (loss) income
Total comprehensive (loss) income
Exercise of share options
Share option expense
Hedging gain transferred to
statement of financial position
Repurchase of common shares (Note 9)
Dividends on common shares
Balance, December 31, 2020
—
(1,073,354)
—
163,319,120
—
—
—
3,981
—
—
(4)
—
$ 570
—
—
—
1
—
$
—
(1,215,617)
—
162,107,484
—
(5)
—
$ 566
$
—
—
—
2
—
—
—
(1)
2
—
(2)
—
1
$
$
—
—
—
230
—
(9)
(9)
—
—
—
—
—
221
$
$
(2)
—
—
(2) $
—
1
1
—
—
(2)
—
—
(3) $
—
(23)
(133)
1,315
232
23
255
—
—
—
(16)
(133)
1,421
$
$
(2)
(27)
(133)
2,115
232
15
247
—
2
(2)
(23)
(133)
2,206
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
7
CONSOLIDATED STATEMENTS OF CASH FLOW
For years ended December 31
(Canadian $ millions)
OPERATING ACTIVITIES
Net income
Adjusting for:
Depreciation and amortization
Loss on disposal of property, plant, and equipment
Impairment of long-lived assets (Note 16)
Equity earnings of joint ventures and associate (Note 15)
Share-based payment expense (Note 11)
Provision for income taxes (Note 13)
Finance costs (Note 7)
Net benefit cost of post-employment benefit plans and settlement gain
in selling, general, and administrative expenses (Note 24)
Changes in operating assets and liabilities (Note 25)
Additions to rental fleet
Additions to rental equipment with purchase options
Proceeds on disposal of rental fleet
Proceeds on disposal of rental equipment with purchase options
Interest paid
Income tax paid
Cash flow provided by operating activities
INVESTING ACTIVITIES
Additions to property, plant, and equipment and intangible assets
Proceeds on disposal of property, plant, and equipment
Consideration paid for business acquisition, net of cash acquired (Note 26)
Increase in long-term investments
Cash flow used in investing activities
FINANCING ACTIVITIES
(Decrease) increase in short-term debt (Note 25)
(Decrease) increase in long-term debt (Note 25)
Decrease in lease liabilities (Note 25)
Credit facility fee
Repurchase of common shares
Dividends paid
Cash flow (used in) provided by financing activities
Effect of currency translation on cash balances
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year (Note 25)
Finning International Inc.
2020 Annual Results
Consolidated Financial Statements
2020
2019
$
232
$
242
308
4
9
(3)
21
75
85
12
422
(96)
(93)
85
30
(92)
(37)
962
(115)
23
—
(7)
(99)
(129)
(200)
(87)
(1)
(23)
(133)
(573)
(19)
271
268
539
$
$
293
—
5
(15)
13
76
107
16
(219)
(171)
(44)
80
46
(105)
(133)
191
(154)
5
(229)
—
(378)
77
199
(88)
(1)
(31)
(133)
23
(22)
(186)
454
268
8
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements
Finning International Inc.
2020 Annual Results
Index to the Notes to the Consolidated Financial Statements
1. GENERAL INFORMATION ............................................................................................................................................. 10
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS .............................................. 10
3. SEGMENTED INFORMATION ......................................................................................................................................... 14
4. REVENUE ................................................................................................................................................................... 16
5. EARNINGS PER SHARE ............................................................................................................................................... 20
6. OTHER INCOME AND OTHER EXPENSES ...................................................................................................................... 20
7. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS .......................................................................................... 21
8. FINANCIAL INSTRUMENTS ............................................................................................................................................ 23
9. MANAGEMENT OF CAPITAL ......................................................................................................................................... 33
10. SHARE CAPITAL ....................................................................................................................................................... 34
11. SHARE-BASED PAYMENTS ....................................................................................................................................... 35
12. INVENTORIES ........................................................................................................................................................... 40
13. INCOME TAXES ......................................................................................................................................................... 41
14. OTHER ASSETS ........................................................................................................................................................ 44
15. JOINT VENTURES AND ASSOCIATE ............................................................................................................................ 45
16. PROPERTY, PLANT, AND EQUIPMENT AND RENTAL EQUIPMENT .................................................................................. 47
17. LEASES ................................................................................................................................................................... 50
18. GOODWILL ............................................................................................................................................................... 53
19. DISTRIBUTION NETWORK .......................................................................................................................................... 53
20. INTANGIBLE ASSETS ................................................................................................................................................. 54
21. IMPAIRMENT ............................................................................................................................................................. 56
22. OTHER LIABILITIES ................................................................................................................................................... 57
23. PROVISIONS ............................................................................................................................................................. 58
24. POST-EMPLOYMENT BENEFITS ................................................................................................................................. 59
25. SUPPLEMENTAL CASH FLOW INFORMATION ............................................................................................................... 66
26. ACQUISITION ............................................................................................................................................................ 68
27. ECONOMIC RELATIONSHIPS ...................................................................................................................................... 69
28. RELATED PARTY TRANSACTIONS AND TOTAL STAFF COSTS ....................................................................................... 69
29. COMMITMENTS AND CONTINGENCIES ........................................................................................................................ 69
30. GUARANTEES AND INDEMNIFICATIONS ....................................................................................................................... 70
9
Finning International Inc.
2020 Annual 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 300, 565 Great Northern
Way, Vancouver, British Columbia, Canada. The Company’s principal business is the sale of heavy equipment and
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) issued and effective for the current
year. The consolidated financial statements were authorized for issuance by the Company’s Board of Directors on
February 9, 2021. 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 the Company 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 2020 or are not yet effective. Where an
accounting policy, estimate, or judgment is applicable to a specific note to the consolidated financial statements, it is
described within that note.
In March 2020, the World Health Organization declared a global pandemic due to the novel coronavirus (COVID-
19). The COVID-19 outbreak and related mitigation measures have had an adverse impact on global economic
conditions resulting in government response actions, social distancing, business closures and disruptions. Epidemic
diseases, such as COVID-19, may have a significant impact on the Company. The duration of the pandemic and its
impact on the Company’s financial performance and position is an area of estimation uncertainty and judgment,
which is continuously monitored and reflected in management’s estimates.
These consolidated financial statements were prepared under the historical cost basis except for derivative financial
instruments, certain assets held for sale, plan assets related to defined benefit pension plans, 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 returns of the investee, 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
OEM Remanufacturing Company Inc.
4Refuel Canada LP
Finning Argentina S.A.
Finning Soluciones Mineras S.A.
Finning Bolivia S.A.
Finning Chile S.A.
Moncouver S.A.
Finning (UK) Ltd.
Finning (Ireland) Limited
Principal place
of business
Canada
Canada
Argentina
Argentina
Bolivia
Chile
Uruguay
United Kingdom
Republic of Ireland
% ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
Functional
currency (1)
CAD
CAD
USD
USD
USD
USD
USD
GBP
EUR
(1) Canadian dollar (CAD), US dollar (USD), UK pound sterling (GBP), Euro (EUR)
All shareholdings are of ordinary shares or other equity capital. Other subsidiaries, while included in the
consolidated financial statements, are not considered material.
10
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
(b) Foreign Currency Translation
Accounting Policy
These consolidated financial statements are presented in CAD, which is the functional currency of the parent
company. Transactions undertaken in foreign currencies are translated into the entity’s functional currency at
exchange rates prevailing at the time the transactions occurred.
Account balances denominated in foreign currencies are translated into the entity’s functional currency as follows:
Monetary items are translated at exchange rates in effect at the consolidated statement of financial position
dates and non-monetary items are translated at historical exchange rates; and
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 cash flow 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 be included in the 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
CAD as follows:
Assets and liabilities are translated using the exchange rates in effect at the consolidated statement of financial
position dates;
Revenue and expense items are translated at average exchange rates prevailing during the period that the
transactions occurred; and,
Foreign currency translation adjustments are recorded in other comprehensive income. Cumulative foreign
currency translation adjustments 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 uses foreign currency debt to hedge foreign currency gains and losses on its long-term net
investments in foreign operations. Foreign exchange gains or losses arising from the translation of these hedging
instruments are recorded in other comprehensive income. 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 8
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.
11
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
(c) Changes to the presentation in the consolidated statement of financial position
During 2020, the Company changed the presentation of certain current liabilities on the consolidated statement of
financial position as management believes it provides users of the financial statements with more relevant
information. Previously, the Company presented the current portion of lease liabilities and commodity taxes payable
within accounts payable and accruals. Effective June 30, 2020, management presented these items within other
liabilities (current). To retain consistency in presentation, management reclassified $129 million from accounts
payable and accrued liabilities to other liabilities (current) as at December 31, 2019. In addition, provisions at
December 31, 2019 were not significant and have been grouped with other liabilities (current).
The impact of these reclassifications on the December 31, 2019 balances was as follows:
December 31, 2019
($ millions)
Accounts payable and accruals
Provisions (current)
Other liabilities (current)
As reported
$ 1,169
57
$
14
$
Lease liability
Commodity
(current portion) taxes payable
(45)
—
45
(84)
—
84
$
$
$
$
$
$
Provisions
(current)
$ —
(57)
$
57
$
Revised
$ 1,040
$ —
200
$
(d) Amendments to Standards and New Accounting Standard
The Company has adopted the following amendments to IFRS effective January 1, 2020, except as otherwise
noted:
Amendments to IFRS 3, Business Combinations assist in determining whether a transaction should be
accounted for as a business combination or an asset acquisition. The definition of a business has been
amended to include an input and a substantive process that together significantly contribute to the ability to
create goods and services provided to customers, generating investment and other income, and to exclude
returns in the form of lower costs and other economic benefits. These amendments did not impact the
Company’s consolidated financial statements.
Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures affect entities
that apply the hedge accounting requirements to hedging relationships directly affected by the interest rate
benchmark reform. The amendments modify specific hedge accounting requirements, so that entities apply
those hedge accounting requirements assuming that the interest rate benchmark is not altered as a result of the
interest rate benchmark reform. If a hedging relationship no longer meets the requirements for hedge
accounting for reasons other than those specified by the amended standards, then discontinuation of hedge
accounting is still required. The Company did not have any hedging relationships directly affected by the interest
rate benchmark reform and as a result, these amendments did not impact the Company’s consolidated financial
statements.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors were made to refine the definition of material in IAS 1 and align the definitions
used across IFRS Standards and other publications. The concept of ‘obscuring’ material information with
immaterial information has been included as part of the new definition and the threshold for materiality
influencing users has been changed from ‘could influence’ to ‘could reasonably be expected to influence’. These
amendments did not impact the Company’s consolidated financial statements.
Amendment to IFRS 16, Leases (effective for annual reporting periods beginning on or after June 1, 2020)
allows lessees not to account for rent concessions as lease modifications if they arise as a direct consequence
of COVID-19. The Company has elected to early adopt this amendment with retrospective application to April 1,
2020. Upon applying this amendment, eligible rent concessions in the Company’s UK & Ireland operations were
not accounted for as rent modifications and as a result, there was no impact to the Company’s financial
statements.
12
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
The Company adopted the following accounting standard effective January 1, 2019:
The Company applied IFRS 16, Leases retrospectively and recognized the cumulative effect of initial application
on January 1, 2019, on the consolidated statement of financial position, subject to permitted and elected
practical expedients. This method of application did not result in a restatement of amounts reported in periods
prior to January 1, 2019.
The impact of IFRS 16 on the consolidated statement of financial position for January 1, 2019 was as follows:
($ millions)
Property, plant, and equipment
Rental equipment
Total assets
Lease liabilities (current)
Total current liabilities
Lease liabilities (non-current)
Total liabilities
Increase
$
$
$
$
$
253
25
278
72
72
206
278
(e) Future Accounting Pronouncements
The Company has not applied the following amendments to standards that have been issued but are not yet
effective:
Amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement,
IFRS 7, Financial Instruments; Disclosures, IFRS 4, Insurance Contracts, and IFRS 16, Leases, collectively
named ‘Interest Rate Benchmark Reform – Phase 2’ (effective January 1, 2021). The amendments provide relief
for modifications of financial contracts and leases and the discontinuation of hedge accounting required solely
by Interest Rate Benchmark Reform. The amendments include a practical expedient to apply the change in the
basis for determining the contractual cash flows prospectively by revising the effective interest rate. A similar
practical expedient is also provided for modifications of the cash flows of lease liabilities. In relation to hedge
accounting, the amendments introduce an exception to the existing requirements so that changes in the formal
designation of a hedge accounting relationship that are needed to reflect the changes required by Interest Rate
Benchmark Reform do not result in the discontinuation of hedge accounting or the designation of a new hedging
relationship. These amendments are not expected to impact the Company’s financial statements.
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets (effective January 1, 2022)
clarify that the ‘costs of fulfilling a contract’ when assessing whether a contract is onerous comprise both the
incremental costs and an allocation of other costs that relate directly to fulfilling the contract. The amendments
apply to contracts existing at the date when the amendments are first applied. Management is currently
assessing the impact of these amendments.
Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2023) clarify the presentation
of liabilities in the consolidated statement of financial position. The classification of liabilities as current or non-
current is based on contractual rights that are in existence at the end of the reporting period and is unaffected by
expectations about whether an entity will exercise its right to defer or accelerate settlement. A liability not due
over the next twelve months is classified as non-current even if management intends or expects to settle the
liability within twelve months. The amendments also introduce a definition of ‘settlement’ to make clear that
settlement refers to the transfer of cash, equity instruments, other assets, or services to the counterparty.
Management is currently assessing the impact of these amendments.
13
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
3. SEGMENTED INFORMATION
The Company has operated primarily in one principal business during the year, that being the selling, servicing, and
renting of heavy equipment, engines, and related products.
On February 1, 2019, the Company acquired 4Refuel Canada and 4Refuel US (4Refuel) (Note 26). 4Refuel is a
mobile on-site refuelling company operating in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,
Quebec, New Brunswick and Nova Scotia as well as in Texas, US. The results of 4Refuel are included in the
Canada reportable segment.
The reportable segments, which are the same as the Company’s operating segments, are as follows:
Canadian operations: dealership territories in British Columbia, Alberta, Saskatchewan, the Yukon territory, the
Northwest Territories, and a portion of Nunavut and mobile refuelling services in the above-listed provinces in
Canada and in Texas, US.
South American operations: Chile, Argentina, and Bolivia.
UK & Ireland operations: England, Scotland, Wales, Northern Ireland, and the Republic of Ireland.
Other: corporate head office.
Information reported to the chief operating decision maker (CODM) for the purposes of resource allocation and
assessment of segment performance primarily focuses on the territories in which the Company operates. The
CODM considers earnings before finance costs, income taxes, depreciation and amortization (EBITDA) as the
primary measure of segment profit and loss. With the acquisition of 4Refuel, the Company considers net revenue
(calculated as total revenue less cost of fuel) as more representative in assessing the performance of this business
as the cost of fuel is not in the Company’s control and is fully passed through to the customer.
The Company’s revenue, results, and other information by reportable segment were as follows:
For year ended December 31, 2020
($ millions)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Cost of fuel
Net revenue
Operating costs (1)
Equity earnings of joint ventures
Other income (Note 6)
Other expenses (Note 6)
EBITDA
Depreciation and amortization
Earnings (loss) before finance costs and income taxes
Finance costs
Provision for income taxes
Net income
Invested capital (2)
Capital and rental equipment (3)
Gross capital expenditures (3)(4)
Gross rental equipment spend (4)
South
Canada America
UK &
Ireland
Other
Total
$
725 $
169
133
1,812
548
426 $
73
37
1,386
—
$ 3,387 $ 1,922 $
(428)
—
$ 2,959 $ 1,922 $
(2,572)
3
108
(25)
473 $
(185)
288 $
(1,697)
—
—
(21)
204 $
(83)
121 $
$
$
520 $
66
26
275
—
887 $
—
887 $
(830)
—
—
(4)
53 $
(37)
16 $
— $ 1,671
308
—
196
—
3,473
—
—
548
— $ 6,196
—
(428)
— $ 5,768
(5,135)
(36)
—
3
115
7
(51)
(1)
700
(30) $
(308)
(3)
392
(33) $
(85)
(75)
232
$
$ 1,819 $
967 $
$
41 $
$
157 $
$
931 $
407 $
67 $
21 $
327 $
155 $
14 $
12 $
(10) $ 3,067
90 $ 1,619
143
21 $
190
— $
(1) Operating costs are calculated as cost of sales less cost of fuel plus selling, general, and administration expenses less
(2)
depreciation and amortization.
Invested capital is calculated as total assets less total liabilities, excluding net debt. Net debt is calculated as short-term debt
and long-term debt, net of cash.
(3) Capital includes property, plant, and equipment and intangible assets.
(4)
Includes leases and borrowing costs capitalized and excludes additions through business acquisitions.
14
For year ended December 31, 2019
($ millions)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Cost of fuel
Net revenue
Operating costs (1)
Equity earnings of joint ventures
Other expenses (Note 6b)
EBITDA
Depreciation and amortization
Earnings (loss) before finance costs and income taxes
Finance costs
Provision for income taxes
Net income
Invested capital (2)
Capital and rental equipment (3)
Gross capital expenditures (3)(4)
Gross rental equipment spend (4)
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
South
Canada America
UK &
Ireland
Other
Total
$
1,375 $
224
164
2,054
637
685 $
47
47
1,447
—
716 $
90
35
292
4
$ 4,454 $ 2,226 $ 1,137 $
(527)
—
—
$ 3,927 $ 2,226 $ 1,137 $
(2,017)
—
(8)
201 $
(81)
120 $
(3,455)
15
(17)
470 $
(174)
296 $
(1,055)
—
—
82 $
(36)
46 $
$
$
— $ 2,776
361
—
246
—
3,793
—
—
641
— $ 7,817
—
(527)
— $ 7,290
(6,558)
(31)
15
—
(29)
(4)
718
(35) $
(293)
(2)
425
(37) $
(107)
(76)
242
$
$ 2,026 $ 1,192 $
452 $
$ 1,045 $
49 $
134 $
$
28 $
159 $
$
361 $
176 $
11 $
40 $
12 $ 3,591
76 $ 1,749
229
35 $
227
— $
(1) Operating costs are calculated as cost of sales less cost of fuel plus selling, general, and administration expenses less
(2)
depreciation and amortization.
Invested capital is calculated as total assets less total liabilities, excluding net debt. Net debt is calculated as short-term debt
and long-term debt, net of cash.
(3) Capital includes property, plant, and equipment and intangible assets.
(4)
Includes leases and borrowing costs capitalized and excludes additions through business acquisitions.
Revenue and non-current assets (5) by location of operations
($ millions)
Canada
Chile
United Kingdom
Argentina
Other countries
(5) Non-current assets exclude deferred tax assets.
Revenue
Year ended December 31
Non-current assets (5)
As at December 31
2020
2019
2020
2019
$
$
$
$
$
3,301
1,642
777
228
248
$
$
$
$
$
4,346
1,842
1,001
302
326
$
$
$
$
$
1,430
328
325
72
33
$
$
$
$
$
1,507
350
290
94
33
15
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
4. REVENUE
Revenue Recognition
Revenue is recognized when or as the Company transfers control of goods or services to a customer at the amount
to which the Company expects to be entitled.
Revenue is recognized when control of the goods is transferred to the customer at a point-in-time for the following
revenue streams:
Revenue from sales of new and used equipment (except for complex power and energy systems) is presented
as new equipment revenue and used equipment revenue, respectively. Revenue is recognized when control
passes to the customer, which is generally at the time of shipment of the equipment to the customer or when
commissioning of equipment is complete. Revenue is recorded at the estimated amount of consideration to
which the Company expects to be entitled, including any non-cash consideration when used equipment is
accepted for trade-in value.
Revenue from sales of parts inventory is presented as product support revenue and recognized when control of
the part is transferred to the customer, which is generally upon shipment to the customer or when the customer
collects their purchase from one of the Company’s locations. Revenue from the sales of parts inventory is
initially recorded at the estimated amount of consideration to which the Company expects to be entitled. If
applicable, management recognizes an obligation for items such as refunds, incentives, and discounts with a
corresponding reduction in product support revenue. The value of the obligation is estimated based on the terms
of the contract, customary business practices, and historical experience.
Revenue from sales of mobile refueling services is presented as fuel and other revenue and recognized upon
delivery to the customer. Revenue is recorded at the estimated amount of consideration to which the Company
expects to be entitled.
Revenue is recognized in a manner that best reflects the Company’s performance over-time for the following
revenue streams:
Revenue from sales of complex power and energy systems involving the design, installation, and assembly of
power and energy systems is presented as new equipment revenue and estimated as the amount of
consideration to which the Company expects to be entitled. Revenue is recognized on a percentage of
completion basis proportionate to the work that has been completed and is based on associated costs incurred.
Revenue from sales of parts and labour when servicing equipment both under and not under a long-term
contract is presented as product support revenue. For servicing of equipment, revenue is recognized as the
service work is performed based on parts list price and standard billing labour rates. Product support is also
offered to customers in the form of long-term contracts. For these contracts, revenue is recognized on a basis
proportionate to the service work that has been performed based on associated costs incurred. For certain long-
term product support contracts where flat-rate labour or a monthly subscription service is provided, the
Company recognizes revenue for labour on a straight-line basis. Revenue from product support under long-term
contracts is estimated based on the number and types of services expected to be performed using the pricing
terms set out in the contract.
Revenue from equipment rentals and operating leases where the Company acts as lessor is presented as
equipment rental revenue and in accordance with the terms of the relevant agreement with the customer, either
recognized evenly over the term of that agreement or on a usage basis such as the number of hours that the
equipment is used.
Revenue from customers under long-term contracts may be recognized in advance of billing the customer. To the
extent the Company has a right to receive consideration for the good or service transferred to the customer but has
not yet invoiced the customer, the Company recognizes unbilled receivables. Similarly, consideration may be
received from customers in advance of the work being performed and the Company recognizes deferred revenue.
These amounts are recorded on the consolidated statement of financial position as Unbilled Receivables and
Deferred Revenue, respectively.
If it is expected that the unavoidable costs required to satisfy the remaining performance obligations of a revenue
contract will exceed its expected economic benefits, the Company recognizes an onerous provision with a
corresponding loss in the consolidated statement of net income.
16
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Areas of Estimation Uncertainty
Long-Term Product Support Contracts and Sales of Complex Power and Energy Systems
Where the outcome of performance obligations for long-term product support contracts and sales of complex power
and energy systems can be estimated reliably, revenue is recognized. Revenue 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 performance obligations cannot be reliably measured, contract revenue is
recognized in the current period to the extent that costs have been incurred until such time that the outcome of the
performance obligations can be reasonably measured. Significant assumptions are required to estimate total
contract costs, which 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 in the consolidated statement
of net income immediately.
Areas of Significant Judgment
Repurchase Commitments
The Company enters into contracts with rights of return (at the customer’s discretion), 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. At the inception of the contract, the Company is required to make
judgments as to whether the customer has a significant economic incentive to exercise its right of return. When no
such incentive is expected, revenue is recognized upon the sale of equipment but when a significant incentive is
expected, revenue is recognized over the term of the repurchase commitment. Significant assumptions are made in
estimating residual values and are assessed based on past experience and taking into account expected future
market conditions and projected disposal values.
Rental Equipment with Purchase Options
The Company has 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 these agreements to financial institutions, and makes
judgments as to whether the control related to the underlying assets have been transferred in such circumstances.
The level of residual value risk retained by the Company, the continuing managerial ability to direct the use of, and
obtain substantially all of the remaining benefits from the assets are all considered when assessing whether control
has been transferred to third parties and hence whether revenue should be recognized on the sale of the assets and
associated rental contracts.
17
The Company earned revenue from the transfer of goods and services over time and at a point-in-time in the
following lines of business:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
For year ended December 31, 2020
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
For year ended December 31, 2019
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Point-in-time
1,459
$
308
—
1,546
547
3,860
$
Point-in-time
2,484
361
—
1,744
635
5,224
$
$
The Company recorded the following unbilled receivables from customers:
December 31
($ millions)
Product support
New equipment
Other
Total unbilled receivables
Over-time
212
—
196
1,927
1
2,336
Over-time
292
—
246
2,049
6
2,593
2020
194
36
1
231
$
$
$
$
$
$
Total
1,671
308
196
3,473
548
6,196
Total
2,776
361
246
3,793
641
7,817
2019
198
48
—
246
$
$
$
$
$
$
Invoices for sales of parts and labour when servicing equipment under long-term contracts are issued in accordance
with the billing arrangement over the contract term. Invoices for sales of parts and labour when servicing equipment
not under long-term contracts are issued when the work is complete. Invoices for sales of complex power and
energy systems are issued in accordance with milestone payments agreed within each sales contract with the
customer. The Company recognizes unbilled receivables for sales of new equipment (including complex power and
energy systems) and product support revenue (including sales of parts and labour when servicing equipment) when
revenue recognition criteria are met, and the Company has the right to receive amounts from customers but invoices
have not yet been issued.
18
The Company recorded the following contract liabilities:
December 31, 2020
($ millions)
Product support
Deposits from customers for new equipment
Complex power and energy systems
Extended warranty
Other
Total deferred revenue
December 31, 2019
($ millions)
Product support
Deposits from customers for new equipment
Complex power and energy systems
Extended warranty
Other
Total deferred revenue
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Current
Non-current
Total
$
$
$
$
199
114
30
28
3
374
$
$
—
—
—
31
1
32
Current
Non-current
196
88
46
27
3
360
$
$
13
—
—
35
2
50
$
$
$
$
199
114
30
59
4
406
Total
209
88
46
62
5
410
The Company recognizes deferred revenue when cash has been collected from the customer but control of the
goods or services has not yet been transferred to the customer. Deferred revenue is recorded when consideration
is received prior to the transfer of control related to servicing equipment, complex power and energy systems, and
extended warranty. Deferred revenue is also recorded in respect of sales of new equipment where the Company
has issued a repurchase guarantee and management has determined that it has not transferred control of the
equipment, and deposits from customers for new equipment sales. Cash is typically collected up front for sales of
new equipment under repurchase guarantees where control has not transferred and extended warranty, while
revenue is deferred and recognized evenly over the term of the contract, which can extend beyond one year. The
majority of revenue related to long-term product support contracts is recognized within one year of collecting cash
from the customer. All other streams of revenue are recognized within one year of recording deferred revenue.
19
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
5. 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 calculated 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.
For year ended December 31, 2020
($ millions, except share and per share amounts)
Basic EPS:
Net income, weighted average shares outstanding, EPS
Effect of dilutive share options
Diluted EPS:
Net income and assumed conversions
For year ended December 31, 2019
Basic EPS:
Net income, weighted average shares outstanding, EPS
Effect of dilutive share options
Diluted EPS:
Net income and assumed conversions
Net
Income
Shares
EPS
$
232
—
162,289,564
46,872
$
1.43
—
$
232
162,336,436
$
1.43
$
242
—
163,427,006
72,020
$
1.48
—
$
242
163,499,026
$
1.48
Share options granted to employees that were anti-dilutive were excluded from the weighted average number of
shares for the purpose of calculating diluted earnings per share. Anti-dilutive share options related to the year ended
December 31, 2020 were 2 million (2019: 2 million).
6. OTHER INCOME AND OTHER EXPENSES
For years ended December 31
($ millions)
Canada Emergency Wage Subsidy (a)
Total other income
For years ended December 31
($ millions)
Severance costs (b)
Impairment of long-lived assets (b)
Facility closures and restructuring costs (b)
Acquisition costs (Note 26)
Total other expenses
2020
2019
$
$
115
115
$
$
—
—
2020
2019
$
$
(42) $
(7)
(2)
—
(51) $
(18)
(5)
(2)
(4)
(29)
(a) In response to the negative economic impact of COVID-19, various government programs were introduced to
provide financial relief to affected businesses, including wage-subsidy programs for eligible entities that meet
certain criteria. The Company records government grants and subsidies when it is reasonably assured that the
Company will comply with the relevant conditions and that the amount will be received. In 2020 the Company
qualified for and recorded a $115 million benefit from the Canada Emergency Wage Subsidy for its Canadian
entities for the March 15, 2020 to December 19, 2020 period.
(b) In 2020 and 2019, as part of actions taken to focus on operational efficiencies and to adjust to market
conditions, the Company implemented plans to restructure its global workforce and facility footprint. As a result,
the Company recorded provisions related to the reduction of its workforce. The Company also implemented
plans to consolidate certain branches and exit some facilities and therefore recorded impairment losses on
leased properties and any related equipment and leasehold improvements, as well as provisions for the
unavoidable non-lease costs for these properties.
20
7. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS
December 31
($ millions)
Short-term debt
Long-term debt
3.232%, $200 million, due July 3, 2020
2.84%, $200 million, due September 29, 2021
2.626%, $200 million, due August 14, 2026
5.077% $150 million, due June 13, 2042
3.98% USD $100 million, due January 19, 2022, Series A
4.08% USD $100 million, due January 19, 2024, Series B
4.18% USD $50 million, due April 3, 2022, Series C
4.28% USD $50 million, due April 3, 2024, Series D
4.53% USD $200 million, due April 3, 2027, Series E
3.40% £70 million, due May 22, 2023, Series F
Other term loans
Total long-term debt
Current portion of long-term debt
Non-current portion of long-term debt
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
2020
2019
$
92 $
226
—
200
199
149
127
127
64
64
254
122
2
200
200
199
149
130
129
65
65
259
120
2
$ 1,308 $ 1,518
200
$
$ 1,107 $ 1,318
201 $
The Company has an unsecured syndicated committed credit facility of $1.3 billion. In December 2019, the
Company amended its $1.3 billion credit facility which was set to fully mature in December 2023 by, among other
things, extending the maturity date to December 2024. The facility is available in multiple borrowing jurisdictions and
may be drawn by a number of the Company’s principal wholly owned subsidiaries. Borrowings under this facility are
available in multiple currencies and at various floating rates of interest. In April 2020, the Company secured an
additional $500 million committed revolving credit facility, which provides further financial flexibility and liquidity. This
facility has a term of two years, can be used for general corporate purposes, and has substantially the same terms
and conditions as the existing $1.3 billion committed revolving credit facility.
Covenants
The Company is subject to certain covenants within its syndicated committed credit facility. As at December 31,
2020 and 2019, the Company was in compliance with these covenants.
Short-Term Debt
At December 31, 2020, short-term debt includes $92 million drawn on the Company’s syndicated committed credit
facility (2019: short-term debt included $208 million drawn on the Company’s syndicated committed credit facility
and local bank borrowings in the Company’s South American operations of $18 million).
The Company’s principal source of short-term funding is the syndicated committed credit facility. The Company also
maintains a maximum authorized commercial paper program of $600 million, backstopped by credit available under
the $1.3 billion syndicated committed credit facility. There was no commercial paper outstanding at December 31,
2020 or December 31, 2019. In addition, the Company maintains other bank credit facilities, including overdrafts and
letters of credit, to support its subsidiary operations.
The average interest rate applicable to the consolidated short-term debt for 2020 was 3.1% (2019: 4.5%).
Long-Term Debt
The Company's CAD denominated Medium Term Notes (MTN), USD denominated Senior Notes, and GBP
denominated Senior Notes are unsecured, and interest is payable semi-annually with the principal due on maturity.
In July 2020, the Company repaid its $200 million, 3.232% senior unsecured notes. In August 2019, the Company
issued $200 million, 2.626% senior unsecured notes due August 14, 2026, which rank pari passu with existing
senior unsecured obligations. Proceeds of the issuance were used to reduce the outstanding short-term debt under
the Company’s syndicated committed credit facility.
The average interest rate applicable to the consolidated long-term debt for 2020 was 3.8% (2019: 3.5%).
21
Long-Term Debt Repayments
The carrying amount of principal repayments of long-term debt in each of the next five years and thereafter are as
follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
December 31
($ millions)
2021
2022
2023
2024
2025
Thereafter
Total
Finance Costs
$
201
191
122
191
—
603
$ 1,308
Finance costs as shown on the consolidated statements of net income comprised the following:
For years ended December 31
($ millions)
Interest on short-term debt
Interest on long-term debt
Interest on debt
Net interest recovery on post-employment benefit plans (Note 24)
Interest on lease liabilities
Other finance related expenses
Finance costs
2020
2019
$
$
12 $
55
67
(1)
11
8
85 $
33
54
87
(1)
11
10
107
22
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
8. FINANCIAL INSTRUMENTS
Finning and its subsidiaries are exposed to market, credit, liquidity, and other risks in the normal course of business
activities. The Company’s Enterprise Risk Management (ERM) process is designed to ensure that these risks are
identified, managed, and reported. The ERM framework assists the Company in managing risks and business
activities to mitigate these risks across the organization in order to achieve the Company’s strategic objectives.
The Company maintains a strong risk management culture to protect and enhance shareholder value. On a
quarterly basis, Board of Directors (Board) level committees review the Company’s processes for business risk
assessment and the management of key business risks, any changes to key risks and exposures and the steps
taken to monitor and control such exposures. These reviews are reported to the Board quarterly. The Board reviews,
in detail, all material risks on an annual basis. The Board 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 on a quarterly and annual basis.
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, unbilled receivables, supplier claims receivable, instalment and
other notes receivable, and value added tax receivable are classified as amortized cost and measured using the
effective interest method. Accounts receivable comprises amounts due from customers for goods or services
transferred in the ordinary course of business and non-trade accounts. Unbilled receivables relate to the Company’s
right to consideration for goods or services transferred to a customer but not yet billed as at the reporting date.
Instalment notes receivable represents amounts due from customers relating to the financing of equipment and
parts and services sold.
Financial assets classified as amortized cost are assessed for impairment at the end of each reporting period and a
loss allowance is measured by estimating the lifetime expected credit losses. Certain categories of financial assets,
such as trade receivables, that are considered not to be impaired individually are also assessed for impairment on a
collective basis. Estimates of expected credit losses take into account the Company’s past experience of collecting
payments, the amount of delayed payments in the portfolio past the average credit period, as well as observable
changes in and forecasts of future 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 the consolidated statement of net income. At the point when the Company
is satisfied that no recovery of the amount owing is possible, the amount is considered not recoverable and the
financial asset is impaired.
Derivative assets are classified as fair value through profit or loss and are recorded on the consolidated statement of
financial position at fair value. Changes in fair value are recognized in the consolidated statement of net income
except for changes in fair value related to derivative assets which are effectively designated as hedging instruments
which are recognized in other comprehensive income.
23
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Areas of Estimation Uncertainty
Allowance for Doubtful Accounts
The Company records allowance for doubtful accounts that represent management’s best estimate of potential
losses in respect of trade and other receivables and unbilled receivables. 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 are expected to occur.
The collective loss allowance is estimated based on historical data of payment statistics for similar financial assets,
adjusted for current and forecasted future economic conditions.
Expected credit losses related to the current economic environment have been incorporated in management’s
estimate of its allowance for doubtful accounts. No assurance can be given that this will be sufficient or that the
Company will not suffer material credit losses that will adversely affect its results. The Company allocates each
exposure to a credit risk grade based on data that is determined to be predictive of the risk of loss (including but not
limited to external credit ratings, management accounts, and publicly available information about customers) and
applying experienced credit judgment. Exposures within each credit risk grade are segmented by geographic region,
industry classification, and risk categorization. An expected credit loss rate is calculated for each segment.
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,
receivables from customers, receivables from suppliers, and derivative assets.
Exposure to Credit Risk
The Company’s exposure to credit risk at the reporting date was:
December 31
($ millions)
Cash and cash equivalents
Accounts receivable – trade
Accounts receivable – other
Unbilled receivables
Supplier claims receivable
Instalment notes receivable
Total exposure to credit risk
Cash and Cash Equivalents
2020
2019
$
539 $
724
6
231
104
27
268
895
24
246
95
35
$ 1,631 $ 1,563
Credit risk associated with cash and cash equivalents 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.
Receivables from Customers
The Company has a large, diversified customer base, and is not dependent on any single customer or group of
customers. Credit risk associated with accounts receivable, unbilled receivables, and instalment notes receivable
from customers is minimized because of the diversification of the Company’s operations as well as its large
customer base and its geographical dispersion.
The COVID-19 pandemic has resulted in significant disruptions in financial markets, regional economies, and the
world economy. It is likely that the pandemic will continue to adversely affect the economies, financial markets, and
social stability of many regions and countries in which the Company’s customers operate. There can be no
assurance that these disruptions will not negatively affect the financial performance of Finning’s customers and the
Company’s ability to collect customer receivables. The extent and duration of the impact of the COVID-19 pandemic
on the Company’s customers is unknown at this time. This will depend on future developments and the availability of
government support programs, all of which are highly uncertain and cannot be predicted with confidence. As a
result, the Company’s exposure to credit risk has increased in 2020 but to mitigate this risk, management worked
closely with customers with liquidity constraints throughout the year ended December 31, 2020.
The Company limits its exposure to credit risk from trade receivables by establishing a maximum payment period for
customers.
24
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Receivables from Suppliers
The Company is exposed to risk on supplier claims receivable, primarily from Caterpillar Inc. (Caterpillar), with
whom Finning has an ongoing relationship since 1933.
Derivative Assets
The Company has 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 A3 by Moody’s Corporation and/or
A- by Fitch Ratings Inc. and/or A (low) by DBRS Morningstar.
The maximum exposure to credit risk for trade receivables at the reporting date by geographic location of customer
was as follows:
December 31
($ millions)
Canada
Chile
UK
Argentina
Other
Total
Impairment Losses
The aging of trade receivables at the reporting date was as follows:
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
2020
2019
$
$
377 $
207
77
27
36
724 $
459
265
87
45
39
895
2020
2019
Allowance Gross
Gross
$
519 $
115
46
16
73
$
769 $
1 $
—
—
1
43
45 $
620 $
160
66
19
72
Allowance
—
—
1
2
39
42
937 $
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 or unused amounts reversed
Foreign exchange rate changes
Balance, end of year
2020
2019
$
$
42 $
16
(13)
—
45 $
42
8
(6)
(2)
42
The carrying amount of unbilled receivables, supplier claims receivable, and instalment notes receivable represents
the Company’s maximum exposure to credit risk for these balances.
25
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
(b) Financial Liabilities and Liquidity Risk
Accounting Policy
Classification and measurement
Accounts payable and accruals, short-term and long-term debt are classified as amortized cost and are measured
using the effective interest method.
Derivative liabilities are classified as fair value through profit or loss and are recorded on the consolidated statement
of financial position at fair value. Changes in fair value are recognized in the consolidated statement of net income
except for changes in fair value related to derivative liabilities which are effectively designated as hedging
instruments which are recognized in other comprehensive income.
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 credit facilities, continuously monitors actual and forecast cash flows, and manages maturity profiles of
financial liabilities.
The Company will require capital to finance future growth and to refinance 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 financial condition. Further, Finning’s ability to increase the
level of debt financing may be limited by financial covenants or credit rating objectives. The outbreak of COVID-19
globally has caused and continues to cause considerable disruptions in the world economy, including financial
markets and commodity prices and could adversely impact the Company’s ability to carry out plans and raise
capital. The ability to raise additional financing for future activities may be impaired, or such financing may not be
available on favourable terms, due to conditions beyond the Company’s control, such as uncertainty in the capital
markets, depressed commodity prices or country risk factors.
At December 31, 2020, the Company had approximately $2.6 billion (2019: $2.0 billion) of unsecured committed and
uncommitted credit facilities. Included in this amount is a committed revolving credit facility totaling $1.3 billion with
various Canadian and global financial institutions, as well as an additional $500 million committed revolving credit
facility for general purposes. At December 31, 2020, $1.7 billion (2019: $1.1 billion) was available under these credit
facilities. For more information on this $1.3 billion credit facility, and the new $500 million committed credit facility,
please see Note 7.
26
The following are the contractual maturities of non-derivative financial liabilities and derivative financial instruments.
The amounts presented represent the future undiscounted principal and interest cash flows, and therefore, do not
equate to the carrying amount on the consolidated statement of financial position.
($ millions)
Carrying amount
December 31, 2020
Contractual cash flows
2021
2022
2023
2024
2025 Thereafter
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Non-derivative financial liabilities
Accounts payable and accruals
Short-term debt
Long-term debt
Lease liabilities
Total non-derivative financial liabilities
$
(761) $
(92)
(1,308)
(298)
(761) $ — $ — $ — $ — $
—
(157)
(51)
—
(220)
(37)
—
(232)
(73)
(92)
(250)
(92)
$
(2,459) $ (1,195) $ (305) $ (208) $ (257) $
—
(24)
(26)
(50) $
Derivative financial liabilities
Forward foreign currency contracts and swaps
Sell CAD
$
Buy USD
Sell CLP (1)
Buy USD
Sell ARS (1)
Buy USD
Sell SEK (1)
Buy EUR
Total derivative liabilities
$
(2) $
—
(5)
—
(1)
—
—
—
(8) $
(178) $ — $ — $ — $ — $
—
176
—
(126)
—
121
—
(38)
—
33
—
(2)
—
2
(12) $ — $ — $ — $ — $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Chilean Peso (CLP), Argentine Peso (ARS), Swedish Krona (SEK)
—
—
(753)
(55)
(808)
—
—
—
—
—
—
—
—
—
27
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
(c) Market Risk and Hedging
Accounting Policy
Hedges
The Company utilizes derivative financial instruments and foreign currency debt in order to manage its 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 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, specific firm commitments, or forecasted
transactions. For hedges designated as such for accounting purposes, at inception, the Company documents the
hedging relationship, its risk management objective and strategy for undertaking the hedge, and how the Company
will assess whether the Company meets the hedge effectiveness requirements. 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 the consolidated statement of net income.
Gains and losses relating to derivative financial instruments 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.
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 denominated sales, purchase commitments, cash balances, payables, and
receivables. The Company may also use other derivative instruments such as swaps, rate locks, and options to
hedge its interest rate exposure.
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 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 net income.
When a hedging instrument expires or is sold, or when a hedge 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 net 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 net income.
Net Investment Hedges
The Company 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 the consolidated
statement of net income upon the disposal of a foreign operation, 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.
Areas of Estimation Uncertainty
Fair Value
The fair value of derivative financial instruments that are not traded in an active market (e.g. over-the-counter
derivatives) is determined using valuation techniques. The Company uses its judgement to select a valuation
method and makes assumptions that are mainly based on market conditions existing at the end of each reporting
period. The Company did not have any hedging relationships directly affected by the interest rate benchmark reform
(Note 2d).
28
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
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, 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 net income and other comprehensive income is the
translation of foreign currency-based earnings and net assets or liabilities into CAD, which is the Company’s
presentation currency. The Company’s South American and UK & Ireland operations have functional currencies
other than the CAD and, as a result, exchange rate movements between the USD/CAD and GBP/CAD will impact
the consolidated results of the South American and UK & Ireland operations in CAD terms. The Company does not
hedge its exposure to foreign exchange risk with regard to foreign currency earnings.
Assets and liabilities of the Company’s South American and UK & Ireland operations are translated into CAD using
the exchange rates in effect at the consolidated statement of financial position dates. Any translation gains and
losses are recorded as foreign currency translation adjustments in other comprehensive income. To the extent
practical, it is the Company’s objective to manage this exposure. The Company hedged a portion of its foreign
investments with loans denominated in foreign currencies.
The carrying value of the Company’s long-term debt that was designated as net investment hedging instruments
was $757 million (2019: $768 million).
Transaction Exposure
Many of the Company’s operations purchase, sell, rent, and lease assets as well as incur costs in currencies other
than their 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 USD/CAD rates between the timing of equipment and parts purchases that are made in USD
and the ultimate sale to customers made in CAD. A portion of this exposure is hedged through the use of forward
exchange contracts as well as managed through pricing practices. The Company applies hedge accounting to
hedges of certain inventory purchases and sales of complex power and energy systems in its Canadian and UK
operations, respectively. For the year ended December 31, 2020 the Company entered into forward exchange
contracts for inventory purchases of USD $104 million. In 2019, the Company entered into forward exchange
contracts for inventory purchases of USD $170 million, of which there were no cancellations of forward exchange
contracts where the transaction was no longer expected to occur.
The results of the Company’s operations are impacted by the translation of foreign-denominated transactions; the
results of the Canadian operations are impacted by USD based revenue and costs, the results of the South
American operations are impacted by CLP and ARS based revenues and costs, and the results of the UK & Ireland
operations are primarily impacted by EUR based revenue and costs.
The Company is also exposed to foreign currency risks related to the future cash flows on its foreign-denominated
financial assets and financial liabilities and foreign-denominated net asset or net liability positions on its consolidated
statement of financial position. The Company enters into forward exchange contracts to manage some mismatches
in foreign currency cash flows but does not fully hedge balance sheet exposure so this may result in unrealized
foreign exchange gains or losses until the financial assets and financial liabilities are settled.
The fair value of derivative liabilities designated as cash flow hedging instruments is $1 million (2019: $1 million).
29
Exposure to Foreign Exchange Risk
The currencies of the Company’s significant financial instruments were as follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
December 31, 2020
(millions)
Cash and cash equivalents
Accounts receivable – trade
Short-term and long-term debt
Accounts payable and accruals
Lease liabilities
Net statement of financial position exposure
December 31, 2019
(millions)
Cash and cash equivalents
Accounts receivable – trade
Short-term and long-term debt
Accounts payable and accruals
Lease liabilities
Net statement of financial position exposure
Sensitivity Analysis to Foreign Exchange Risk
CAD
USD
7
332
(602)
(260)
(224)
(747)
198
77
(529)
(184)
(5)
(443)
GBP
CLP
85,066
48
45 105,102
(70)
—
(69,708)
(57)
—
(34)
(68) 120,460
CAD
USD
—
375
(748)
(393)
(267)
(1,033)
184
128
(659)
(310)
(9)
(666)
GBP
CLP
—
8,301
54 141,169
(71)
—
(77) (121,391)
—
(38)
28,079
(132)
ARS
2,061
248
—
(625)
(9)
1,675
ARS
236
336
(851)
(1,188)
(2)
(1,469)
As a result of foreign exchange gains or losses on the translation of financial instruments denominated in foreign
currencies, a weakening of the CAD against the following currencies would increase (decrease) pre-tax income and
other comprehensive income by the amounts shown below. This analysis uses estimated forecast foreign exchange
rates for the upcoming year and assumes that all other variables, in particular volumes, relative pricing, interest
rates, and hedging activities are unchanged.
December 31, 2020
($ millions)
USD/CAD
GBP/CAD
CLP/CAD
ARS/CAD
Weakening
of CAD
10%
20%
15%
40%
Pre-tax
Income (Loss)
$
$
$
$
—
—
14
(3)
Other
Comprehensive
Loss
$
$
$
$
(58)
(24)
—
—
A strengthening of the CAD against the above currencies relative to the December 31, 2020 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.
30
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Interest Rate Risk
Changes in market interest rates can 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. The Company’s
floating-rate financial assets comprise cash and cash equivalents. Due to the short-term nature of cash and cash
equivalents, the impact of fluctuations in fair value are limited but interest income earned can 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 and lease liabilities. The Company’s debt portfolio comprises both fixed and floating rate
debt instruments, with terms to maturity ranging up to 2042. The Company’s floating rate debt is short-term in nature
and as a result, the Company is exposed 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.
Profile
At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments was as follows:
December 31
($ millions)
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
2020
2019
$
$
$
27
(1,606) $
35
(1,875)
$
$
$
539
(92) $
268
(226)
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Company does not account for any fixed rate financial assets or financial liabilities at fair value through the
consolidated statement of net income, 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 $4 million with a
1.0% decrease having the opposite effect. This analysis assumes that all other variables, in particular foreign
currency exchange rates, remain constant.
31
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
(d) Fair Values
Financial instruments measured at fair value are grouped into three levels based on the degree to which fair value is
observable:
Level 1 – quoted prices in active markets for identical securities
Level 2 – significant observable inputs other than quoted prices included in Level 1
Level 3 – significant unobservable inputs
The Company’s only financial instruments measured at fair value are derivative instruments. All of the derivative
instruments are measured at fair value using Level 2 inputs. Certain assets held-for-sale are measured at fair value
using level 3 inputs. The Company did not move any instruments between levels of the fair value hierarchy during
the years ended December 31, 2020 and 2019.
Derivative Instruments (Level 2)
The fair value of foreign currency forward contracts is determined by discounting contracted future cash flows using
a discount rate derived from interest rate curves and observed forward prices for comparable assets and liabilities.
Where material, fair values are adjusted for credit risk based on observed credit default spreads or market yield
spreads for counterparties for financial assets and based on the Company’s credit risk for financial liabilities. The
Company’s credit risk is derived from yield spreads on the Company’s market quoted debt.
Long-Term Debt (Level 2)
The carrying value and fair value of the Company’s long-term debt was estimated as follows:
December 31
($ millions)
Long-term debt
2020
2019
Carrying Value
1,308
$
Fair Value
$
1,443
Carrying Value
$
1,518
Fair Value
1,635
$
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 remaining interest payments. 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.
Investment in Energyst (Level 3)
The fair value of the Company’s 31.4% investment in Energyst was estimated to be $3 million (2019: $0 million), the
amount the Company expected to recover from its investment (Note 15). This amount was received on January 7,
2021.
Cash and Cash Equivalents, Accounts Receivable, Instalment Notes Receivable, Short-Term Debt, and Accounts
Payable
The recorded values of cash and cash equivalents, accounts receivable, instalment notes receivable, short-term
debt, and accounts payable approximate their fair values due to the short-term maturities of these instruments.
32
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
9. 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. In May 2020, the Company renewed its normal course issuer bid which enables the Company to
purchase its common shares for cancellation. In the first quarter of 2020, the Company repurchased 1,215,617
Finning common shares for cancellation at an average cost of $19.25 per share (2019: 1,073,354 Finning common
shares were repurchased for cancellation at an average cost of $24.75 per share).
The Company monitors net debt to Adjusted EBITDA to assess operating leverage and ability to repay debt. This
ratio approximates the length of time, in years, that it would take the Company to repay its debt, with net debt and
Adjusted EBITDA held constant.
December 31
Net debt to Adjusted EBITDA Ratio (times)
2020
1.4
2019
2.0
The Company’s long-term target of net debt to Adjusted EBITDA is less than 3.0.
Net debt to Adjusted EBITDA is calculated as net debt divided by Adjusted EBITDA for the last twelve months. Net
debt is calculated as short-term and long-term debt, net of cash. Adjusted EBITDA is calculated by adding
depreciation and amortization to earnings before finance costs and income taxes, excluding items that are not
considered to be indicative of operational and financial trends, either by nature or amount, to provide a better overall
understanding of the Company’s underlying business performance.
Net Debt was calculated as follows:
December 31
($ millions)
Cash and cash equivalents
Short-term debt
Current portion of long-term debt
Long-term debt
Net debt
Adjusted EBITDA reconciles to EBITDA as follows:
For years ended December 31
($ millions)
EBITDA (Note 3)
Significant items:
Canadian emergency wage subsidy (Note 6)
Severance costs (a)
Facility closures, restructuring costs, and impairment losses (b)
Acquisition costs related to 4Refuel (Note 6)
Adjusted EBITDA
2020
2019
$
$
(539)
92
201
1,107
861
$
(268)
226
200
1,318
$ 1,476
2020
2019
$
700
$
718
(115)
42
9
—
636
$
—
20
8
4
750
$
(a) Severance costs of $42 million in 2020 and $18 million in 2019 were recorded in other expenses (Note 6). In
2019, $2 million of severance costs were recorded in selling, general, and administrative expenses.
(b) Facility closure costs, restructuring costs, and impairment losses of $9 million in 2020 and $7 million in 2019
were recorded in other expenses (Note 6). In 2019, $1 million of facility closure costs, restructuring costs, and
impairment losses were recorded in selling, general, and administrative expenses.
33
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
10. 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 that have not yet settled at a reporting period end. The cash
consideration paid to repurchase shares is presented as a financing activity in the statement of cash flow. Details of
the transaction (number of shares repurchased and amount deducted from equity) are disclosed in the statement of
shareholders’ 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 convertible preferred shares. The Company had no preferred shares
outstanding for the years ended December 31, 2020 and 2019.
The Company is authorized to issue an unlimited number of common shares. All issued common shares have no
par value and are fully paid.
The Company's dealership agreements with subsidiaries of Caterpillar are fundamental to its business and a change
in control of Finning may result in Caterpillar exercising its right to terminate those dealership agreements.
The Company had previously adopted a shareholder rights plan, which was extended in May 2017 for a three-year
term. The rights plan provided, among other things, for the issuance of one share purchase right for each common
share, which right traded with the common share until such time as any person or group, other than a “permitted
bidder” (as defined in the rights plan), bids to acquire or acquires 20% or more of our common shares, at which time
the share purchase right becomes exercisable. The Company did not seek shareholder approval to extend the rights
plan and it automatically terminated at the end of the annual meeting of shareholders on May 5, 2020.
34
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
11. SHARE-BASED PAYMENTS
Accounting Policy
The Company has share option plans and other share-based compensation plans for directors and certain eligible
employees and members of the Board of Directors.
Equity settled share-based payments are measured at fair value using the Black-Scholes option pricing model. The
fair value is determined on the grant date of the share option and recorded over the vesting period in selling,
general, and administrative expense, 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.
Total Shareholder Return Performance Share Units are measured at fair value using the Monte Carlo model and all
other cash-settled share-based awards are measured at fair value using the Company’s share price on the Toronto
Stock Exchange (TSX:FTT). 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 liabilities recorded within accounts payable and accruals (current) and
long-term other liabilities (non-current) on the consolidated statement of financial position.
Areas of Estimation Uncertainty
The Company uses the Black-Scholes option pricing model to determine the fair value of share options. Inputs to the
model are subject to various estimates relating to share price volatility, interest rates, dividend yields and expected
life of the units issued. 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 estimates of inputs to the model 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 in estimating how many units will vest.
The Company also estimates the projected outcome of performance conditions for Performance Share Units
(PSUs), including the relative ranking of the Company’s total shareholder return compared with a specified peer
group using a Monte Carlo simulation option-pricing model and forecasting the Company’s return on invested
capital.
In 2020 and 2019, long-term incentives for executives and senior management were a combination of share options,
deferred share units, performance share units, and restricted share units.
Share Options
The Company has one share option plan (Stock Option Plan) for certain employees. Options granted under the
Stock Option Plan vest over a three-year period and are exercisable over a seven-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. Under the Stock Option Plan, the Company may issue up to 7.5 million common shares pursuant to the
exercise of share options. At December 31, 2020 and 2019, approximately 2 million common shares remained
eligible to be issued in connection with future grants.
In 2020, the Company granted 724,739 common share options to senior executives and management of the
Company (2019: 608,821 common share options). The Company only grants and prices share options when all
material information has been disclosed to the market.
Under the Stock Option Plan, exercises generally utilize the cashless method, whereby the actual number of
common shares issued on exercise is based on the premium between the fair value of common shares at the time
of exercise and the grant value, and the equivalent value of the number of share options up to the grant value is
withheld. Share options exercised in 2020 comprised cashless exercises. 35,053 share options were exercised in
2020 resulting in 3,981 common shares being issued; 31,072 share options were withheld and returned to the option
pool for future issues/grants (2019: 133,384 options were exercised resulting in 10,507 common shares being
issued; 122,877 share options were withheld and returned).
35
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Details of the share option plans were as follows:
For years ended December 31
Share options outstanding,
beginning of year
Granted
Exercised
Forfeited
Expired
Share options outstanding, end of year
Exercisable, end of year
Share
Options
3,416,168
724,739
(35,053)
(146,468)
(275,937)
3,683,449
2,490,563
2020
Weighted Average
Exercise Price
Share
Options
2019
Weighted Average
Exercise Price
$
$
$
$
$
$
$
25.66
17.75
23.53
25.51
22.06
24.40
3,164,352
608,821
(133,384)
(165,021)
(58,600)
3,416,168
26.21
2,449,590
$
$
$
$
$
$
$
26.22
22.31
22.25
26.91
25.48
25.66
25.67
The fair value of the share options granted during the year was estimated on the date of grant using the following
weighted-average assumptions:
Dividend yield
Expected volatility (1)
Risk-free interest rate
Expected life (years)
Share price
2020 Grant 2019 Grant
3.2%
32.2%
0.4%
5.34
$
17.75 $
2.9%
27.6%
1.5%
5.38
22.31
(1) Expected volatility is based on historical share price volatility of TSX:FTT shares
The weighted average grant date fair value of share options granted during the year was $3.59 (2019: $4.28).
The following table summarizes information about share options outstanding at December 31, 2020:
Share options Outstanding
Weighted
Average
Range of
Number
exercise prices outstanding Remaining Life
$17.75 - $20.68
$20.69 - $22.38
$22.39 - $25.47
$25.48 - $27.98
$27.99 - $33.68
Total
6.19 years
4.13 years
1.45 years
3.33 years
2.05 years
3.39 years
739,459
916,588
854,934
387,084
785,384
3,683,449
Weighted
Average
Exercise Price
$
$
$
$
$
$
17.82
22.11
25.38
26.77
31.02
24.40
Number
outstanding
29,270
553,023
843,027
387,084
678,159
2,490,563
Share options Exercisable
Weighted
Average
Exercise Price
$
$
$
$
$
$
19.53
21.98
25.42
26.77
30.61
26.21
The following table summarizes information about share options outstanding at December 31, 2019:
Share options Outstanding
Range of
Number
exercise prices outstanding
702,452
$19.53 - $22.29
599,407
$22.30 - $23.95
871,727
$23.96 - $25.47
421,235
$25.48 - $27.98
821,347
$27.99 - $33.68
3,416,168
Total
Weighted
Average
Remaining Life
2.20 years
6.38 years
2.36 years
4.32 years
3.07 years
3.45 years
Weighted
Average
Exercise Price
$
$
$
$
$
$
21.83
22.31
25.44
26.75
31.05
25.66
Share options Exercisable
Weighted
Average
Exercise Price
Number
outstanding
702,452
—
871,727
283,490
591,921
2,449,590
$
$
$
$
$
$
21.83
—
25.44
26.73
30.06
25.67
36
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Other Share-Based Payment Plans
The Company has other share-based payment plans in the form of deferred share units, performance share units,
and restricted share units that use notional common share units.
Details of the plans are as follows:
Directors
Directors’ Deferred Share Unit (DDSU) Plan A
Under the DDSU Plan A, non-employee Directors of the Company may be awarded deferred share units and may
also elect to allocate all or a portion of their annual compensation issued in the form of 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 or a combination of cash and shares (as requested by the holder) 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 payout for deferred share units redeemed for cash is
determined using the redemption-date market value of the Company’s common shares.
Non-employee Directors of the Company were granted a total of 91,136 deferred share units in 2020 (2019: 69,567),
which were expensed over the calendar year as the units were issued. An additional 38,365 deferred share units
(2019: 28,370) were issued in lieu of cash compensation payable for service as a Director. A further 22,220 deferred
share units (2019: 16,691) were granted to Directors during 2020 as notional dividends.
Executive
Executive Deferred Share Unit (Exec DSU) Plan
Under the Exec DSU Plan, executives of the Company may elect to have all or a portion of their annual bonus
issued in the form of deferred share units and be awarded deferred share units as approved by the Board of
Directors. The Exec DSU Plan utilizes notional units that become fully vested at the time of issuance or in
accordance with terms set at the time of grant. Vested deferred share units are redeemable for cash before
December 15th of the year following the year in which cessation of employment with the Company occurred. Only
vested units accumulate dividend equivalents in the form of additional deferred share units based on the dividends
paid on the Company’s common shares.
Executives were granted a total of 22,284 deferred share units in 2020 (2019: 330,057) as remuneration of their
annual bonus payment and 2,674 deferred share units (2019: 1,940) were issued as notional dividends under the
Exec DSU Plan.
Deferred Share Unit (DSU-B) Plan B for Executives
Under the DSU-B Plan, executives of the Company may be awarded deferred share units as approved by the Board
of Directors. The DSU-B Plan utilizes notional units that become vested in accordance with terms set at the time of
grant. Vested deferred share units are redeemable for cash or for common shares of the Company for a period of 30
days following cessation of employment with the Company, or before December 31st of the year following the year of
retirement, death, or disability. Deferred share units expire if they have not vested within five years from the grant-
date. Only vested units accumulate dividend equivalents in the form of additional deferred share units based on the
dividends paid on the Company’s common shares.
During 2020, 3,882 deferred share units (2019: 4,600) were granted to executives as notional dividends under the
DSU-B Plan.
PSU Plan
Under the PSU Plan, executives of the Company may be awarded performance share units as approved by the
Board of Directors. This plan utilizes notional units that vest upon achieving future specified performance levels. All
units accumulate dividend equivalents in the form of additional performance share units based on the dividends paid
on the Company’s common shares. All units, including accumulated dividend equivalents, are redeemed upon
vesting. All PSUs granted in 2020 and 2019 were divided equally into two categories. Half of the awards are based
on the extent to which the Company’s return on invested capital achieves or exceeds the specified performance
levels over a three-year period (ROIC PSUs). The other half of the awards is based on the performance of the
Company’s total shareholder return over the three-year period relative to the performance of the total shareholder
return of all companies in the S&P/TSX Capped Industrials Index (TSR PSUs).
37
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Vested performance share units are redeemable in cash. The per unit payout is based on the volume-weighted
average trading price of the Company’s common shares on the five days prior to the end of the performance period.
During the year ended December 31, 2020, a total of 578,238 performance share units were granted to Executives,
based on 100% vesting (2019: 551,604), and 88,942 notional units (2019: 43,891) were issuable based on 100%
vesting as payment for dividends upon vesting.
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 PSUs and
the number of PSUs anticipated to vest.
The specified levels and respective vesting percentages for the 2020 grants were as follows:
TSR PSUs
1/3 of the grants is based on the Company’s total share return for year 1 of the grant (2020);
1/3 of the grants is based on the Company’s total share return for year 2 of the grant (2021); and
1/3 of the grants is based on the Company’s total share return for year 3 of the grant (2022).
Percentile Rank < 25th Percentile 25th Percentile
TSR PSUs Vested
50%
0%
50th Percentile
100%
75th Percentile 100th Percentile
150%
200%
ROIC PSUs
1/3 of the grants is based on the Company’s ROIC performance for year 1 of the grant (2020);
1/3 of the grants is based on the Company’s ROIC performance for year 2 of the grant (2021); and
1/3 of the grants is based on the Company’s ROIC performance for year 3 of the grant (2022).
Performance Level
Below Threshold
Threshold
Target
Maximum
Return on Invested Capital
for 2020
< 5.0%
5.0%
7.1%
9.2% or more
Proportion of PSUs Vesting
Nil
50%
100%
200%
(1) The return on invested capital performance level targets for 2021 and 2022 will be determined at the beginning of each of
these years.
The specified levels and respective vesting percentages for the 2019 grants over the three-year period were as
follows:
TSR PSUs
Percentile Rank < 25th Percentile 25th Percentile
TSR PSUs Vested
50%
0%
50th Percentile
100%
75th Percentile 100th Percentile
150%
200%
ROIC PSUs
Performance Level
Below Threshold
Threshold
Target
Maximum
Restricted Share Unit (RSU) Plan
Average Return on Invested Capital
(over three-year period)
< 11.5%
11.5%
15.5%
19.5% or more
Proportion of PSUs Vesting
Nil
50%
100%
200%
Under the RSU Plan, executives of the Company may be awarded restricted share units as approved by the Board
of Directors. This plan utilizes notional units that vest three-years from the grant-date in accordance with terms set at
the time of grant. All units accumulate dividend equivalents in the form of additional units based on the dividends
paid on the Company’s common shares.
Restricted share units that have vested are redeemable in cash and the fair value payout per unit is based on the
five-day volume-weighted average trading price of the Company’s common shares at the end of the three-year
period. During the year ended December 31, 2020, a total of 371,619 restricted share units were granted to
Executives (2019: 258,024) and 29,326 notional units (2019: 21,572) are issuable as payment for dividends upon
vesting.
38
Details of the DSU, PSU, and RSU plans were as follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Exec
DSU
For year ended December 31, 2020
Units
Outstanding, beginning of year
Additions
Exercised
Forfeited
Outstanding, end of year
DSU-B DDSU
380,853 130,372 494,393
3,882 151,721
(56,543)
—
PSU
803,123 592,939 2,401,680
657,018 400,945 1,238,524
(631,481)
(177,100)
(294,170)
(140,614)
(60,743)
(79,871)
38,326 589,571 1,086,100 756,041 2,868,109
24,958
(7,740)
—
398,071
(95,928)
—
RSU
Total
Vested, beginning of year
Vested
Exercised
Vested, end of year
Liability
($ millions)
Balance, beginning of year
Expensed
Exercised
Forfeited
Balance, end of year
54,588 130,372 494,393
24,958
3,882 151,721
(7,740)
(95,928)
(56,543)
71,806
38,326 589,571
—
226,422
249,338 177,100
(177,100)
(294,170)
—
181,590
905,775
606,999
(631,481)
881,293
$
$
1 $
1
—
—
2 $
3 $
—
(2)
—
1 $
13 $
4
(1)
—
16 $
13 $
11
(7)
(1)
16 $
8 $
5
(3)
(1)
9 $
38
21
(13)
(2)
44
For year ended December 31, 2019
Units
Outstanding, beginning of year
Additions (decreases)
Exercised
Forfeited
Outstanding, end of year
DSU-B DDSU
Exec
DSU
50,164 125,772 419,765 1,339,214 605,354 2,540,269
721,305
(9,516) 279,596
(781,185)
(244,466)
(495,411)
(31,164)
(78,709)
(47,545)
803,123 592,939 2,401,680
4,600 114,628
(40,000)
—
380,853 130,372 494,393
331,997
(1,308)
—
RSU
—
—
Total
PSU
Vested, beginning of year
Vested
Exercised
Vested, end of year
Liability
($ millions)
Balance, beginning of year
Expensed
Exercised
Forfeited
Balance, end of year
50,164 125,772 419,765
4,600 114,628
5,732
(1,308)
(40,000)
54,588 130,372 494,393
—
472,450
249,383 244,466
(244,466)
(495,411)
—
226,422
— 1,068,151
618,809
(781,185)
905,775
$
$
1 $
—
—
—
1 $
3 $
—
—
—
3 $
10 $
4
(1)
—
13 $
23 $
2
(11)
(1)
13 $
9 $
6
(6)
(1)
8 $
46
12
(18)
(2)
38
The fair value of the DSUs, ROIC PSUs, and RSUs outstanding as at December 31, 2020 has been estimated using
the period-end closing TSX: FTT share price of $27.03 (December 31, 2019: $25.30).
39
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
The impact of the share-based payment plans on the Company’s financial statements was as follows:
For years ended December 31
($ millions)
Consolidated Statements of Net Income
Compensation expense arising from equity-settled share option incentive plan
Compensation expense arising from cash-settled share-based payments
Total
Consolidated Statements of Financial Position
Liability for cash-settled share-based payments (current)
Liability for cash-settled share-based payments (non-current) (Note 22)
2020
2019
$
$
$
$
2
19
21
9
35
$
$
$
$
3
10
13
13
25
The total intrinsic value of vested but not settled share-based payments was $24 million (2019: $23 million).
12. INVENTORIES
Accounting Policy
Inventories are assets held for sale in the ordinary course of business, in the process of production for sale, or in the
form of materials or supplies to be consumed in the production process or in the rendering of services. Inventories
are stated at the lower of cost and net realizable value. Cost is determined on a specific item basis for on-hand
equipment and internal service work in progress, and on a weighted average cost basis for parts and supplies. The
cost of inventories includes all costs of purchase, conversion costs, other costs incurred in bringing inventories to
their existing location and condition, and an appropriate share of overhead costs based on normal operating
capacity.
Areas of Estimation Uncertainty
The Company makes estimates of the provision required to reflect net realizable value of slow-moving and obsolete
inventory. These estimates are determined on the basis of age, redundancy, and stock levels. For equipment
inventory, estimates are determined on a specific item basis. Management reviewed equipment values with
equipment specialists taking into account industry group, current market demand, market supply of equipment, and
the age and condition of equipment. Management reviewed parts inventory estimates based on market demand,
parts turns, discontinued items, ability to return to the vendor, and surplus/excess items. The impact of the COVID-
19 pandemic was considered and incorporated in its provision for slow-moving and obsolete inventory where
appropriate.
December 31
($ millions)
On-hand equipment
Parts and supplies
Internal service work in progress
Total inventory
2020
2019
$
540 $
634
303
891
775
324
$ 1,477 $ 1,990
For the year ended December 31, 2020, on-hand equipment, parts, supplies, and internal service work in progress
recognized as an expense in cost of sales amounted to $4.2 billion (2019: $5.5 billion). For the year ended
December 31, 2020, the write-down of inventories to net realizable value, included in cost of sales, was $99 million
(2019: $52 million).
40
Finning International Inc.
2020 Annual 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 consolidated 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 consolidated 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 net income.
Areas of Estimation Uncertainty
Estimations of tax assets or liabilities 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 jurisdiction at the time of the expected reversal. The composition of deferred tax assets and liabilities
changes from period to period due to the uncertainties surrounding these assumptions and changes in tax rates or
regimes which could have a material 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 a 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 in which the Company operates, 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 or from any subsequent re-assessment.
41
For year ended December 31, 2020
($ millions)
Current
Adjustment for prior periods recognized in the current year
Total current tax expense
Deferred
Origination and reversal of timing differences
Decrease due to tax rate changes
Adjustment for prior periods recognized in the current year
Total deferred tax expense
Provision for income taxes
For year ended December 31, 2019
($ millions)
Current
Adjustment for prior periods recognized in the current year
Total current tax expense
Deferred
Origination and reversal of timing differences
Decrease due to tax rate changes
Adjustment for prior periods recognized in the current year
Total deferred tax expense
Provision for income taxes
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Canada
$
International
Total
24
(7)
17
$
27 $
(3)
24
19
(1)
7
25
42
$
9
(1)
1
9
$
33 $
Canada
$
International
Total
32
(4)
28
$
39 $
(12)
27
11
(3)
4
12
40
$
(2)
(1)
12
9
$
36 $
51
(10)
41
28
(2)
8
34
75
71
(16)
55
9
(4)
16
21
76
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
2020
2019
the statutory tax rate
$
77
25.1%
$
85
26.7%
(Decrease) increase resulting from:
Lower statutory rates on the earnings of foreign subsidiaries
Income not subject to tax
Changes in statutory tax rates
Non-deductible share-based payment expense
Non-taxable/non-deductible foreign exchange in Argentina
Inflationary adjustment
Other
Provision for income taxes
(5)
(6)
(2)
1
6
(1)
5
75
(1.6)%
(2.0)%
(0.7)%
0.3%
2.0%
(0.3)%
1.6%
24.4%
$
(9)
(7)
(4)
1
11
(5)
4
76
(2.8)%
(2.2)%
(1.3)%
0.3%
3.6%
(1.6)%
1.3%
24.0%
$
42
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
The Company recognized the impact of the following enacted corporate income tax rate changes:
In Canada, the Alberta provincial government announced in 2019 to gradually reduce the corporate income tax
rate from 12% to 8% over the period of July 1, 2019 to January 1, 2022. On December 9, 2020 the Alberta
provincial government approved the acceleration of the tax rate reduction to 8% effective July 1, 2020.
In 2017, the Argentine government announced the reduction of the corporate tax rate from 30% to 25% effective
January 1, 2020. On December 23, 2019 the Argentine government approved the delay of the tax rate reduction
until January 1, 2021.
Deferred Tax Asset and Liability
Temporary differences and tax loss carry-forwards that gave rise to deferred tax assets and liabilities were as
follows:
December 31
($ millions)
Accounting provisions not currently deductible for tax purposes
Employee benefits
Share-based payments
Loss carry-forwards
Deferred tax assets
Property, plant and equipment, rental equipment, right-of-use assets,
and intangible assets
Distribution network
Employee benefits
Other
Deferred tax liabilities
Net deferred tax liability
2020
$
2019
$
66
4
8
11
89
45
—
9
16
70
(115)
(14)
(2)
(9)
(140)
(70)
(103)
(13)
—
(4)
(120)
(31)
$
$
Deferred taxes were not recognized on retained profits of approximately $1.7 billion (2019: $1.7 billion) of foreign
subsidiaries, as it was the Company’s intention to invest these profits to maintain and expand the business of the
relevant companies.
The Company recognized the benefit of the following tax loss carry-forwards available to reduce future taxable
income, of which $20 million do not expire and $42 million expire between 2023 and 2025.
December 31
($ millions)
International
2020
2019
$
62 $
42
As at December 31, 2020, the Company had unrecognized capital and non-capital loss carry-forwards of $91 million
(2019: $77 million) to reduce future taxable income. These amounts do not expire.
The income tax expense (recovery) relating to components of other comprehensive income was as follows:
For years ended December 31
($ millions)
Deferred tax expense (recovery)
Provision for (recovery of) income taxes recognized in other comprehensive income
2020
2019
$
$
7
7
$
$
(5)
(5)
43
14. OTHER ASSETS
December 31
($ millions)
Supplier claims receivable
Prepaid expenses
Finance assets
Income tax recoverable
Equipment deposits
Canada Emergency Wage Subsidy receivable (Note 6a)
Value Added Tax receivable
Other
Total other assets – current
December 31
($ millions)
Net post-employment asset (Note 24)
Deferred tax assets (Note 13)
Prepaid expenses
Finance assets (a)
Other
Total other assets – non-current
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
2020
2019
$
104 $
26
24
24
14
13
5
27
$
237 $
95
54
26
35
11
—
5
10
236
2020
2019
$
132 $
56
17
5
25
$
235 $
73
57
26
12
16
184
(a) Finance assets include equipment leased to customers under long-term financing leases. Depreciation expense
for equipment leased to customers of $2 million was recorded in 2020 (2019: $3 million). Depreciation expense
is recognized in equal monthly amounts over the term of the individual leases.
44
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
15. JOINT VENTURES 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 accounts for its joint ventures and associate in which the Company has an interest using the equity
method. The joint ventures and associate follow accounting policies that are materially consistent with the
Company’s accounting policies. Where the Company transacts with its joint ventures or associate, unrealized profits
or losses are eliminated to the extent of the Company’s interest in the joint venture or associate.
Nature of Relationships
PipeLine Machinery International (PLM) is a strategic partnership that sells and rents both purpose-built pipeline and
traditional Caterpillar products to mainline pipeline construction customers worldwide.
Agriterra, an Alberta based company, is a consolidation of equipment dealers providing customers with agriculture
and consumer products.
Energyst was the exclusive Caterpillar dealer in Europe for rental power and temperature control solutions. In
December 2020, the shareholders of Energyst, including Finning, decided to restructure the company and convert
its rental activities into four separate regional organizations. As part of this restructuring, the Company’s interest in
Energyst changed from 28.8% to 31.4% and on January 7, 2021, Finning UK & Ireland acquired the Energyst
businesses in the UK and Ireland for gross consideration of $15 million (€9 million) and is now the authorized
supplier of rental services for Caterpillar power generation in these territories. At December 31, 2020, the fair value
of Energyst was estimated to be $3 million (€2 million) (2019: $nil) representing the repayment of the outstanding
subordinated shareholder loan settled on January 7, 2021.
The Company’s proportion of ownership interest in its joint ventures and associate was as follows:
December 31
Name of Venture
PLM
Agriterra
Energyst
Type of Venture
Joint Venture
Joint Venture
Associate
Principal place of
business/country of
incorporation
United States
Canada
Netherlands
Proportion of Ownership
Interest Held
2020
2019
25.0%
20.0%
31.4%
25.0%
20.0%
28.8%
45
Information about the Company’s joint ventures and associate that are not considered individually material
to the Company:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
For year ended December 31, 2020
($ millions)
Company’s share of income
Company's share of other comprehensive income
Carrying amount of the Company’s interests in joint
ventures and associate
For year ended December 31, 2019
($ millions)
Company’s share of income
Company's share of other comprehensive loss
Carrying amount of the Company’s interests in joint
ventures and associate
PLM
$
$
$
PLM
$
$
$
Agriterra (1) Energyst (2)
— $
— $
3 $
1 $
— $
— $
Total
3
1
77 $
5 $
3 $
85
Agriterra (1) Energyst (2)
— $
— $
15 $
(1) $
— $
— $
Total
15
(1)
89 $
5 $
— $
94
(1)
Included in the investment in joint venture at December 31, 2019 was an advance of $2 million to Agriterra, bearing interest
at prime rate + 2%. In 2020, this advance was converted to preferred shares with no change in the Company’s investment in
Agriterra.
(2) Effective September 30, 2018, Energyst was classified as held-for-sale and the Company did not record any further equity
earnings or losses from Energyst since that date. Following the restructuring in December 2020, Energyst was no longer
considered held-for-sale at December 31, 2020.
46
Finning International Inc.
2020 Annual 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 net income. Depreciation of rental equipment is recorded in cost of sales in the consolidated statement of net
income.
Depreciation commences when the asset becomes available for use, and ceases when the asset is derecognized or
classified as held for sale. Where significant components of an asset have different useful lives, depreciation is
calculated on each separate component.
Rental equipment includes units transferred from inventory and excludes units transferred to inventory when the
rental equipment becomes available for sale.
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 - 20 years
2 - 5 years
Property, plant, and equipment and rental equipment are reviewed for indicators of impairment at the end of each
reporting period or whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized 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 Significant Judgment
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,
physical condition, prospective use, and maintenance programs.
47
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
December 31, 2020
($ millions)
Cost
Balance, beginning of year
Additions
Additions through leases (Note 17)
Remeasurement of right-of-use assets (Note 17)
Transfers from inventory
Disposals
Foreign exchange rate changes
Balance, end of year
Land
Vehicles and
Buildings Equipment
Total
Rental
Equipment
$
$
76
2
—
—
—
—
—
78
$
$
973
17
6
9
—
(10)
(5)
990
$
$
633
40
22
—
—
(75)
(3)
617
$ 1,682
59
28
9
—
(85)
(8)
$ 1,685
$
$
691
110
1
1
79
(199)
1
684
December 31, 2020
($ 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
$
$
Land
Vehicles and
Buildings Equipment
Total
Rental
Equipment
(10) $
—
—
—
—
(10) $
(362) $
(66)
7
(9)
3
(427) $
(339) $
(85)
41
—
2
(381) $
(711) $
(151)
48
(9)
5
(818) $
(234)
(102)
83
—
(1)
(254)
December 31, 2020
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Land
Vehicles and
Buildings Equipment
Total
Rental
Equipment
$
$
66
68
$
$
611
563
$
$
294
236
$
$
971
867
$
$
457
430
48
December 31, 2019
($ millions)
Cost
Balance, beginning of year
IFRS 16 adjustment (Note 2)
Additions
Additions through leases (Note 17)
Remeasurement of right-of-use assets (Note 17)
Additions through business combinations (Note 26)
Transfers from inventory
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2019
($ 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
December 31, 2019
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
78
—
—
—
—
—
—
—
(2)
76
$
$
762
143
35
11
37
4
—
(6)
(13)
973
$
$
404
110
55
57
—
38
1
(20)
(12)
633
$ 1,244
253
90
68
37
42
1
(26)
(27)
$ 1,682
$
$
648
25
183
12
(2)
—
32
(199)
(8)
691
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
(10) $
—
—
—
—
(10) $
(305) $
(64)
5
(5)
7
(362) $
(284) $
(77)
16
—
6
(339) $
(599) $
(141)
21
(5)
13
(711) $
(207)
(102)
73
—
2
(234)
Land
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
68
66
$
$
457
611
$
$
120
294
$
$
645
971
$
$
441
457
49
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
17. LEASES
At the inception of a contract, the Company assesses whether the contract is or contains a lease.
The Company as Lessee
At the commencement of the lease, the Company recognizes a right-of-use asset and a corresponding lease
liability, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low
value assets.
The right-of-use asset at inception includes the initial measurement of the corresponding lease liability, lease
payments made at or before the commencement date and any initial direct costs. The right-of-use asset is
subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation of right-of-use
assets is recorded in selling, general, and administrative expenses for all assets except leases of rental equipment,
where depreciation is recorded in cost of sales in the consolidated statement of net income. Depreciation is
recorded on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the
underlying asset, commencing when the asset becomes available for use.
Right-of-use assets are reviewed for indicators of impairment at the end of each reporting period or whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss
is recognized 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 a right-of-use asset, the asset is reviewed for possible reversal of the impairment
at the end of each subsequent reporting period.
The lease liability is initially measured at the present value of the remaining lease payments that have not been paid
at the commencement date, discounted by using the Company’s incremental borrowing rate unless the rate implicit
in the lease is readily determinable.
Lease payments over the estimated lease term included in the measurement of the lease liability comprise:
Fixed lease payments, less any lease incentives;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and,
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate
the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease
liability (using the effective interest rate method) and by reducing the carrying amount to reflect the lease payments
made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use
asset) whenever:
The lease term changes or there is a change in the assessment of the likelihood of the purchase option being
exercised, in which case the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate,
The lease payments change due to a change in an index, rate, or expected payment under a guaranteed
residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using
the initial discount rate; or,
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case
the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The right-of-use asset is presented within property, plant, and equipment and rental equipment and the lease liability
is presented within other liabilities (current) and long-term lease liabilities (non-current) on the consolidated
statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for leases that have a term of 12
months or less and leases of low-value assets. The Company recognizes these lease payments as an expense on a
straight-line basis over the lease term.
Areas of Significant Judgment
50
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
The Company is required to make judgments in determining the lease term. Management considers all facts and
circumstances, including economic incentives to exercise an extension option and its asset management strategy.
Extension options are only included in the lease term if the lease is reasonably certain to be extended. Most of the
Company’s extension options relate to lease of properties in the Company’s Canadian operations and are evaluated
based on management’s long-term facility strategy.
The Company as Lessor
Revenue from equipment rentals and operating leases is presented as equipment rental revenue and in accordance
with the terms of the relevant agreement with the customer, either recognized evenly over the term of that
agreement or on a usage basis such as the number of hours that the equipment is used.
Right-of-use assets, included in property, plant, and equipment and rental equipment (Note 16) were as follows:
December 31, 2020
($ millions)
Cost
Balance, beginning of year
Additions
Remeasurement of right-of-use assets
Disposals
Balance, end of year
December 31, 2020
($ millions)
Accumulated depreciation and impairment losses
Balance, beginning of year
Depreciation for the year
Disposals
Impairment loss
Balance, end of year
December 31, 2020
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Vehicles and
Buildings Equipment
Total
Rental
Equipment
$
$
207
6
9
(6)
216
$
$
192
22
—
(15)
199
$
$
399
28
9
(21)
415
$
$
69
1
1
(3)
68
Vehicles and
Buildings Equipment
Total
Rental
Equipment
$
$
(48) $
(33)
3
(1)
(79) $
(42) $
(46)
7
—
(81) $
(90) $
(79)
10
(1)
(160) $
(22)
(11)
2
—
(31)
Vehicles and
Buildings Equipment
Total
Rental
Equipment
$
$
159
137
$
$
150
118
$
$
309
255
$
$
47
37
51
December 31, 2019
($ millions)
Cost
Balance, beginning of year
IFRS 16 adjustment (Note 2)
Additions
Additions through business combinations (Note 26)
Remeasurement of right-of-use assets
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2019
($ millions)
Accumulated depreciation and impairment losses
Balance, beginning of year
Depreciation for the year
Disposals
Impairment loss
Balance, end of year
December 31, 2019
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
14
143
11
3
37
(1)
—
207
$
$
—
110
57
27
—
(1)
(1)
192
$
$
14
253
68
30
37
(2)
(1)
399
$
$
36
25
12
—
(2)
(1)
(1)
69
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
(11) $
(33)
—
(4)
(48) $
$
—
(43)
1
—
(42) $
(11) $
(76)
1
(4)
(90) $
(13)
(10)
1
—
(22)
Buildings
Vehicles and
Equipment
Total
Rental
Equipment
$
$
3
159
$
$
—
150
$
$
3
309
$
$
23
47
52
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
18. GOODWILL
Accounting Policy
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 21 for the
Company’s policy on impairment reviews.
December 31, 2020
($ millions)
Balance, beginning of year
Foreign exchange rate changes
Balance, end of year
December 31, 2019
($ millions)
Balance, beginning of year
Additions through business combination (Note 26)
Foreign exchange rate changes
Balance, end of year
19. DISTRIBUTION NETWORK
Accounting Policy
Canada
$
166 $
—
$
166 $
Canada
$
81 $
85
—
$
166 $
South
America
UK
& Ireland
Total
5 $
—
5 $
33 $
1
34 $
204
1
205
South
UK
America
& Ireland
Total
5 $
—
—
5 $
34 $
—
(1)
33 $
120
85
(1)
204
The distribution network is recorded at the acquisition date fair value, net of any impairment losses. The 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 21 for
the Company’s policy on impairment reviews.
December 31, 2020
($ millions)
Balance, beginning of year
Balance, end of year
December 31, 2019
($ millions)
Balance, beginning of year
Balance, end of year
UK
& Ireland
Total
2 $
2 $
100
100
UK
& Ireland
Total
Canada
$
$
98 $
98 $
Canada
$
$
98 $
98 $
2 $
2 $
100
100
53
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
20. INTANGIBLE ASSETS
Accounting Policy
Intangible assets are recorded at cost or acquisition-date fair value (if acquired through a business acquisition), net
of any accumulated amortization and any impairment losses. Intangible assets with finite lives are amortized on a
straight-line basis over the period during which they are expected to generate benefits. Amortization is recorded in
selling, general, and administrative expenses in the consolidated statement of net income using the following
estimated useful lives:
Contracts and Customer relationships
Software and Technology
Tradename
2 – 10 years
2 – 7 years
20 years
Borrowing costs are capitalized during the development of qualifying intangible assets. As the Company manages
the financing of all operations centrally, the development of qualifying assets is financed through general borrowings
and therefore, a weighted average borrowing rate is used in calculating interest to be capitalized.
Intangible assets are reviewed for indicators of impairment at the end of each reporting period or whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognized 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 intangible asset, the asset is reviewed for possible reversal of the impairment at the end of each
subsequent reporting period.
Areas of Significant Judgment
Amortization 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, prospective use, and
maintenance programs.
December 31, 2020
($ millions)
Cost
Balance, beginning of year
Additions
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2020
($ millions)
Accumulated amortization
Balance, beginning of year
Amortization for the year
Foreign exchange rate changes
Balance, end of year
December 31, 2020
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Contracts and
Customer
relationships
Software
and
Technology Tradename
Total
$
$
284
22
—
(4)
302
$
$
298
35
(1)
(2)
330
$
$
19
—
—
—
19
$
$
601
57
(1)
(6)
651
Contracts and
Customer
relationships
Software
and
Technology Tradename
Total
$
$
(156)
(23)
3
(176)
$
$
(123)
(29)
1
(151)
$
$
(1) $
(1)
—
(2) $
(280)
(53)
4
(329)
Contracts and
Customer
relationships
Software
and
Technology Tradename
Total
$
$
128
126
$
$
175
179
$
$
18
17
$
$
321
322
54
December 31, 2019
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business combination (Note 26)
Disposals
Foreign exchange rate changes
Balance, end of year
December 31, 2019
($ millions)
Accumulated amortization
Balance, beginning of year
Amortization for the year
Foreign exchange rate changes
Balance, end of year
December 31, 2019
($ millions)
Net book value
Balance, beginning of year
Balance, end of year
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Contracts and
Customer
relationships
Software
and
Technology
Tradename
Total
$
$
172
11
108
—
(7)
284
$
$
244
58
3
(1)
(6)
298
$
$
—
—
19
—
—
19
$
$
416
69
130
(1)
(13)
601
Contracts and
Customer
relationships
Software
and
Technology
Tradename
Total
$
$
(140)
(22)
6
(156)
$
$
(100)
(24)
1
(123)
$
$
$
—
(1)
—
(1) $
(240)
(47)
7
(280)
Contracts and
Customer
relationships
Software
and
Technology
Tradename
Total
$
$
32
128
$
$
144
175
$
$
—
18
$
$
176
321
At December 31, 2020, there were $1 million of borrowing costs capitalized to intangible assets (2019: $0 million).
The average rate used for capitalization of borrowing costs was 3.6% (2019: 3.4%).
55
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
21. IMPAIRMENT
Accounting Policy
Goodwill and intangible assets with indefinite lives (e.g. distribution network) 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
inflows are allocated to cash generating units (CGUs). CGUs are subject to impairment reviews whenever there is
an indication they may be impaired. At least quarterly, CGUs are reviewed for indicators of impairment. 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 income.
Impairment losses on goodwill are never reversed but impairment losses on indefinite-lived intangible assets may be
reversed. If there is any indication that the circumstances leading to the impairment loss of an indefinite-lived
intangible asset no longer exist or may have decreased, management estimates the recoverable value of the CGU.
Indicators of a recovery may include sustainable improvement of the economic performance of the CGU and a
positive trend in the forecast or budgeted results of the CGU. If the recoverable amount exceeds the carrying
amount, then a previously recognized impairment loss is considered to have been reversed (either fully or in part).
Any reversal of an impairment loss is recognized immediately in the consolidated statement of net income.
Areas of Significant Judgment
Judgment is used to identify an appropriate discount rate and growth rate used to estimate the recoverable value,
identifying the CGUs to which 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 recoverable value of CGUs require the use of estimates related to the future operating results and cash
generating ability of the assets.
Overview of annual impairment tests
The annual impairment tests were completed to support April 1, 2020 net asset values. The cash flows of the
Company’s CGUs have been impacted by the COVID-19 pandemic. Management’s methodology for impairment
testing utilizes a single set of cash flows from the financial budgets to estimate its recoverable value. At the time the
annual impairment test was performed, management considered various scenarios, such as updated cash flow
projections from operations for 2020 and 2021 to reflect the uncertainty of timing and pace of market recovery from
the effects of both COVID-19 and volatility in commodity prices, within the risk adjusted discount rate.
In addition to testing CGUs or groups of CGUs with goodwill or distribution network, recent economic uncertainty
and financial performance triggered an impairment review of the Company’s Argentina CGU. Market activity was
expected to remain slow in a challenging economic environment. Also, the government’s restrictive monetary
policies combined with capital and imports controls were expected to limit the Company’s growth opportunities in
Argentina for the foreseeable future.
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 approved by the Board of Directors
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, covering a three-year
period which is discounted using after-tax weighted average cost of capital (WACC) rates. For the purposes of the
annual impairment test, 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.
56
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Carrying amount, CGU allocation and key assumptions
Goodwill, distribution network, and the significant assumptions used in the Company’s value-in-use calculations for
each CGU or group of CGUs were as follows:
2020
After-tax
2019
After-tax
Distribution WACC Growth
Distribution WACC Growth
($ millions, except rate) Goodwill Network
Canada
Canada Mining
Argentina
Chile
UK & Ireland
$
166 $
$ — $
$ — $
5 $
$
34 $
$
—
98
—
—
2
rate
rate
Goodwill Network
rate
rate
9%
9%
17%
10%
10%
2%
2%
3%
3%
2%
$ 166 $
$ — $
$ — $
$
5 $
$ 33 $
—
98
—
—
2
8%
9%
2%
2%
n/a (1) n/a (1)
3%
2%
9%
9%
(1) n/a – not applicable.
Sensitivities to key assumptions
Sensitivity testing is conducted as part of the annual impairment tests, including stress testing the WACC rate with
all other assumptions being held constant. Management believes that any reasonable change in the key
assumptions used to determine the recoverable amount would not cause the carrying amount of any 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 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 intangible assets with indefinite lives and goodwill.
Review for indicators of impairment
At December 31, 2020, the Company’s CGUs were reviewed for indicators of impairment. Management reviewed
recent cash flow projections (which incorporate the potential impact of COVID-19) and macro-economic conditions
(including key assumptions used in WACC rates). Based on this review, management concluded there were no
indicators of impairment of the Company’s CGUs.
Conclusion
There were no impairment losses recognized in 2020 or 2019 related to goodwill, or distribution network, or
Argentina. There were no impairment reversals in 2020 or 2019 related to the distribution network in Chile or
Argentina.
22. OTHER LIABILITIES
December 31
($ millions)
Lease liabilities
Provisions (Note 23)
Commodity taxes payable
Income tax payable
Derivative liabilities
Other
Total other liabilities – current
December 31
($ millions)
Deferred tax liabilities (Note 13)
Share-based payments (Note 11)
Deferred revenue (Note 4)
Onerous contracts
Provisions (Note 23)
Other
Total other liabilities – non-current
2020
2019
(Restated -
Note 2)
$
$
82 $
49
46
9
8
1
195 $
84
57
45
10
4
—
200
2020
2019
$
$
126 $
35
32
5
4
7
209 $
88
25
50
7
2
10
182
57
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
23. PROVISIONS
Accounting Policy
Warranty claims
Provisions are made for estimated warranty claims in respect of certain equipment, spare parts, and service
supplied to customers which are still under standard warranty at the end of the reporting period. These claims are
expected to be settled in the next financial year.
Other
Other provisions are estimated for tax, legal, environmental or rehabilitation costs, expected repurchase guarantees,
and anticipated losses related to long-term product support contracts or power system projects. Other provisions are
recorded, when the likelihood of payment or loss is probable and can be reliably measured, with a corresponding
expense in the consolidated statement of net income.
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, spare parts, and labour costs.
For year ended December 31, 2020
($ 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, 2019
($ millions)
Balance, beginning of year
New provisions
Charges against provisions
Foreign exchange rate changes
Balance, end of year
Current portion
Non-current portion
Warranty
Claims
$
Other
Total
44 $
24
(33)
—
35 $
35 $
— $
38 $
26
(19)
(1)
44 $
44 $
— $
$
$
$
$
$
$
Warranty
Claims
$
Other
Total
15 $
55
(51)
(1)
18 $
14 $
4 $
59
79
(84)
(1)
53
49
4
10 $
59
(54)
—
15 $
13 $
2 $
48
85
(73)
(1)
59
57
2
58
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
24. POST-EMPLOYMENT 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 UK, the Republic of Ireland, and South America. These plans include defined benefit
and defined contribution pension plans in Canada, UK and Ireland, and include other post-employment benefits in
South America.
Pension 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.
In the Company’s Canadian operations, defined benefit pension plans exist for eligible employees but are closed
to new members. 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 plan’s 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.
The Company’s UK operations 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 plan member earnings, into the plans, where an account exists for each plan member.
In the Company’s Canadian operations, 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.
In the Company’s UK operations, 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.
Other Post-Employment Benefits
The Company’s South American employees do not participate in employer pension plans but are covered by country
specific government pension arrangements.
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. The benefit 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). The Company’s South
American post-employment benefits are not funded.
59
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Accounting Policy
Pension Plans
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, past service costs, and administration costs (net of employee contributions) are recognized in
selling, general, and administrative expenses and net interest costs are recognized in finance costs in the
consolidated statement of net 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 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,
denominated in the same currency of the benefits to be paid, 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 expensed in the consolidated statement of net income as they become due.
Other Post-Employment Benefits
The Company’s post-employment benefits in South America are accounted for as an unfunded defined benefit
pension plan. Current service costs are recognized in selling, general, and administrative expenses and interest
costs are recognized in finance costs in the consolidated statement of net income. Interest costs are calculated by
applying the discount rate at the beginning of the period to the post-employment benefit liability 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 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 post-
employment benefit obligation. The obligation recognized is based on valuations performed and regularly updated
through independent actuarial calculations by using the projected unit credit method.
Areas of Significant Judgment
Actuarial valuations of the Company’s defined benefit plans and other post-employment benefits 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. These assumptions combined with the high
quality corporate bond yield, used to discount the estimated future cash flows, impact the measurement of the net
defined benefit obligation, the net benefit cost, the actuarial gains and losses recognized in other comprehensive
income, and funding levels in Canada and the UK.
60
The net benefit cost (recovery) and actuarial (gain) loss for the Company’s post-employment benefit plans were as
follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
For years ended
December 31
($ millions)
Defined contribution
pension plans
Net benefit cost
Defined benefit and other
post-employment benefit
plans
Current service cost, net of
employee contributions
Gain on settlement of
accrued benefit obligation
Administration costs
Net interest (recovery) cost
Net benefit cost (recovery)
Total benefit cost recognized
2020
UK & South
Canada Ireland America Total
2019
UK &
South
Canada Ireland America Total
$
34 $
7 $
— $ 41 $
39 $
7 $ — $
46
6
(3)
—
—
3
—
—
1
(1)
—
8
14
—
—
—
8
(3)
1
(1)
11
6
—
1
1
8
—
—
1
(3)
(2)
8
14
—
—
1
9
—
2
(1)
15
in net income
$
37 $
7 $
8 $ 52 $
47 $
5 $
9 $
61
Actuarial gain on plan
assets
Actuarial loss on
accrued benefit obligation
Total actuarial (gain) loss
recognized in other
comprehensive income
$
(21) $
(79) $
— $ (100) $
(28) $
(57) $ — $
(85)
20
31
20
71
25
77
12
114
$
(1) $
(48) $
20 $
(29) $
(3) $
20 $
12 $
29
61
Other financial information about the Company’s defined benefit pension plans in Canada and UK and other post-
employment benefit plans in South America was as follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
For years ended December 31
($ millions)
Accrued benefit obligation
Balance, beginning of year
Settlement due to buy-out
annuity transactions
Current service cost
Interest cost
Benefits paid
Remeasurements:
- Actuarial loss from
change in demographic
assumptions
- Actuarial loss from
change in financial
assumptions
Experience loss (gain)
Foreign exchange rate changes
Balance, end of year
Plan assets
Balance, beginning of year
Purchase of buy-out annuities
Return on plan assets:
- Return on plan assets
included in net interest cost
- Actuarial gain on plan assets
Employer contributions
Benefits paid
Administration costs
Foreign exchange rate changes
Balance, end of year
Net post-employment
obligation (asset)
2020
South
2019
South
Canada
UK
America Total
Canada
UK
America Total
$ 269 $ 658 $
55 $
982
$ 516 $ 608 $
48 $ 1,172
(87)
6
7
(10)
—
—
13
(33)
—
8
—
(7)
(87)
14
20
(50)
(280)
6
9
(7)
—
—
16
(36)
—
8
1
(6)
(280)
14
26
(49)
—
—
11
11
—
—
11
11
17
3
—
39
(8)
8
$ 205 $ 677 $
4
5
3
79 $
$ 248 $ 731 $ — $
—
(84)
—
7
21
5
(10)
—
—
14
79
9
(33)
(1)
10
$ 187 $ 809 $ — $
—
—
7
(7)
—
—
60
—
11
961
979
(84)
21
100
21
(50)
(1)
10
996
25
—
—
80
(3)
(7)
$ 269 $ 658 $
7
(6)
(8)
55 $
112
(9)
(15)
982
$ 492 $ 695 $ — $ 1,187
(280)
(280)
—
—
8
28
8
(7)
(1)
—
19
57
6
(36)
(1)
(9)
—
—
6
(6)
—
—
$ 248 $ 731 $ — $
27
85
20
(49)
(2)
(9)
979
$
18 $ (132) $
79 $
(35)
$
21 $
(73) $
55 $
3
Included in the accrued benefit obligation and plan assets were the following amounts in respect of plans that
were not fully funded:
For years ended December 31
($ millions)
Accrued benefit obligation
Plan assets
Funded status - plan deficit
2020
South
Canada
$
UK
64 $ — $
37
27 $ — $
America Total
79 $
—
79 $
143
37
106
—
$
Canada
UK
65 $ — $
40
25 $ — $
—
$
$
2019
South
America
Total
55 $
—
55 $
120
40
80
62
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Key Assumptions and Related Sensitivities
The significant actuarial assumptions used in the valuations of the Company’s defined benefit pension plans in
Canada and UK and other post-employment benefit plans in South America included:
2020
2019
For years ended December 31
Discount rate – obligation
Discount rate – expense (1)
Retail price inflation – obligation
Retail price inflation – expense (1)
Average staff turnover – obligation
Rate of compensation increase – obligation
Canada
UK
2.7%
3.1%
n/m (2)
n/m (2)
n/m (2)
n/m (2)
1.4%
2.0%
2.6%
3.0%
n/m (2)
n/a (2)
South
America
(0.2)%
0.4%
n/a (2)
n/a (2)
7.8%
3.0%
Canada
UK
3.1%
3.7%
n/m (2)
n/m (2)
n/m (2)
n/m (2)
2.0%
2.9%
3.0%
3.3%
n/m (2)
n/a (2)
South
America
0.4%
1.5%
n/a (2)
n/a (2)
9.4%
3.0%
(1) Used to determine the net interest cost and expense for the years ended December 31, 2020 and 2019.
(2) n/m – not a material assumption used in the valuation.
n/a – not applicable.
Assumptions regarding future mortality are required for the defined benefit pension plans, and were set based on
management’s best estimate in accordance with published statistics and experience in each country. These
assumptions for 2020 and 2019 translate into an average life expectancy (in years) as follows:
December 31
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
(3) n/a – not applicable.
Canada
22
24
23
25
South
America
n/a (3)
n/a (3)
n/a (3)
n/a (3)
UK
22
24
23
25
The post-employment benefit obligations and expense are sensitive to changes in the significant actuarial
assumptions. At the end of the most recent calendar year, the weighted average duration of the obligation in
Canada is 18 years, the UK is 20 years, and South America is 6 years. A 0.25% increase in the significant actuarial
assumptions would impact the accrued benefit obligations by the amounts shown below.
($ millions)
Discount rate
Retail price inflation
Average staff turnover
Rate of compensation increase
(4) n/m – not a material assumption used in the valuation.
Change in
assumption
+0.25%
+0.25%
+0.25%
+0.25%
n/a – not applicable.
$
Increase (decrease) in accrued benefit obligation
UK
Canada
$
$
(9)
n/m (4)
n/m (4)
n/m (4)
(33)
24
n/m (4)
n/a (4)
South America
$
$
$
$
(2)
n/a (4)
(2)
2
A 0.25% decrease in the discount rate, retail price inflation, rate of compensation increase, and average staff
turnover 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 accrued benefit obligation to significant actuarial assumptions, the same method (i.e. present value
of the accrued benefit obligation calculated with the projected unit credit method at the end of the reporting period)
has been applied as when calculating the accrued benefit obligation recognized within the consolidated statement of
financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the
previous period.
63
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
Funding and Valuations of Defined Benefit Plans
In Canada, the Company governs and administers the defined benefit plans. An actuarial valuation of the Canadian
registered defined benefit plan is completed at least every three years to determine minimum annual contributions
prescribed by applicable legislation. The Company may make voluntary contributions to a Retirement Compensation
Arrangement to partially fund benefits for the Canadian non-registered supplemental defined benefit plans. A surplus
is recognized on the consolidated statement of financial position to the extent that the economic benefit can be
gained by the Company.
In the UK, a board of trustees governs and administers the defined benefit plans. An actuarial valuation of the UK
defined benefit plan is required every three years. As at the last formal valuation, a schedule was set out by the
board of trustees for contributions to be made until mid-2023.
Based on the most recent formal valuations completed, the Company expects to contribute approximately $11
million to the defined benefit pension plans during the year ended December 31, 2021. The actuarial valuation dates
of the Company’s material post-employment benefit plans were as follows:
Post-Employment Benefit Obligations
Canada – Regular & Executive DB Plan
Canada – Executive Supplemental Income Plan
Finning UK Defined Benefit Scheme
Finning South America Pension Arrangements
Last Actuarial
Valuation Date
December 31, 2017 (1)
December 31, 2017 (1)
December 31, 2017 (1)
December 31, 2019
(1) The December 31, 2020 actuarial valuation is in progress as at February 9, 2021.
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. The fair values of real estate investment funds are based on the net asset
value reported by the funds in their audited financial statements and are determined using inputs that are not based
on observable market data (unobservable inputs). Plan assets were principally invested in the following securities
(segregated by geography):
Fixed-income
Equity (3)
Real estate investment funds
Cash and cash equivalents
Canada
UK
Canada
Global (2)
UK
Global (2)
51%
14%
—
10%
—
25%
—
—
68%
1%
1%
1%
16%
13%
—
—
(2) Global investments exclude investments in Canadian and UK securities in Canada and UK, respectively.
(3) Approximately half of the UK scheme's equity investments are hedged to the GBP to manage foreign currency risk.
Plan assets do not include any direct investment in common shares of the Company at December 31, 2020 and
2019.
As part of management’s efforts to manage risks, in July 2020, the Company purchased buy-out annuities in
Canada, which settled a portion of its accrued benefit obligation. This settlement resulted in a reduction of both the
plan assets and the accrued benefit obligation in the Canadian registered defined benefit plan by $84 million and a
gain of $3 million was recorded in selling, general, and administrative expenses in 2020.
In January 2019, the Company converted the buy-in annuity contracts to buy-out annuity contracts. This conversion
settled a portion of the Company’s liability and reduced both the plan assets and the accrued benefit obligation in
the Canadian registered defined benefit plan by $280 million.
64
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
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 accrued benefit obligation 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 UK plans invest in
various asset categories including 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 short-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 UK
defined benefit pension plans whereby the investments will be adjusted over time as plan funding positions change.
The planned adjustments are intended to improve the asset-liability match over time.
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 of the accrued benefit obligation. This risk is managed
by selecting certain investments that aim to better match assets and liabilities. For example, an increase in the
accrued benefit obligation resulting from a decrease in corporate bond yields will be partially offset by an increase in
the fair value of the plans’ bond holdings.
Inflation Risk
The majority of the pension obligations in the UK 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 (i.e. fixed interest bonds) or loosely correlated with
(i.e. equities) inflation, in recent years, the plan has increased its investments in assets that have a direct correlation
with inflation (e.g. index-linked gilts and liability matching funds) in order to 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 may result in higher liabilities. With a relatively small number of
employees still earning benefits in the Canadian defined benefit plan, this risk is limited.
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 UK plan, where inflationary increases result in
higher sensitivity to changes in life expectancy.
Longevity risk in the UK plan is managed through asset management strategies. To mitigate this risk in the
Canadian registered pension plan, the Company may purchase annuity contracts.
65
Maturity Analysis
Expected maturity analysis of undiscounted pension and other post-employment benefit obligations of the
Company’s operations in Canada, UK and Ireland, and South America were as follows:
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
December 31, 2020
($ millions)
Defined benefit pension plans
Other post-employment benefits
Total
Accumulated Remeasurement Losses
Less than Between
1-2 years
Between
2-5 years
Over
a year
$
26 $
4
27 $
5
$
30 $
32 $
5 years
91 $ 1,286 $
127 1
12
103 $ 1,413 $
Total
$ 1,430
148
$ 1,578
The accumulated actuarial loss, net of tax, of the post-employment benefit obligations in the Company’s operations
in Canada, UK and Ireland, and South America recognized in retained earnings is $159 million as at December 31,
2020 (December 31, 2019: $182 million).
25. SUPPLEMENTAL CASH FLOW INFORMATION
Accounting Policy
Cash and cash equivalents comprise cash on hand together with short-term investments, consisting of highly rated
and liquid money market instruments with original maturities of three months or less, and are classified and
measured as amortized cost.
The components of cash and cash equivalents were as follows:
December 31
($ millions)
Cash
Cash equivalents
Cash and cash equivalents
The changes in operating assets and liabilities were as follows:
For years ended December 31
($ millions)
Accounts receivable
Unbilled receivables
Inventories
Other assets
Accounts payable and accruals
Other liabilities
Changes in operating assets and liabilities
2020
2019
$
$
222 $
317
539 $
158
110
268
2020
2019
$
$
188 $
15
508
3
(276)
(16)
422 $
89
(98)
29
68
(127)
(180)
(219)
66
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
The changes in liabilities arising from financing and operating activities were as follows:
For year ended December 31, 2020
($ millions)
Balance, beginning of year
Cash flow used in
Financing activities
Operating activities
Total cash movements
Non-cash changes
Additions
Disposals and remeasurement of liability
Interest expense
Foreign exchange rate changes
Total non-cash movements
Balance, end of year
For year ended December 31, 2019
($ millions)
Balance, beginning of year
IFRS 16 adjustment (Note 2)
Balance, January 1, 2019
Cash flow provided by (used in)
Financing activities
Operating activities
Total cash movements
Non-cash changes
Additions
Additions through business combination (Note 26)
Disposals and remeasurement of liability
Interest expense
Foreign exchange rate changes
Total non-cash movements
Balance, end of year
Short-term Long-term
debt
debt
$
226 $ 1,518
(129)
—
(129) $
(200)
—
(200)
—
—
—
—
—
—
(10)
(5)
(5) $
(10)
92 $ 1,308
$
$
$
Short-term Long-term
debt
debt
$
$
$
$
$
154 $ 1,354
—
154 $ 1,354
—
77
—
77 $
199
—
199
—
—
—
—
(5)
(5) $
—
—
—
—
(35)
(35)
226 $ 1,518
Lease
liability
$
Total
357 $ 2,101
(87)
(11)
(98) $
(416)
(11)
(427)
29
(2)
11
1
29
(2)
11
(14)
24
298 $ 1,698
39 $
$
$
$
Lease
liability
$
Total
30 $ 1,538
278
278
308 $ 1,816
(88)
(11)
(99) $
188
(11)
177
80
30
31
11
(4)
80
30
31
11
(44)
108
148 $
357 $ 2,101
$
$
$
$
Dividends of $0.82 (2019: $0.815) per share were paid during the year. In February 2021, the Board of Directors
approved a quarterly dividend of $0.205 per share payable on March 11, 2021 to shareholders of record on
February 25, 2021. This dividend will be considered an eligible dividend for Canadian income tax purposes. As at
December 31, 2020, the Company has not recognized a liability for this dividend.
67
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
26. ACQUISITION
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:
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.
On February 1, 2019, the Company acquired a 100% ownership interest in the Canadian and US operations of
4Refuel. 4Refuel is a mobile on-site refueling company operating in British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia and in Texas, US. Acquiring 4Refuel provides a
complementary service offering to the Company’s existing customer base and provides opportunities for the
Company to sell, rent, and provide services to a new customer base.
Cash consideration of $241 million was paid based on the fair value of the business at the acquisition date, which
included $12 million cash acquired and was subject to customary closing adjustments. The Company funded the
transaction with cash on hand and from existing credit facilities. This purchase has been accounted for as a
business combination using the acquisition method of accounting.
Management finalized its purchase price allocation on December 31, 2019.
The acquisition-date fair values of acquired tangible and intangible assets, assumed liabilities and deferred tax
liabilities were as follows:
Final purchase price allocation
($ millions)
Cash
Accounts receivable
Property, plant, and equipment
Intangible assets
Goodwill
Other assets
Accounts payable and accruals
Lease liabilities
Deferred tax liabilities
Net assets acquired
December 31,
2019
$
12
60
42
130
85
4
(32)
(30)
(30)
241
$
Goodwill relates to the expected synergies from combining complementary capabilities and existing customer bases
across Finning's territory in British Columbia, Alberta, the Yukon Territory, Northwest Territories and portion of
Nunavut and new customers in Canada and in Texas. The goodwill is assigned to the Company’s Canada
reportable segment and is not deductible for tax purposes.
Acquisition costs of $4 million were paid on the transaction and recorded as other expenses in the consolidated
statement of income in the year ended December 31, 2019.
The results of the newly acquired business since the date of acquisition have been included in the Company’s
Canada reportable segment. From the acquisition date to December 31, 2019, 4Refuel contributed approximately
$635 million of revenue.
68
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
27. ECONOMIC RELATIONSHIPS
The Company distributes and services heavy equipment, engines, and related products. The Company has
dealership agreements with numerous equipment manufacturers, of which the most significant are with subsidiaries
of Caterpillar. Distribution and servicing of Caterpillar products account for the major portion of the Company's
operations. Finning has had a relationship with Caterpillar that has been ongoing since 1933.
28. RELATED PARTY TRANSACTIONS AND TOTAL STAFF COSTS
Balances and transactions between the Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and are not disclosed in this note.
The remuneration of the Board of Directors during the year was as follows:
For years ended December 31
($ millions)
Share-based payments
Total
2020
2019
5
5 $
3
3
$
The remuneration of key management personnel (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
Total
2020
2019
$
$
10 $
1
6
17 $
11
2
5
18
Total staff costs, including salaries, benefits, pension, share-based payments, termination payments, and
commissions are $0.9 billion (2019: $1.0 billion). This amount includes staff costs associated with key management
personnel noted above.
29. COMMITMENTS AND CONTINGENCIES
Due to the size, complexity, and nature of the Company’s operations, various legal, customs, and tax matters are
pending. It is not currently possible for management to predict the outcome of such matters due to various factors,
including: the preliminary nature of some claims, an incomplete factual record, uncertainty concerning procedures
and their resolution by the courts, customs, or tax authorities. However, subject to these limitations, management is
of the opinion, based on legal assessments and information presently available, that, except as stated below, it is
not likely that any liability would have a material effect on the Company’s financial position or results of operations.
The Company has received a number of claims from the Argentina Customs Authority associated with the export of
agricultural product and an order that could result in up to a one-year suspension of imports into Argentina by a
portion of the business. The Company is appealing these claims and the order, believe they are without merit, and
are confident in its position. Mitigation measures are also available to the Company. These pending matters may
take a number of years to resolve. Should the ultimate resolution of these matters differ from management’s
assessment and the mitigation measures not be effective, this could result in a material negative impact on the
Company’s financial position.
69
Finning International Inc.
2020 Annual Results
Notes to the Consolidated Financial Statements
30. GUARANTEES AND INDEMNIFICATIONS
The Company enters into contracts with rights of return (at the customer’s discretion), in certain circumstances, for
the repurchase or trade-in 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, 2020, the total estimated value of these
contracts outstanding was $139 million (2019: $148 million) coming due at periods ranging from 2021 to 2026. The
Company’s experience to date has been that the estimated fair value of the equipment at the exercise date of the
contract is generally greater than the repurchase price or trade-in amount, however, there can be no assurance that
this experience will continue in the future. The total amount recognized as a provision against these contracts at
December 31, 2020 and 2019 was $1 million.
The Company has 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, 2020, the maximum
potential amount of future payments that the Company could be required to make under the guarantees was $12
million, covering various periods up to 2025. As at December 31, 2020, the Company has recognized a liability of $5
million for these guarantees (2019: $4 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, 2020, 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, was $1 million,
covering various periods up to 2024. As at December 31, 2020 and 2019, the Company has not recognized a
liability for these guarantees.
In connection with the sale of the Materials Handling Division in the Company’s UK & Ireland operations 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 2022. The Company has not recognized a liability for this guarantee in 2020 or 2019.
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, 2020 was $134 million (2019: $207
million) principally related to performance and advance payment guarantees on delivery for prepaid equipment and
other operational commitments in Chile.
70
Finning International Inc.
Suite 300 – 565 Great Northern Way
Vancouver, British Columbia V5T 0H8
finning.com
2020
FINNING INTERNATIONAL INC.
Financial report