2022
FINNING INTERNATIONAL INC.
Financial report
Finning International Inc.
2022 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, 2022, 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 6, 2023
Finning (TSX:FTT) is the largest dealer of Caterpillar products in the world delivering service to customers for 90
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 52. The first time a defined term is used in this MD&A, it is
shown in bold italics.
Annual Overview
Years ended December 31
($ millions, except per share amounts)
Revenue
Net revenue (1)
Gross profit
SG&A
Equity earnings of joint ventures
Other income
EBIT
Net income attributable to shareholders of Finning
EPS
Free cash flow (2)
Adjusted EBIT (2)(3)
Adjusted EPS (1)(3)
Gross profit as a % of net revenue (1)
SG&A as a % of net revenue (1)
EBIT as a % of net revenue (1)
Adjusted EBIT as a % of net revenue (1)(3)
Adjusted ROIC (1)(3)(4)
% change
fav (unfav)
27%
23%
23%
(15)%
37%
n/m
39%
38%
44%
n/m
43%
49%
2022
9,279
8,215
2,223
(1,458)
3
—
768
503
3.25
(170)
768
3.25
27.1%
(17.7)%
9.3%
9.3%
18.7%
2021
7,294
6,696
1,801
(1,266)
2
15
552
364
2.26
300
537
2.18
26.9%
(18.9)%
8.2%
8.0%
16.4%
(1) See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
(2)
These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
(3) Reported financial measures may be impacted by significant items described on pages 38 - 42 of this MD&A. Financial measures that have
been adjusted to take these items into account are referred to as “Adjusted measures”. See “Description of Specified Financial Measures
and Reconciliations” in this MD&A.
(4)
There were no significant items identified by management that affected our EBIT for the twelve months ended December 31, 2022 and
therefore, December 31, 2022 ROIC is the same as Adjusted ROIC.
1
Finning International Inc.
2022 Annual Results
Annual Highlights
2022 revenue was $9.3 billion. Net revenue of $8.2 billion was up 23% from 2021, reflecting higher volumes in
most lines of business, driven primarily by product support revenue and new equipment sales in all regions.
2022 EBIT was $768 million and EBIT as a percentage of net revenue was 9.3%. Excluding significant items not
considered indicative of operational and financial trends, Adjusted EBIT and Adjusted EBIT as a percentage of
net revenue were $537 million and 8.0%, respectively, in 2021. Higher EBIT in 2022 was driven by healthy
market conditions, the successful execution of our product support growth strategy and productivity
improvements. EBIT as a percentage of net revenue improved in all regions with lower SG&A relative to net
revenue compared to 2021.
EPS was $3.25 in 2022 compared to $2.26 in 2021. Excluding significant items not considered indicative of
operational and financial trends, Adjusted EPS was $2.18 in 2021. 2022 EPS increased significantly from 2021
as a result of strong earnings across all operations and disciplined operational execution.
Adjusted ROIC at December 31, 2022 was 18.7%, an improvement of 230 basis points from December 31, 2021,
driven by improved profitability in all of our operations.
2022 free cash flow was a use of cash of $170 million compared to a generation of $300 million of cash in 2021,
reflecting increased working capital requirements to support the delivery of our significant equipment backlog and
strong product support growth.
Consolidated equipment backlog (1) was a record $2.5 billion at December 31, 2022. Compared to December 31,
2021, backlog was up 35%, driven by higher order intake in mining and power systems.
(1) See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
2
Finning International Inc.
2022 Annual Results
Table of Contents
Annual Overview .......................................................................................................................................................... 1
Annual Highlights ......................................................................................................................................................... 2
Strategic Framework .................................................................................................................................................... 4
Adjusted Measures ...................................................................................................................................................... 5
Annual Key Performance Measures ............................................................................................................................ 6
Annual Results ............................................................................................................................................................. 8
Invested Capital ......................................................................................................................................................... 10
Adjusted Return on Invested Capital and Invested Capital Turnover ....................................................................... 11
Results by Reportable Segment ................................................................................................................................ 12
Acquisition ................................................................................................................................................................. 16
Fourth Quarter Overview ........................................................................................................................................... 17
Fourth Quarter Highlights .......................................................................................................................................... 17
Quarterly Key Performance Measures ...................................................................................................................... 18
Fourth Quarter Results ............................................................................................................................................. 20
Market Update and Business Outlook ....................................................................................................................... 24
Liquidity and Capital Resources ................................................................................................................................ 26
Accounting and Estimates ......................................................................................................................................... 29
Risk Factors and Management .................................................................................................................................. 32
Contingencies and Guarantees ................................................................................................................................. 35
Outstanding Share Data ............................................................................................................................................ 35
Controls and Procedures Certification ....................................................................................................................... 36
Description of Specified Financial Measures and Reconciliations ............................................................................ 37
Selected Annual Information ..................................................................................................................................... 47
Selected Quarterly Information .................................................................................................................................. 48
Forward-Looking Information Disclaimer ................................................................................................................... 49
Glossary of Defined Terms ........................................................................................................................................ 52
3
Strategic Framework
Our strategic plan is based on our Purpose, Vision, and Values, which have been articulated with the input of our
employees and comprise our strategic framework:
Purpose: We believe in partnering and innovating to build and power a better world.
Vision: Leveraging our global expertise and insight, we are a trusted partner in transforming our customers’
Finning International Inc.
2022 Annual Results
performance.
Values: We are trusted, collaborative, and passionate.
Simple Execution Plan
At our 2021 Investor Day, we introduced our Simple Execution Plan designed to improve our return on invested
capital performance and ultimately increase our earnings capacity.
First, we are accelerating product support growth. Our strategy is well aligned with Caterpillar in driving
product support growth through strengthening our value proposition to meet the rapidly evolving needs of
our customers. We are leveraging our unified digital platform, CUBIQTM, to help our customers improve their
productivity, costs, safety, and environmental performance.
Second, we are reducing our cost base by becoming more efficient and agile in serving our customers and
driving supply chain improvement across our global organization.
And third, we are reinvesting our free cash flow to compound our earnings. Our strong balance sheet
provides optionality to drive earnings potentially through organic growth, acquisitions, and return of capital to
shareholders.
Sustainability
At Finning, we are committed to sustainability. We focus on a business model that creates value for all our
stakeholders, including employees, communities, customers and shareholders. We work to create positive impacts
in the communities where we operate, reduce our environmental footprint, help our customers reduce their
emissions and environmental footprint, and continually evolve to address the needs of our stakeholders.
In 2022, we continued making progress in our sustainability journey. We focused on the sustainability topics that are
most relevant to our business, including people, environment, customers, communities, ethics, governance and
cybersecurity. Our performance and progress in our journey are highlighted in our annual Sustainability Report and
through the implementation of our sustainability roadmap, which is overseen by our global sustainability committee
comprised of representatives from Human Resources, Communications, Investor Relations, Legal, Business, Supply
Chain, Enterprise Risk Management, and Health, Safety and Environment. In 2022, we continued to make good
progress towards achieving our GHG emissions reduction target set in 2021 to reduce our absolute GHG emissions
by 40% by 2027 (from a 2017 baseline). Additionally, we continue to provide customers with equipment and
solutions to improve safety and enhance performance by combining leading technology with data-driven insights, all
while reducing their environmental footprint. This includes low emissions equipment, renewable power solutions, low
emissions fuels, extension of equipment life through remanufacturing, and our CUBIQTM Sustainability Dashboard,
which enables monitoring, benchmarking and tracking of fuel consumption and emissions. In 2022, we continued
our efforts to support the United Nations Sustainable Development Goals by continuing to align our Sustainability
Report with these commitments. We are also evolving the disclosure of our climate-related risks and opportunities.
We have aligned our Sustainability Report information with the Task Force on Climate-Related Financial Disclosures
and the Sustainability Accounting Standards Board. We continue to disclose to the Carbon Disclosure Project
annually. Our Sustainability Report meets the Global Reporting Initiative core standard.
Our 2022 Sustainability Report will be published in March 2023. The previous Sustainability Reports and related
disclosures are available on our website at www.finning.com.
4
Finning International Inc.
2022 Annual Results
Adjusted Measures
Reported financial measures may be impacted by significant items we do not consider indicative of operational and
financial trends either by nature or amount; these are referred to as “Adjusted measures”. Adjusted measures are
considered non-GAAP financial measures, 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
measures, including definitions and reconciliations from each of these Adjusted measures to their most directly
comparable measure under GAAP, where available, see the heading “Description of Specified Financial Measures
and Reconciliations” on pages 37 - 46 of this MD&A.
There were no significant items identified by management that affected our 2022 results.
2021 significant items:
Finning qualified for and recorded a benefit in Q1 2021 related to CEWS, which was introduced by the
Government of Canada in response to the COVID-19 pandemic for eligible entities that met specific criteria.
In December 2020, the shareholders of Energyst, which included Finning, decided to restructure the company. A
plan was put in place to sell any remaining assets and wind-up Energyst, with net proceeds from the sale to be
distributed to Energyst’s shareholders. In Q1 2021, we recorded a return on our investment in Energyst.
The following table shows the magnitude of these significant items and provides reconciliations of the Adjusted
measures to their most directly comparable GAAP financial measures:
Year ended December 31, 2021
($ millions, except for per share amounts)
EBIT and EPS
Significant items:
CEWS support
Return on Energyst investment
Adjusted EBIT and Adjusted EPS
South
Canada America
209
327
UK &
Ireland
53
Other Consol
(37)
552
Consol
2.26
EBIT
EPS
(10)
—
317
—
—
209
—
—
53
—
(5)
(42)
(10)
(5)
537
(0.05)
(0.03)
2.18
5
Annual Key Performance Measures
We utilize the following KPIs to enable consistent measurement of performance across the organization.
2022
2021
2020
2019
2018 (1)
Finning International Inc.
2022 Annual Results
ROIC (2)(3) (%)
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)(4) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBITDA as a % of net revenue (2)(3)
Consolidated
Canada
South America
UK & Ireland
EPS (2)
Invested capital (3) ($ millions)
Consolidated
Canada
South America
UK & Ireland
Invested capital turnover (3) (times)
Consolidated
Canada
South America
UK & Ireland
Inventory ($ millions)
Inventory turns (dealership) (3) (times)
Working capital to net revenue (3)
Free cash flow ($ millions)
18.7%
18.7%
24.5%
17.0%
768
435
310
74
9.3%
10.5%
11.3%
5.5%
1,101
626
407
115
13.4%
15.1%
14.8%
8.6%
3.25
4,170
2,447
1,281
428
2.01
1.77
2.16
3.09
2,461
2.61
27.4%
(170)
16.8%
17.5%
20.3%
14.8%
552
327
209
53
8.2%
9.7%
9.4%
4.7%
871
518
293
94
13.0%
15.3%
13.2%
8.5%
2.26
3,326
1,876
1,026
381
2.04
1.80
2.15
3.11
1,687
3.09
22.9%
300
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%
1.43
3,067
1,819
931
327
1.68
1.50
1.75
2.49
1,477
2.79
28.3%
870
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%
1.48
3,591
2,026
1,192
361
1.92
1.81
1.78
2.98
1,990
2.53
27.8%
42
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%
1.38
3,163
1,675
1,190
336
2.12
2.05
1.86
3.22
2,061
2.68
26.6%
78
(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) Certain of these reported financial measures 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 measures that have been adjusted to take these
items into account are referred to as “Adjusted measures” and are summarized on page 7 of this MD&A.
(3) See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
(4) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
6
Adjusted Annual KPIs
KPIs may be impacted by significant items described on pages 5 and 38 - 42 of this MD&A. KPIs that have been
adjusted to take these items into account, referred to as Adjusted KPIs, were as follows:
2022
2021
2020
2019
2018 (1)
Finning International Inc.
2022 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 (2) ($ millions)
Consolidated
Canada
South America
UK & Ireland
Adjusted EBITDA as a % of net revenue (3)
Consolidated
Canada
South America
UK & Ireland
Adjusted EPS
Net debt to Adjusted EBITDA ratio (3) (times)
18.7%
18.7%
24.5%
17.0%
768
435
310
74
9.3%
10.5%
11.3%
5.5%
1,101
626
407
115
13.4%
15.1%
14.8%
8.6%
3.25
1.6
16.4%
16.9%
20.3%
14.8%
537
317
209
53
8.0%
9.4%
9.4%
4.7%
856
508
293
94
12.8%
15.1%
13.2%
8.5%
2.18
1.1
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%
1.14
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%
1.65
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%
1.65
1.7
(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) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
(3) See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
7
Finning International Inc.
2022 Annual Results
Annual Results
Revenue
Net Revenue by Line of Business and by Operation
Years ended December 31
($ millions)
Net Revenue by Line of Business
2022
2021
6
0
6
4
,
8
2
7
3
,
2
5
3
9
0
4
7
9
2
5
3
2
7
6
1
5
3
1
3
9
7
2
,
9
8
1
2
,
4,800
2,400
0
Net Revenue by Operation
2022
2021
6
3
1
4
,
1
7
3
3
,
0
4
7
2
,
4
1
2
2
,
9
3
3
1
,
1
1
1
1
,
5,300
2,650
0
New
equipment
Used
equipment
Equipment
rental
Product
support
Fuel and
other
Canada
South America
UK & Ireland
Revenue was $9.3 billion in 2022 compared to $7.3 billion during 2021. Net revenue of $8.2 billion increased 23%
from the prior year, largely driven by strong market activity in the mining and construction sectors in all of our
regions.
Product support revenue in 2022 was 24% higher than 2021, up in all operations with higher demand in all market
sectors, primarily in the mining sector in Canada and South America and the construction sector in all of our regions.
New equipment revenue in 2022 was 28% higher than the prior year, up in all regions, driven by higher demand in
the mining sector in Canada and South America and the construction sector in UK & Ireland. Equipment backlog at
December 31, 2022 was $2.5 billion, up from $1.9 billion at December 31, 2021 due to extremely strong order intake
in 2022, which outpaced strong equipment deliveries in all of our operations.
EBIT
Gross profit in 2022 of $2.2 billion was
23% higher than the prior year, in line
with net revenue growth. Overall gross
profit as a percentage of net revenue of
27.1% was up slightly from 2021.
SG&A in 2022 of $1.5 billion was 15%
higher than the prior year primarily due
to higher people-related costs, asset and
facility costs, and variable costs to
support revenue growth. This increase was partially offset by the favourable foreign currency translation impact on
SG&A of our South American operations from the devaluation of the CLP and ARS relative to the USD in 2022
compared to 2021. Although SG&A costs were higher in the current year, SG&A as a percentage of net revenue of
17.7% improved 120 basis points from the prior year as all of our operations realized productivity improvements.
8
Finning International Inc.
2022 Annual Results
EBIT was $768 million and EBIT as a percentage of
net revenue was 9.3% in 2022, compared to $552
million and 8.2%, respectively, in 2021. Excluding
significant items not indicative of financial and
operational trends described on page 5, Adjusted EBIT
in 2021 was $537 million and 8.0%, respectively. All of
our operations contributed significantly higher earnings
and Adjusted EBIT as a percentage of net revenue in
2022.
Finance Costs
Finance costs for 2022 of $95 million were higher than
$75 million in 2021 due to higher interest rates on
higher average short-term debt levels in the current
year.
Provision for Income Taxes
Adjusted EBIT by Operation (1)
Years ended December 31
($ millions)
Adjusted EBIT
2022
2021
5
3
4
7
1
3
0
1
3
9
0
2
4
7
3
5
440
220
0
Canada
(1) Excluding Other operations
South America
UK & Ireland
The effective income tax rate for 2022 of 25.6% was up from 23.9% for 2021. The effective income tax rate was
lower in 2021 due to a higher proportion of earnings from lower tax jurisdictions compared to the current year.
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 tax audits, or tax rates and tax
legislation.
Net Income Attributable to Shareholders of Finning and EPS
Net income attributable to shareholders of Finning was $503 million and EPS was $3.25 in 2022, compared to $364
million and $2.26, respectively, in 2021. Excluding the significant items not indicative of financial and operational
trends described on page 5, Adjusted EPS was $2.18 in 2021. EPS of $3.25 in 2022 was 49% higher than Adjusted
EPS in 2021 due to large deliveries from our backlog, strong product support growth rates, healthy market
conditions, and improved profitability due to productivity improvements in all regions.
9
Invested Capital
($ millions, unless otherwise stated)
Consolidated
Canada
South America
UK & Ireland
South America (USD)
UK & Ireland (GBP)
Compared to December 31, 2021:
Finning International Inc.
2022 Annual Results
Increase from
December 31, December 31, December 31,
2021
844
571
255
47
2022
4,170
2,447
1,281
428
2021
3,326
1,876
1,026
381
946
262
809
222
137
40
The $844 million increase in consolidated invested capital from December 31, 2021 to December 31, 2022 includes
a foreign exchange impact of $61 million in translating the invested capital balances of our UK & Ireland and South
American operations. The foreign exchange impact was the result of the 7% weaker CAD relative to the USD
partially offset by the 5% stronger CAD relative to the GBP at December 31, 2022 compared to December 31, 2021.
Excluding the impact of foreign exchange, consolidated invested capital increased by $783 million from December
31, 2021 to December 31, 2022 reflecting:
higher new equipment and
parts inventory in all
operations, especially in
Canada and South America to
support customer demand
and product support growth;
an increase in accounts
receivable and unbilled
receivables in all operations,
primarily in Canada, driven by
an increase in demand and
sales activity;
an increase in net assets from
the acquisition of Hydraquip
in the UK & Ireland;
partially offset by higher
accounts payable in all
operations related to higher
inventory purchases.
10
Adjusted ROIC and Invested Capital Turnover
Adjusted ROIC
Consolidated
Canada
South America
UK & Ireland
Invested Capital Turnover (times)
Consolidated
Canada
South America
UK & Ireland
Adjusted ROIC
Finning International Inc.
2022 Annual Results
December 31, December 31,
2021
2022
18.7%
18.7%
24.5%
17.0%
2.01
1.77
2.16
3.09
16.4%
16.9%
20.3%
14.8%
2.04
1.80
2.15
3.11
On a consolidated basis, ROIC at December 31, 2022 improved 230 basis points from Adjusted ROIC at December
31, 2021. Higher EBIT for the last twelve-month period, reflecting higher volumes and improved profitability in all of
our operations, outpaced the increase in average invested capital levels. Consolidated ROIC of 18.7% was the
highest since Q2 2011. South America reached an all-time high ROIC of 24.5%.
Invested Capital Turnover
Consolidated invested capital turnover at December 31, 2022 of 2.01 was down slightly from December 31, 2021,
lower in Canada and UK & Ireland, as the increase in average invested capital levels outpaced the increase in net
revenue over the last twelve-month period. Invested capital turnover in South America was comparable to the prior
year.
11
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 - 16. Our reportable segments are
Canada, South America, UK & Ireland, and Other.
The table below provides details of net revenue by line of business for our Canadian, South American, and UK &
Ireland operations.
Finning International Inc.
2022 Annual Results
Year ended December 31, 2022
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Net revenue % by operation (1)
Year ended December 31, 2021
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Net revenue % by operation
Canada
1,001
259
192
2,517
167
4,136
South
America
926
37
60
1,717
—
2,740
UK
& Ireland
866
56
45
372
—
1,339
51%
33%
16%
Canada
774
310
153
1,999
135
3,371
South
America
711
48
40
1,415
—
2,214
UK
& Ireland
704
51
42
314
—
1,111
50%
33%
17%
Net Revenue
% (1)
34%
4%
4%
56%
2%
100%
Net Revenue
%
33%
6%
3%
56%
2%
100%
Consol
2,793
352
297
4,606
167
8,215
100%
Consol
2,189
409
235
3,728
135
6,696
100%
(1) See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
12
Canada Operations
Our Canadian reporting segment includes Finning (Canada), OEM, 4Refuel, and a 25% interest in PLM. 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 on-
site refuelling services in most of the provinces of Canada, as well as 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.
2022 Annual Results
Years ended December 31
($ millions)
Net revenue
Operating costs
Depreciation and amortization
Equity earnings of joint ventures
Other income
EBIT
Adjusted EBIT
EBIT as a % of net revenue
Adjusted EBIT as a % of net revenue
2022 Annual Overview
2022
4,136
(3,513)
(191)
3
—
435
435
10.5%
10.5%
2021
3,371
(2,865)
(191)
2
10
327
317
9.7%
9.4%
2022 net revenue of $4.1 billion was 23% higher than 2021,
up in most lines of business due to strong market
conditions in Western Canada.
Product support revenue in 2022 was up 26% from 2021
driven by strong demand in all sectors and successful
execution of our product support growth strategy, including
the positive impact of supplier cost passthrough.
2022 new equipment revenue was 29% higher than 2021,
up in all market sectors but primarily in mining, driven by
strong sales and conversion of rental equipment with
purchase options, as well as mining customers renewing
their aging fleets. Equipment backlog at December 31,
2022 was higher than December 31, 2021 as strong order
intake outpaced deliveries, primarily in the construction and
mining sectors.
Net Revenue by Line of Business
Canadian Operations
Years ended December 31
($ millions)
2022
2021
2,600
1,300
0
7
1
5
,
2
9
9
9
,
1
1
0
0
,
1
4
7
7
9
5
2
0
1
3
2
9
1
3
5
1
7
6
1
5
3
1
New
equipment
Used
equipment
Equipment
rental
Product
support
Fuel and
other
2022 used equipment revenue decreased 16% from 2021
due to the supply of used equipment remaining tight in Western Canada.
Gross profit in 2022 increased from 2021, in line with increased volumes. Overall gross profit as a percentage of net
revenue in 2022 was down slightly from 2021, reflecting lower product support and new equipment gross profit as a
percentage of net revenue partially offset by a higher proportion of product support revenue in the revenue mix.
2022 SG&A was up 15% compared to the prior year on 23% net revenue growth. 2022 SG&A increased mainly due
to higher people and variable costs to support volume growth. SG&A as a percentage of net revenue improved over
the prior year, benefiting from an improvement in labour and facility productivity.
Our Canadian operations contributed EBIT of $435 million in 2022, up 37% from Adjusted EBIT of $317 million in
the prior year on 23% higher net revenues. EBIT as a percentage of net revenue in 2022 was 10.5%, an
improvement of 110 basis points from Adjusted EBIT as a percentage of net revenue in 2021. This increase in
profitability reflected strong execution and operating leverage on strong revenue growth.
13
South America Operations
Our South American operations sell, service, and rent mainly Caterpillar equipment and engines in Chile, Argentina,
and Bolivia. Our South American operations’ markets include mining, construction, forestry, and power systems.
The table below provides details of the results from our South American operations:
Finning International Inc.
2022 Annual Results
Years ended December 31
($ millions)
Net revenue
Operating costs
Depreciation and amortization
EBIT
EBIT as a % of net revenue
2022
2,740
(2,333)
(97)
310
11.3%
2021
2,214
(1,921)
(84)
209
9.4%
The weaker CAD relative to the USD on average in 2022 compared to 2021 had a favourable foreign currency
translation impact on 2022 net revenue of approximately $110 million and on EBIT of approximately $10 million.
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. These variances and ratios
exclude the foreign currency translation impact from the CAD relative to the USD and are therefore considered to be
specified financial measures. We believe the variances and ratios in functional currency provide meaningful
information about operational performance of the reporting segment.
2022 Annual Overview
2022 net revenue was 19% higher than 2021, largely
driven by stronger market activity in the mining and
construction sectors.
Product support revenue in 2022 increased 17% from
2021, mainly due to solid market activity and volumes,
primarily in Chile where there continued to be strong
demand for component exchanges, equipment
overhauls, and fleet maintenance.
New equipment revenue in 2022 was 25% higher than
the same prior year period, driven by significant mining
deliveries in Chile as well as higher demand in the
construction sector in Argentina. Equipment backlog at
December 31, 2022 was up from December 31, 2021,
primarily due to demand in the mining and construction
sectors, and order intake outpacing deliveries.
Net Revenue by Line of Business
South America Operations
Years ended December 31
($ millions)
2022
2021
1,800
900
0
7
1
7
,
1
5
1
4
,
1
6
2
9
1
1
7
7
3
8
4
0
6
0
4
New
equipment
Used
equipment
Equipment
rental
Product
support
Gross profit in 2022 increased from 2021 mainly due to
increased volumes. Gross profit as a percentage of net revenue in 2022 was higher than 2021 mainly due to higher
gross profit as a percentage of net revenue in all lines of business, partially offset by a shift to higher new equipment
sales in the revenue mix.
2022 SG&A costs were up 11% from 2021 on 19% higher net revenue. 2022 SG&A increased mainly due to higher
variable costs to support volumes, including people-related, and facility costs. This increase was partially offset by
the favourable foreign currency translation impact on SG&A from the devaluation of the CLP and ARS relative to the
USD in 2022 compared to 2021. 2022 SG&A as a percentage of net revenue was lower than 2021 due to the
improved cost structure and service profitability.
2022 EBIT of $310 million was higher than 2021 EBIT of $209 million. 2022 EBIT as a percentage of net revenue of
11.3% improved by 190 basis points from 2021 EBIT reflecting increased profitability and operating leverage on
strong revenue growth.
Other Developments
During the three months ended December 31, 2022, approximately 1,500 hourly employees in our Chilean
operations represented by three unions voted in support of new collective agreements. The new three-year
collective agreements will expire in Q4 2025.
14
UK & Ireland Operations
Our UK & Ireland operations sell, service, and rent mainly Caterpillar equipment and engines in England, Scotland,
Wales, Northern Ireland, and the Republic of Ireland. Our UK & Ireland operations’ markets include construction,
power systems, and quarrying.
The table below provides details of the results from our UK & Ireland operations:
Finning International Inc.
2022 Annual Results
Years ended December 31
($ millions)
Net revenue
Operating costs
Depreciation and amortization
EBIT
EBIT as a % of net revenue
2022
1,339
(1,224)
(41)
74
5.5%
2021
1,111
(1,017)
(41)
53
4.7%
The stronger CAD relative to the GBP on average in 2022 compared to 2021 had an unfavourable foreign currency
translation impact on 2022 net revenue of approximately $100 million and on EBIT of approximately $5 million.
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. These variances and ratios
exclude the foreign currency translation impact from the CAD relative to the GBP and are therefore considered to be
specified financial measures. We believe the variances and ratios in functional currency provide meaningful
information about operational performance of the reporting segment.
2022 Annual Overview
2022 net revenue was up 30% from 2021, up in all lines
of business, mainly due to higher new equipment
revenue.
New equipment revenue was 32% higher than 2021,
primarily in the construction sector which included
deliveries to the HS2 project. Equipment backlog at
December 31, 2022 was lower than December 31, 2021
due to strong deliveries in the construction sector.
2022 product support revenue increased 28% from the
prior year, mainly in the construction sector, and includes
the contribution from Hydraquip since its acquisition at
the end of March 2022.
Net Revenue by Line of Business
UK & Ireland Operations
Years ended December 31
($ millions)
2022
2021
6
6
8
4
0
7
900
450
0
6
5
1
5
5
4
2
4
2
7
3
4
1
3
Gross profit in 2022 was up from the prior year, in line
with revenue growth. Overall gross profit as a
percentage of net revenue was comparable to the prior year.
New
equipment
Used
equipment
Equipment
rental
Product
support
SG&A was up 20% in 2022 compared to 2021 on 30% net revenue growth. The increase in SG&A reflected
additional costs from Hydraquip, as well as variable costs to support volumes including higher people-related costs.
SG&A as a percentage of net revenue was lower in 2022 compared to 2021 primarily due to the leverage of fixed
costs on significant revenue growth.
2022 EBIT of $74 million was higher than 2021 EBIT of $53 million. EBIT as a percentage of net revenue of 5.5% in
2022 was 80 basis points higher than EBIT as a percentage of net revenue in the prior year reflecting operating
leverage on strong revenue growth and structural profitability improvements, as well as the addition of Hydraquip.
Other Developments
During the year ended December 31, 2022, approximately 600 hourly employees in the Service and Parts groups in
our UK & Ireland operations represented by two unions voted in support of new collective agreements. The new two-
year collective agreements were effective April 1, 2021 and will expire on March 31, 2023.
15
Other Operations
Our Other operations includes corporate operating costs.
2022 EBIT loss was $51 million compared to 2021 Adjusted EBIT loss of $42 million due to higher people-related
costs, including our short-term incentive plan expense, this year compared to 2021.
Finning International Inc.
2022 Annual Results
Acquisition
Hydraquip
On March 22, 2022, our UK & Ireland operations acquired a 100% ownership interest in Hydraquip, the UK’s second
largest hose replacement and repair company. Hydraquip earns approximately 60% of its revenue from on-site
mobile hose services and the remaining 40% from selling hydraulic and fluid power products and parts. Hydraquip’s
revenue is included in our product support line of business. This purchase has been accounted for as a business
combination using the acquisition method of accounting.
The fair value of the total consideration at the acquisition date was estimated to be $117 million (£70 million). Cash
consideration of $84 million, net of $10 million cash acquired, was paid in the three months ended March 31, 2022.
The fair value of deferred consideration was $19 million. The vendors may qualify for additional consideration
(possible range of £nil to £11 million) based on the acquired business unit achieving specified levels of financial
performance. The acquisition-date fair value of the contingent consideration was estimated to be $4 million (£2
million). The deferred and contingent consideration was recognized as a liability on the consolidated statement of
financial position and is payable in annual instalments over a period of three years after the acquisition. Following
finalization of the purchase price allocation, any changes in the estimated fair value of the contingent consideration
will be recognized in the consolidated statement of income.
The acquisition was funded with existing credit facilities and any deferred and contingent consideration will be
funded through credit facilities or cash on hand or a combination of both. We finalized the purchase price allocation
during the three months ended December 31, 2022. The acquisition-date fair values of net assets acquired were
estimated to be $10 million of cash and cash equivalents, $3 million of working capital (1), $6 million of property,
plant, and equipment, $29 million of intangible assets, $80 million of goodwill, $3 million of lease liabilities, and $8
million of deferred tax liabilities.
Goodwill relates to the expected synergies from combining complementary capabilities that help customers
maximize uptime and reduce operating costs and the expected growth potential for product support revenue.
Hydraquip expands our service capabilities across multiple industries and equipment types to both new and existing
customers.
(1) Working capital comprises accounts receivable, inventory, other assets, accounts payable and accruals, and provisions.
16
Fourth Quarter Overview
($ millions, except per share amounts)
Revenue
Net revenue
Gross profit
SG&A
Equity earnings of joint ventures
EBIT
Net income attributable to shareholders of Finning
EPS
Free cash flow
Gross profit as a % of net revenue
SG&A as a % of net revenue
EBIT as a % of net revenue
Finning International Inc.
2022 Annual Results
% change
fav (unfav)
36%
34%
30%
(27)%
n/m
36%
30%
36%
125%
Q4 2022
2,653
2,368
628
(416)
2
214
136
0.89
332
26.5%
(17.6)%
9.0%
Q4 2021
1,949
1,774
484
(328)
1
157
104
0.66
148
27.3%
(18.5)%
8.9%
Adjusted ROIC
18.7%
16.4%
Fourth Quarter Highlights
Q4 2022 revenue was $2.7 billion. Q4 2022 net revenue of $2.4 billion was 34% higher than Q4 2021 with higher
revenue in most lines of business driven by large deliveries from our backlog, strong product support growth
rates, and healthy market conditions in all of our regions.
Q4 2022 EBIT was $214 million and EBIT as a percentage of net revenue was 9.0%, higher than $157 million
and 8.9%, respectively, in Q4 2021. All regions improved their operating leverage in Q4 2022 compared to the
prior year comparable quarter with Q4 2022 EBIT as a percentage of net revenue of 11.4% in South America,
11.0% in Canada, and 4.4% in the UK & Ireland.
Q4 2022 EPS was $0.89, up 36% from Q4 2021 EPS of $0.66. This increase was driven by strong revenue
growth and operational execution.
Q4 2022 free cash flow generation of $332 million was higher than $148 million in Q4 2021, mainly due to higher
collections from increased revenues partially offset by higher inventory purchases.
17
Quarterly Key Performance Measures
We utilize the following KPIs to enable consistent measurement of performance across the organization.
Finning International Inc.
2022 Annual Results
ROIC (1) (%)
Consolidated
Canada
South America
UK & Ireland
EBIT (1) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBIT as a % of net revenue (1)
Consolidated
Canada
South America
UK & Ireland
EBITDA (1) ($ millions)
Consolidated
Canada
South America
UK & Ireland
EBITDA as a % of net revenue (1)
Consolidated
Canada
South America
UK & Ireland
EPS (1)
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)
Q4
Q3
Q2
2022
Q1
Q4
Q3
Q2
2021
Q1
2020
Q4
18.7% 18.3% 17.5% 17.0%
18.7% 18.2% 17.4% 17.4%
24.5% 22.7% 22.3% 21.7%
17.0% 16.6% 16.2% 15.7%
16.8% 15.6% 15.3% 12.5%
17.5% 16.5% 17.0% 15.6%
20.3% 19.0% 17.2% 12.3%
6.5%
14.8% 14.9% 12.9%
11.4%
14.6%
11.0%
4.5%
214
128
96
16
224
125
85
21
190
102
64
23
140
80
65
14
157
92
59
12
150
84
58
17
137
82
51
17
108
69
41
7
9.0% 10.7%
8.1%
9.4%
11.0% 11.7% 10.0%
9.1%
11.4% 12.3% 10.1% 11.4%
5.0%
4.4%
6.4%
6.2%
8.9%
8.6%
10.1% 10.4%
9.2%
10.1%
5.6%
4.3%
8.0%
9.3%
9.8%
5.3%
7.4%
8.9%
8.6%
3.2%
301
178
122
26
308
172
110
32
271
149
87
33
221
127
88
24
241
142
81
23
230
132
80
27
215
129
71
27
185
115
61
17
12.7% 14.6% 13.5% 12.7%
15.2% 16.1% 14.7% 14.3%
14.5% 15.9% 13.7% 15.4%
8.7%
0.59
9.1%
0.97
9.3%
0.80
7.3%
0.89
13.6% 13.2% 12.6% 12.6%
15.5% 16.5% 14.7% 14.9%
14.0% 12.5% 13.7% 12.8%
7.9%
0.43
8.5%
0.56
9.0%
0.61
8.3%
0.66
4,170
2,447
1,281
428
4,358
2,450
1,438
400
4,076
2,319
1,203
458
3,777
2,122
1,139
448
3,326 3,335 3,277 3,177
1,876 1,922 1,861 1,832
982
1,026 1,057 1,058
350
358
339
381
2.01
1.77
2.16
3.09
2,461
2.61
1.96
1.77
2.07
2.98
2,526
2.52
2.00
1.76
2.19
3.00
2,228
2.50
2.03
1.79
2.15
3.09
2.04
1.80
2.15
3.11
2.01
1.74
2.11
3.25
1.93
1.70
1.97
3.09
1.78
1.56
1.90
2.66
2,101
1,687 1,627 1,643 1,593
2.66
27.4% 27.1% 25.1% 23.8%
(303)
(142)
(57)
332
3.09
3.09
2.84
2.83
22.9% 23.0% 24.0% 25.9%
(20)
176
148
(4)
108
72
41
11
6.9%
9.3%
8.3%
3.7%
185
119
61
20
11.9%
15.4%
12.2%
7.0%
0.45
3,067
1,819
931
327
1.68
1.50
1.75
2.49
1,477
2.79
28.3%
292
(1) Certain of these reported financial measures 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 measures that have been adjusted to take into
account these items are referred to as “Adjusted measures” and are summarized on page 19 of this MD&A.
18
Adjusted Quarterly KPIs
KPIs may be impacted by significant items described on pages 5 and 38 - 42 of this MD&A. KPIs that have been
adjusted to take these items into account, referred to as Adjusted KPIs, were as follows:
Finning International Inc.
2022 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
Adjusted EPS
Net debt to Adjusted EBITDA ratio (times)
Q4
Q3
Q2
2022
Q1
Q4
Q3
Q2
2021
Q1
2020
Q4
18.7% 18.3% 17.5% 17.0%
18.7% 18.2% 17.4% 17.4%
24.5% 22.7% 22.3% 21.7%
17.0% 16.6% 16.2% 15.7%
16.4% 14.7% 13.3% 10.0%
16.9% 15.3% 14.0% 10.8%
20.3% 19.0% 17.2% 14.4%
7.6%
14.8% 14.9% 12.9%
9.6%
10.5%
12.9%
5.5%
214
128
96
16
224
125
85
21
190
102
64
23
140
80
65
14
157
92
59
12
150
84
58
17
137
82
51
17
93
59
41
7
9.0% 10.7%
9.4%
8.1%
9.1%
11.0% 11.7% 10.0%
11.4% 12.3% 10.1% 11.4%
5.0%
4.4%
6.4%
6.2%
8.9%
8.6%
10.1% 10.4%
9.2%
10.1%
5.6%
4.3%
8.0%
9.3%
9.8%
5.3%
6.3%
7.7%
8.6%
3.2%
301
178
122
26
308
172
110
32
271
149
87
33
221
127
88
24
241
142
81
23
230
132
80
27
215
129
71
27
170
105
61
17
12.7% 14.6% 13.5% 12.7%
15.2% 16.1% 14.7% 14.3%
14.5% 15.9% 13.7% 15.4%
8.7%
0.59
9.1%
0.97
1.8
9.3%
0.80
1.8
7.3%
0.89
1.6
1.6
13.6% 13.2% 12.6% 11.6%
15.5% 16.5% 14.7% 13.6%
14.0% 12.5% 13.7% 12.8%
7.9%
0.35
9.0%
0.61
1.3
8.5%
0.56
1.4
8.3%
0.66
1.1
1.5
94
59
41
11
6.1%
7.7%
8.3%
3.7%
171
106
61
20
11.0%
13.7%
12.2%
7.0%
0.38
1.4
19
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
2022 2021
5
9
2
,
1
2
8
9
2
6
5
4
2
1
1
9
3
8
8
6
5
4
8
3
1,300
650
4
5
8
0
1,200
600
0
Finning International Inc.
2022 Annual Results
Net Revenue by Operation
2022
2021
7
6
1
,
1
4
1
9
0
4
8
2
8
5
1
6
3
8
7
2
New
equipment
Used
equipment
Equipment
rental
Product
support
Fuel and
other
Canada
South America
UK & Ireland
Q4 2022 revenue was $2.7 billion. Net revenue of $2.4 billion in the fourth quarter of 2022 was up 34% from Q4
2021, with higher revenues in most lines of business driven by disciplined operational execution and strong market
activity.
Product support revenue was up 32% in Q4 2022 from the same prior year period, up in all market sectors and also
up in all our operations, particularly in the mining sectors of Canada and South America. Product support revenue in
the construction sector in Q4 2022 increased 25% over the comparable period in the prior year as a result of our
strategic focus to capture market share in this sector.
Q4 2022 new equipment revenue was 52% higher than the same prior year period, up in all of our operations, driven
primarily by significant mining deliveries to customers in Canada and higher deliveries to construction customers in
Chile and Argentina.
EBIT
Q4 2022 gross profit of $628 million was
30% higher than the same period in the prior
year, in line with net revenue growth. Overall
gross profit as a percentage of net revenue
was 26.5% in Q4 2022, down from 27.3% in
Q4 2021, mainly due to a higher proportion
of new equipment sales in the revenue mix
and a higher number of lower margin mining
equipment packages delivered in Q4 2022.
SG&A in Q4 2022 of $416 million was 27% higher than Q4 2021 on 34% net revenue growth. The increase in SG&A
was driven primarily by higher people-related costs and variable costs to support revenue growth, and higher LTIP
expense of $19 million, primarily in our Other operations segment. SG&A as a percentage of net revenue was
17.6%, a 90 basis point improvement over the same prior year period, demonstrating improved execution to capture
growth opportunities and continued productivity improvements.
20
Finning International Inc.
2022 Annual Results
EBIT and EBIT as a percentage of net revenue in Q4
2022 were $214 million and 9.0%, respectively. Q4
2021 EBIT was $157 million and EBIT as a percentage
of net revenue was 8.9%. EBIT was up in all our
operations primarily from strong market activity as well
as productivity improvements.
Finance Costs
Finance costs in Q4 2022 were $33 million, up from
$19 million in Q4 2021 due to higher interest rates on
higher average short-term debt levels in the current
year period.
Provision for Income Taxes
The effective income tax rate in Q4 2022 was 25.3%,
comparable to 25.0% in Q4 2021.
Net Income Attributable to Shareholders of
Finning and EPS
EBIT by Operation (1)
3 months ended December 31
($ millions)
EBIT
2022
2021
8
2
1
2
9
6
9
9
5
6
1
2
1
130
65
0
Canada
South America
UK & Ireland
Excluding Other operations
Q4 2022 net income attributable to shareholders of Finning was $136 million, an increase of 30% from Q4 2021. Q4
2022 EPS was $0.89, a significant improvement from EPS of $0.66 in Q4 2021, driven by higher revenues and the
disciplined execution of our strategic plan which improved our earnings capacity, partially offset by $0.10 per share
higher LTIP expense.
21
The table below provides details of net revenue by operation and lines of business and results by operations.
Finning International Inc.
2022 Annual Results
3 months ended December 31, 2022
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Operating costs
Depreciation and amortization
Equity earnings
EBIT
Net revenue percentage by operation
UK
South
Canada America & Ireland
233
20
12
96
—
361
(335)
(10)
—
16
15%
308
62
54
698
45
1,167
(991)
(50)
2
128
49%
313
9
17
501
—
840
(718)
(26)
—
96
36%
Net Revenue
%
36%
4%
3%
55%
2%
100%
Other Consol
854
91
83
1,295
45
2,368
(2,069)
(87)
2
214
100%
—
—
—
—
—
—
(25)
(1)
—
(26)
—
EBIT as a % of net revenue
11.0%
11.4%
4.4%
9.0%
3 months ended December 31, 2021
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Net revenue
Operating costs
Depreciation and amortization
Equity earnings
EBIT
Net revenue percentage by operation
South
Canada America
188
11
12
371
—
582
(501)
(22)
—
59
33%
197
98
45
536
38
914
(773)
(50)
1
92
51%
UK
& Ireland
177
15
11
75
—
278
(255)
(11)
—
12
16%
EBIT as a % of net revenue
10.1%
10.1%
4.3%
Other
—
—
—
—
—
—
(5)
(1)
—
(6)
—
Consol
562
124
68
982
38
1,774
(1,534)
(84)
1
157
100%
8.9%
Net Revenue
%
32%
7%
4%
55%
2%
100%
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 2022 net revenue of $1.2 billion was 28% higher than Q4 2021, with higher net revenue across all market
segments driven by continued strong market conditions in Western Canada. Product support revenue in Q4 2022
was up 30% compared to the same prior year period, reflecting strong demand in all market segments and
successful execution of our product support growth strategy, including the positive impact of the passthrough of
supplier costs. The 56% increase in new equipment sales was mainly due to mining deliveries to customers in the oil
sands and higher volumes in the construction and power system sectors. Used equipment sales were down 36%
from record levels in Q4 2021, which saw large used equipment deals in mining and construction sectors.
Gross profit in Q4 2022 was higher than Q4 2021, mostly driven by higher volumes across most lines of business.
Overall gross profit as a percentage of net revenue in Q4 2022 was lower than Q4 2021 mainly due to a higher
proportion of new equipment sales in the revenue mix and a higher number of lower margin mining equipment
packages delivered in 2022.
Q4 2022 SG&A was 17% higher than Q4 2021 on 28% net revenue growth. Higher SG&A reflected higher costs to
support volumes, including people-related costs. SG&A as a percentage of net revenue was down 190 basis points
from the same prior year period driven by improved operating leverage.
Q4 2022 EBIT was $128 million, up 39% from Q4 2021 EBIT of $92 million. This improvement was driven by net
revenue growth as well as productivity improvements. As a result of these productivity improvements and the
leverage of higher revenues to our fixed cost base, EBIT as a percentage of net revenue in Q4 2022 of 11.0% was
higher than the 10.1% in Q4 2021.
22
Finning International Inc.
2022 Annual Results
South America Operations
The weaker CAD relative to the USD on average in Q4 2022 compared to Q4 2021 had a favourable foreign
currency translation impact on Q4 2022 net revenue of approximately $60 million and on EBIT of approximately $5
million.
Q4 2022 net revenue was up 34% from Q4 2021. New equipment revenue in Q4 2022 was 54% higher than the
prior year quarter, driven by higher deliveries to copper producers and large contractors supporting mining
operations in Chile. In addition, we were able to catch up on some backlog deliveries from Q3 2022 which were
delayed due to supply chain constraints. Product support revenue in Q4 2022 was up 25% from Q4 2021, driven by
strong overall demand and higher volumes from new and expanded mining product support contracts in Chile, as
well as the benefit of the passthrough of supplier costs in all market sectors.
Gross profit in Q4 2022 increased from Q4 2021, in line with higher net revenue. Gross profit as a percentage of net
revenue decreased in the current period reflecting the higher proportion of new equipment sales in the revenue mix.
Q4 2022 SG&A costs were 17% higher than Q4 2021 on 34% net revenue growth, reflecting an improved cost
structure and service productivity, as well as the favourable impact of the devaluation of the CLP. As a result, Q4
2022 SG&A as a percentage of net revenue was down significantly from Q4 2021.
Q4 2022 EBIT was $96 million, up from $59 million in Q4 2021 primarily due to revenue growth and productivity
improvements. Q4 2022 EBIT as a percentage of net revenue of 11.4% was 130 basis points higher than Q4 2021,
benefiting from improved operating leverage.
UK & Ireland Operations
The stronger CAD relative to the GBP on average in Q4 2022 compared to Q4 2021 had an unfavourable foreign
currency translation impact on Q4 2022 net revenue of approximately $25 million and was not significant at the EBIT
level.
Fourth quarter 2022 net revenue was 38% higher than the same period in 2021, an increase in all lines of business.
New equipment sales were up 39%, driven by higher power systems project deliveries, higher HS2 deliveries, and
robust demand in the construction sector. Q4 2022 product support revenue was up 38% from the same prior year
period, reflecting solid activity in all end markets, strong execution of our product support growth strategy, including
the positive impact of the passthrough of supplier costs, and the contribution from Hydraquip since its acquisition in
March 2022.
Q4 2022 gross profit was higher than the same prior year period, in line with increased volumes. Gross profit as a
percentage of net revenue in Q4 2022 was comparable to Q4 2021.
SG&A was up 39% in Q4 2022 compared to the prior year period, mainly due to the addition of Hydraquip, as well
as higher variable and people-related costs to support volumes. SG&A as a percentage of net revenue in Q4 2022
was consistent with Q4 2021.
Q4 2022 EBIT was 40% higher than Q4 2021, driven by higher sales volumes. Q4 2022 EBIT as a percentage of net
revenue of 4.4% was slightly higher than Q4 2021.
23
Finning International Inc.
2022 Annual Results
Market Update and Business Outlook
The discussion of our expectations relating to the market and business outlook in this section is forward-looking
information that is based upon the assumptions and subject to the material risks discussed under the heading
“Forward-Looking Information Disclaimer” beginning on page 49 of this MD&A. Actual outcomes and results may
vary significantly.
Canada Operations
We expect market activity across Western Canada to remain healthy, supported by the strength in the mining and
energy sectors.
Constructive commodity prices and improved capital budgets are expected to drive investment in renewal of aging
fleets and product support opportunities in the oil sands and other mining. We expect to see growing demand for
component remanufacturing, equipment rebuilds, and autonomy implementation as mining customers are looking to
extend the life of their assets and improve productivity.
In the construction sector, federal and provincial governments’ infrastructure programs and private sector
investments in natural gas, carbon capture, utilization and storage, and various power projects are expected to
continue driving demand for construction equipment and product support, rentals, and prime and standby electric
power generation.
In the power systems sector, higher activity levels from energy customers are driving a notable increase in quoting
and order intake. Our power systems backlog in Canada is at its highest levels since 2014.
South America Operations
We continue to closely monitor the Chilean constitutional reform, including the process for approval of the proposal
for a revised mining royalty framework. We are encouraged by the latest moderated proposal. However, we expect
the timing of investment decisions related to greenfield and new expansion projects to remain uncertain until the
new royalty proposal is approved. Longer term, we expect Chile will remain an attractive place to invest as
electrification trends drive increasing global demand for copper.
We expect a strengthening copper price to support positive mining outlook in Chile in 2023. Mining deliveries are
expected to be driven by our recent wins with BHP and Codelco, as well as committed medium-term investment in
fleet replacements across our mining customer base. We also expect to see continued strong demand for mining
product support and technology solutions, including autonomy.
Slowing economic growth and higher interest rates are expected to continue impacting construction activity in Chile
in 2023.
In Argentina, activity in construction, oil and gas, and mining is expected to remain stable. However, high inflation,
currency restrictions, and new import regulations will continue to impact our business in Argentina as we manage
through the challenging fiscal, regulatory, and currency environments.
UK & Ireland Operations
As equipment deliveries to HS2 have largely been completed, we expect lower construction new equipment sales in
the UK in 2023 compared to 2022. In addition, overall demand for construction equipment in the UK is expected to
decline in 2023 due to slowing economic growth rates. However, we expect strong demand for product support to
continue, driven by HS2 activity and high machine utilization rates across broader construction markets.
We expect demand for our power systems business in the UK & Ireland to remain robust, including in the data
centre market. We have a solid backlog of power systems projects for delivery in 2023, and we are well positioned
to capture further opportunities.
24
Finning International Inc.
2022 Annual Results
Considerations for 2023
We are mindful of the uncertain global business environment, including slowing rates of growth, and we are
reinforcing our mid-cycle operating cost and capital model. Overall, we expect constructive demand conditions in our
diverse end markets to be supported by favourable commodity prices and strong demand from mining and energy
customers.
We are reducing our capital expenditures budget in 2023 with a higher proportion allocated to reinvestment in rental
fleet and strategic investments in electric drive mining trucks for demonstration purposes. Our 2023 net capital
expenditures and net rental fleet additions are expected to be in the range of $190 million to $240 million, which
represents about 25% reduction from 2022. In 2023, we will be placing a higher priority on debt repayment and
reduction in our net debt to Adjusted EBITDA ratio.
We are seeing continued momentum at the start of 2023 and expect growth in the first half of the year compared to
the first half of 2022, underpinned by our record equipment backlog, very busy workshops, and growth in rebuilds
driven by the strong execution of our product support strategy.
25
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate sufficient cash flow, along with other sources of liquidity
including cash and borrowings, to fund operations and growth. Liquidity is affected by operating, investing, and
financing activities.
Cash flows provided by (used in) each of these activities were as follows:
Finning International Inc.
2022 Annual Results
($ millions)
Operating activities
Investing activities
Financing activities
Free cash flow
2022
410
(79)
(160)
332
2021
193
(39)
(167)
148
217
(40)
7
184
3 months ended
December 31
Increase
(Decrease)
Years ended
December 31
(Decrease)
Increase
(424)
(117)
287
(470)
2021
425
(151)
(300)
300
2022
1
(268)
(13)
(170)
The most significant contributors to the changes in cash flows for 2022 over 2021 were as follows (all events
described were in the current quarter or annual period, unless otherwise stated):
Quarter over Quarter
Year over Year
higher collections from increased revenues in
higher inventory purchases to support
all of our operations;
Operating
activities
partially offset by higher inventory purchases
and other supplier payments to support
increased demand in all of our operations
approximately $30 million higher net spend on
property, plant, and equipment and intangible
assets
increased demand in all of our operations;
higher other supplier payments across all
regions;
partially offset by higher collections driven by
increased revenues in all of our operations
$101 million net cash consideration related to
business acquisitions in our UK & Ireland and
Canadian operations in 2022 compared to $27
million net cash consideration paid in 2021;
approximately $45 million higher net spend on
property, plant, and equipment and intangible
assets
$27 million lower repayment of short-term
$350 million higher cash provided by short-
borrowings;
term borrowings;
$14 million higher repayment of long-term
$218 million use of cash to repurchase
borrowings;
$7 million higher use of cash to repurchase
common shares
common shares in 2022 compared to $155
million in 2021
free cash flow generation in Q4 2022 was
free cash flow in 2022 was a use of cash of
$332 million compared with $148 million in Q4
2021 due to higher cash generated from
operating activities for the reasons outlined
above
$170 million compared to cash generation of
$300 million in the prior year due to higher use
of cash in operating activities for the reasons
outlined above
26
Investing
activities
Financing
activities
Free cash
flow
Finning International Inc.
2022 Annual Results
Capital resources and management
Our cash and cash equivalents balance at December 31, 2022 was $288 million (December 31, 2021: $502 million).
At December 31, 2022, to complement internally generated funds from operating and investing activities, we had
approximately $2.5 billion in unsecured committed and uncommitted credit facilities. Included in this amount is a
committed sustainability-linked revolving credit facility totaling $1.3 billion with various Canadian and global financial
institutions which is set to mature in September 2026. In October 2022, we obtained an additional $300 million
committed revolving credit facility that has a one-year term and can be used for general corporate purposes. At
December 31, 2022, $551 million was available collectively under these committed revolving credit facilities. We are
subject to certain covenants under our committed revolving credit facilities and were in compliance with these
covenants at December 31, 2022.
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.
Finning is rated (1) by both DBRS and S&P:
December 31
DBRS
S&P
2022
BBB (high)
BBB+
Long-term debt
2021
BBB (high)
BBB+
Short-term debt
2021
R-2 (high)
n/a
2022
R-2 (high)
n/a
In April 2022, S&P affirmed our BBB+ rating with stable outlook, citing robust market demand, increased business
efficiencies, and improved working capital management.
In August 2022, DBRS reconfirmed our BBB (high) long-term rating and R-2 (high) commercial paper rating both
with stable trends.
During the year ended December 31, 2022, we repurchased 6,941,039 common shares for cancellation for $219
million, at an average cost of $31.51 per share, through our NCIB (2). In 2021, we repurchased 4,779,340 common
shares for cancellation for $157 million, at an average cost of $32.81 per share.
In connection with our NCIB, we implemented an automatic share purchase plan with a designated broker to enable
share repurchases for cancellation during selected blackout periods. At December 31, 2022, we recorded an
obligation of $21 million for the repurchase of shares from January 1, 2023 to February 7, 2023, under this
automatic share purchase plan.
Net Debt to Adjusted EBITDA
We monitor net debt to Adjusted EBITDA to assess our operating leverage and ability to repay debt. This ratio
approximates the length of time, in years, that it would take us to repay our debt, with net debt and Adjusted EBITDA
held constant.
Net debt to Adjusted EBITDA ratio (times)
Finning
long-term target
< 3.0
2022
1.6
2021
1.1
(1) A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the
rating organization.
(2) A copy of the NCIB notice is available on request directed to the Corporate Secretary, 19100 94 Avenue, Surrey, BC V4N 5C3.
27
Finning International Inc.
2022 Annual Results
Contractual Obligations
Payments on contractual obligations in each of the next five years are shown in the table below. The amounts
presented represent the future undiscounted principal and interest cash flows, and therefore, do not necessarily
equal the carrying amount on the consolidated statement of financial position.
($ millions)
Short-term debt
Long-term debt
Lease liabilities
Total contractual obligations
2023
1,068
151
82
1,301
2024
—
234
64
298
2025
—
26
47
73
2026
—
210
33
243
2027 Thereafter
—
265
106
371
—
285
26
311
Total
1,068
1,171
358
2,597
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
2022, we contributed $5 million towards the defined benefit pension plans. Based on the most recently completed
valuations, we expect to contribute approximately $5 million to the defined benefit pension plans during the year
ended December 31, 2023.
We implemented an automatic purchase plan for our 2.626%, $200 million note due August 14, 2026 and our
5.077%, $150 million note due June 13, 2042 for the period January 3, 2023 to February 7, 2023. As of February 2,
2023, we repurchased $3 million in notional value of our notes under this plan. The above table does not include
payments under this automatic purchase plan.
Capital and Rental Expenditures
Our net spend on capital expenditures and rental fleet additions during the year ended December 31, 2023 is
expected to be in the range of $190 million to $240 million. 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,
2022, 72%, 76% 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, 2022, 34% 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, 2022, 15% of eligible employees in Finning (Ireland) were
contributing to this plan.
We may cancel these plans at any time.
28
Finning International Inc.
2022 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 Senior Vice President,
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
included in the notes to the Annual Financial Statements for the year ended December 31, 2022. 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, 2022 were:
determination of the functional currency of each Finning entity;
estimation of revenues and costs associated with long-term product support contracts and complex power and
energy systems;
determination of when control transfers to customers for revenue contracts;
determination of whether a significant economic incentive exists for sales of assets with repurchase
commitments;
identification of performance obligations in revenue contracts with customers where long-term contracts are sold
bundled together with the sale of equipment;
inputs to the models to measure the fair value of certain share-based payments;
estimation of allowance for doubtful accounts;
estimation of fair value of derivative financial instruments;
estimation of provisions for slow-moving and obsolete inventory;
estimation of provisions for income tax;
estimation of useful lives and residual values of property, plant, and equipment, rental equipment, and intangible
assets;
determination of lease terms;
identification of the CGU to which assets should be allocated for impairment testing;
estimation of recoverable values for goodwill and other indefinite-lived intangible assets;
estimation of provisions for warranty; and,
assumptions in the actuarial valuation models to measure post-employment benefits.
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, 2022.
Revenue Recognition from 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 immediately recognized in the
consolidated statement of net income.
29
Finning International Inc.
2022 Annual Results
Determination of When Control Transfers to Customers for Revenue Contracts
The Company is required to make judgments when determining when control is transferred to the customer. For the
sale of new and used equipment and parts inventory, generally, control passes to the customer at the time of
shipment of the equipment or parts to the customer or when commissioning of equipment is complete. In certain
circumstances, management must determine if control transfers before or after the goods are shipped to the
customer (for example, bill-and-hold arrangements). In making this determination, management considers whether
the Company has transferred significant risks and rewards related to the product, legal title has transferred, the
Company has the ability to direct or sell the product to another customer, the product is ready for physical transfer,
or the product is in a condition of being capable of operating in the manner intended.
Revenue Recognition for Sales of Equipment with Repurchase Commitments
In certain circumstances, the Company enters into contracts with rights of return, at the customer’s discretion, 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 experience and taking into account expected future market
conditions and projected disposal values.
Identifying Performance Obligations in Revenue Contracts
The Company is required to make judgments when identifying the performance obligations in contracts with
customers. For sales of parts and labour when servicing equipment under a long-term contract that are sold bundled
together with the sale of equipment to a customer, management typically concludes that these are two separate
performance obligations as each of the promises to transfer equipment and provide services is capable of being
distinct and separately identifiable.
Allowance for Doubtful Accounts
The Company records allowance for doubtful accounts that represents management’s best estimate of potential
losses in respect of accounts 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 aging of receivable balances, external credit ratings, publicly available information about customers,
expectation of customer bankruptcies, and the impact of inflation and interest rate increases on customers ability to
pay) 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.
Provisions for Slow-Moving and Obsolete Inventory
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 current market demand, market supply of equipment, market prices, 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.
30
Finning International Inc.
2022 Annual Results
Provisions for Income Tax
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.
Goodwill and Intangible Assets with Indefinite Lives
The recoverable value of each CGU or group of CGUSs is estimated using a discounted cash flow model. The
process of determining these recoverable values 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.
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, and the CGU or group of CGUs at which
goodwill is monitored for management purposes.
The recoverable value of CGUs or group of CGUs requires the use of estimates related to the future operating
results and cash-generating ability of the assets.
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 25 of the Annual Financial Statements.
New Accounting Pronouncements
The adoption of recent amendments to accounting standards had no impact on our financial statements. Future
accounting pronouncements and effective dates are included in Note 2 of our Annual Financial Statements.
31
Finning International Inc.
2022 Annual Results
Risk Factors and Management
We are exposed to market, credit, liquidity, and other risks in the normal course of our business activities. Our ERM
process is designed to ensure that such risks are identified, managed, and reported. This framework assists us in
managing business activities and risks across the organization to achieve our strategic objectives.
We maintain a strong risk management culture to protect and enhance shareholder value. On a quarterly basis,
Board level committees review our business risk assessment and the management of key business risks, any
changes to key risk exposures, and the steps taken to monitor and control such exposures, and report their review
to the Board. The Board reviews 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.
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 the 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 offshore 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,
we work closely with Caterpillar to achieve an adequate and timely supply of product and have implemented human
resources recruiting and workforce management 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. This risk 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 and unbilled receivables 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.
We are exposed to risk on supplier claims receivable, primarily from Caterpillar with whom we have had a
relationship since 1933.
32
Finning International Inc.
2022 Annual Results
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 bilateral and syndicated 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. Our ability to access capital markets for additional
debt or equity 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 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:
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 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 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 our objective to manage this exposure by hedging a portion of our foreign investments with loans denominated in
foreign currencies. The 7% weaker CAD relative to the USD partially offset by the 5% stronger CAD relative to the
GBP at December 31, 2022 compared to December 31, 2021 resulted in a foreign currency translation gain of $79
million recorded in 2022. This was partially offset by a $22 million unrealized foreign exchange loss on net
investment hedges.
Transaction Exposure
Many of our 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 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 sales
of complex power and energy systems in our Canadian and UK & Ireland operations, respectively.
33
Finning International Inc.
2022 Annual Results
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 on our foreign-denominated financial
assets and financial liabilities and foreign-denominated net asset or net liability positions on our consolidated
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.
Key exchange rates that impacted our results were as follows:
Exchange
rate
USD/CAD
GBP/CAD
USD/CLP
USD/ARS
3 months ended
Years ended
December 31 December 31 – average December 31 – average
2021 Change
2021 Change
2021 Change
(4)%
7%
(15)%
(35)%
2022
(8)% 1.3013 1.2535
6% 1.6076 1.7246
(11)% 870.73 756.68
94.89
(61)% 127.71
2022
(7)% 1.3578 1.2603
5% 1.5950 1.6990
(1)% 913.66 824.93
(72)% 161.84 100.49
2022
1.3544 1.2678
1.6322 1.7132
855.86 850.25
177.16 102.72
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 and lease liabilities. 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.
34
Finning International Inc.
2022 Annual Results
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.
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 to predict the outcome of such matters due to various factors, including the preliminary nature
of some claims, an incomplete factual record, and uncertainty concerning procedures and their resolution by the
courts, customs, or tax authorities. However, subject to these limitations, we are 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 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 animal
feed 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. The essence of these claims is related to the tariff classification
of this product and therefore the export duty payable. 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 in the unlikely event our
appeal of the potential imports suspension order is not successful. These pending matters may take a number of
years to resolve. No progress was made on these appeals in 2022. In response to an application by the Canadian
government, in April 2021 and, following a reservation by Argentina, again in September 2022 the member states of
the World Customs Organization voted by a significant margin in favour of the tariff classification used by our South
American operations. These results have been filed in the appeals of the Argentina Customs Authority claims.
Argentina has filed a further, and final, reservation and the matter will come before the World Customs Organization
again in 2023. We are confident the decision will be upheld again. Should the ultimate resolution of these matters
differ from our assessment and, in the case of the potential suspension of imports into Argentina by a portion of the
business, the mitigation measures not be effective, this could have a material negative impact on our financial
position.
In certain circumstances, we enter into contracts with rights of return (at the customer’s discretion) 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. At December 31, 2022, the total estimated value of these contracts
outstanding was $113 million (2021: $146 million) coming due at periods ranging from 2023 to 2027. 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, 2022
was $2 million (2021: $2 million).
For further information on our contingencies, commitments, guarantees, and indemnifications, refer to Notes 26 and
27 of the Annual Financial Statements.
Outstanding Share Data
February 2, 2023
Common shares outstanding
Options outstanding
150,958,834
1,366,712
35
Finning International Inc.
2022 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 or
approval of the Audit Committee 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. There has been no change in the
design of our internal controls over financial reporting during the year ended December 31, 2022 that would
materially affect, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2022, 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, 2022.
36
Finning International Inc.
2022 Annual Results
Description of Specified Financial Measures and Reconciliations
Specified Financial Measures
We believe that certain specified financial measures, including 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 specified financial measures we use do not have any standardized meaning
prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers.
Accordingly, specified financial measures should not be considered as a substitute or alternative for financial
measures determined in accordance with GAAP (GAAP financial measures). By considering these specified
financial measures in combination with the comparable GAAP 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 GAAP financial measures alone.
We use KPIs to consistently measure performance against our priorities across the organization. Some of our KPIs
are specified 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 financial measures provides a
better understanding of our financial performance when considered in conjunction with the GAAP financial
measures. Financial measures that have been adjusted to take these significant items into account are referred to
as “Adjusted measures”. Adjusted measures are specified financial measures and are intended to provide additional
information to readers of the MD&A.
Descriptions and components of the specified financial measures we use in this MD&A are set out below. Where
applicable, quantitative reconciliations from certain specified financial measures to their most directly comparable
GAAP financial measures (specified, defined, or determined under GAAP and used in our consolidated financial
statements) are also set out below.
Adjusted EPS
Adjusted EPS excludes the after-tax per share impact of significant items that we do not consider 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. The after-tax per share impact of
significant items is calculated by dividing the after-tax amount of significant items by the weighted average number
of common shares outstanding during the period.
A reconciliation between EPS (the most directly comparable GAAP financial measure) and Adjusted EPS can be
found on page 40 of this MD&A.
Adjusted EBIT, Adjusted EBITDA, and EBITDA
Adjusted EBIT and Adjusted EBITDA exclude items that we do not consider 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 financial measure to EBITDA, Adjusted EBITDA, and Adjusted EBIT is EBIT.
37
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our consolidated operations for the last twelve quarters and years ended
December 31, 2019 and 2018 is as follows:
Finning International Inc.
2022 Annual Results
($ millions)
EBIT (1)
Depreciation and amortization (1)
EBITDA (1)
EBIT
Significant items:
CEWS support
Return on Energyst investment
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
Adjusted EBIT (1)
Depreciation and amortization (1)
Adjusted EBITDA (1)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
423
187
610
3 months ended
2020
108
77
185
140
81
221
94
76
170
425
293
718
52
78
130
138
77
215
108
77
185
137
78
215
150
80
230
157
84
241
190
81
271
224
84
308
214
87
301
2021
2022
214
224
190
140
157
150
137
108
108
138
52
94
425
423
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
214
87
301
—
224
84
308
—
190
81
271
—
140
81
221
—
157
84
241
—
150
80
230
—
137
78
215
(10)
(5)
—
(14)
—
—
(37)
—
—
(64)
—
42
—
—
—
—
93
77
170
—
—
—
—
94
77
171
—
—
—
—
101
77
178
9
—
—
—
39
78
117
—
—
—
—
—
—
—
20
8
4
—
—
—
—
—
—
—
30
—
94
76
170
—
457
293
750
(7)
446
187
633
(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.
38
The impact on provision for (recovery of) income taxes of significant items for the last twelve quarters and years ended December 31, 2019 and 2018 was as
follows:
Finning International Inc.
2022 Annual Results
($ millions)
Significant items:
CEWS support
Severance costs
Facility closures,
restructuring costs,
and impairment losses
Tax impact - devaluation of ARS
Insurance proceeds
from Alberta wildfires
Provision for (recovery of) income
taxes on the significant items
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
3 months ended
2020
2021
2022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
4
—
—
—
—
10
—
—
—
—
2
4
10
16
(10)
—
—
(2)
—
—
4
—
—
—
—
—
(6)
(3)
4
—
—
—
—
20
2
(5)
22
(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.
39
A reconciliation from EPS to Adjusted EPS for our consolidated operations for the last twelve quarters and years ended December 31, 2019 and 2018 is as
follows:
Finning International Inc.
2022 Annual Results
($)
EPS (1)(2)
Significant items:
CEWS support
Return on Energyst investment
Severance costs
Facility closures,
restructuring costs,
and impairment losses
Acquisition costs related to
4Refuel
Tax impact - devaluation of ARS
Write-off and loss related
to Energyst
Insurance proceeds
from Alberta wildfires
Adjusted EPS (1)(2)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
1.38
3 months ended
2020
0.59
0.43
2021
2022
0.45
0.33
0.56
0.61
0.12
0.54
1.48
0.89
0.97
0.80
0.66
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.05)
(0.03)
—
(0.07)
—
—
(0.17)
—
—
(0.30)
—
0.20
—
—
—
—
—
0.09
—
—
—
—
—
—
—
—
—
—
—
—
0.04
—
0.03
—
—
—
—
—
—
—
—
—
0.03
0.02
—
0.12
—
—
0.18
—
0.89
—
0.97
—
0.80
—
0.59
—
0.66
—
0.61
—
0.56
—
0.35
—
0.38
—
0.37
—
0.06
—
0.33
—
1.65
(0.03)
1.65
(1) Comparative results prior to 2019 have not been restated for our adoption of IFRS 16, Leases effective for the financial year beginning January 1, 2019.
(2) The per share impact for each quarter has been calculated using the weighted average number of common shares outstanding during the respective quarters; therefore, quarterly amounts
may not add to the annual or year-to-date total.
40
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our Canadian operations for the last twelve quarters and years ended
December 31, 2019 and 2018 is as follows:
Finning International Inc.
2022 Annual Results
($ millions)
EBIT (1)
Depreciation and amortization (1)
EBITDA (1)
EBIT (1)
Significant items:
CEWS support
Severance costs
Facility closures,
restructuring costs,
and impairment losses
Insurance proceeds
from Alberta wildfires
Adjusted EBIT (1)
Depreciation and amortization (1)
Adjusted EBITDA (1)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
297
96
393
3 months ended
2020
69
46
115
80
47
127
60
43
103
296
174
470
63
47
110
93
48
141
72
47
119
82
47
129
84
48
132
92
50
142
102
47
149
125
47
172
128
50
178
2021
2022
128
125
102
80
92
84
82
69
72
93
63
60
296
297
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
—
(13)
—
(35)
—
(60)
20
—
—
—
10
—
—
—
—
—
—
—
—
—
—
—
—
5
—
7
—
—
128
50
178
—
125
47
172
—
102
47
149
—
80
47
127
—
92
50
142
—
84
48
132
—
82
47
129
—
59
46
105
—
59
47
106
—
58
48
106
—
28
47
75
—
60
43
103
—
313
174
487
(7)
290
96
386
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our South American operations for the last twelve quarters and years ended
December 31, 2019 and 2018 is as follows:
($ millions)
EBIT (1)
Depreciation and amortization (1)
EBITDA (1)
EBIT (1)
Significant items:
Severance costs
Facility closures,
restructuring costs,
and impairment losses
Adjusted EBIT (1)
Depreciation and amortization (1)
Adjusted EBITDA (1)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
142
62
204
3 months ended
2020
120
81
201
85
25
110
96
26
122
38
22
60
41
20
61
65
23
88
2
22
24
41
20
61
59
22
81
64
23
87
51
20
71
40
19
59
58
22
80
2021
2022
96
—
—
96
26
122
85
—
—
85
25
110
64
—
—
64
23
87
65
—
—
65
23
88
59
—
—
59
22
81
58
—
—
58
22
80
51
—
—
51
20
71
41
—
—
41
20
61
41
—
—
41
20
61
40
—
—
40
19
59
2
38
120
142
17
—
10
—
4
23
22
45
—
38
22
60
1
131
81
212
—
142
62
204
(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.
41
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our UK & Ireland operations for the last twelve quarters and years ended
December 31, 2019 and 2018 is as follows:
Finning International Inc.
2022 Annual Results
($ millions)
EBIT (1)
Depreciation and amortization (1)
EBITDA (1)
EBIT (1)
Significant item:
Severance costs
Adjusted EBIT (1)
Depreciation and amortization (1)
Adjusted EBITDA (1)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
51
28
79
3 months ended
2020
1
10
11
7
10
17
14
10
24
(5)
9
4
46
36
82
9
9
18
11
9
20
16
10
26
12
11
23
23
10
33
21
11
32
17
10
27
17
10
27
2021
2022
16
—
16
10
26
21
—
21
11
32
23
—
23
10
33
14
—
14
10
24
12
—
12
11
23
17
—
17
10
27
17
—
17
10
27
7
—
7
10
17
11
—
11
9
20
9
—
9
9
18
(5)
4
(1)
9
8
1
—
1
10
11
46
—
46
36
82
51
—
51
28
79
A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our Other operations for the last twelve quarters and years ended December
31, 2019 and 2018 is as follows:
($ millions)
EBIT (1)
Depreciation and amortization (1)
EBITDA (1)
EBIT (1)
Significant items:
CEWS support
Return on Energyst investment
Severance costs
Acquisition costs related
to 4Refuel
Write-off and loss
related to Energyst
Adjusted EBIT (1)
Depreciation and amortization (1)
Adjusted EBITDA (1)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
(67)
1
(66)
3 months ended
2020
(19)
1
(18)
(16)
1
(15)
(37)
2
(35)
(26)
1
(25)
(13)
1
(12)
(5)
1
(4)
(9)
1
(8)
(9)
—
(9)
(8)
—
(8)
(4)
1
(3)
(6)
1
(5)
(7)
1
(6)
1
1
2
2021
2022
(26)
(7)
1
(19)
(6)
(9)
(13)
(9)
(16)
(4)
(8)
(5)
(37)
(67)
—
—
—
—
—
(26)
1
(25)
—
—
—
—
—
(7)
1
(6)
—
—
—
—
—
1
1
2
—
—
—
—
—
(19)
1
(18)
—
—
—
—
—
(6)
1
(5)
—
—
—
—
—
(9)
—
(9)
—
—
—
—
—
(13)
1
(12)
—
(5)
—
(1)
—
—
(2)
—
—
(4)
—
1
—
—
—
—
—
—
—
—
—
(14)
1
(13)
—
(17)
1
(16)
—
(6)
1
(5)
—
(11)
—
(11)
—
(5)
1
(4)
—
—
—
4
—
(33)
2
(31)
(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.
—
—
—
—
30
(37)
1
(36)
42
Equipment Backlog
Equipment backlog is defined as the retail value of new equipment units ordered by customers for future deliveries. We use equipment backlog as a measure
of projecting future new equipment deliveries. There is no directly comparable GAAP financial measure for equipment backlog.
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 financial statements. We use free cash flow to assess cash operating performance, including working capital efficiency. Consistent
positive free cash flow generation enables us to re-invest capital to grow our business and return capital to shareholders. A reconciliation from cash flow
used in or provided by operating activities to free cash flow is as follows:
Finning International Inc.
2022 Annual Results
($ millions)
Cash flow provided by (used in)
operating activities (1)
Additions to property, plant, and
equipment and intangible assets
Proceeds on disposal of property,
plant, and equipment
Free cash flow (1)
Inventory Turns (Dealership)
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
3 months ended
2020
2021
2022
410
(24)
(112)
(273)
193
212
8
12
317
340
319
(14)
191
260
(78)
(33)
(30)
(30)
(45)
(38)
(17)
(33)
(34)
(26)
(17)
(38)
(154)
(201)
—
332
—
(57)
—
(142)
—
(303)
—
148
2
176
5
(4)
1
(20)
9
292
2
316
10
312
2
(50)
5
42
19
78
Inventory turns (dealership) is the number of times our dealership inventory is sold and replaced over a period. We use inventory turns (dealership) to
measure asset utilization. Inventory turns (dealership) is calculated as annualized cost of sales (excluding cost of sales related to the mobile refuelling
operations) for the last six months divided by average inventory (excluding fuel inventory), based on an average of the last two quarters. Cost of sales related
to the dealership and inventory related to the dealership are calculated as follows:
3 months ended
($ millions)
Cost of sales (1)
Cost of sales related to mobile
refuelling operations
Cost of sales related to
the dealership (1)(2)
($ millions)
Inventory
Fuel inventory
Inventory related to
the dealership (2)
2018
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
2,025 1,807 1,761 1,463 1,465 1,443 1,396 1,189 1,248 1,163 1,075 1,140 1,483 1,429
2020
2021
2019
2022
(302)
(293)
(300)
(231)
(190)
(170)
(153)
(140)
(129)
(124)
(95)
(133)
(168)
—
1,723 1,514 1,461 1,232 1,275 1,273 1,243 1,049 1,119 1,039
980 1,007 1,315 1,429
2018
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
2,461 2,526 2,228 2,101 1,687 1,627 1,643 1,593 1,477 1,626 1,893 2,152 1,990 2,061
—
2020
2021
2019
2022
(11)
(12)
(12)
(13)
(3)
(3)
(3)
(2)
(3)
(2)
(9)
(6)
(3)
2,449 2,514 2,215 2,090 1,678 1,621 1,640 1,590 1,474 1,624 1,891 2,149 1,987 2,061
(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) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
43
Invested Capital
Invested capital is calculated as net debt plus total 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 each reportable segment. Invested capital is used in a number of different measurements (ROIC, Adjusted ROIC, invested capital turnover) to
assess financial performance against other companies and between reportable segments. Invested capital is calculated as follows:
Finning International Inc.
2022 Annual Results
($ millions)
Cash and cash equivalents
Short-term debt
Long-term debt
Current
Non-current
Net debt (1)
Total equity
Invested capital
2018
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
(454)
154
(120)
(288)
1,068 1,087
(295)
804
(469)
103
(260)
329
(268)
226
(338)
158
(378)
114
(453)
217
(502)
374
(170)
992
(539)
92
(518)
419
2020
2019
2021
2022
106
836
114
815
110
807
326
—
200
63
973 1,107 1,136 1,348 1,381 1,318 1,354
909
1,709 1,909 1,739 1,481
861 1,100 1,368 1,650 1,476 1,054
933
2,461 2,449 2,337 2,296 2,343 2,320 2,252 2,244 2,206 2,184 2,127 2,233 2,115 2,109
4,170 4,358 4,076 3,777 3,326 3,335 3,277 3,177 3,067 3,284 3,495 3,883 3,591 3,163
190
191
386
903
923
921
983 1,015 1,025
200
200
200
201
(1) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
Invested Capital Turnover
We use invested capital turnover to measure capital efficiency. Invested capital turnover is calculated as net revenue for the last twelve months divided by
average invested capital of the last four quarters.
Net Debt to Adjusted EBITDA Ratio
This ratio is calculated as net debt divided by Adjusted EBITDA for the last twelve months. We use this ratio to assess operating leverage and ability to repay
debt. This ratio approximates the length of time, in years, that it would take us to repay debt, with net debt and Adjusted EBITDA held constant.
44
Net Revenue, Gross Profit as a % of Net Revenue, SG&A as a % of Net Revenue, EBITDA as a % of Net Revenue, EBIT as a % of Net Revenue, Net
Revenue by Line of Business as a % of Net Revenue, and Net Revenue by Operation as a % of Net Revenue
Net revenue is defined as total revenue less the cost of fuel related to the mobile refuelling operations in our Canadian operations. As these fuel costs are
pass-through in nature for this business, we view net revenue as more representative than revenue 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. For our South American and UK & Ireland operations, net
revenue is the same as total revenue.
We use these specified financial measures to assess and evaluate the financial performance or profitability of our reportable segments. We may also
calculate EBITDA as a % of net revenue and EBIT as a % of net revenue using Adjusted EBITDA and Adjusted EBIT, respectively, to exclude significant
items we do not consider 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 ratios are calculated, respectively, as gross profit divided by net revenue, SG&A divided by net revenue, EBITDA divided by net revenue, EBIT divided
by net revenue, net revenue by line of business divided by net revenue, and net revenue by operation divided by net revenue. The most directly comparable
GAAP financial measure to net revenue is total revenue. Net revenue is calculated as follows:
Finning International Inc.
2022 Annual Results
($ millions)
Total revenue
Cost of fuel
Net revenue
ROIC and Adjusted ROIC
Years ended
2018
2019
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
1,949 1,904 1,845 1,596 1,666 1,553 1,419 1,558 7,817 6,996
2,653 2,384 2,289 1,953
(175)
(285)
—
(217)
1,774 1,748 1,705 1,469 1,551 1,443 1,335 1,439 7,290 6,996
2,368 2,107 2,004 1,736
3 months ended
2020
(127)
(119)
(527)
(110)
(115)
(277)
(285)
(156)
(140)
2021
2022
(84)
ROIC is defined as EBIT for the last twelve months divided by average invested capital of the last four quarters, expressed as a percentage.
We view ROIC as a useful measure for capital allocation decisions that drive profitable growth and attractive returns to shareholders. We also calculate
Adjusted ROIC using Adjusted EBIT to exclude significant items that we do not consider to be indicative of operational and financial trends either by nature
or amount to provide a better overall understanding of our underlying business performance.
45
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 average working capital 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.
Working capital is calculated as follows:
Finning International Inc.
2022 Annual Results
($ millions)
Total current assets (1)
Cash and cash equivalents
Total current assets in
working capital
Total current liabilities (1)
Short-term debt
Current portion of long-term debt
Total current liabilities in
in working capital
2018
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Dec 31
4,781 4,652 4,098 4,030 3,619 3,620 3,416 3,319 3,214 3,261 3,416 3,828 3,659 3,924
(454)
(288)
(469)
(260)
(295)
(338)
(539)
(453)
(268)
(170)
(120)
(502)
(518)
(378)
2019
2020
2021
2022
4,493 4,532 3,928 3,735 3,117 3,102 3,038 2,850 2,675 2,808 3,078 3,568 3,391 3,470
3,401 3,196 2,789 2,647 2,155 2,156 1,942 1,817 1,623 1,717 1,735 2,112 2,026 1,992
(154)
(1,068) (1,087)
—
(106)
(329)
(200)
(103)
(326)
(804)
(63)
(217)
(200)
(92)
(201)
(158)
(200)
(226)
(200)
(992)
(110)
(374)
(190)
(114)
(386)
(419)
(191)
(114)
2,219 2,003 1,687 1,780 1,591 1,546 1,442 1,388 1,330 1,300 1,377 1,583 1,600 1,838
Working capital (1)(2)
(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) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” in this MD&A.
2,274 2,529 2,241 1,955 1,526 1,556 1,596 1,462 1,345 1,508 1,701 1,985 1,791 1,632
46
Selected Annual Information
($ millions, except for per share amounts)
Revenue from operations
Canada
South America
UK & Ireland (1)
Total revenue
Net income attributable to shareholders of Finning (1)(2)
Earnings per share (1)(2)
EPS
Diluted earnings per share
Total assets (1)
Long-term debt
Current
Non-current
Total long-term debt (3)
Cash dividends declared per common share
Finning International Inc.
2022 Annual Results
2022
2021
2020
5,200
3,969
3,387
2,740 2,214 1,922
887
1,339 1,111
6,196
232
7,294
364
9,279
503
3.25
3.25
7,269
114
815
929
93.3¢
2.26
2.25
5,971
190
921
1,111
86.0¢
1.43
1.43
5,458
201
1,107
1,308
82.0¢
(1)
In March 2022, we acquired Hydraquip in our UK & Ireland 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) These reported financial measures in 2021 and 2020 have been impacted by significant items management does not
consider indicative of operational and financial trends either by nature of amount. These significant items are summarized on
pages 38 - 40 of this MD&A.
(3)
In the three months ended December 31, 2022, we settled $15 million notional value of our 2.626% $200 million note due
August 14, 2026, on the secondary market.
In October 2022, we secured an additional $300 million committed revolving credit facility. This facility has a one-year term
and can be used for general corporate purposes.
In April 2022, we settled our 4.18% USD $50 million note which was due April 3, 2022.
In January 2022, we settled our 3.98% USD $100 million note which was due January 19, 2022.
In September 2021, we secured sustainability-linked terms for our $1.3 billion committed revolving credit facility. We also
extended the term of the credit facility from a maturity date of December 2024 to September 2026.
In September 2021, we settled our 2.84%, $200 million note which was due on September 29, 2021.
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. This facility had a term of two years,
could be used for general corporate purposes, and had substantially the same terms and conditions of the existing $1.3
billion committed revolving credit facility. In March 2021, we cancelled this facility.
47
Selected Quarterly Information
Finning International Inc.
2022 Annual Results
($ millions, except for share,
per share, and option
amounts)
Revenue
Canada
South America
UK & Ireland (1)
Total revenue
Net income attributable to
shareholders of Finning (1)(2)
Earnings per share (1)(2)
EPS
Diluted earnings per share
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)
Q4
Q3
Q2
1,452
840
361
2,653
1,349
692
343
2,384
1,298
637
354
2,289
2022
Q1
1,101
571
281
1,953
Q4
Q3
Q2
1,089
582
278
1,949
961
638
305
1,904
1,019
512
314
1,845
2021
Q1
900
482
214
1,596
136
149
126
92
104
99
91
70
0.89
0.89
7,269
0.97
0.97
7,024
0.80
0.80
6,470
0.59
0.59
6,402
114
815
929
106
836
942
110
807
917
63
909
972
0.66
0.65
5,971
190
921
1,111
0.61
0.61
5,936
191
923
1,114
0.56
0.56
5,615
386
903
1,289
0.43
0.43
5,524
326
973
1,299
23.6¢
23.6¢
23.6¢
22.5¢
22.5¢
22.5¢
20.5¢
20.5¢
151,041 153,248 154,272 156,249
1,545
1,789
1,796
1,567
157,808 159,659 161,419 162,391
2,116
2,105
1,926
1,773
(1)
In March 2022, we acquired Hydraquip in our UK & Ireland 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) These reported financial measures in Q1 2021 have been impacted by significant items management does not consider
indicative of operational and financial trends either by nature of amount. These significant items are summarized on pages
38 - 40 of this MD&A.
(3)
In the three months ended December 31, 2022, we settled $15 million notional value of our 2.626% $200 million note due
August 14, 2026, on the secondary market.
In October 2022, we secured an additional $300 million committed revolving credit facility. This facility has a one-year term
and can be used for general corporate purposes.
In April 2022, we settled our 4.18% USD $50 million note which was due April 3, 2022.
In January 2022, we settled our 3.98% USD $100 million note which was due January 19, 2022.
In September 2021, we secured sustainability-linked terms for our $1.3 billion committed revolving credit facility. We also
extended the term of the credit facility from a maturity date of December 2024 to September 2026.
In September 2021, we settled our 2.84%, $200 million note which was due on September 29, 2021.
48
Finning International Inc.
2022 Annual Results
Forward-Looking Information Disclaimer
This report contains information about our business outlook, objectives, plans, strategic priorities and other
information 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. All forward-looking information in this MD&A is
subject to this disclaimer including the assumptions and material risk factors discussed and referred to below.
Forward-looking information in this report also includes, but is not limited to, the following: our expectation that the
execution of our strategic plan, based on our Purpose, Vision and Values, and the Simple Plan outlined at our 2021
Investor Day, will result in the achievement of our financial and customer service and performance goals, including
the expected benefits of our CUBIQ™ platform, our plans to reduce our cost base by becoming more efficient and
agile in serving our customers and driving supply chain improvement, and our plans to reinvest our free cash flow to
compound our earnings and potentially drive earnings through organic growth, acquisitions and return of capital to
shareholders; our target to reduce our absolute GHG by 40% by 2027 (from a 2017 baseline); our aim to publish our
2022 Sustainability Report in March 2023 (assumes no delays in finalizing the information in that report); the
possibility that we will pay additional consideration of £nil to £11 million to the vendors of Hydraquip over a three
year period after the acquisition based on the acquired business unit achieving specified levels of financial
performance; the expected expanded opportunities and synergies from the Hydraquip acquisition from the
combination of complementary capabilities and the expected growth potential for product support revenue; our belief
that improved capital budgets will drive investments in renewal of aging fleets, product support opportunities, and
productivity improvements; our expectation that our effective tax rate generally be within the 25-30% range on an
annual basis; all information in the section entitled “Market Update and Business Outlook” starting on page 24 of this
MD&A, including for our Canada operations: our expectation of healthy market activity across Western Canada
(based on assumptions of continued strength in the mining and energy sectors, continued constructive commodity
prices, improved customer capital budgets, mining customers’ continued interest in extending the life of their assets
and improving productivity, and the federal and provincial governments’ infrastructure programs and private sector
investments in natural gas, carbon capture, utilization and storage, and various power projects), including renewal of
aging fleets, product support opportunities in the oil sands and other mining and growing demand for component
remanufacturing, equipment rebuilds and autonomy implementation; demand for construction equipment and
product support, rentals, and prime and standby electric power generation; for our South America operations: our
positive outlook for mining in Chile in 2023 and belief that Chile will remain an attractive place to invest (based on
assumptions of a strengthening copper price, that the timing of investment decisions related to greenfield and new
expansion project will remain uncertain until the new mining royalty proposal is approved, and that the electrification
trend will continue and will drive increasing global demand for copper); our expectations for mining deliveries in
Chile and continued strong demand for mining product support and technology solutions, including autonomy (based
on assumptions that deliveries will be driven by our recent wins with BHP and Codelco and committed medium-term
investment in fleet replacements across our mining customer base); that slowing economic growth and higher
interest rates will continue impacting construction activity in Chile in 2023; and that in Argentina, activity in
construction, oil and gas, and mining are expected to remain stable, however, high inflation, currency restrictions
and new import regulations will continue to impact our business (based on assumptions that we will be able to
manage through the challenging fiscal, regulatory, and currency environments); for our UK & Ireland operations: our
expectation of lower construction new equipment sales in 2023 and that overall demand for construction equipment
in the UK will decline in 2023 (based on assumptions of slowing economic growth rates), but continued strong
demand for product support (driven by HS2 activity and the assumption of continued high machine utilization rates
across broader construction markets); and that demand for our power systems business will remain robust, including
in the data centre market, that we have a strong backlog of power systems projects for delivery in 2023, and that we
are well positioned to capture further opportunities; and for 2023 overall: there is an uncertain global business
environment, including slowing rates of growth, and we are reinforcing our mid-cycle operating cost and capital
model, but we expect demand conditions in our diverse end markets will be constructive (based on assumptions of
continued favourable commodity prices and strong demand from mining and energy customers); our plan to reduce
our capital expenditures budget in 2023 and allocate a higher proportion to reinvestment in rental fleet and strategic
investments in electric drive mining trucks for demonstration purposes; that our 2023 net capital expenditures and
net rental fleet additions will be in the range of $190 million to $240 million; that we will be placing a higher priority
on debt repayment and reduction in our net debt to Adjusted EBITDA ratio; and that we are seeing continued
momentum at the start of 2023 and expect growth in the first half of the year compared to the first half of 2022
(based on our record equipment backlog, busy workshops and growth in rebuilds driven by the strong execution of
our product support growth strategy); that we will have sufficient liquidity to meet operational needs (based on cash
on hand, available credit facilities and the discretionary nature of certain cash flows, such as rental and capital
expenditures); our expected contribution of approximately $5 million to our defined benefit pension plans over 2023
and that we have the financial capacity to fully fund our accrued obligations under those plans (based on the most
49
Finning International Inc.
2022 Annual Results
recently completed valuations); our expectation that foreign exchange fluctuations will continue to affect our results;
and our belief that the claims and order issued by the Argentina Customs Authority described on page 35 of this
report are without merit, that the World Customs Organization decision in favour of our tariff classification of certain
historical animal feed exports will be upheld again and that there will be no further reservations, and that there are
mitigation measures available to us, which we will effectively execute, if the order, currently not in effect, to suspend
imports into Argentina by a portion of the business is upheld on appeal.
All such forward-looking information is provided pursuant to the ‘safe harbour’ provisions of applicable Canadian
securities laws. Unless we indicate otherwise, forward-looking information in this report reflects our expectations at
the date of 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. This gives 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 specific factors stated above; the impact and duration of, and our ability to
respond to and manage, high inflation, increasing interest rates, supply chain challenges, and the impacts of the
Russia-Ukraine war; general economic and market conditions, including increasing inflationary cost pressure, and
economic and market conditions in the regions where we operate; the outcome of Chile’s constitutional reform
process and proposed tax reform bill, including the proposal for a revised mining royalty framework; foreign
exchange rates; commodity prices; interest rates; 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 sustainably reduce costs and 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 effectively integrate and realize expected synergies from businesses that we acquire;
our ability to negotiate satisfactory purchase or investment terms and prices, obtain necessary regulatory or other
approvals, and secure financing on attractive terms or at all; our ability to manage our growth strategy effectively;
our ability to effectively price and manage long-term product support contracts with our customers; 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 our employees and us; 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
the business plan; business disruption resulting from business process change, systems change and organizational
change; regulatory initiatives or proceedings, litigation and changes in laws, regulations or policies, including with
respect to environmental protection and/or energy transition; 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 availability of carbon neutral technology or renewable power; the cost of climate change initiatives; 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 and whether the amount of insurance
coverage will be adequate 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; and our ability to protect our business from cybersecurity threats or incidents.
Forward-looking information is provided in this report to give information about our 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 information for any other purpose.
Forward-looking information provided in this report is based on a number of assumptions that we believed were
reasonable on the day the information was given, 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 volatile
commodity prices, high inflation, increasing interest rates, supply chain challenges and the impacts of the Russia-
Ukraine war, and successfully execute our economic condition and business cyclicality mitigation strategies,
including preparing for future waves (if any) of COVID-19; an undisrupted market recovery, for example, undisrupted
by further COVID-19 impacts, commodity price volatility or social unrest; the successful execution of our profitability
drivers; that our cost actions to drive earnings capacity in a recovery can be sustained; that commodity prices will
remain at constructive levels; that our customers will not curtail their activities; that general economic and market
50
Finning International Inc.
2022 Annual Results
conditions will continue to be strong; that the level of customer confidence and spending, and the demand for, and
prices of, our products and services will be maintained; that support and demand for renewable energy will continue
to grow; that present supply chain and inflationary challenges will not materially impact large project deliveries in our
backlog; our ability to successfully execute our plans and intentions; we will successfully execute initiatives to
reduce our GHG emissions; our ability to attract and retain skilled staff; market competition will remain at similar
levels; the products and technology offered by our competitors will be as expected; identified opportunities for
growth will result in revenue; that we have sufficient liquidity to meet operational needs; consistent and stable
legislation in the various countries in which we operate; no disruptive 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; sustainment of strengthened oil prices and the Alberta government will not re-
impose production curtailments; quoting activity for requests for proposals for equipment and product support is
reflective of opportunities; and strong recoveries in our regions, particularly in Chile and the UK.
Some of the assumptions, risks, and other factors that could cause results to differ materially from those expressed
in the forward-looking information contained in this report are discussed in our current AIF and in our annual and
most recent quarterly MD&A for the financial risks. We caution readers that the risks described in the annual and
most recent quarterly MD&A and in the AIF are not the only ones that could impact us. 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 manner we present
known risks affecting our business.
51
Glossary of Defined Terms
Finning International Inc.
2022 Annual Results
4Refuel
AIF
Annual Financial Statements
ARS
Audit Committee
BHP
Board
CAD
Caterpillar
CEO
CEWS
CFO
CGU
CLP
Codelco
Consol
COSO
COVID-19
DBRS
EBIT
EBITDA
Energyst
EPS
ERM
fav
Finning
Finning (Canada)
GAAP
GAAP financial measures
GBP
GHG
HS2
Hydraquip
IFRS
KPI
LTIP
MD&A
n/a
n/m
NCIB
OEM
PLM
ROIC
S&P
SEDAR
SG&A
Specified Financial Measures
TSX
UK
unfav
US
USD
WACC
4Refuel Canada and 4Refuel US
Annual Information Form
Annual consolidated financial statements
Argentine Peso
Audit Committee of the Board of Directors of Finning
BHP Group Limited
Board of Directors of Finning
Canadian dollar
Caterpillar Inc.
Chief Executive Officer
Canadian Emergency Wage Subsidy
Chief Financial Officer
Cash-generating unit
Chilean Peso
National Copper Corporation of Chile (Corporacion Nacional del Cobre de Chile)
Consolidated
Commission of Sponsoring Organizations of the Treadway Commission
Novel Coronavirus
Dominion Bond Rating Service
Earnings (loss) before finance costs and income tax
Earnings (loss) before finance costs, income tax, depreciation, and amortization
Energyst B.V.
Basic earnings per share
Enterprise risk management
Favourable
Finning International Inc.
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
A financial measure determined in accordance with GAAP
UK pound sterling
Greenhouse gas
High Speed 2, a planned high-speed railway in the UK the first phase of which is planned to
connect London to Birmingham
Hydraquip Hose & Hydraulics and Hoses Direct Ltd.
International Financial Reporting Standards
Key performance indicator
Long-term incentive plan (also referred to as share-based payment)
Management’s Discussion and Analysis
not applicable
% change not meaningful
Normal course issuer bid
OEM Remanufacturing Company Inc.
PipeLine Machinery International ULC
Return on invested capital
Standard and Poor’s
System for Electronic Document Analysis
Selling, general, and administrative costs
As defined in National Instruments 52-112
Toronto Stock Exchange
United Kingdom
Unfavourable
United States of America
US dollar
Weighted average cost of capital
52
Finning International Inc.
2022 Annual Results
MANAGEMENT'S REPORT TO THE SHAREHOLDERS
The audited annual consolidated financial statements (Annual Financial Statements) and Management’s Discussion
and Analysis (MD&A) are the responsibility of the management of Finning International Inc. (the Company). The
Annual 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 Annual Financial Statements. The
Annual 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 Annual Financial Statements, as reflected in
their report for 2022.
The Board of Directors oversees management’s responsibilities for the Annual 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
unaudited condensed interim consolidated financial statements (Interim Financial Statements), Annual Financial
Statements, and MD&A. The Audit Committee also reviews internal accounting controls, risk management, internal
and external audit results and accounting principles and practices. The Audit Committee is responsible for approving
the remuneration and terms of engagement of the Company’s independent auditors. The Audit Committee also
meets with the independent auditors, without management present, to discuss the results of their audit and the
quality of financial reporting. On a quarterly basis, the Audit Committee reports its findings to the Board of Directors,
and recommends approval of the Interim Financial Statements or Annual Financial Statements, as well as the
MD&A.
/s/ Kevin Parkes
/s/ Greg Palaschuk
Kevin Parkes
President and Chief Executive Officer
Greg Palaschuk
Executive Vice President and Chief Financial Officer
February 6, 2023
19100 94 Avenue, Surrey, BC, V4N 5C3, Canada
1
Finning International Inc.
2022 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, 2022 and 2021, and the consolidated
statements of net 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, 2022 and 2021, 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 Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the
consolidated financial statements for the year ended December 31, 2022. This matter was addressed in the context
of our audit of the consolidated 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.
2022 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 and 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
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.
2022 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 consolidated 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
Vancouver, British Columbia
February 6, 2023
4
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31
(Canadian $ millions)
ASSETS
Current assets
Cash and cash equivalents (Note 22)
Accounts receivable (Note 8)
Unbilled receivables (Note 4)
Inventory (Note 12)
Other assets (Note 14)
Total current assets
Property, plant, and equipment (Note 15)
Rental equipment (Note 15)
Intangible assets (Note 17)
Goodwill (Note 18)
Distribution network (Note 18)
Net post-employment assets (Note 21)
Investment in joint ventures and associate
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 19)
Total current liabilities
Long-term debt (Note 7)
Long-term lease liabilities
Deferred tax liabilities
Other liabilities (Note 19)
Total liabilities
Commitments and contingencies (Note 26)
EQUITY
Share capital
Accumulated other comprehensive income
Retained earnings
Equity attributable to shareholders of Finning International Inc.
Non-controlling interests
Total equity
Total liabilities and equity
Approved by the Directors February 6, 2023
/s/ S.L. Levenick
S.L. Levenick, Director
/s/ H.N. Kvisle
H.N. Kvisle, Director
The accompanying Notes to the Annual Financial Statements are an integral part of these statements
Finning International Inc.
2022 Annual Results
Annual Financial Statements
2022
2021
288
1,129
422
2,461
481
4,781
973
469
333
325
100
98
83
107
7,269
1,068
1,373
544
114
302
3,401
815
255
153
184
4,808
536
273
1,634
2,443
18
2,461
7,269
502
839
270
1,687
321
3,619
914
434
306
237
100
189
84
88
5,971
374
908
428
190
255
2,155
921
241
149
162
3,628
561
212
1,550
2,323
20
2,343
5,971
5
CONSOLIDATED STATEMENTS OF NET INCOME
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
Other income (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
Net income (loss) attributable to:
Shareholders of Finning International Inc.
Non-controlling interests
Earnings per share (Note 5)
Basic
Diluted
Finning International Inc.
2022 Annual Results
Annual Financial Statements
2022
2021
2,793
352
297
4,606
1,231
9,279
(7,056)
2,223
(1,458)
3
—
768
(95)
673
(172)
501
503
(2)
3.25
3.25
2,189
409
235
3,728
733
7,294
(5,493)
1,801
(1,266)
2
15
552
(75)
477
(114)
363
364
(1)
2.26
2.25
The accompanying Notes to the Annual Financial Statements are an integral part of these statements
6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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
(Loss) gain on net investment hedges
Impact of foreign currency translation and net investment hedges, net of income tax
Gain on cash flow hedges
Loss on cash flow hedges, reclassified to statement of net income
Provision for 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 (loss) gain (Note 21)
Recovery of (provision for) income taxes on actuarial (loss) gain
Actuarial (loss) gain, net of income tax
Total comprehensive income
Total comprehensive income (loss) attributable to:
Shareholders of Finning International Inc.
Non-controlling interests
Finning International Inc.
2022 Annual Results
Annual Financial Statements
2022
501
2021
363
79
(1)
(22)
56
15
5
(5)
15
(83)
21
(62)
510
512
(2)
(14)
—
4
(10)
2
—
—
2
82
(29)
53
408
409
(1)
The accompanying Notes to the Annual Financial Statements are an integral part of these statements
7
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Finning International Inc.
2022 Annual Results
Annual Financial Statements
(Canadian $ millions)
Balance, January 1, 2021
Net income (loss)
Other comprehensive (loss)
income
Total comprehensive (loss)
income
Exercise of share options
Share option expense
Hedging loss transferred to
statement of financial position
Non-controlling interests
on acquisition of
subsidiary (Note 23)
Repurchase of common
shares (Note 10)
Dividends on common shares
Balance, December 31, 2021
Net income (loss)
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Exercise of share options
Share option expense
Hedging gain transferred to
statement of financial position
Repurchase of common
shares (Note 10)
Share repurchase commitment
under the automatic share
purchase program (Note 10)
Dividends on common shares
Balance, December 31, 2022
Attributable to shareholders of Finning International Inc.
Accumulated
other
comprehensive Retained
income earnings
1,421
364
Share Contributed
surplus
capital
1
566
—
—
Total
2,206
364
218
—
Non-
controlling
interests
—
(1)
Total
2,206
363
—
—
12
—
—
—
(17)
—
561
—
—
—
2
—
—
(25)
(2)
—
536
—
—
(3)
2
—
—
—
—
—
—
—
—
(2)
2
—
—
—
—
—
(8)
(8)
—
—
2
—
—
—
212
—
71
71
—
—
(10)
—
—
—
273
53
45
417
(9)
—
409
—
2
—
2
—
—
(140)
(139)
1,550
503
(157)
(139)
2,323
503
(62)
9
441
—
—
512
—
2
—
(10)
(194)
(219)
(19)
(144)
1,634
(21)
(144)
2,443
—
(1)
—
—
—
21
—
—
20
(2)
—
(2)
—
—
—
—
—
—
18
45
408
—
2
—
2
21
(157)
(139)
2,343
501
9
510
—
2
(10)
(219)
(21)
(144)
2,461
The accompanying Notes to the Annual Financial Statements are an integral part of these statements
8
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31
(Canadian $ millions)
OPERATING ACTIVITIES
Net income
Adjusting for:
Depreciation and amortization
Loss on disposal of property, plant, and equipment
Return on investment in Energyst B.V.
Equity earnings of joint ventures
Share-based payment expense (Note 11)
Provision for income taxes
Finance costs
Net benefit cost of defined benefit pension plans and
other post-employment benefit plans (Note 21)
Other (Note 7)
Changes in operating assets and liabilities (Note 22)
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 acquisitions, net of cash acquired (Note 23)
Decrease (increase) in short-term and long-term investments
Return on investment in Energyst B.V.
Cash flow used in investing activities
FINANCING ACTIVITIES
Increase in short-term debt (Note 22)
Decrease in long-term debt (Note 22)
Decrease in lease liabilities (Note 22)
Credit facility fee
Repurchase of common shares
Dividends paid
Cash flow used in financing activities
Effect of currency translation on cash balances
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year (Note 22)
The accompanying Notes to the Annual Financial Statements are an integral part of these statements
Finning International Inc.
2022 Annual Results
Annual Financial Statements
2022
2021
501
333
2
—
(3)
36
172
95
16
(1)
(738)
(151)
(90)
39
57
(96)
(171)
1
(171)
—
(101)
4
—
(268)
630
(203)
(78)
—
(218)
(144)
(13)
66
(214)
502
288
363
319
3
(5)
(2)
36
114
75
14
—
(277)
(137)
(91)
62
66
(74)
(41)
425
(133)
8
(27)
(7)
8
(151)
280
(201)
(84)
(1)
(155)
(139)
(300)
(11)
(37)
539
502
9
Finning International Inc.
2022 Annual Results
Index to the Notes to the Annual Financial Statements
1. GENERAL INFORMATION ............................................................................................................................................. 11
2. SIGNIFICANT ACCOUNTING POLICIES, KEY ASSUMPTIONS, AND SIGNIFICANT JUDGMENTS .............................................. 11
3. SEGMENTED INFORMATION ......................................................................................................................................... 14
4. REVENUE ................................................................................................................................................................... 16
5. EARNINGS PER SHARE ............................................................................................................................................... 19
6. OTHER INCOME .......................................................................................................................................................... 19
7. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS .......................................................................................... 20
8. FINANCIAL INSTRUMENTS ............................................................................................................................................ 21
9. MANAGEMENT OF CAPITAL ......................................................................................................................................... 31
10. SHARE CAPITAL ....................................................................................................................................................... 32
11. SHARE-BASED PAYMENTS ........................................................................................................................................ 33
12. INVENTORY .............................................................................................................................................................. 38
13. INCOME TAXES ......................................................................................................................................................... 39
14. OTHER ASSETS ........................................................................................................................................................ 42
15. PROPERTY, PLANT, AND EQUIPMENT AND RENTAL EQUIPMENT .................................................................................. 43
16. LEASES ................................................................................................................................................................... 45
17. INTANGIBLE ASSETS ................................................................................................................................................. 47
18. IMPAIRMENT ............................................................................................................................................................. 49
19. OTHER LIABILITIES ................................................................................................................................................... 50
20. PROVISIONS ............................................................................................................................................................. 51
21. POST-EMPLOYMENT BENEFITS ................................................................................................................................. 52
22. SUPPLEMENTAL CASH FLOW INFORMATION ............................................................................................................... 58
23. ACQUISITIONS .......................................................................................................................................................... 60
24. ECONOMIC RELATIONSHIPS ...................................................................................................................................... 62
25. RELATED PARTY TRANSACTIONS AND TOTAL STAFF COSTS ....................................................................................... 62
26. COMMITMENTS AND CONTINGENCIES ........................................................................................................................ 63
27. GUARANTEES AND INDEMNIFICATIONS ....................................................................................................................... 63
10
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 19100 94 Avenue, Surrey,
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 annual consolidated financial statements (Annual 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 Annual Financial Statements were authorized for issuance by
the Company’s Board of Directors (the Board) on February 6, 2023. 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 well as estimates and
judgments the Company has made and how they affect the amounts reported in the Annual 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 2022 or are not yet effective. Where an accounting policy, estimate, or
judgment is applicable to a specific note to the Annual Financial Statements, it is described within that note.
These Annual Financial Statements were prepared under the historical cost basis except as otherwise described in
the notes to these Annual Financial Statements.
(a) Principles of Consolidation
Accounting Policy
The Annual Financial Statements include the results of the Company, which includes the Finning (Canada)
division, and Finning’s 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 Annual Financial Statements include the operating results of acquired or disposed
subsidiaries from the date the Company obtains control or the date control is lost.
For subsidiaries that the Company controls, but does not own 100%, the portion of net assets and income
attributable to third parties is reported as non-controlling interests and net income attributable to non-controlling
interests in the consolidated statement of financial position and consolidated statement of net income,
respectively.
The Company’s principal subsidiaries, and the main countries in which they operate, are as follows:
Name
OEM Remanufacturing Company Inc.
4Refuel Canada LP
Compression Technology Corporation (ComTech)
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
Canada
Argentina
Argentina
Bolivia
Chile
Uruguay
United Kingdom (UK)
Republic of Ireland
% ownership
2022
100%
100%
54.5%
100%
100%
100%
100%
100%
100%
100%
2021
100%
100%
54.5%
100%
100%
100%
100%
100%
100%
100%
Functional
currency (1)
CAD
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 Annual
Financial Statements, are not considered material.
11
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
(b) Joint Ventures and Associate
Accounting Policy
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.
Description of Business and Nature of Relationships
PipeLine Machinery International (PLM) is a strategic partnership that sells and rents both purpose-built pipeline and
traditional Caterpillar Inc. (Caterpillar) products to mainline pipeline construction customers worldwide.
Agriterra Equipment (Agriterra), an Alberta based company, is a consolidation of equipment dealers providing
customers with agriculture and consumer products.
Enerygst B.V. (Energyst) was the exclusive Caterpillar dealer in Europe for rental power and temperature control
solutions. Energyst was dissolved on December 30, 2022.
The Company’s proportion of ownership interest in its joint ventures and associate was as follows:
December 31
Name
PLM
Agriterra
Energyst
Nature of
Relationship
Joint Venture
Joint Venture
Associate
Principal place of
Business
United States
Canada
Netherlands
% ownership
2022
25.0%
20.0%
—
2021
25.0%
20.0%
31.4%
Functional
currency
USD
CAD
EUR
The Company’s joint ventures and associate are not considered individually material.
(c) Foreign Currency Translation
Accounting Policy
These Annual 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 or at the average rate for the period when it is a reasonable
approximation.
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 recorded in the consolidated statement of net income except where the
exchange gain or loss arises from the translation of monetary items designated as hedges. Refer to Note 8c for
the Company’s accounting policy for hedging.
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 reporting 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. Refer to Note 8c for the Company’s accounting policy for hedging.
Areas of Significant Judgment
Management has made judgments with regard to the determination of the functional currency of each subsidiary of
the Company.
12
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
(d) Amendments to Standards
The Company has adopted the following amendments to IFRS:
Amendments to International Accounting Standard (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. On adoption of this amendment, there was no impact to the Company’s Annual Financial Statements.
(e) Future Accounting Pronouncements
The Company has not applied the following new and amendments to standards that have been issued but are not
yet effective:
IFRS 17, Insurance Contracts (effective January 1, 2023) replaces IFRS 4, Insurance Contracts, and
establishes the principles for the recognition, measurement, presentation, and disclosure of insurance contracts.
Management expects that adoption of this standard will not impact the Company’s financial statements.
Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2023) require entities to
disclose their material accounting policy information rather than significant accounting policy information. The
amendments provide guidance on how an entity can identify material accounting policy information and clarify
that information may be material because of its nature, even if the related amounts are immaterial. Management
reviewed the Company’s accounting policies and believes no changes will be required to the disclosure of
accounting policy information for the December 31, 2023 annual financial statements.
Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (effective January 1,
2023) introduce a definition of ‘accounting estimates’ and clarify the difference between changes in accounting
policies and changes in accounting estimates. These amendments will impact changes in accounting policies
and changes in accounting estimates made after these amendments are adopted by the Company.
Amendments to IAS 12, Income Taxes (effective January 1, 2023) clarify how companies should account for
deferred tax related to assets and liabilities arising from a single transaction, such as leases and
decommissioning obligations. The amendments narrow the scope of the initial recognition exemption so that it
does not apply to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences
arising on initial recognition of the related asset and liability. Management reviewed its global tax provision and
concluded that there were no deferred taxes being netted or not recognized from a single tax treatment and has
not applied the initial recognition exemption. Management expects no changes will be required to the
Company’s tax provision as a result of these amendments.
Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2024):
o Clarify the classification of liabilities as current or non-current 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.
o Clarify that only covenants with which an entity must comply on or before the reporting date will affect a
liability’s classification as current or non-current. In addition, the amendments require a company to
disclose information about these covenants in the notes to the financial statements. Management is
currently assessing the impact of these amendments.
Amendments to IFRS 16, Leases (effective January 1, 2024) explain how an entity accounts for a sale and
leaseback after the transaction date. The amendments clarify how a seller-lessee should subsequently measure
lease liabilities and when it is appropriate to record a gain or loss on these transactions. The amendments apply
to all sale and leaseback transactions entered since the effective date of IFRS 16 (January 1, 2019) and the
effective date of this amendment. These amendments are not expected to have any impact on the Company’s
financial statements at this time because from January 1, 2019 to December 31, 2022 the Company did not
enter into any sale and leaseback transactions. However, management will consider these amendments in the
accounting treatment of future sale and leaseback transactions.
13
Finning International Inc.
2022 Annual Results
Notes to the Annual 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.
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 on-site refuelling services in most of the provinces of
Canada, as well as 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 and income taxes as the primary measure of segment profit and
loss. In the prior year, earnings before finance costs, income taxes, depreciation and amortization (EBITDA) was
considered the primary measure. The Company considers net revenue (calculated as total revenue less cost of fuel)
as more representative than total revenue in assessing business performance 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:
Year ended December 31, 2022
($ millions)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Cost of fuel
Net revenue
Operating costs (1)
Depreciation and amortization
Equity earnings of joint ventures
Earnings (loss) before finance costs and income taxes
Finance costs
Provision for income taxes
Net income
Invested capital (2)
Gross capital expenditures (3)(4)
Gross rental equipment spend (4)
South
Canada America
UK &
Ireland
Other
Total
1,001
259
192
2,517
1,231
5,200
(1,064)
4,136
(3,513)
(191)
3
435
926
37
60
1,717
—
2,740
—
2,740
(2,333)
(97)
—
310
866
56
45
372
—
1,339
—
1,339
(1,224)
(41)
—
74
—
—
—
—
—
—
—
—
(47)
(4)
—
(51)
2,793
352
297
4,606
1,231
9,279
(1,064)
8,215
(7,117)
(333)
3
768
(95)
(172)
501
2,447
123
165
1,281
82
56
428
9
20
14
28
—
4,170
242
241
(1) Operating costs are calculated as cost of sales less cost of fuel plus selling, general, and administrative 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 and cash equivalents.
(3) Capital includes property, plant, and equipment and intangible assets.
(4)
Includes leases and borrowing costs capitalized and excludes additions through business acquisitions.
14
Year ended December 31, 2021
($ millions)
Revenue
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Cost of fuel
Net revenue
Operating costs (1)
Depreciation and amortization
Equity earnings of joint ventures
Other income
Earnings (loss) before finance costs and income taxes
Finance costs
Provision for income taxes
Net income
Invested capital (2)
Gross capital expenditures (3)(4)
Gross rental equipment spend (4)
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
South
Canada America
UK &
Ireland
Other
Total
774
310
153
1,999
733
3,969
(598)
3,371
(2,865)
(191)
2
10
327
711
48
40
1,415
—
2,214
—
2,214
(1,921)
(84)
—
—
209
704
51
42
314
—
1,111
—
1,111
(1,017)
(41)
—
—
53
—
—
—
—
—
—
—
—
(39)
(3)
—
5
(37)
2,189
409
235
3,728
733
7,294
(598)
6,696
(5,842)
(319)
2
15
552
(75)
(114)
363
1,876
106
171
1,026
62
39
381
9
19
43
25
—
3,326
202
229
(1) Operating costs are calculated as cost of sales less cost of fuel plus selling, general, and administrative 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 and cash equivalents.
(3) Capital includes property, plant, and equipment and intangible assets.
(4)
Includes leases and borrowing costs capitalized and excludes additions through business acquisitions.
Total revenue and non-current assets (5) by location of operations
($ millions)
Canada
Chile
United Kingdom
Argentina
Other countries
Total revenue
Year ended December 31
2021
3,860
1,873
996
282
283
2022
5,044
2,216
1,219
436
364
Non-current assets (5)
at December 31
2021
1,438
328
183
72
104
2022
1,495
364
281
88
105
(5) Non-current assets shown above exclude deferred tax assets and net post-employment assets.
15
Finning International Inc.
2022 Annual Results
Notes to the Annual 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. The
Company may offer rebates on certain parts and discounts for large volume parts purchases. 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 refuelling 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. Equipment rental includes revenue from rental agreements with customers which contain an
option to purchase the equipment at the end of the rental term (referred to as ‘Rental Equipment with Purchase
Options’). When the customer exercises its option to purchase the equipment, the sale is presented as new
equipment revenue or used equipment revenue, as appropriate.
Revenue from customers may be recognized in advance of billing 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 both under and not under long-term contracts) when
revenue recognition criteria are met, and the Company has the right to receive amounts from customers but invoices
have not yet been issued. Similarly, the Company recognizes deferred revenue when cash has been collected from
customers but control of the goods or services has not yet been transferred. Deferred revenue is recorded when
cash is received prior to the transfer of control related to servicing equipment, complex power and energy systems,
and extended warranty. Deferred revenue is recorded when deposits are received from customers and 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.
16
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 immediately recognized in the
consolidated statement of net income.
Areas of Significant Judgment
Transfer of Control to the Customer
The Company is required to make judgments when determining when control is transferred to the customer. For the
sale of new and used equipment and parts inventory, generally, control passes to the customer at the time of
shipment of the equipment or parts to the customer or when commissioning of equipment is complete. In certain
circumstances, management must determine if control transfers before or after the goods are shipped to the
customer (for example, bill-and-hold arrangements). In making this determination, management considers whether
the Company has transferred significant risks and rewards related to the product, legal title has transferred, the
Company has the ability to direct or sell the product to another customer, the product is ready for physical transfer,
or the product is in a condition of being capable of operating in the manner intended.
Repurchase Commitments
In certain circumstances, the Company enters into contracts with rights of return, at the customer’s discretion, 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 experience and taking into account expected future market
conditions and projected disposal values.
Identifying Performance Obligations
The Company is required to make judgments when identifying the performance obligations in contracts with
customers. For sales of parts and labour when servicing equipment under a long-term contract that are sold bundled
together with the sale of equipment to a customer, management typically concludes that these are two separate
performance obligations as each of the promises to transfer equipment and provide services is capable of being
distinct and separately identifiable.
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.
2022 Annual Results
Notes to the Annual Financial Statements
Years ended December 31
($ millions)
New equipment
Used equipment
Equipment rental
Product support
Fuel and other
Total revenue
Point-in-time Over-time
2,618
352
—
2,151
1,224
6,345
175
—
297
2,455
7
2,934
2022
Total Point-in-time Over-time
2,793
352
297
4,606
1,231
9,279
2,004
409
—
1,669
731
4,813
185
—
235
2,059
2
2,481
The Company recorded the following unbilled receivables from customers:
December 31
($ millions)
Product support
New equipment
Other
Total unbilled receivables
2022
365
53
4
422
2021
Total
2,189
409
235
3,728
733
7,294
2021
241
27
2
270
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 as agreed in each sales contract with the
customer.
The Company recorded the following contract liabilities:
December 31
($ millions)
Product support
Deposits from customers for
new equipment
Extended warranty
Complex power and energy systems
Other
Total deferred revenue
Current Non-current
—
249
218
30
41
6
544
—
35
—
—
35
2022
Total
249
218
65
41
6
579
Current Non-current
—
238
148
22
14
6
428
—
30
—
1
31
2021
Total
238
148
52
14
7
459
The majority of the Company’s contract liabilities relate to cash collected for goods or services where control will be
transferred to the customer within one year. Cash is typically collected up front for sales of extended warranties and
new equipment under repurchase guarantees; the transfer of control over these services and goods can extend
beyond one year.
18
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
5. EARNINGS PER SHARE
Years ended December 31
($ millions, except share and per share amounts)
Net income attributable to shareholders of Finning
Basic
503
2022
Diluted
503
Basic
364
2021
Diluted
364
Weighted average shares outstanding (WASO)
Effect of dilutive share options
WASO with assumed conversions
154,740,313 154,740,313 161,088,129 161,088,129
554,676
161,642,805
331,525
155,071,838
Earnings per share
3.25
3.25
2.26
2.25
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, 2022 were 1 million (2021: 1 million).
6. OTHER INCOME
Years ended December 31
($ millions)
Canada Emergency Wage Subsidy (a)
Return on investment in Energyst (b)
Total other income
2022
—
—
—
2021
10
5
15
(a) In response to the negative economic impact of the novel coronavirus (COVID-19) pandemic, 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 the three months ended March 31, 2021, the Company recorded a benefit of $10 million relating
to the Canadian Emergency Wage Subsidy.
(b) In December 2020, the shareholders of Energyst, which included Finning, decided to restructure the company
and convert its rental activities into four separate regional organizations which were sold in January 2021. A
plan was put in place to sell any remaining assets and wind-up Energyst, with the net proceeds from the sale to
be distributed to Energyst’s shareholders. During the year ended December 31, 2021, the Company recorded a
return on its investment in Energyst.
19
7. SHORT-TERM AND LONG-TERM DEBT AND FINANCE COSTS
December 31
($ millions)
Short-term debt
Long-term debt
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
Short-Term Debt
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
2022
1,068
2021
374
184
149
—
135
—
68
271
114
8
929
114
815
199
149
127
127
63
63
253
120
10
1,111
190
921
At December 31, 2022, short-term debt included $1.0 billion drawn on the Company’s committed sustainability-
linked revolving credit facility (2021: short-term debt included $370 million drawn on the Company’s committed
revolving credit facility). Refer to Note 8b for more information on the Company’s committed sustainability-linked
revolving credit facility.
The effective interest rate on the consolidated short-term debt for 2022 was 3.5% (2021: 1.6%).
Long-Term Debt
The Company's CAD denominated Medium Term Notes, USD denominated Senior Notes, and GBP denominated
Senior Notes included in the table above are unsecured, and interest is payable semi-annually with the principal due
on maturity.
During Q4 2022, the Company paid $14 million to settle $15 million notional value of its 2.626%, $200 million note
due August 14, 2026, on the secondary market. The Company implemented an automatic purchase plan for its
2.626%, $200 million note due August 14, 2026 and its 5.077%, $150 million note due June 13, 2042 for the period
January 3, 2023 to February 7, 2023. As of February 2, 2023, the Company repurchased $3 million notional value of
its notes under this plan.
The effective interest rate on the consolidated long-term debt for 2022 was 4.1% (2021: 3.8%).
Finance Costs
Finance costs as shown on the consolidated statements of net income comprised the following:
Years ended December 31
($ millions)
Interest on short-term debt
Interest on long-term debt
Interest on debt
Interest on lease liabilities
Other finance related expenses
Finance costs
2022
32
39
71
11
13
95
2021
3
48
51
10
14
75
20
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 level committees review the Company’s 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, and report their review to the Board. The Board reviews 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 Annual 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, and notes
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. 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 accounts receivable, 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 accounts receivable is reduced through the use of an allowance account.
Changes in the carrying amount of the allowance account are recognized in selling, general, and administrative
expenses 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.
21
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Areas of Estimation Uncertainty
Allowance for Doubtful Accounts
The Company records allowance for doubtful accounts that represents management’s best estimate of potential
losses in respect of accounts receivable 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 aging of receivable balances, external credit ratings, publicly available information about customers,
expectation of customer bankruptcies, and the impact of inflation and interest rate increases on customers ability
to pay) 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
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. This risk arises principally in respect of the Company’s cash and cash equivalents,
receivables from customers, receivables from suppliers, and derivative assets.
The Company’s material exposure to credit risk at the reporting date was:
December 31
($ millions)
Cash and cash equivalents
Accounts receivable
Unbilled receivables
Supplier claims receivable
Exposure to credit risk
Cash and Cash Equivalents
2022
288
1,129
422
156
1,995
2021
502
839
270
103
1,714
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 and unbilled receivables is minimized because of the
diversification of the Company’s operations as well as its large customer base and its geographical dispersion.
The Company limits its exposure to credit risk from accounts receivable by establishing a maximum payment period
for customers. The Company also has 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.
Receivables from Suppliers
The Company is exposed to risk on supplier claims receivable, primarily from Caterpillar, with whom Finning has
had an ongoing relationship since 1933.
22
The maximum exposure to credit risk for accounts receivable at the reporting date by geographic location of
customer was as follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
December 31
($ millions)
Canada
Chile
UK
Argentina
Other
Total
Impairment Losses
2022
626
287
109
50
57
1,129
2021
445
212
97
41
44
839
The aging of accounts receivable 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
2022
Gross Allowance
—
—
1
1
41
43
866
169
82
7
48
1,172
2021
Gross Allowance
—
—
1
—
34
35
626
132
59
7
50
874
The movement in the allowance for doubtful accounts in respect of accounts receivable during the year was as
follows:
Years ended December 31
($ millions)
Balance, beginning of year
Additional allowance and unused amounts reversed
Receivables written off
Foreign exchange rate changes
Balance, end of year
2022
35
8
(1)
1
43
2021
45
(9)
(1)
—
35
The carrying amount of cash and cash equivalents, unbilled receivables, and supplier claims receivable represents
the Company’s maximum exposure to credit risk for these balances.
23
Finning International Inc.
2022 Annual Results
Notes to the Annual 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.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquid financial
resources to fund its operations and meet its commitments and obligations. The Company maintains bilateral and
syndicated 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. The Company’s
ability to access capital markets for additional debt or equity 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.
At December 31, 2022, the Company had approximately $2.5 billion (2021: $2.1 billion) of unsecured committed and
uncommitted credit facilities. Included in this amount is a committed sustainability-linked revolving credit facility
totaling $1.3 billion with various Canadian and global financial institutions which is set to mature in September 2026.
Borrowings under this facility are available in multiple currencies and at various floating rates of interest. In October
2022, the Company obtained an additional $300 million committed revolving credit facility that has a one-year term
and can be used for general corporate purposes.
At December 31, 2022, $551 million was available collectively under the $1.3 billion committed sustainability-linked
revolving credit facility and $300 million committed revolving credit facility. At December 31, 2021, $930 million was
available under the $1.3 billion committed sustainability-linked revolving credit facility.
The Company’s principal source of short-term funding is the committed sustainability-linked revolving credit facility.
The Company also maintains a maximum authorized commercial paper program of $600 million, backstopped by
credit available under the $1.3 billion committed sustainability-linked revolving credit facility. There was no
commercial paper outstanding at December 31, 2022 and December 31, 2021. In addition, the Company maintains
other bank credit facilities, including overdrafts and letters of credit, to support its subsidiary operations.
Covenants
The Company is subject to certain covenants under its committed revolving credit facilities. At December 31, 2022
and 2021, the Company was in compliance with these covenants.
24
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
The following are the contractual maturities of non-derivative and derivative financial liabilities. The amounts
presented represent the future undiscounted principal and interest cash flows, and therefore, do not necessarily
equal the carrying amount on the consolidated statement of financial position.
($ millions)
Carrying amount
December 31, 2022
Contractual cash flows
2023
2024
2025
2026
2027 Thereafter
Non-derivative financial liabilities
Accounts payable and accruals
Short-term debt
Long-term debt (Note 7)
Lease liabilities
Total non-derivative financial liabilities
Derivative financial instruments
Forward foreign currency contracts and swaps
Sell CAD
Buy USD
Sell ARS (1)
Buy USD
Total derivative financial instruments
(1) Argentine Peso (ARS)
(1,373)
(1,068)
(929)
(331)
(3,701)
(1,373)
(1,068)
(151)
(82)
(2,674)
—
—
(234)
(64)
(298)
—
—
(26)
(47)
(73)
—
—
(210)
(33)
(243)
—
—
(285)
(26)
(311)
—
—
(265)
(106)
(371)
—
2
(1)
—
1
(1,400)
1,402
(12)
11
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
(c) Derivative Financial Instruments, Hedging, and Market Risk
Accounting Policy
Derivative Financial Instruments
Derivative financial instruments are classified as fair value through profit or loss and are recorded on the
consolidated statement of financial position at fair value. Refer to Cash Flow Hedges and Net Investment Hedges
sections below for the accounting treatment for derivative financial instruments which are designated as hedging
instruments. Fair value changes of derivative financial instruments not designated as hedging instruments are
recorded in the consolidated statement of net income as selling, general, and administrative expenses or finance
costs, as appropriate.
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
these hedges is reported in the consolidated statement of net income.
Cash Flow Hedges
The Company uses foreign exchange forward contracts and, at times, may use options to hedge the currency risk
associated with certain foreign 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 judgment to select a valuation
method and makes assumptions that are mainly based on market conditions existing at the end of each reporting
period.
26
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 net 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, Chilean Peso
(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 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 by hedging 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 $588 million (2021: $753 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 in its Canadian and UK & Ireland operations. During the year ended
December 31, 2022 the Company entered into forward exchange contracts for inventory purchases of USD $633
million (2021: USD $417 million).
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, and the results of the South
American operations are impacted by CLP and ARS based revenues 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.
27
Exposure to Foreign Exchange Risk
The currencies of the Company’s significant financial instruments were as follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
December 31, 2022
(millions)
Cash and cash equivalents
Accounts receivable
Short-term and long-term debt
Accounts payable and accruals
Lease liabilities
Net statement of financial position exposure
December 31, 2021
(millions)
Cash and cash equivalents
Accounts receivable
Short-term and long-term debt
Accounts payable and accruals
Lease liabilities
Net statement of financial position exposure
CAD
3
511
(388)
(404)
(255)
(533)
CAD
1
423
(655)
(330)
(254)
(815)
USD
113
164
(1,034)
(462)
(3)
(1,222)
USD
318
75
(560)
(242)
(4)
(413)
CLP (1)
GBP
61,958
31
71 160,244
—
(77) (115,324)
(27,623)
(18)
79,255
(120)
(127)
CLP (1)
GBP
11
24,976
58 136,094
(71)
—
(82,256)
(62)
(17,135)
(25)
61,679
(89)
ARS
1,832
524
(1,964)
(1,771)
(12)
(1,391)
ARS
1,651
35
—
(780)
(8)
898
(1)
Included are the CLP equivalents of amounts denominated in the Unidad de Fomento.
Sensitivity Analysis to Foreign Exchange Risk
The translation of financial instruments denominated in foreign currencies are impacted by changes in foreign
exchange rates. 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, 2022
($ millions)
USD/CAD
GBP/CAD
CLP/CAD (2)
ARS/CAD
Weakening
of CAD
10%
10%
25%
30%
Pre-tax
income
3
—
31
(11)
Other
comprehensive
loss
(16)
(11)
—
—
(2) Excluded from this sensitivity are CLP denominated liabilities which are exempt from the financial instrument disclosures.
A strengthening of the CAD against the above currencies relative to the December 31, 2022 month end rates would
have an equivalent but opposite effect in the amounts shown on the basis that all other variables are unchanged.
28
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 is limited but interest income earned can be impacted. 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 fluctuates 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 with 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
2022
2021
73
(1,260)
45
(1,439)
288
(1,068)
502
(374)
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 liability 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 decreased income by $8 million
with a 1.0% decrease having the opposite effect. This analysis assumes that all other variables, in particular foreign
currency exchange rates, remain constant.
29
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
(d) Fair Values
Financial instruments measured at fair value are grouped into three levels based on the degree to which fair value is
observable:
Level 1 – quoted prices in active markets for identical securities
Level 2 – significant observable inputs other than quoted prices included in Level 1
Level 3 – significant unobservable inputs
The Company’s only financial instruments measured at fair value are derivative financial instruments. All of the
derivative financial instruments are measured at fair value using Level 2 inputs. The Company did not move any
instruments between levels of the fair value hierarchy during the years ended December 31, 2022 and 2021.
Derivative Financial Instruments (Level 2)
The fair value of foreign currency forward contracts is determined by discounting contracted future cash flows using
a discount rate derived from interest rate curves and observed forward prices for comparable assets and liabilities.
Where material, fair values are adjusted for credit risk based on observed credit default spreads or market yield
spreads for counterparties for financial assets and based on the Company’s credit risk for financial liabilities. The
Company’s credit risk is derived from yield spreads on the Company’s market quoted debt.
Long-Term Debt (Level 2)
The carrying value and fair value of the Company’s long-term debt was as follows:
December 31
($ millions)
Long-term debt
Carrying value
929
2022
Fair value
899
Carrying value
1,111
2021
Fair value
1,202
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.
Cash and Cash Equivalents, Accounts Receivable, Unbilled Receivables, Supplier Claims Receivable, Notes
Receivable, Short-Term Investments, Short-Term Debt, and Accounts Payable
The recorded values of cash and cash equivalents, accounts receivable, unbilled receivables, supplier claims
receivable, notes receivable, short-term investments, short-term debt, and accounts payable approximate their fair
values due to the short-term maturities of these instruments.
30
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 forecasted 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 common shares for cancellation pursuant to normal course issuer bids, issue new common 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 2022, the Company renewed its normal course issuer bid (NCIB) which
enables the Company to purchase its common shares for cancellation.
In connection with the NCIB, the Company implemented an automatic share purchase plan (ASPP) with a
designated broker to enable share repurchases for cancellation during selected blackout periods. Refer to Note 10
for details of the share repurchases made under the NCIB and ASPP during 2022.
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)
Company
long-term target
< 3.0
2022
1.6
2021
1.1
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 earnings before finance costs and income tax as follows:
Years ended December 31
($ millions)
Earnings before finance costs and income taxes
Depreciation and amortization
EBITDA
Significant items:
Canadian emergency wage subsidy (Note 6a)
Return on investment in Energyst (Note 6b)
Adjusted EBITDA
2022
(288)
1,068
114
815
1,709
2022
768
333
1,101
—
—
1,101
2021
(502)
374
190
921
983
2021
552
319
871
(10)
(5)
856
31
Finning International Inc.
2022 Annual Results
Notes to the Annual 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 common shares is presented as a financing activity in the statement of cash
flow. The number of repurchased common shares is disclosed below and the amount deducted from equity is
disclosed in the statement of changes in 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, 2022 and 2021.
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 change in the number of common shares in share capital were as follows:
Years ended December 31
(number of common shares)
Balance, beginning of year
Exercise of share options
Repurchase of common shares
Balance, end of year
2022
157,808,102
174,187
(6,941,039)
151,041,250
2021
162,107,484
479,958
(4,779,340)
157,808,102
During the year ended December 31, 2022, the Company repurchased 6,941,039 common shares
for cancellation for $219 million, at an average cost of $31.51 per share, through the Company’s NCIB. In
connection with the ASPP, an estimated obligation of $21 million was recorded at December 31, 2022 for the
repurchase of common shares from January 1, 2023 to February 7, 2023 under this ASPP. In 2021, 4,779,340
common shares were repurchased for cancellation for $157 million, at an average cost of $32.81 per share. Refer to
Note 9 for a description of the Company’s NCIB and ASPP.
32
Finning International Inc.
2022 Annual Results
Notes to the Annual 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.
Equity-settled share-based payments comprise share options which 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.
Cash-settled share-based payments comprise deferred share units, Performance Share Units (PSUs), and restricted
share units. Total Shareholder Return Performance Share Units (TSR PSUs) 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
historical 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 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 (ROIC).
Share Options
The Company has one share option plan (Stock Option Plan) for senior executives and management of the
Company. 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
approximately 7.5 million common shares pursuant to the exercise of share options. At December 31, 2022,
approximately 3 million (2021: approximately 3 million) common shares remained eligible to be issued in connection
with future grants.
Under the Stock Option Plan, the Company only grants and prices share options when all material information has
been disclosed to the market. The difference between options exercised and common shares issued are withheld
and returned to the option pool for future issues or grants. The 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 2022 comprised both cash and cashless
exercises.
33
Details of the share option plans were as follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
2022
Share Weighted average
exercise price
options
2021
Share Weighted average
exercise price
options
Years ended December 31
Share options outstanding,
beginning of year
Granted
Exercised
Forfeited
Expired
Share options outstanding, end of year
1,772,547
339,689
(522,205)
(21,753)
(1,110)
1,567,168
Share options exercisable, end of year
779,731
$
$
$
$
$
$
$
25.12
33.90
23.27
25.42
25.44
27.63
26.12
3,683,449
370,776
(2,201,407)
(72,111)
(8,160)
1,772,547
794,589
$
$
$
$
$
$
$
24.40
33.11
25.18
26.74
30.83
25.12
26.41
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 (in years)
Grant date fair value of share options
Share price
2022
3.1%
31.8%
2.8%
5.11
7.98 $
33.90 $
2021
3.2%
31.4%
1.0%
5.18
6.70
33.11
$
$
(1) Expected volatility is based on historical share price volatility of TSX:FTT shares.
The following table summarizes information about share options outstanding at December 31, 2022:
Range of exercise prices
$17.75 - $17.80
$17.81 - $27.11
$27.12 - $33.37
$33.38 - $33.96
$33.97 - $34.02
Total
Number
outstanding
387,120
308,103
357,176
186,620
328,149
1,567,168
Share options outstanding
Weighted
average
remaining life exercise Price
Weighted
average
4.36 years $
2.37 years $
5.30 years $
2.47 years $
6.38 years $
4.38 years $
17.75
23.41
32.97
33.69
34.02
27.63
Share options exercisable
Weighted
average
exercise price
$
$
$
$
$
$
Number
outstanding
166,895
307,136
123,800
181,900
—
779,731
17.75
23.42
32.97
33.68
—
26.12
The following table summarizes information about share options outstanding at December 31, 2021:
Range of exercise prices
$17.75 - $20.68
$20.69 - $22.38
$22.39 - $25.47
$25.48 - $27.98
$27.99 - $33.68
Total
Share options Outstanding
Weighted
Weighted
average
average
remaining life exercise Price
5.13 years $
3.80 years $
0.62 years $
2.33 years $
5.09 years $
4.37 years $
17.84
22.22
25.26
26.76
33.31
25.12
Number
outstanding
565,892
371,898
123,386
98,595
612,776
1,772,547
Share options Exercisable
Weighted
average
exercise price
$
$
$
$
$
$
Number
outstanding
115,502
199,924
117,433
98,595
263,135
794,589
18.20
22.14
25.40
26.76
33.58
26.41
34
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.
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
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 have all or a portion of their cash compensation payable for service as a Director issued in the form of
deferred share units. These units are fully vested upon issuance. These units accumulate notional dividends in the
form of additional units based on the dividends paid on the Company’s common shares.
Units are redeemable for cash or common shares of the Company or a combination of cash and shares (as
requested by the holder) only following cessation of service on the Board and must be redeemed by December 31st
of the year following the year in which the cessation occurred. Each deferred share unit is redeemable for one
common share or if redeemed for cash, the value 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 58,445 deferred share units in 2022 (2021: 50,815),
which were expensed over the calendar year as the units were issued. An additional 27,969 deferred share units
(2021: 24,418) were issued in lieu of cash compensation payable for service as a Director. A further 18,322 deferred
share units (2021: 15,244) were granted to Directors during 2022 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 may be awarded deferred share units as approved by the Board. 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, if any. 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
notional dividends 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 471 deferred share units in 2022 (2021: 3,585) as remuneration of their annual
bonus payment and 1,378 deferred share units (2021: 1,427) 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. 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 before December 31st
of the year following the year in which cessation of employment with the Company occurred. Deferred share units
expire if they have not vested within five years from the grant-date. Only vested units accumulate notional dividends
in the form of additional deferred share units based on the dividends paid on the Company’s common shares.
During 2022, 966 deferred share units (2021: 1,017) were granted to executives as notional dividends under the
DSU-B Plan.
PSU Plan
Under the PSU Plan, certain employees of the Company may be awarded performance share units as approved by
the Board. This plan utilizes notional units that vest upon achieving future specified performance levels. All units
accumulate notional dividends over the life of the grants in the form of additional performance share units based on
the dividends paid on the Company’s common shares. All units, including notional dividends, are redeemed upon
vesting. All PSUs granted in 2022 and 2021 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 in each year of a three-year performance 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 companies that were in the S&P/TSX Capped Industrials Index for the performance
period.
35
Finning International Inc.
2022 Annual Results
Notes to the Annual 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, 2022, a total of 346,723 performance share units were granted to certain
employees, based on 100% vesting (2021: 320,416), and 69,025 notional units (2021: 87,619) 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.
2022 Grant
The specified levels and respective vesting percentages for the 2022 grant were as follows:
TSR PSUs
1/3 of the grant is based on the Company’s total shareholder return for year 1 of the grant (2022);
1/3 of the grant is based on the Company’s total shareholder return for year 2 of the grant (2023); and
1/3 of the grant is based on the Company’s total shareholder return for year 3 of the grant (2024).
Percentile rank
TSR PSUs Vested
< 25th Percentile 25th Percentile
0%
50%
50th Percentile
100%
75th Percentile 100th Percentile
150%
200%
ROIC PSUs
1/3 of the grant is based on the Company’s ROIC performance for year 1 of the grant (2022);
1/3 of the grant is based on the Company’s ROIC performance for year 2 of the grant (2023) (1); and
1/3 of the grant is based on the Company’s ROIC performance for year 3 of the grant (2024) (1).
Proportion of
PSUs vesting
Nil
50%
100%
200%
Performance level
2022 ROIC
< 12.0%
12.0%
17.2%
22.4% or more
Below Threshold
Threshold
Target
Maximum
(1) The return on invested capital performance level targets for 2023 and 2024 will be determined by the end of February of
each of these years.
2021 Grant
The specified levels and respective vesting percentages for the 2021 grant were as follows:
TSR PSUs
1/3 of the grant is based on the Company’s total shareholder return for year 1 of the grant (2021);
1/3 of the grant is based on the Company’s total shareholder return for year 2 of the grant (2022); and
1/3 of the grant is based on the Company’s total shareholder return for year 3 of the grant (2023).
Percentile rank
TSR PSUs Vested
< 25th Percentile 25th Percentile
0%
50%
50th Percentile
100%
75th Percentile 100th Percentile
150%
200%
ROIC PSUs
1/3 of the grant is based on the Company’s ROIC performance for year 1 of the grant (2021);
1/3 of the grant is based on the Company’s ROIC performance for year 2 of the grant (2022); and
1/3 of the grant is based on the Company’s ROIC performance for year 3 of the grant (2023) (2).
Performance level
Below Threshold
Threshold
Target
Maximum
(2) The return on invested capital performance level targets for 2023 will be determined by the end of February 2023.
2021 ROIC
< 10.1%
10.1%
14.4%
18.7% or more
2022 ROIC
< 12.0%
12.0%
17.2%
22.4% or more
Proportion of
PSUs vesting
Nil
50%
100%
200%
36
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Restricted Share Unit (RSU) Plan
Under the RSU Plan, certain employees of the Company may be awarded restricted share units as approved by the
Board. This plan utilizes notional units that vest in accordance with terms set at the time of grant. All units
accumulate notional dividends over the life of the grants in the form of additional restricted share 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
volume-weighted average trading price of the Company’s common shares on the five days prior to the end of the
vesting period. During the year ended December 31, 2022, a total of 259,779 restricted share units were granted to
certain employees (2021: 209,599) and 24,518 notional units (2021: 21,642) are issuable as payment for dividends
upon vesting.
Details of the DSU, PSU, and RSU plans were as follows:
Year ended December 31, 2022
Units
Outstanding, beginning of year
Additions
Exercised
Forfeited
Outstanding, end of year
Exec
DSU
376,285
1,849
(69,527)
(266,450)
42,157
PSU
RSU
DDSU
Total
DSU-B
39,343 623,377 1,400,422 785,869 3,225,296
542,514 284,297
934,362
(219,210)
(322,865)
(662,322)
(415,740)
(54,919)
(94,371)
34,589 683,113 1,525,700 796,037 3,081,596
966 104,736
(45,000)
—
(5,720)
—
Vested, beginning of year
Vested
Exercised
Forfeited
Vested, end of year
Liability
($ millions)
Balance, beginning of year
Expensed
Exercised
Forfeited
Balance, end of year
50,020
61,664
(69,527)
—
42,157
39,343 623,377
966 104,736
(45,000)
—
34,589 683,113
(5,720)
—
353,358
— 1,066,098
765,986 219,210 1,152,562
(662,322)
(219,210)
(322,865)
—
(30,493)
(30,493)
— 1,525,845
765,986
2
2
(3)
—
1
1
—
—
—
1
20
4
(1)
—
23
29
20
(10)
(2)
37
13
10
(7)
(1)
15
65
36
(21)
(3)
77
Year ended December 31, 2021
Units
Outstanding, beginning of year
Additions
Exercised
Forfeited
Outstanding, end of year
Exec
DSU
398,071
5,012
(26,798)
—
376,285
PSU
RSU
DDSU
DSU-B
Total
38,326 589,571 1,086,100 756,041 2,868,109
918,587
590,840 231,241
(391,050)
(171,277) (136,304)
(170,350)
(65,109)
(105,241)
39,343 623,377 1,400,422 785,869 3,225,296
90,477
(56,671)
—
1,017
—
—
Vested, beginning of year
Vested
Exercised
Forfeited
Vested, end of year
Liability
($ millions)
Balance, beginning of year
Expensed
Exercised
Forfeited
Balance, end of year
71,806
5,012
(26,798)
—
50,020
38,326 589,571
90,477
(56,671)
—
39,343 623,377
1,017
—
—
881,293
—
181,590
586,168
353,358 136,304
(391,050)
(171,277) (136,304)
(10,313)
—
— 1,066,098
(10,313)
353,358
2
1
(1)
—
2
1
—
—
—
1
16
6
(2)
—
20
16
20
(5)
(2)
29
9
9
(4)
(1)
13
44
36
(12)
(3)
65
37
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
The fair value of the DSUs, ROIC PSUs, and RSUs outstanding at December 31, 2022 has been estimated using
the period-end closing TSX: FTT share price of $33.66 (December 31, 2021: $31.88).
The impact of the share-based payment plans on the Company’s financial statements was as follows:
Years ended December 31
($ millions)
Consolidated Statements of Net Income
Compensation expense arising from equity-settled share-based payments
Compensation expense arising from cash-settled share-based payments
Total share-based payment expense
Consolidated Statements of Financial Position
Liability for cash-settled share-based payments (current)
Liability for cash-settled share-based payments (non-current) (Note 19)
2022
2021
3
33
36
36
41
3
33
36
17
48
The total intrinsic value of vested but not settled share-based payments was $50 million (2021: $34 million).
12. INVENTORY
Accounting Policy
Inventory is made up of assets held for sale in the ordinary course of business, in the process of production for
sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of
services. Inventory is stated at the lower of cost and net realizable value. Cost is determined on a specific item
basis for on-hand equipment and internal service work in progress, and on a weighted average cost basis for
parts and supplies. The cost of inventory includes all costs of purchase, conversion costs, other costs incurred in
bringing inventory to their existing location and condition, and an appropriate share of overhead costs based on
normal operating capacity.
Areas of Estimation Uncertainty
The Company makes estimates of the provision required to reflect net realizable value of slow-moving and
obsolete inventory. These estimates are determined on the basis of age, redundancy, and stock levels. For
equipment inventory, estimates are determined on a specific item basis. Management reviewed equipment
values with equipment specialists taking into account current market demand, market supply of equipment,
market prices, and the age and condition of equipment. Management reviewed parts inventory estimates based
on market demand, parts turns, discontinued items, ability to return to the vendor, and surplus/excess items.
December 31
($ millions)
On-hand equipment
Parts and supplies
Internal service work in progress
Total inventory
2022
919
1,030
512
2,461
2021
540
790
357
1,687
For the year ended December 31, 2022, on-hand equipment, parts, supplies, and internal service work in progress
recognized as an expense in cost of sales amounted to $6.5 billion (2021: $4.9 billion). For the year ended
December 31, 2022, the write-down of inventory to net realizable value, included in cost of sales, was $23 million
(2021: $28 million).
38
Finning International Inc.
2022 Annual Results
Notes to the Annual 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.
Current tax expense 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 deferred tax impact of foreign exchange gains or losses arising on the translation of foreign-
denominated non-monetary assets and non-monetary liabilities is recorded in provision for income taxes 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.
39
Year ended December 31, 2022
($ millions)
Current
Adjustment for prior periods recognized in the current year
Total current tax expense
Deferred
Origination and reversal of timing differences
Change in valuation allowance
Adjustment for prior periods recognized in the current year
Total deferred tax expense
Provision for income taxes
Year ended December 31, 2021
($ 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
Change in valuation allowance
Adjustment for prior periods recognized in the current year
Total deferred tax expense
Provision for income taxes
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Canada
87
(5)
82
International
87
1
88
1
—
5
6
88
8
(10)
(2)
(4)
84
Canada
58
(2)
56
International
48
2
50
1
—
—
2
3
59
4
(3)
7
(3)
5
55
Total
174
(4)
170
9
(10)
3
2
172
Total
106
—
106
5
(3)
7
(1)
8
114
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:
Years ended December 31
($ millions)
Combined Canadian federal and provincial income taxes at
2022
2021
the statutory tax rate
165
24.5 %
117
24.4 %
Increase (decrease) resulting from:
Differences in tax rates in foreign jurisdictions
Changes in statutory tax rates
Non-deductible share-based payment expense
Non-taxable/non-deductible foreign exchange in Argentina
Inflationary adjustment
Change in valuation allowance
(Allowable capital loss) taxable capital gain
Utilization of previously unrecognized tax loss
Other
Provision for income taxes
1
—
1
12
(2)
(10)
(1)
—
6
172
0.1 %
—
0.1 %
1.8 %
(0.2)%
(1.4)%
(0.1)%
—
0.8 %
25.6 %
(4)
(3)
1
7
(3)
7
10
(9)
(9)
114
(0.8)%
(0.6)%
0.2 %
1.5 %
(0.6)%
1.5 %
2.1 %
(1.9)%
(1.9)%
23.9 %
40
Deferred Tax Asset and Liability
Temporary differences and tax loss carry-forwards that gave rise to deferred tax assets and liabilities were as
follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
December 31
($ millions)
Accounting provisions not currently deductible for tax purposes
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
2022
51
14
13
78
(143)
(15)
(7)
(9)
(174)
(96)
2021
51
12
14
77
(130)
(14)
(33)
(11)
(188)
(111)
Deferred taxes were not recognized on retained profits of approximately $1.6 billion (2021: $1.5 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 $18 million does not expire and $26 million expires between 2026 and 2042.
December 31
($ millions)
Canada
International
2022
12
32
2021
—
44
At December 31, 2022, the Company had unrecognized capital and non-capital loss carry-forwards of $67 million
(2021: $20 million) to reduce future taxable income. This amount does not expire.
The income tax expense relating to components of other comprehensive income was as follows:
Years ended December 31
($ millions)
Deferred tax (recovery) expense
(Recovery of) provision for income taxes recognized in other comprehensive income
2022
(16)
(16)
2021
29
29
41
14. OTHER ASSETS
December 31
($ millions)
Supplier claims receivable
Equipment deposits
Finance assets
Prepaid expenses
Income tax recoverable
Commodity taxes receivable
Other
Total other assets – current
December 31
($ millions)
Deferred tax assets
Prepaid expenses
Finance assets (a)
Other
Total other assets – non-current
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
2022
156
114
66
47
26
26
46
481
2022
57
28
9
13
107
2021
103
82
36
30
15
5
50
321
2021
38
16
12
22
88
(a) Finance assets include equipment leased to customers under long-term financing leases. Depreciation expense
for equipment leased to customers of $3 million was recorded in 2022 (2021: $2 million). Depreciation expense
is recognized in equal monthly amounts over the term of the individual leases.
42
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
15. PROPERTY, PLANT, AND EQUIPMENT AND RENTAL EQUIPMENT
Accounting Policy
Property, plant, and equipment (PP&E) and rental equipment are recorded at cost, net of accumulated depreciation
and any impairment losses. Depreciation of PP&E 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.
Rental equipment comprises rental fleet as well as rental equipment with purchase options (equipment under rental
agreements with customers which include an option to purchase the equipment at the end of the rental term). Rental
equipment includes units transferred from inventory and excludes units transferred to inventory when the rental
equipment becomes available for sale.
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.
All classes of PP&E and rental equipment are depreciated over their estimated useful lives to their estimated
residual value on a straight-line basis using the following:
Buildings
Vehicles and equipment
Rental equipment
10 - 50 years
3 - 20 years
2 - 8 years
PP&E 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 PP&E 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.
43
December 31, 2022
($ millions)
Cost
Balance, beginning of year
Additions of owned assets
Additions of right-of-use assets
Remeasurement of right-of-use assets
Additions through business combinations
Transfers from inventory
Transfers to inventory
Disposals
Foreign exchange rate changes
Balance, end of year
Accumulated depreciation and impairment losses
Balance, beginning of year
Depreciation of owned assets
Depreciation of right-of-use assets
Transfers to inventory
Disposals
Foreign exchange rate changes
Balance, end of year
Net book value
Balance, beginning of year
Balance, end of year
December 31, 2021
($ millions)
Cost
Balance, beginning of year
Additions of owned assets
Additions of right-of-use assets
Remeasurement of right-of-use assets
Additions through business combinations
Transfers from inventory
Transfers to inventory
Reclassification to other assets (Note 16)
Disposals
Foreign exchange rate changes
Balance, end of year
Accumulated depreciation and impairment losses
Balance, beginning of year
Depreciation of owned assets
Depreciation of right-of-use assets
Reclassification to other assets (Note 16)
Disposals
Foreign exchange rate changes
Balance, end of year
Net book value
Balance, beginning of year
Balance, end of year
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Vehicles and
Land Buildings Equipment
Total
Rental
PP&E Equipment
84
—
—
—
—
—
—
—
2
86
(10)
—
—
—
—
—
(10)
74
76
1,060
56
22
1
3
—
—
(25)
16
1,133
(476)
(33)
(31)
—
23
(9)
(526)
584
607
700
50
48
1
6
10
(1)
(11)
14
817
(444)
(43)
(41)
1
9
(9)
(527)
1,844
106
70
2
9
10
(1)
(36)
32
2,036
(930)
(76)
(72)
1
32
(18)
(1,063)
256
290
914
973
720
200
1
—
—
41
(164)
—
—
798
(286)
(103)
(9)
68
—
1
(329)
434
469
Land Buildings
Vehicles and
equipment
Total
Rental
PP&E equipment
78
—
8
—
—
—
—
—
(2)
—
84
(10)
—
—
—
—
—
(10)
68
74
990
37
25
39
3
—
—
(10)
(22)
(2)
1,060
(427)
(33)
(31)
2
13
—
(476)
563
584
617
50
44
—
15
2
(3)
—
(23)
(2)
700
(381)
(38)
(47)
—
21
1
(444)
1,685
87
77
39
18
2
(3)
(10)
(47)
(4)
1,844
(818)
(71)
(78)
2
34
1
(930)
236
256
867
914
684
147
1
—
9
81
—
—
(200)
(2)
720
(254)
(95)
(11)
—
72
2
(286)
430
434
44
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
16. 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 (ROU) 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 ROU 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 ROU asset is subsequently measured
at cost less accumulated depreciation and impairment losses. Depreciation of ROU 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.
ROU 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 ROU 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.
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 ROU 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,
The 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 ROU asset is presented within PP&E 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.
Interest expense on lease liabilities is recognized in finance costs in the consolidated statement of net income.
45
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Short-term leases and leases of low-value assets
The Company has elected to not recognize ROU 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
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 leases 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.
ROU asset additions and depreciation have been included in PP&E and rental equipment (Note 15). The net book
value of ROU assets was as follows:
December 31
($ millions)
2022
2021
Amounts under sublease
Land Buildings
153
160
8
8
Vehicles and
equipment
129
124
Total
Rental
PP&E equipment
19
28
290
292
In 2021, the Company entered into a sublease of one of its leased office spaces, resulting in the ROU asset being
derecognized and reclassified to Other Assets.
46
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
17. 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
Intangible assets with indefinite lives are not amortized. The distribution network, presented separately on the
statement of financial position, is estimated to have an indefinite life because it is expected to generate cash flows
indefinitely. Refer to Note 18 for the Company’s policy on impairment reviews.
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.
47
December 31, 2022
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business combinations
Foreign exchange rate changes
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization for the year
Foreign exchange rate changes
Balance, end of year
Net book value
Balance, beginning of year
Balance, end of year
December 31, 2021
($ millions)
Cost
Balance, beginning of year
Additions
Additions through business combination
Disposals
Foreign exchange rate changes
Balance, end of year
Accumulated amortization
Balance, beginning of year
Amortization for the year
Disposals
Balance, end of year
Net book value
Balance, beginning of year
Balance, end of year
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Contracts and
customer
relationships
Software
and
technology Tradename
Total
309
20
27
11
367
(199)
(25)
(10)
(234)
110
133
362
36
2
7
407
(188)
(43)
(4)
(235)
174
172
25
—
8
—
33
(3)
(2)
—
(5)
22
28
696
56
37
18
807
(390)
(70)
(14)
(474)
306
333
Contracts and
customer
relationships
Software
and
technology Tradename
Total
302
3
5
—
(1)
309
(176)
(23)
—
(199)
126
110
330
33
1
(1)
(1)
362
(151)
(38)
1
(188)
179
174
19
—
6
—
—
25
(2)
(1)
—
(3)
17
22
651
36
12
(1)
(2)
696
(329)
(62)
1
(390)
322
306
48
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
18. 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 indicator that they may be impaired. At least quarterly, CGUs are reviewed for indicators of
impairment. For the purposes 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 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 intangible assets with indefinite lives
may be reversed. If there is any indication that the circumstances leading to the impairment loss of an intangible
asset with an indefinite life no longer exist or may have changed, 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 management purposes.
Areas of Estimation Uncertainty
The recoverable value of CGUs or group of CGUs requires 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, 2022 net asset values. Management’s methodology
for impairment testing utilizes cash flows from the financial budgets to estimate recoverable value.
Recoverable value
The recoverable value of each CGU or group of CGUs is estimated based on a value-in-use calculation. The value-
in-use calculation uses cash flow projections based on financial budgets approved by the Board which include 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 on the Company’s financial budgets which are 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 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.
49
Carrying amount, CGU allocation and key assumptions
The carrying value of goodwill and distribution network at December 31, and the significant assumptions used in the
Company’s value-in-use calculations in the annual impairment tests for each CGU or group of CGUs, were as
follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
2022
After-tax
Distribution WACC Growth
($ millions, except rates) Goodwill
209
Canada
—
Canada Mining
5
Chile
111
UK & Ireland
network
—
98
—
2
rate
8%
8%
9%
9%
rate Goodwill
199
3%
—
3%
5
3%
33
2%
Sensitivities to key assumptions
2021
After-tax
Distribution WACC Growth
rate
2%
2%
3%
2%
network
—
98
—
2
rate
8%
9%
9%
9%
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 CGU or group
of CGUs to exceed its recoverable amount. Management believes its assumptions are reasonable. If future events
were to differ significantly from management’s best estimate, key assumptions and associated cash flows could be
materially adversely affected and the Company could potentially experience future impairment charges in respect of
the intangible assets with indefinite lives and goodwill.
Review for indicators of impairment
The Company’s CGUs, as of December 31, 2022, were reviewed for indicators of impairment. Management
reviewed recent cash flow projections 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 2022 or 2021 related to goodwill or distribution network. There were
no impairment reversals in 2022 or 2021 related to the distribution network in the Company’s South American
operations.
19. OTHER LIABILITIES
December 31
($ millions)
Income tax payable
Lease liabilities
Commodity taxes payable
Provisions (Note 20)
Other
Total other liabilities – current
December 31
($ millions)
Net post-employment obligation (Note 21)
Share-based payments (Note 11)
Deferred revenue (Note 4)
Other
Total other liabilities – non-current
2022
80
76
73
60
13
302
2022
75
41
35
33
184
2021
64
87
36
60
8
255
2021
61
48
31
22
162
50
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
20. 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.
Year ended December 31, 2022
($ millions)
Balance, beginning of year
New provisions
Charges against provisions
Foreign exchange rate changes
Balance, end of year
Current portion
Non-current portion
Year ended December 31, 2021
($ 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
37
39
(30)
1
47
47
—
Warranty
claims
35
26
(24)
—
37
37
—
Other
28
20
(30)
—
18
13
5
Other
18
27
(16)
(1)
28
23
5
Total
65
59
(60)
1
65
60
5
Total
53
53
(40)
(1)
65
60
5
51
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
21. POST-EMPLOYMENT BENEFITS
The Company offers 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 (DB) and defined
contribution (DC) pension plans in Canada, the UK and Ireland, and include other post-employment benefits (Other
PEB) in South America.
Pension Plans
The DB 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, DB 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. Pension benefits under the registered DB plan’s formula that
exceed the maximum taxation limits are provided from non-registered supplemental pension plans. Benefits
under these plans are partially funded by Retirement Compensation Arrangements.
In the Company’s UK operations, a DB plan exists for eligible employees, but is closed to new members and
was amended to cease future accruals. Final average earnings are based on the highest 3-year period and
benefits are indexed annually with inflation subject to limits.
The DC 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 DC 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 DC 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 DC plans offer a match of employee contributions, within a required range,
plus 1%. The Company’s Irish subsidiary has a DC plan, which offers a match of employee contributions at a
level set by the Company.
Other PEB
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.
52
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Accounting Policy
Pension Plans
DB 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 DB liability or asset and takes into account changes in the net DB liability or
asset during the period resulting from contributions or benefit payments.
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 DB
obligation reduced by the fair value of plan assets. The present value of the DB obligation is estimated by
discounting the estimated future cash outflows using high-quality corporate bond yields denominated in the same
currency of the benefits to be paid.
DC 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 as incurred in the consolidated statement of net income.
Other PEB
The Company’s PEB in South America is accounted for as an unfunded DB 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 takes into account changes in the other post-
employment benefit liability during the period resulting from contributions or benefit payments.
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 DB plans and Other PEB are based on assumptions requiring significant
judgment, such as mortality rates, inflation (which is particularly relevant in the UK), estimates of future salary
increases, employee turnover, and the high-quality corporate bond yield (which is used to discount the estimated
future cash flows). These assumptions impact the measurement of the net DB obligation, net benefit cost,
actuarial gains and losses, and funding levels in Canada and the UK.
The total benefit cost and actuarial gain for the Company’s post-employment benefit plans were as follows:
Years ended December 31
($ millions)
Selling, general, and administrative expenses
Net interest income
Total benefit cost recognized in net income
Total actuarial loss (gain) recognized in
other comprehensive income
DB and
Other
PEB
plans
16
(1)
15
DC
plans
46
—
46
2022
Total
62
(1)
61
DB and
Other
PEB
plans
14
(2)
12
DC
plans
42
—
42
2021
Total
56
(2)
54
83
—
83
(82)
—
(82)
53
Other financial information about the Company’s DB plans in Canada and UK and Other PEB plans in South
America was as follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Years ended December 31
($ millions)
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurements:
- Actuarial (loss) gain from
change in demographic
assumptions
- Actuarial gain (loss) from
change in financial
assumptions
Experience (loss) gain
Foreign exchange rate changes
Balance, end of year
Plan assets
Balance, beginning of year
Return on plan assets:
- Interest income
- Actuarial (loss) gain on
plan assets
Employer contributions
Benefits paid
Administration costs
Foreign exchange rate changes
Balance, end of year
Net post-employment
asset (obligation)
Canada
South
UK America
Total Canada
South
UK America
2022
(201)
(5)
(6)
5
(613)
—
(11)
25
(55)
(9)
(3)
3
(869)
(14)
(20)
33
(205)
(6)
(5)
5
(677)
—
(9)
31
(79)
(7)
—
4
2021
Total
(961)
(13)
(14)
40
(1)
—
—
(1)
(1)
6
—
5
53
—
—
(155)
203
(23)
39
(380)
(2)
(5)
(4)
(75)
254
(28)
35
(610)
11
—
—
(201)
31
(3)
8
(613)
16
2
9
(55)
58
(1)
17
(869)
195
802
6
15
(41)
—
(5)
—
—
155
(267)
5
(25)
(2)
(50)
478
—
—
—
3
(3)
—
—
—
997
187
809
21
5
11
(308)
8
(33)
(2)
(50)
633
5
3
(5)
—
—
195
15
9
(31)
(1)
(10)
802
—
—
—
4
(4)
—
—
—
996
16
20
16
(40)
(1)
(10)
997
—
98
(75)
23
(6)
189
(55)
128
Included in the accrued benefit obligation and plan assets were the following amounts in respect of plans that
were not fully funded:
Years ended December 31
($ millions)
Accrued benefit obligation
Plan assets
Funded status - plan deficit
Canada
(48)
33
(15)
South
UK America
(75)
—
—
—
(75)
—
2022
Total
(123)
33
(90)
Canada
(60)
38
(22)
South
UK America
(55)
—
—
—
(55)
—
2021
Total
(115)
38
(77)
54
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Key Assumptions and Related Sensitivities
The significant actuarial assumptions used in the valuations of the Company’s DB plans in Canada and UK and
Other PEB plans in South America included:
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
5.2%
3.0%
n/m (2)
n/m (2)
n/m (2)
n/m (2)
2022
South
UK America
5.3%
2.2%
n/a (2)
n/a (2)
7.9%
6.6%
4.8%
2.0%
3.0%
3.0%
n/m (2)
n/a (2)
2021
South
UK America
2.2%
(0.2)%
n/a (2)
n/a (2)
7.8%
3.0%
2.0%
1.4%
3.0%
2.6%
n/m (2)
n/a (2)
Canada
3.0%
2.7%
n/m (2)
n/m (2)
n/m (2)
n/m (2)
(1) Used to determine the net interest cost and expense for the years ended December 31, 2022 and 2021.
(2) n/m – not a material assumption used in the valuation.
n/a – not applicable.
Assumptions regarding future mortality are required for the DB plans and were set based on management’s best
estimate in accordance with published statistics and experience in each country. These assumptions for 2022 and
2021 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
UK America
n/a (3)
22
n/a (3)
24
n/a (3)
23
n/a (3)
25
The post-employment benefit obligation 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 13 years, UK is 15 years, and South America is 7 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
Change in
assumption
+0.25%
+0.25%
+0.25%
+0.25%
(4) n/m – not a material assumption used in the valuation.
n/a – not applicable.
(Decrease) increase in accrued benefit obligation
South America
(1)
n/a (4)
(1)
2
Canada
(5)
n/m (4)
n/m (4)
n/m (4)
UK
(14)
10
n/m (4)
n/a (4)
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 accrued benefit obligation in the
amounts shown above.
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.
55
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Funding and Valuations of DB Plans
In Canada, the Company governs and administers the DB plans. An actuarial valuation of the Canadian registered
DB 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 DB plans. A surplus is recognized on the consolidated
statement of financial position to the extent that an economic benefit can be gained by the Company.
In the UK, a board of trustees governs and administers the DB plan. An actuarial valuation of the UK DB plan is
required every three years. In 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 $5 million
to the DB plans during the year ended December 31, 2023. 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 – Regular & Executive Supplemental Income Plan
Finning UK DB Scheme
Finning South America Pension Arrangements
Plan Assets
Last actuarial
valuation date
December 31, 2020
December 31, 2020
December 31, 2020
December 31, 2021
The fair values of plan assets are determined using a combination of quoted prices and market observable inputs.
Plan assets at December 31, 2022 were principally invested in the following securities (segregated by geography):
Fixed-income
Equity
Infrastructure
Cash and cash equivalents
Canada
55%
6%
—
11%
Canada
Global (1)
—
25%
3%
—
UK
73%
—
—
7%
UK
Global (1)
20%
—
—
—
(1) Global investments exclude investments in Canadian and UK securities in Canada and UK, respectively.
Plan assets do not include any direct investment in common shares of the Company at December 31, 2022 and
2021.
56
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Key Risks
Through its DB 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 is 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 infrastructure. These investments, in aggregate, are
expected to outperform corporate bonds in the long-term but may result in volatility in the short-term. The UK plan
also utilizes industry-standard derivatives and hedging instruments as part of its investment strategy. These tools
are implemented to manage interest rate risk by ensuring that the plan’s assets match the plan’s liabilities. In
extreme market scenarios, these derivatives structures are subject to additional risks. These risks are managed
through frequent monitoring, limits on the use of leverage, and a relatively conservative approach to collateral
management.
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 DB
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.
The plans continue to invest in equity investments 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 DB 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.
57
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Maturity Analysis
Expected maturity analysis of undiscounted pension and Other PEB obligations of the Company’s operations in
Canada, UK, and South America were as follows:
December 31, 2022
($ millions)
DB plans
Other PEB benefits
Total
Less than
a year
26
6
32
Between
1-2 years
27
5
32
Between
2-5 years
88
16
104
Over
5 years
1,014
158
1,172
Total
1,155
185
1,340
Accumulated Actuarial Gains and Losses
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 $169 million at December 31,
2022 (December 31, 2021: $107 million).
22. SUPPLEMENTAL CASH FLOW INFORMATION
Accounting Policy
Cash and cash equivalents comprise cash on hand together with short-term investments, consisting of highly
rated and liquid money market instruments with original maturities of three months or less, and are classified as
and measured at amortized cost.
The components of cash and cash equivalents were as follows:
December 31
($ millions)
Cash
Cash equivalents
Cash and cash equivalents
The changes in operating assets and liabilities were as follows:
Years ended December 31
($ millions)
Accounts receivable
Unbilled receivables
Inventory
Other assets
Accounts payable and accruals
Other liabilities
Changes in operating assets and liabilities
2022
288
—
288
2022
(265)
(139)
(715)
(161)
408
134
(738)
2021
140
362
502
2021
(105)
(41)
(210)
(70)
145
4
(277)
58
The changes in liabilities arising from financing and operating activities were as follows:
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Year ended December 31, 2022
($ millions)
Balance, beginning of year
Cash flow provided by (used in)
Financing activities
Operating activities
Total cash movements
Non-cash changes
Additions
Additions through business combination
Remeasurement of liability and disposals
Interest expense
Foreign exchange rate changes
Total non-cash movements
Balance, end of year
Year ended December 31, 2021
($ millions)
Balance, beginning of year
Cash flow provided by (used in)
Financing activities
Operating activities
Total cash movements
Non-cash changes
Additions
Additions through business combination
Remeasurement of liability and disposals
Interest expense
Foreign exchange rate changes
Total non-cash movements
Balance, end of year
Short-term Long-term
debt
1,111
debt
374
Lease
liabilities
328
630
—
630
—
—
—
—
64
64
1,068
(203)
—
(203)
—
—
—
—
21
21
929
(78)
(11)
(89)
69
3
5
11
4
92
331
Short-term
debt
92
Long-term
debt
1,308
Lease
liabilities
298
280
—
280
—
3
—
—
(1)
2
374
(201)
—
(201)
—
8
—
—
(4)
4
1,111
(84)
(10)
(94)
70
15
31
10
(2)
124
328
Total
1,813
349
(11)
338
69
3
5
11
89
177
2,328
Total
1,698
(5)
(10)
(15)
70
26
31
10
(7)
130
1,813
Dividends of $0.933 (2021: $0.86) per share were paid during the year. In February 2023, the Board approved a
quarterly dividend of $0.236 per share payable on March 9, 2023 to shareholders of record on February 23, 2023.
This dividend will be considered an eligible dividend for Canadian income tax purposes. At December 31, 2022, the
Company had not recognized a liability for this dividend.
59
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
23. ACQUISITIONS
Accounting Policy
The acquisition method of accounting is used to account for all business combinations, regardless of whether
equity instruments or 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 identifiable net assets acquired is recorded
as goodwill. Acquisition-related costs are expensed as incurred.
Hydraquip Hose & Hydraulics and Hoses Direct Ltd. (Hydraquip)
On March 22, 2022, the Company’s UK & Ireland operations acquired a 100% ownership interest in Hydraquip, UK’s
second largest hose replacement and repair company. Hydraquip earns approximately 60% of its revenue from on-
site mobile hose services and the remaining 40% from selling hydraulic and fluid power products and parts. This
purchase has been accounted for as a business combination using the acquisition method of accounting.
The fair value of the total consideration at the acquisition date was estimated to be $117 million (£70 million). Cash
consideration of $84 million, net of $10 million cash acquired, was paid in the three months ended March 31, 2022.
The fair value of deferred consideration was $19 million. The vendors may qualify for additional consideration
(possible range of £nil to £11 million) based on the acquired business unit achieving specified levels of financial
performance. The acquisition-date fair value of the contingent consideration was estimated to be $4 million (£2
million). The deferred and contingent consideration was recognized as a liability on the consolidated statement of
financial position and is payable in annual instalments over a period of three years after the acquisition. Any
changes in the estimated fair value of the contingent consideration will be recognized in the consolidated statement
of income.
Management finalized its purchase price allocation during the three months ended December 31, 2022. The
acquisition-date fair values of acquired tangible and intangible assets, assumed liabilities, and deferred tax liabilities
were estimated to be:
Purchase price allocation
($ millions)
Cash and cash equivalents
Working capital (1)
Property, plant & equipment
Intangible assets
Goodwill
Lease liabilities
Deferred tax liabilities
Net assets acquired
December 31,
2022
10
3
6
29
80
(3)
(8)
117
(1) Working capital comprises accounts receivable, inventory, other assets, accounts payable and accruals, and provisions.
Goodwill relates to the expected synergies from combining complementary capabilities that help customers
maximize uptime and reduce operating costs and the expected growth potential for product support revenue.
Hydraquip expands Finning’s service capabilities across multiple industries and equipment types to both new and
existing customers. The goodwill is assigned to the Company’s UK & Ireland reportable segment.
Since the acquisition date to the end of the reporting period, the acquiree earned $38 million of revenue and $4
million of earnings before finance costs and income taxes (£24 million and £3 million, respectively).
60
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
ComTech
On September 3, 2021, the Company’s Canadian operations acquired a 54.5% controlling ownership interest in
ComTech through Finning’s subsidiary, 4Refuel Holdings Limited (4Refuel). ComTech is an early-stage developer of
alternative energy infrastructure and provider of proprietary mobile fuelling solutions for low-carbon fuels in North
America, including compressed natural gas (CNG), renewable natural gas (RNG), and hydrogen. ComTech provides
4Refuel with the capability to be a leading provider of turn-key, low-carbon energy solutions. This acquisition
expands the Company’s fuelling capabilities beyond diesel and allows the Company to support customers’ energy
transition journey, starting with solutions for CNG and RNG. This investment in ComTech leverages 4Refuel’s
leading mobile on-site refuelling platform to enable customers to reduce their emissions and improve productivity.
Cash consideration for this acquisition was $25 million, which included $20 million cash acquired. The acquisition
was funded with cash on hand. As part of this acquisition, Finning also recorded a non-controlling interest in
ComTech (45.5% ownership interest) of $21 million.
Management finalized its purchase price allocation during the three months ended September 30, 2022. The
acquisition-date fair values of acquired tangible and intangible assets, assumed liabilities, and deferred tax liabilities
were estimated to be:
Purchase price allocation
($ millions)
Cash and cash equivalents
Working capital (1)
Property, plant & equipment
Intangible assets
Goodwill
Debt
Lease liabilities
Deferred tax liabilities
Net identifiable assets
Non-controlling interests
Net assets acquired
9
2022
20
1
20
September 30, December 31,
2021
20
1
17
9
25
(11)
(15)
—
46
(21)
25
24
(11)
(15)
(2)
46
(21)
25
(1) Working capital comprises accounts receivable, inventory, other assets, accounts payable and accruals, and provisions.
Goodwill relates to the expected synergies from combining complementary capabilities and the expected growth
potential for natural gas in Canada and the US. The goodwill is assigned to the Company’s Canada reportable
segment and is not deductible for tax purposes.
61
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
Energyst B.V.
On January 7, 2021, the Company’s UK & Ireland operations acquired a 100% ownership interest in the Energyst
rental business operations in the UK and Ireland and is now the authorized supplier of rental services for Caterpillar
power generation in these territories. This purchase has been accounted for as a business combination using the
acquisition method of accounting.
Cash consideration of $14 million (€9 million) was paid at the date of acquisition, which included $1 million cash
acquired. The Company funded the transaction with cash on hand.
Management finalized its purchase price allocation during the three months ended December 31, 2021. The
acquisition-date fair values of acquired tangible and intangible assets, deferred tax asset, and assumed liabilities
were estimated to be:
Purchase price allocation
($ millions)
Cash and cash equivalents
Working capital (1)
Rental equipment
Property, plant & equipment
Deferred tax asset
Net assets acquired
December 31,
2021
1
2
9
1
1
14
(1) Working capital comprises accounts receivable, inventory, other assets, accounts payable and accruals, and provisions.
24. 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 since 1933.
25. 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:
Years ended December 31
($ millions)
Share-based payments
Total
2022
4
4
2021
6
6
The remuneration of key management personnel (defined as officers of the Company and country presidents)
during the year was as follows:
Years ended December 31
($ millions)
Salaries and benefits
Post-employment benefits
Share-based payments
Total
2022
11
2
17
30
2021
10
1
13
24
Total staff costs, including salaries, benefits, pension, share-based payments, termination payments, and
commissions are $1.2 billion (2021: $1.0 billion). This amount includes staff costs associated with key management
personnel noted above.
62
Finning International Inc.
2022 Annual Results
Notes to the Annual Financial Statements
26. 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, 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 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 animal feed product for five quarters in 2012 and 2013 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, believes they are without merit, and is confident in its position. Mitigation measures are also available to the
Company in the unlikely event its appeal of the potential imports suspension order is not successful. These pending
matters may take a number of years to resolve. Should the ultimate resolution of these matters differ from
management’s assessment and, in the case of the potential suspension of imports into Argentina by a portion of the
business, the mitigation measures not be effective, this could result in a material negative impact on the Company’s
financial position.
27. GUARANTEES AND INDEMNIFICATIONS
In certain circumstances, the Company enters into contracts with rights of return, at the customer’s discretion, 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. At December 31, 2022, the total estimated value of these contracts
outstanding was $113 million (2021: $146 million) coming due at periods ranging from 2023 to 2027. The
Company’s experience to date has been that the equipment at the exercise date of the contract is generally worth
more than the repurchase 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, 2022
was $2 million (2021: $2 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. At December 31, 2022, the maximum
potential amount of future payments that the Company could be required to make under the guarantees was $14
million (2021: $12 million), covering various periods up to 2026. At December 31, 2022, the Company has
recognized a liability of $5 million for these guarantees (2021: $4 million).
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, 2022 was $332 million (2021: $193
million) principally related to performance and advance payment guarantees on delivery for prepaid equipment and
other operational commitments in Chile.
63
Finning International Inc.
19100 94 Ave, Surrey, BC V4N 5C3
finning.com