DRIVEN FINNING INTERNATIONAL INC. 2005 ANNUAL REPORT to OUTPERFORM MONETARY AMOUNTS IN THIS ANNUAL REPORT ARE IN CANADIAN DOLLARS UNLESS OTHERWISE NOTED. to OUTPERFORM FINNING AT A GLANCE 02 Finning GROUP UK 24 FINANCIAL HIGHLIGHTS 04 - FOCUS ON U.K. CONSTRUCTION 27 LetteR TO ShaRehOLDERS 06 POWER SYsteMs 28 ChaiRMan’S LetteR 10 CORPORate RespOnsiBilitY 30 Financial ManageMent 12 Financial RepORt 32 Finning CanaDa 14 BOARD OF DIRECTORS 90 - FOCUS ON OIL SANDS 16 CORPORATE OFFICERS AND 91 OEM REMANUFACTURING 19 EXECUTIVE MANAGEMENT Finning SOuth AMERica 20 CORPORATE GOVERNANCE 92 - FOCUS ON COPPER MINING 22 SHAREHOLDER INFORMATION Inside ack Cover CAT 797 MINING TRUCKS - ALBIAN SANDS, ALBERTA FINNING AT A GLANCE Finning International Inc. is the world’s largest Caterpillar equipment dealer. The Company sells, rents, finances and provides customer support services for Caterpillar equipment and engines in western Canada, the U.K., and South America (Chile, Argentina, olivia, and Uruguay). Finning also owns Hewden, the largest equipment rental business in Europe. Headquartered in Vancouver, ritish Columbia, Canada, Finning International Inc. is a widely-held, publicly-traded corporation, listed on the Toronto Stock Exchange (symbol FTT). Finning operations worldwide Santiago Glasgow Edmonton Cannock Vancouver H Finning (CanaDA) Finning SOuth AMERica Finning (UK) HEWDen H Corporate Headquarters Finning (Canada) Finning South America Finning (UK) Hewden - Sectors: mining, construction, - Sectors: mining, construction, - Sectors: construction, - Europe’s largest equipment oil & gas, forestry, pipelines oil & gas, forestry materials handling, mining, rental and associated services - 3,300 employees - 3,400 employees quarrying, waste operation - 75 branch locations and a - 48 locations throughout Chile, management - Sectors: construction, presence in 45 other Argentina, olivia and Uruguay - 2,500 employees engineering, petrochemical, communities throughout - 27 locations throughout manufacturing, telecom B.C., Alberta,Yukon and the England, Scotland and Wales - 3,600 employees Northwest Territories - 353 locations throughout the U.K. Financial Performance ($ millions) 2005 2004 2005 2004 2005 2004 2005 2004 Revenue 2,050 1,563 Revenue 1,007 870 Revenue 1,123 1,043 Revenue 655 686 EIT 150 132 EIT 95 83 EIT 18 34 EIT 55 59 2 2005 ACHIEVEMENTS OPPORTUNITIES • Very strong revenue growth, up 16% over 2004 • Oil sands expansion in Alberta • Record annual earnings of $1.85 per share • Copper mining growth in Chile • Record new equipment deliveries in all operations • Buoyant mining activity in ritish Columbia • Excellent safety record: LTI(1) frequency – 0.72 • Strong construction market in all territories • Strong cash flow (after working capital changes), up 94% • Shift in consolidated revenue mix to parts and service to $479 million • Pipeline construction projects worldwide • Debt to total capital ratio reduced to 47% from 51% including western Canadian gas pipeline projects • Quarterly dividend increase in 2006 of 18% to $0.13 per • Growing global demand for distributed power share (six increases in four years) generation • Improved UK operations • Continued focus on cost savings and efficiencies • Increased contribution from new business initiatives (OEM, Diperk UK, Pipeline Machinery International) • Record order backlog of $968 million (1) LTI is measured as the number of lost time injuries per 200,000 work hours. Power Systems* - Caterpillar and associated brands engine sales and service in all Finning INC. FINNING INTERNATIONAL territories. - Sectors: oil and gas, on-highway trucks, 14% TOTAL REVENUES BY OPERATION marine, industrial, distributed power, construction and rental. FINNING (CANADA) 42% 23% 42% FINNING SOUTH AMERICA 21% FINNING (UK) 23% HEWDEN 14% Results are reported within other Finning divisions. Revenues included within other 21% divisions are: 2005 2004 Revenue 610 479 * Power Systems locations and # of employees are recorded within other Finning divisions 3 Financial Highlights YEAR ENDED DECEMER 31 ($MILLIONS, EXCEPT PER SHARE AMOUNTS) 2005 2004 2003 OPERATING DATA Revenue 4,834.6 4,161.9 3,593.3 Earnings efore Interest and Taxes 285.3 265.7 255.2 Net Income 164.0 114.9 132.0 asic Earnings Per Share 1.85 1.45 1.71 Diluted Earnings Per Share 1.83 1.43 1.68 Return on Equity (%) 11.8% 11.0% 14.3% Cash Flow from Operations After Working Capital Items 478.8 247.4 384.2 BALANCE SHEET DATA Total Assets 3,736.4 3,804.0 3,440.6 Invested Capital 2,644.7 2,694.1 2,471.9 Total Shareholders’ Equity 1,413.0 1,326.2 958.6 Debt to Equity Ratio* 0.87:1 1.03:1 0.79:1 * Non-controlling interest treated as equity in 2003. REVENUE ($ BILLIONS) EBIT ($ MILLIONS) NET INCOME ($ MILLIONS) BASIC EPS ($) Earnings Before Interest & Taxes Earnings Per Share 4.83 300 285 200 5.0 278 2.00 266 1.85 255 1.72 1.71 4.16 250 242 164 4.0 3.59 150 1.45 1.50 132 132 1.37 3.25 3.21 200 115 3.0 104 150 100 1.00 2.0 100 50 0.50 1.0 50 0.0 0 0 0.00 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 4 In 2005, Finning continued to set the pace with record revenues of $4.8 billion and solid market share gains. We achieved another year of very high levels of new equipment sales further expanding the population of Caterpillar equipment in all our territories. This large and growing fleet is the foundation for significant parts, service and product support opportunities which will drive increasing profitability for Finning in the future. FINNING INTERNATIONAL INC. INC. FINNING INTERNATIONAL 5 LETTER TO SHAREHOLDERS to EXCEL “Our business is underpinned by two fundamental goals: to provide unrivalled customer service and, in the context of prudent financial management, to generate superior returns for our shareholders.” Doug Whitehead 6 PRESIDENT & CEO To our shareholders: 2005 proved another milestone year for Finning in terms of new more cost-efficient and improve customer service. Addressing equipment orders and revenue growth, while at the same time the overall performance of our Materials Handling business in testing our ability to operate efficiently given such high customer the U.K. is our primary objective for 2006. demand and the challenges we had to overcome to meet that demand. Meeting demand Strong demand for equipment and parts in our markets, as well Overall, we met those challenges successfully, resulting in another as globally, not only increased our order book volume, it also very strong year - an achievement that directly reflects the led to tight supply. In response, while Caterpillar worked hard to efforts of Finning employees and their dedication and ramp up production, each Finning operating unit exerted inventiveness in every aspect of our business. I am proud of our considerable effort and expense to meet customer needs. “can do” culture and ability to respond to challenging conditions and changing customer needs. This resolve to never become We utilized rental fleets extensively to help customers avoid complacent is key to the success to which we are driven. downtime. We sourced used equipment to satisfy short-term demand. We also stepped up Finning’s capabilities for Tracking progress remanufacturing in Canada and South America. Our OEM Highlights of 2005 include an outstanding performance by our Remanufacturing facility in Edmonton is now complete and fully Canadian operations, followed closely by the very strong results operational. from our South American group. oth regions generated returns on capital that exceeded our risk-adjusted target returns and set Our relationship with Caterpillar is stronger than ever. As our absolute profit records. Performance from our UK operations key business partner, and with Finning as the world’s largest generated mixed results in 2005. Hewden continued its steady Cat dealer, mutual support and cooperation remain vital. This recovery, working diligently to build a customer-focused rental proved clearly evident in our joint development of a new business, which will be supported by new information technology. strategic plan for our UK Caterpillar dealership, which is This will enable first-class customer service as well as discussed in further detail in the UK section of this report. management access to timely information to increase our efficiency in directing a large-scale business in a very competitive Equally important, the commitment of Finning employees to marketplace. all customers in every sector ensures that outstanding service continues to be the hallmark of our corporate culture. In the UK Caterpillar dealership, 2005 was an improved year for INC. FINNING INTERNATIONAL our Power Systems and Construction Equipment divisions, which Driving opportunity rebounded from 2004 with record deliveries of new machinery. Finning continues to benefit from an unprecedented commodity Unfortunately, the Materials Handling (fork lift) business in the up-cycle that shows no indication of slowing. As our customers U.K. did not perform well, due to very competitive market in mining and oil and gas respond to rising global demand, conditions and internal systems challenges that resulted in we are winning a growing share of contracts for equipment, reduced business volumes, higher costs and lower profitability. maintenance and support services. As these industries prosper, their success spreads to related businesses and drives To address this under-performance, we have revised our business construction in both the private and public sectors. As a result, plan, made senior management changes and are working with our our order book remains extremely strong at $968 million, up key supplier. In addition, we are considering a new information 16% over year-end 2004 levels, a clear signal that 2006 is shaping technology system that will make our Materials Handling division up to be a very good year. 7 LetteR TO ShaRehOLDERS RELATIVE PRICE PERFORMANCE 2005 Return to Shareholders FINNING INTERNATIONAL INC. VS. S&P/TSX COMPOSITE INDEX Dec.