Finning International Inc.
TSX : FTT

Finning International Inc.

February 19, 2008 13:00 ET

Finning Announces Best Ever Fourth Quarter and Annual Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 19, 2008) - Finning International Inc. (TSX:FTT) -

Highlights from Continuing Operations

- Highest ever fourth quarter diluted earnings per share, up 35% from 2006

- Record annual revenues of $5.7 billion, up 17% from prior year, and up in all operations

- Record annual diluted earnings per share of $1.55 is up 18% from 2006

- New equipment order backlog continues to be strong at $1.7 billion



--------------------------------------------------------------------------
Three months ended Twelve months ended
December 31 December 31
$ millions, except per --------------------------------------------------
share data 2007 2006 Change 2007 2006 Change
--------------------------------------------------------------------------
Revenue 1,459.5 1,365.1 6.9% 5,662.2 4,853.2 16.7%

Earnings from
continuing operations
before interest and
income taxes (1) 112.2 83.9 33.7% 455.8 373.7 22.0%

Net income (loss)
from continuing
operations 70.5 53.1 32.8% 280.1 236.2 18.6%
from discontinued
operations (2) - (0.4) (2.0) (32.1)
--------------------------------------------------
Total net income 70.5 52.7 33.8% 278.1 204.1 36.3%
--------------------------------------------------
--------------------------------------------------
Diluted Earnings
(Loss) Per Share
from continuing
operations $ 0.39 $ 0.29 34.5% $ 1.55 $ 1.31 18.3%
from discontinued
operations (2) - - (0.01) (0.18)
--------------------------------------------------
Total diluted earnings
per share $ 0.39 $ 0.29 34.5% $ 1.54 $ 1.13 36.3%
--------------------------------------------------
--------------------------------------------------
Cash flow after working
capital changes 221.3 79.0 180.1% 404.4 460.2 (12.1)%
--------------------------------------------------
--------------------------------------------------

(1) This amount does not have a standardized meaning under generally
accepted accounting principles. For a reconciliation of this amount
to net income from continuing operations, see the heading "Description
of Non-GAAP Measure" in the Company's management discussion and
analysis which accompanies the fourth quarter and annual consolidated
financial statements.

(2) On July 31, 2007, the Company's U.K. subsidiary, Hewden Stuart Plc,
sold its Tool Hire Division. In the third quarter of 2006, the
Company's U.K. subsidiary, Finning (UK) Ltd., sold its Materials
Handling Division. As a consequence, the results of operations of the
Tool Hire and Materials Handling divisions have been reclassified as
discontinued operations for all periods presented.


Finning International Inc. (Finning) today reported 2007 fourth quarter revenue from continuing operations of $1.5 billion, an increase of 6.9% over the fourth quarter of 2006 and a record for fourth quarter revenues. Earnings from continuing operations before interest and income taxes (EBIT) were $112.2 million in the fourth quarter of 2007, an increase of 33.7% compared with the same period last year. Fourth quarter net income from continuing operations was $70.5 million or $0.39 diluted earnings per share, an increase of 34.5% compared with the fourth quarter of 2006 and the best ever fourth quarter results earned by the Company.

"2007 was another very good year for Finning," said Doug Whitehead, President and CEO of Finning International Inc. "We achieved record annual results and diluted earnings per share, from continuing operations, increased 18.3% over 2006 levels and return on equity totalled 16.8%. Business continued to be strong in the fourth quarter and our large order backlog provides good visibility into what we expect will be a very busy 2008."

"Despite the pressure of the significantly stronger Canadian dollar relative to the U.S. dollar, Finning's profitability improved in 2007," said Mike Waites, Executive Vice President and CFO of Finning International Inc. "EBIT as a percentage of revenue increased to 8.0% up from 7.3% last year, after adjusting for the 2006 impact of gains from the sale of real estate. This improvement occurred despite a shift in revenue mix to a greater proportion of lower margin, new equipment sales compared to higher margin parts and service revenues. In addition, in the fourth quarter, our operations generated significantly improved cash flow, after changes in working capital, totalling $221 million compared to $79 million in 2006."

Fourth Quarter Results

Finning's revenues from continuing operations in the fourth quarter were $1.5 billion, up 6.9% from the fourth quarter of 2006, as a result of continued strong equipment sales. Prices for certain key commodities continue to be strong and drive demand in Canada and South America.

EBIT for the quarter was $112.2 million, compared with $83.9 million in the fourth quarter of 2006, an increase of 33.7%. EBIT in the fourth quarter of 2007 reflected the strong operating performance in Canada. The benefit from lower long-term incentive plan charges offset the negative impact of a stronger Canadian dollar in 2007 compared to 2006.

- EBIT from Finning's Canadian reporting segment of $69.3 million in the fourth quarter of 2007 was 24.6% higher than the fourth quarter of 2006. The increase in 2007 was primarily the result of higher new equipment sales and strong deliveries in the mining sector.

- EBIT for Finning's South American operations in the fourth quarter of 2007 of $28.2 million was 4.1% lower than the 2006 fourth quarter, reflecting the negative impact of foreign currency translation due to a stronger Canadian dollar relative to the U.S. dollar. In local currency, EBIT for the fourth quarter of 2007 was 11.0% higher than the same period in 2006, reflecting strong volumes in all lines of business.

- For the UK Group, EBIT in the fourth quarter of 2007 of $16.1 million was comparable with the fourth quarter of 2006. In local currency, fourth quarter EBIT increased 8.5% over the same period in 2006. The Company's UK dealership experienced continued robust activity which contributed to higher revenues.

Finning's net income from continuing operations for the quarter was $70.5 million compared with $53.1 million in 2006. Diluted Earnings Per Share (EPS) from continuing operations for the quarter was $0.39, and improved over the 2006 comparable EPS of $0.29 reflecting the EBIT improvements noted above.

Cash flow after working capital changes for the fourth quarter of 2007 was $221.3 million, a significant improvement from cash flow of $79.0 million generated for the same period last year. While cash flow strengthened modestly from the higher operating results in the quarter, the overall increase was primarily due to stabilizing working capital requirements and continued management focus on improving cash cycle times and operating efficiencies.

Annual 2007 Results

On an annual basis, revenue from continuing operations increased by 16.7% to $5.7 billion. EBIT from continuing operations of $455.8 million for 2007 is up 22.0% from the year ended 2006. Annual revenue, EBIT and net income are the highest ever recorded by the Company. Adjusting prior year results for $18.2 million of non-recurring property and business sale gains, EBIT for the year ended December 31, 2007 was up over 28% from 2006.

- Annual revenue was up 12.4% at the Company's Canadian operations, reflecting growth in most lines of business, particularly equipment sales. Adjusting for non-recurring pre-tax gains of $18.2 million recorded in the first and third quarters of 2006, EBIT from Finning's Canadian reporting segment would have been $215.1 million for the year ended December 31, 2006. EBIT from the Canadian reporting segment in 2007 of $286.3 million was 33.1% higher than the 2006 adjusted EBIT noted above. The increase was a result of exceptionally strong volumes in most lines of business.

- For the year ended December 31, 2007, revenues from the Company's South American operations increased 31.3% (39.3% in local currency) with strong new equipment sales and continued growth in customer support service revenues. Annual EBIT for 2007 of $127.4 million was 17% higher compared to 2006 (22.9% in local currency).

- Annual revenues from the UK Group increased 13.8% in 2007 compared with last year, and increased 11.2% in local currency. EBIT increased 12.3% (9.7% in local currency), a significant improvement over the prior year with higher margins achieved in most lines of business and continued management of operating costs. The results from Hewden were lower than the prior year, as anticipated, due to the significant operational changes experienced during 2007.

Finning's global order book (the retail value of new equipment units ordered by customers for future deliveries) of approximately $1.7 billion at the end of December 2007 remains strong and is up over 10% from December 2006 levels. The dollar value of new orders and deliveries of new equipment for 2007 exceeded that of the year ended December 31, 2006.

Consolidated net income from continuing operations increased by 18.6% to $280.1 million. Diluted EPS from continuing operations for the year ended December 31, 2007 was $1.55 compared with $1.31 in the same period last year, up 18.3%. The 2006 results included $0.09 per share of gains on the sale of surplus properties and businesses in Canada, partially offset by incremental finance costs of approximately $0.04 per share for the early repayment of Finning's previously issued Eurobond notes in the third quarter of 2006. Adjusting the prior year results for the gains on dispositions and the incremental finance costs noted above, diluted EPS for 2007 was up approximately 23%.

Cash flow after changes in working capital for the year ended December 31, 2007 was $404.4 million, compared with cash flow of $460.2 million generated in 2006. Cash flow before working capital changes from operations increased in 2007 compared to 2006. This was offset by a significant increase in working capital demand in the first half of 2007 as a result of the timing of equipment and parts deliveries in relation to strong customer demand requirements in 2007. Throughout all operations, management continues to focus on improving cash cycle times and operating efficiencies, which was evident in the latter part of 2007.

Important New Business

- In January 2008, Finning (Canada) purchased Collicutt Energy Services Ltd., a leading Canadian oilfield service company. The total value of this transaction is approximately $145 million, comprising $96 million of cash, 14,365 Finning common shares (valued at $0.4 million) issued in connection with the acquisition, with the difference being the assumption of debt. The acquisition provides Finning (Canada) with the opportunity to expand its capacity of regional branches to enable them to undertake more customer service work, accelerate throughput of new equipment prepared for delivery to customers, and increase the ability to undertake machine overhaul and rebuild work. Finning (Canada) plans to relocate its Edmonton-based new equipment preparation and used parts work to Collicutt's facilities in Red Deer, Alberta. This heavy equipment centre of excellence will free up capacity and give the Company the opportunity to develop a mining/heavy equipment overhaul rebuild capability in Red Deer.

- In January and early February 2008, the Company's UK subsidiary, Hewden sold certain properties for cash proceeds of approximately $28 million, resulting in a pre-tax gain of approximately $14 million. Also in January 2008, Hewden sold its Hoists business; the sale is in line with Hewden's strategy of increasing focus on core business areas where it has already built, or intends to build, a market leadership position.

Common Share Dividend

The Board of Directors approved the Company's quarterly dividend at $0.10 per common share, payable on March 18, 2008, to shareholders of record on March 4, 2008.

Fourth Quarter / Annual Results Conference Call
Management will hold an investor conference call on Tuesday, February 19, 2008 at 2:30 pm Eastern Time. Dial-in numbers:

1-866-898-9626 (anywhere within Canada and the US)

(416) 340-2216 (for participants dialing from Toronto and overseas)

The call will be webcast live at http://www.finning.com/investors/investors.aspx and subsequently archived on the Finning website. Playback recording will be available at 1-800-408-3053 from 5:30 pm Eastern Time on February 19, 2008 until the end of business day on February 26, 2008. The passcode to access the playback recording is 3248393 followed by the number sign.

About Finning International

Finning International Inc. sells, rents, and provides customer support services for Caterpillar equipment and engines, and complementary equipment, in Western Canada (Alberta, British Columbia, the Northwest Territories and the Yukon Territory and a portion of Nunavut), the U.K. and South America (Argentina, Bolivia, Chile and Uruguay). Headquartered in Vancouver, B.C., Canada, Finning International Inc. (www.finning.com) is a widely held, publicly traded corporation, listed on the Toronto Stock Exchange (symbol FTT). Complete financial statements and Management's Discussion and Analysis can be accessed at www.finning.com.

Forward-Looking Disclaimer

This report (including the attached Management's Discussion and Analysis) contains forward-looking statements and information, which reflect the current view of Finning International Inc. with respect to future events and financial performance. Any such forward-looking statements are subject to risks and uncertainties and Finning's actual results of operations could differ materially from historical results or current expectations. Finning assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein do not materialize.

Refer to Finning's annual report, management information circular, annual information form and other filings with Canadian securities regulators, which can be found at www.sedar.com, for further information on risks and uncertainties that could cause actual results to differ materially from forward-looking statements contained in this report.

Next Quarterly Results May 6, 2008

Finning International's first quarter for 2008 will be released and an investor conference call will be held on May 6, 2008.

Annual General Meeting

The Company's annual general meeting will be held at the Four Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia, at 11:00 am Pacific Time on Tuesday May 6, 2008.

MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis of Finning International Inc. (Finning or the Company) should be read in conjunction with the consolidated financial statements and accompanying notes. The results reported herein have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are presented in Canadian dollars unless otherwise stated.

Results of Operations

The results from continuing operations include the performance of acquired businesses from the date of their purchase and exclude results from operations that have been disposed or are classified as discontinued. Results from operations that qualify as discontinued operations have been reclassified to that category for all periods presented unless otherwise noted. Please see the section entitled "Discontinued Operations" for a discussion of these operations.

Fourth Quarter Overview



------------------------------------------------------ -----------------
Q4 2007 Q4 2006 Q4 2007 Q4 2006
---------------------- -----------------
($ millions) (% of revenue)
------------------------------------------------------ -----------------
Revenue $ 1,459.5 $ 1,365.1
----------------------
Gross profit 408.9 371.4 28.0% 27.2%
Selling, general &
administrative expenses (297.5) (285.7) (20.4)% (20.9)%
Other income (expenses) 0.8 (1.8) 0.1% (0.1)%
---------------------- -----------------
Earnings from continuing
operations before interest
and income taxes (EBIT) (1) 112.2 83.9 7.7% 6.2%
Finance costs (18.9) (16.4) (1.3)% (1.2)%
Provision for income taxes (22.8) (14.4) (1.6)% (1.1)%
---------------------- -----------------
Net income from continuing
operations 70.5 53.1 4.8% 3.9%
Loss from discontinued
operations, net of tax - (0.4) - -
---------------------- -----------------
Net income $ 70.5 $ 52.7 4.8% 3.9%
---------------------- -----------------
---------------------- -----------------

(1) EBIT as defined above and referred to throughout this Management's
Discussion and Analysis (MD&A) does not have a standardized meaning
under generally accepted accounting principles. For a reconciliation
of this amount to net income from continuing operations, see the
heading "Description of Non-GAAP Measure" in this MD&A


To view Revenue by Operation graph, please click on the following link: http://media3.marketwire.com/docs/FTT_a.jpg

Fourth quarter consolidated revenues from continuing operations of $1.5 billion increased 6.9% from the fourth quarter of 2006. In spite of the continued downward pressure from the significant strength of the Canadian dollar relative to the U.S. dollar, Finning achieved record fourth quarter revenues driven primarily by strong equipment sales. Continued growth in resource-based industries and the construction sector led to sustained equipment demand in the dealership operations in Canada, South America, and the U.K.

Revenue was modestly higher in the fourth quarter of 2007 in the Company's Canadian operations, reflecting the continued activity driven by strong market demand and high prices in key commodities. This was partially offset by the impact of the strong Canadian dollar on revenues and approximately $25 million lower revenues from the distribution arrangement with Shell Canada Products as a result of the termination of this arrangement in the fourth quarter of 2007. Revenue from the Company's operations in South America increased 15.6% in Canadian dollars compared with the fourth quarter of 2006 with strong new equipment sales combined with an increase in customer support services. The Company's operations in the U.K. also experienced a 10.4% increase in revenue in Canadian dollars compared with the fourth quarter of 2006 primarily due to a 46.0% increase in new equipment and power system sales. This growth was tempered by lower revenues from the UK rental business (Hewden), where management's time continued to be diverted somewhat by the implementation of a new information technology system.

Finning's business is geographically diversified and the Company conducts business in multiple currencies, the most significant of which are the Canadian dollar, the U.S. dollar, and the U.K. pound sterling. The most significant foreign exchange impact on the Company's revenues and net income is the translation of foreign currency based results into Canadian dollars. Compared to the prior year, foreign exchange had a negative impact on consolidated revenues in the fourth quarter of 2007 of approximately $110 million mainly due to a stronger Canadian dollar in the quarter relative to the U.S. dollar (13.8% stronger than 2006), and the U.K. pound sterling (8.1% stronger than 2006). At the net income level, the foreign exchange rate movement quarter over quarter had a negative impact of approximately $0.08 per share.

In addition to the above impact as a result of translating foreign currency based operating results, the Company experiences foreign currency translation gains or losses as a result of consolidating the financial statements of self-sustaining foreign operations. These unrealized foreign currency translation gains or losses are recorded in the Accumulated Other Comprehensive Income/Loss account on Finning's consolidated balance sheets. Currency translation adjustments arise as a result of fluctuations in foreign currency exchange rates at the period end. The unrealized currency translation loss of $28.6 million recorded in the fourth quarter of 2007 mainly resulted from the 3.5% stronger spot Canadian dollar against the U.K. pound sterling, from September 30, 2007 to December 31, 2007. This was partially offset by $5.7 million of unrealized foreign exchange gains on net investment hedges.

Excluding the impact of foreign exchange when translating results, revenues for the fourth quarter of 2007 in local currency increased by 34.1% in the Company's South American operations and increased by 20.0% in the UK Group when compared to last year's fourth quarter.

To view Revenue by Line of Business graph, please click on the following link: http://media3.marketwire.com/docs/FTT_b.jpg

From a line of business perspective, strong demand continued in the fourth quarter of 2007 for new equipment and power and energy systems. In the fourth quarter of 2007, the Company's Canadian operations completed the termination of its distribution arrangement with Shell Canada Products, resulting in approximately $25 million lower revenues from customer support services compared with the prior year's quarter. Used equipment revenues are slightly down and typically vary depending on product availability, customer buying preferences, and exchange rate considerations. In addition, with the stronger Canadian dollar, many customers in Canada are currently opting to buy new rather than used equipment.

Revenue mix continued to be more heavily weighted to new equipment sales as a result of extremely strong demand for equipment. New equipment revenues made up 41.8% of total revenues in the fourth quarter of 2007, up from 36.5% of total revenues in the same period last year. Revenues from the Canadian operations continue to grow, most notably in new equipment and equipment rental. The South American and UK operations recorded a significant increase in new equipment and power systems revenues as demand in the construction sectors continued to be strong.

Finning's global order book or backlog (the retail value of new equipment units ordered by customers for future deliveries) continues to be very strong at $1.7 billion at the end of the fourth quarter of 2007, and is up 10% from December 2006 levels, driven primarily by the strong Canadian mining market.

The Company is dependent on Caterpillar Inc. (Caterpillar) for the timely supply of parts and equipment to fulfill its deliveries and meet the requirements of the Company's service maintenance contracts. Selected models of large equipment, large engines, and some parts continue to be under managed distribution. Finning continues to work closely with Caterpillar and customers to ensure that demand for parts and equipment can be met.

Gross profit of $408.9 million in the fourth quarter increased 10.1% over the same period last year. Gross profit as a percentage of revenue for the quarter was 28.0%, compared with 27.2% for the fourth quarter in 2006. The Canadian operations earned a higher gross profit margin due to price realization from new equipment and customer support services. The gross profit margins for the South American operations and the UK Group were lower when compared to the prior year's quarter due to a higher proportion of revenues from new equipment sales, which typically have lower margins.

To view EBIT by Operation - continuing operations graph, please click on the http://media3.marketwire.com/docs/FTT_c.jpg

Earnings from continuing operations before interest and income taxes (EBIT) of $112.2 million in the fourth quarter of 2007 increased 33.7% year over year. EBIT in the fourth quarter of 2007 reflected the strong operating performance in Canada. The benefit of lower long-term incentive plan (LTIP) charges offset the negative impact of a stronger Canadian dollar in 2007 compared to 2006. The fourth quarter 2007 results also include higher variable operating costs to support the increased level of sales activity and higher employee related costs. Headcount at December 2007 increased by over 1,400 employees from the December 2006 level in the Company's Canadian and South American operations.

The LTIP charges in the fourth quarter of 2007 were lower by $25.9 million compared with the same period in 2006, primarily due to the lower mark-to-market impact on the valuation of certain stock-based compensation plans as a result of a decrease in the Company's share price in the fourth quarter of 2007 as opposed to an increase in 2006. The LTIP charges in the comparable quarter in 2006 were also higher as a result of the vesting of three tranches of deferred share units as a result of the increase in the Company's share price during the quarter and achievement of specified share price levels. At the net income level, the movement in LTIP charges quarter over quarter had a positive impact of approximately $0.10 per share.

The Company's EBIT margin (EBIT divided by revenues) was 7.7% in the fourth quarter of 2007, up from 6.2% earned in the fourth quarter of 2006. The higher EBIT margin in 2007 was due to the significant increased contribution from the Company's Canadian operations, partially offset by higher costs incurred to meet customer demand, cost pressures in South America, and lower returns from Hewden.

Consolidated net income from continuing operations of $70.5 million was 32.8% higher in the fourth quarter of 2007 compared to the same period in 2006, reflecting the solid fourth quarter activity noted above.

Basic Earnings Per Share (EPS) from continuing operations for the quarter was $0.40 compared with $0.30 in the same period last year, an increase of 33.3%.

Cash Flow

Cash flow after changes in working capital for the fourth quarter was $221.3 million, compared with cash flow of $79.0 million generated in the same period last year. Working capital demands have stabilized in the fourth quarter of 2007 and, combined with initiatives to improve cash cycle times, have resulted in a significantly improved cash flow from the third quarter 2007 levels. As disclosed in prior quarters, a significant improvement in cash flow was anticipated due to the scheduled delivery and sale of inventories in the second half of the year.

The Company's net investment in rental assets of $14.2 million in the fourth quarter of 2007, which was $50.0 million lower than the same period in 2006, was primarily as a result of a higher level of rental disposals.

As a result of these items, cash flow from operating activities was $207.3 million in the fourth quarter of 2007 compared to $11.7 million in the fourth quarter of 2006.

During the fourth quarter of 2007, under a share repurchase program, the Company repurchased 2,465,200 common shares at an average price of $27.31 for an aggregate amount of $67.3 million.

Annual Overview



------------------------------------------------------ -----------------
2007 2006 2007 2006
---------------------- -----------------
($ millions) (% of revenue)
------------------------------------------------------ -----------------
Revenue $ 5,662.2 $ 4,853.2
----------------------
Gross profit 1,599.2 1,367.5 28.2% 28.2%
Selling, general &
administrative expenses (1,144.8) (1,003.8) (20.2)% (20.7)%
Other income 1.4 10.0 - 0.2%
---------------------- -----------------
EBIT 455.8 373.7 8.0% 7.7%
Finance costs (72.8) (69.8) (1.3)% (1.4)%
Provision for income taxes (102.9) (67.7) (1.8)% (1.4)%
---------------------- -----------------
Net income from continuing
operations 280.1 236.2 4.9% 4.9%
Loss from discontinued
operations, net of tax (2.0) (32.1) - (0.7)%
---------------------- -----------------
Net income $ 278.1 $ 204.1 4.9% 4.2%
---------------------- -----------------
---------------------- -----------------


To view Revenue by Operation graph, please click on the following link: http://media3.marketwire.com/docs/FTT_d.jpg

For the fifth consecutive year, revenues reached record levels and were up in all of the Company's operations. Annual revenues from continuing operations of $5.7 billion increased 16.7%, year over year, as continued strong growth in resource-based industries and the construction sector continue to drive demand in Canada and South America. Revenue from the UK Group increased 13.8% over the prior year, reflecting improvement in most lines of business but primarily in new equipment sales.

To view Revenue by Line of Business graph, please click on the following link: http://media3.marketwire.com/docs/FTT_e.jpg

On a consolidated basis, all lines of business increased in 2007 over 2006. New equipment sales continued to dominate revenue growth as a result of extremely strong overall demand for equipment.

Foreign exchange translation had a negative impact of approximately $100 million on revenues due to the 5.2% stronger Canadian dollar in 2007 relative to the U.S. dollar, partially offset by a 2.9% weaker Canadian dollar relative to the U.K. pound sterling, year over year. In local currency, the Company's South American operations contributed revenues 39.3% higher than in 2006, while revenues generated by the UK Group operations were 11.2% above the 2006 level.

Gross profit of $1,599.2 million in 2007 increased 16.9% over last year and was comparable to the prior year as a percentage of revenue. The gross profit margin in the Canadian operations for 2007 was higher when compared to the prior year with a lower gross profit margin contributed by South American and UK operations, primarily due to a revenue mix shift from customer support services to lower margin new equipment sales.

To view EBIT by Operation - continuing operations graph, please click on the http://media3.marketwire.com/docs/FTT_f.jpg

EBIT of $455.8 million increased 22.0% year over year, primarily due to the strong performance of the Company's Canadian and South American operations and a continued improvement in the UK Group. EBIT for the year ended December 31, 2007 included higher variable operating costs to support the increased level of activity and higher employee costs related to the increased headcount and aggressive competition for a skilled workforce, as well as cost pressures in South America. Annual LTIP charges in 2007 were comparable with 2006.

The 2006 results included non-recurring pre-tax gains of $18.2 million from the disposal of surplus properties in Canada and the sale of OEM Remanufacturing's railroad and non-Caterpillar engine component remanufacturing business to Caterpillar. Excluding these pre-tax gains from 2006 results, the 2007 EBIT was 28.2% higher than last year and EBIT margin of 8.0% in 2007 was above the prior year of 7.3%.

Net income from continuing operations in 2007 increased by 18.6% to $280.1 million, reflecting the solid activity noted above.

Basic EPS from continuing operations for the year ended December 31, 2007 was $1.57 compared with $1.32 in the same period last year, up 18.9%. The 2006 results included $0.09 per share of non-recurring gains on the sale of surplus properties and a portion of the OEM remanufacturing business in Canada, partially offset by incremental finance costs of approximately $0.04 per share for the early repayment of Finning's previously issued Eurobond notes in the third quarter of 2006. Adjusting the prior year results for the gains on dispositions and the incremental finance costs noted above, basic EPS would have been $1.27 for the year ended December 31, 2006, compared to $1.57 in 2007, an improvement of 23.6%.

Discontinued Operations

On July 31, 2007, the Company sold its U.K. Tool Hire Division for cash proceeds of $242.9 million (approximately Pounds Sterling 112 million), net of costs. The gross sale price, net of taxes and transaction costs, was approximately equal to the net book value of the net tangible assets and goodwill associated with the tools rental business, and resulted in an after-tax gain on disposal of $0.1 million.

Restructuring and other costs associated with the disposition of the Tool Hire Division of $2.0 million after tax were recorded in the second and third quarters of 2007.

On September 29, 2006, the U.K. Materials Handling Division was sold for cash proceeds of $170.6 million (Pounds Sterling 81.7 million), net of costs, which resulted in an after-tax loss on disposal of $32.7 million (approximately Pounds Sterling 15.5 million).

These divisions are classified as discontinued operations within the consolidated income statements for all periods presented prior to each disposition.

Net income after discontinued operations for the year ended December 31, 2007 was $278.1 million compared with $204.1 million in 2006. Basic EPS after discontinued operations was $1.56 in 2007 compared with $1.14 in 2006 ($1.09 after adjusting for non-recurring gains and incremental finance costs noted previously).

Cash Flow After Changes in Working Capital

Cash flow after changes in working capital for the year ended December 31, 2007 was $404.4 million, compared with cash flow of $460.2 million generated in 2006. The Company's operations experienced a significant increase in working capital, particularly in the first half of 2007, as a result of the timing of equipment and parts deliveries in relation to strong customer demand requirements in 2007. Throughout all operations, management continues to focus on improving cash cycle times and operating efficiencies.

The Company made a net investment in rental assets of $474.6 million in 2007, which was $131.0 million higher than 2006, and up in all operations to support increased demand for all rental lines. Rental additions were also higher in the Finning UK Group due to the deferred delivery of rental assets at Hewden into 2007 from the prior year.

As a result of these items, cash flow used by operating activities was $56.7 million in 2007 compared to cash flow provided by operating activities of $97.2 million in 2006. Cash flow in 2007 reflects the growth in assets to meet customer demand.

For the year ended December 31, 2007, under a share repurchase program, the Company repurchased 3,691,400 common shares at an average price of $27.82 for an aggregate amount of $102.7 million.

Results by Business Segment

The Company and its subsidiaries operate primarily in one principal business, that being the selling, servicing, and renting of heavy equipment and related products in various markets worldwide as noted below.

Finning's operating units are as follows:

- Canadian operations: British Columbia, Alberta, the Yukon Territory, the Northwest Territories, and a portion of Nunavut.

- South American operations: Chile, Argentina, Uruguay and Bolivia

- UK Group operations: England, Scotland, Wales, Falkland Islands, and the Channel Islands

- Other: corporate head office

The table below provides details of revenue by operations and lines of business for continuing operations. Comparative periods have been reclassified to conform to the 2007 presentation.



--------------------------------------------------------------------------
For year ended Revenue
December 31, 2007 South UK Consol- percen-
($ millions) Canada America Group idated tage
--------------------------------------------------------------------------
New mobile
equipment $ 1,253.2 $ 574.4 $ 405.9 $ 2,233.5 39.4%
New power &
energy systems 194.9 108.7 199.4 503.0 8.9%
Used equipment 269.3 42.8 105.5 417.6 7.4%
Equipment rental 290.1 46.6 444.5 781.2 13.8%
Customer support
services 905.8 550.3 245.1 1,701.2 30.0%
Other 22.9 2.8 - 25.7 0.5%
--------------------------------------------------------------------------
Total $ 2,936.2 $ 1,325.6 $ 1,400.4 $ 5,662.2 100.0%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue
percentage by
operations 51.9% 23.4% 24.7% 100.0%

--------------------------------------------------------------------------
For year ended Revenue
December 31, 2006 South UK Consol- percen-
($ millions) Canada America Group idated tage
--------------------------------------------------------------------------
New mobile
equipment $ 1,033.1 $ 389.5 $ 310.2 $ 1,732.8 35.7%
New power &
energy systems 196.8 69.8 153.3 419.9 8.7%
Used equipment 248.3 38.7 114.1 401.1 8.2%
Equipment rental 240.4 38.1 414.7 693.2 14.3%
Customer support
services 873.4 471.7 238.4 1,583.5 32.6%
Other 20.6 2.1 - 22.7 0.5%
--------------------------------------------------------------------------
Total $ 2,612.6 $ 1,009.9 $ 1,230.7 $ 4,853.2 100.0%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue
percentage by
operations 53.8% 20.8% 25.4% 100.0%


The table below provides selected income statement information by business segment for continuing operations:



--------------------------------------------------------------------------
For year ended
December 31, 2007 South UK Consol-
($ millions) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external
sources $ 2,936.2 $ 1,325.6 $ 1,400.4 $ - $ 5,662.2
Operating costs (2,486.0) (1,171.7) (1,191.3) (30.9) (4,879.9)
Depreciation and
amortization (165.5) (25.9) (136.5) - (327.9)
Other income
(expenses) 1.6 (0.6) 0.4 - 1.4
--------------------------------------------------------------------------
Earnings before
interest and
taxes $ 286.3 $ 127.4 $ 73.0 $ (30.9) $ 455.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before
interest and tax
- percentage of
revenue 9.8% 9.6% 5.2% - 8.0%
- percentage by
operations 62.8% 28.0% 16.0% (6.8)% 100%

--------------------------------------------------------------------------
For year ended
December 31, 2006 South UK Consol-
($ millions) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external
sources $ 2,612.6 $ 1,009.9 $ 1,230.7 $ - $ 4,853.2
Operating costs (2,251.3) (876.3) (1,042.5) (32.9) (4,203.0)
Depreciation and
amortization (145.7) (24.7) (116.1) - (286.5)
Other income
(expenses) 17.7 - (7.1) (0.6) 10.0
--------------------------------------------------------------------------
Earnings before
interest and
taxes $ 233.3 $ 108.9 $ 65.0 $ (33.5) $ 373.7
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before
interest and tax
- percentage of
revenue 8.9% 10.8% 5.3% - 7.7%
- percentage by
operations 62.4% 29.1% 17.4% (8.9)% 100%


Canadian Operations

The Canadian operating segment primarily reflects the results of the Company's operating division, Finning (Canada). This reporting segment also includes the Company's interest in OEM Remanufacturing Company Inc. (OEM), which is separately managed from Finning (Canada). OEM is a component rebuild facility based in Edmonton, Alberta.

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



--------------------------------------------------------------------------
For years ended December 31
($ millions) 2007 2006
--------------------------------------------------------------------------
Revenue from external sources $ 2,936.2 $ 2,612.6
Operating costs (2,486.0) (2,251.3)
Depreciation and amortization (165.5) (145.7)
Other income 1.6 17.7
--------------------------------------------------------------------------
Earnings before interest and taxes $ 286.3 $ 233.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before interest and taxes
- as a percentage of revenue 9.8% 8.9%
- as a percentage of consolidated earnings
before interest and taxes 62.8% 62.4%


To view Canada - Revenue by Line of Business graph, please click on the http://media3.marketwire.com/docs/FTT_g.jpg

Record results were again achieved in the Company's Canadian operations in 2007. Revenues increased 12.4% over the 2006 levels to $2,936.2 million. Revenues from most lines of business in Canada increased over 2006 levels, most notably in new equipment sales. This occurred in spite of a 5.2% strengthening of the Canadian dollar relative to the U.S. dollar year over year.

The increase in new equipment revenues was attributable to strong market demand and continued growth in the mining, construction, and government sectors, driven by strong commodity and oil prices and infrastructure spending.

New equipment orders from customers continued to outpace prior year volumes and as a result, the backlog in Finning (Canada) reached new record levels at the end of 2007. Backlog reflects the strong activity in the mining, petroleum, and construction sectors, which are all key sectors for Finning's Canadian operations.

Higher revenues from customer support services were a result of servicing the steadily increasing population of Caterpillar units in the Company's Canadian dealership territory and the accompanying demand for Caterpillar parts. The strong customer support services revenue in 2007 was tempered by the termination of the distribution arrangement with Shell Canada Products in the fourth quarter of 2007. Rental revenues increased over 2006 as a result of strong customer demand in this sector and a corresponding increased investment in the rental fleet and in the Cat Rental Store operations. Finning (Canada) increased the number of the Company's Cat Rental Stores in operation in Western Canada to 34 at December 31, 2007, compared with 29 stores at December 31, 2006. All rental categories continue to generate strong returns.

The Company's 25% investment in PipeLine Machinery International (PLM) continues to do very well. PLM has almost doubled its revenue over the prior year. International activity for PLM has included significant penetration into the China market with over 75 new pipelayers sold over the past 15 months. PLM is also selling to pipeline customers constructing in Russia as well as ongoing focus on sales in South America, Europe, Africa, and India as well as Australia and Malaysia.

In Canada, higher gross profits were achieved in all lines of business. Gross profit as a percentage of revenue increased from 2006 primarily due to higher margins across most lines of business, reflecting good price realization in a robust market.

Selling, general, and administrative (SG&A) costs have increased in absolute dollars but have slightly decreased as a percentage of revenue in 2007 compared with 2006. The higher costs in 2007 support the strong revenue growth and customer demand. In order to support the strong demand in western Canada, headcount for Finning (Canada) increased by approximately 460 or 12% compared to December 2006. As a result, higher salaries, benefit, pension, training, and recruitment costs were incurred in 2007. In addition, standard variable selling costs such as warranty and freight have increased.

Strong revenues and good price realization due to robust market activity and demand translated into a significant contribution by the Company's Canadian operating segment in 2007. EBIT of $286.3 million in 2007 was 22.7% higher than the $233.3 million earned in 2006. Results from 2007 include a $2.4 million pre-tax gain on the termination of an alliance agreement between Finning (Canada) and Shell Canada relating to the distribution of Shell's lubricant and light oil products. The annual 2006 results included a $12.9 million pre-tax gain on the sale of surplus properties at Finning (Canada) and a $5.3 million pre-tax gain recorded on the sale of a portion of OEM's remanufacturing business. OEM sold its railroad and non-Caterpillar engine component remanufacturing business to Caterpillar.

Excluding the gains on the 2006 property sales and the OEM sale, the 2006 EBIT margin (EBIT divided by revenues) would have been 8.2% compared with 9.8% achieved in 2007.

Other Developments

- Finning, Finning (Canada), and OEM have been involved in legal proceedings for the past three years with the Alberta division of the International Association of Machinists and Aerospace Workers - Local Lodge 99 (IAM) relating to Finning (Canada)'s outsourcing of component repair and rebuilding services to OEM in 2005. On October 17, 2007, the Alberta Court of Appeal overturned previous decisions in favour of Finning and OEM made by the Court of Queens Bench and by a Reconsideration Panel of the Alberta Labour Relations Board (ALRB), and reinstated a finding of the original ALRB panel. The original ALRB panel had found that OEM was a successor employer to Finning (Canada) in respect of the component repair and rebuilding activities being carried out by OEM as a service provider to Finning (Canada). The result of the Court of Appeal finding is that IAM may now have the right to assert that it is the authorized bargaining agent for some or all of the non-management employees of OEM. These OEM employees are currently represented by another union, the Christian Labour Association of Canada. The Court of Appeal did not overturn other aspects of the previous decisions in Finning's and OEM's favour and the full operational and legal implications of the Court's decision are still to be determined by the ALRB. At this time, Finning and OEM are confident that they can manage the operational impacts of this recent Court decision. Finning, Finning (Canada), and OEM filed for leave to appeal this decision to the Supreme Court of Canada. The timing of the appeal, if allowed, is not yet known.

- In a separate matter, in the second quarter of 2007, Finning (Canada) and the IAM, representing Finning (Canada) hourly employees in Alberta and the Northwest Territories, agreed to a two year extension of the existing collective agreement with an enhanced wage settlement. This extends the agreement to April 2010. All other terms and conditions of the existing collective agreement continue in effect.

- In January 2008, Finning (Canada) purchased Collicutt Energy Services Ltd., a leading Canadian oilfield service company. The total value of this transaction is approximately $145 million, comprising $96 million of cash, 14,365 Finning common shares (valued at $0.4 million) issued in connection with the acquisition, with the difference being the assumption of debt. The acquisition provides Finning (Canada) with the opportunity to expand its capacity of regional branches to enable them to undertake more customer service work, accelerate throughput of new equipment prepared for delivery to customers, and increase the ability to undertake machine overhaul and rebuild work. Finning (Canada) plans to relocate the Edmonton-based new equipment preparation and used parts work to Collicutt's facilities in Red Deer, Alberta. This heavy equipment centre of excellence will free up capacity and give the Company the opportunity to develop a mining/heavy equipment overhaul rebuild capability in Red Deer.

South America

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

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



--------------------------------------------------------------------------
For years ended December 31
($ millions) 2007 2006
--------------------------------------------------------------------------
Revenue from external sources $ 1,325.6 $ 1,009.9
Operating costs (1,171.7) (876.3)
Depreciation and amortization (25.9) (24.7)
Other expenses (0.6) -
--------------------------------------------------------------------------
Earnings before interest and taxes $ 127.4 $ 108.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before interest and taxes
- as a percentage of revenue 9.6% 10.8%
- as a percentage of consolidated earnings
before interest and taxes 28.0% 29.1%


To view South America - Revenue by Line of Business graph, please click on the http://media3.marketwire.com/docs/FTT_h.jpg

Annual 2007 revenues of $1,325.6 million were at record levels for Finning's South American operations in both Canadian and local currency (the U.S. dollar), in spite of the negative impact of a 5.2% strengthening of the Canadian dollar relative to the U.S. dollar. In local currency, Finning South America revenues increased 39.3% reflecting higher revenues in all lines of business, most notably in new equipment sales, power and energy, and customer support services. Continued high prices for copper and gold drive good demand for equipment and support services in the countries in which Finning South America operates. New equipment order backlog in local currency remains strong and is comparable to the levels achieved at the end of 2006.

Although revenues for customer support services were higher in 2007, new equipment sales continued to dominate revenue growth, making up 43.3% of total revenues (38.6% in 2006). The significant growth in new equipment revenues was attributable to the strong demand in the mining, construction, and forestry sectors. Power and energy system revenues were also up compared with the prior year, primarily in Argentina with a high demand for energy. Revenue growth in customer support services, up 16.7%, was driven by the higher number of Caterpillar units operating in the field and reflects the increasing number of mining maintenance and repair contracts entered into over the past couple of years.

In both Canadian and local currency, gross profit increased in 2007 in absolute terms, but decreased as a percentage of revenue. This occurred partially due to the revenue mix shift toward new equipment sales which typically have lower margins, offset by stronger margins achieved in most lines of business, reflecting price realization in a robust market. Margins from customer support services remained relatively level compared with 2006, in spite of higher customer support costs. In order to meet strong customer service demand and the resultant higher number of service maintenance contracts, over 900 additional revenue-generating employees and support staff have been hired, representing a 20% increase over December 2006 levels.

As a result of an increased headcount for associated support staff, SG&A expenses included higher salaries and benefit costs in 2007 compared with 2006 together with higher recruitment and training costs. Parts availability constraints also increased parts delivery costs. Other operating costs reflect the upward pressure of inflationary increases, especially from Argentina which continues to have a comparatively high rate of inflation. Where possible, price increases have been implemented to offset rising costs. In spite of the increase in SG&A costs to manage growth in demand, SG&A as a percentage of revenue in 2007 remained comparable with 2006 as a result of numerous initiatives to manage costs.

EBIT of the Company's South American operations of $127.4 million for the year ended December 31, 2007, was 17.0% higher than 2006 and in local currency was 22.9% higher when compared to the prior year, reflecting the strong revenue growth. However, as a result of the sales mix being oriented to a higher proportion of equipment sales (which typically have a lower margin) and the higher costs to meet customer demand, EBIT as a percentage of revenue for Finning South America declined to 9.6%, down from 10.8% in 2006. Management continues to undertake cost saving initiatives to drive productivity efficiencies in work flow processes wherever possible but continues to be challenged by product availability constraints for certain large equipment types and the lack of supply of a skilled and experienced workforce to fulfill current demand levels.

United Kingdom ("UK") Group

During the fourth quarter of 2006, the UK Group was reorganized to combine the operations of Finning (UK) and Hewden into one organization creating four distinct market units to more effectively service customers, improve alignment with Caterpillar, and to generate operating efficiencies. At the same time a new management team was appointed. These four market units will, over time, be supported by an integrated back office operation that will provide common head office services, generating additional synergies among the market units. As a result of this reorganization, the Finning UK Group is reported as one operating segment in 2007, with the four market units being: Heavy Construction, General Construction, Power Systems, and Rental (Hewden).

Prior to 2007, results from the UK Group were reported as two separate operating segments: Finning UK Operations, reflecting the results of Finning (UK), the UK Caterpillar dealership operation and Diperk UK, which distributes and services Perkins engines in the U.K; and Hewden Operations, an equipment rental and associated services operation in the U.K.

On July 31, 2007, Hewden sold its Tool Hire Division and on September 29, 2006, Finning (UK) sold its Materials Handling Division. The results from the Tool Hire and Materials Handling divisions are recorded as discontinued operations with prior period results restated accordingly.

The table below provides details of the results of the continuing operations from the UK Group:



--------------------------------------------------------------------------
For years ended December 31
($ millions) 2007 2006
--------------------------------------------------------------------------
Revenue from external sources $ 1,400.4 $ 1,230.7
Operating costs (1,191.3) (1,042.5)
Depreciation and amortization (136.5) (116.1)
Other income (expenses) 0.4 (7.1)
--------------------------------------------------------------------------
Earnings before interest and taxes $ 73.0 $ 65.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before interest and taxes
- as a percentage of revenue 5.2% 5.3%
- as a percentage of consolidated earnings
before interest and taxes 16.0% 17.4%


To view UK Group - Revenue by Line of Business graph, please click on the http://media3.marketwire.com/docs/FTT_i.jpg

Annual 2007 revenues of $1,400.4 million were up 13.8% from the prior year primarily due to increases in new equipment revenue. Excluding the impact of foreign currency translation resulting from the 2.9% weakening of the Canadian dollar relative to the U.K. pound sterling, revenues in the UK Group increased by 11.2% in local currency compared to the prior year.

Revenues from most lines of business for the UK Group increased over 2006 levels, most notably in new equipment sales. As a result, the UK Group's revenue mix was more heavily weighted to new equipment sales in 2007 compared with 2006.

The UK Group was successful in delivering 19% more new units into the marketplace during the year compared to last year on a continuing basis, as it benefited from several large deals into the quarrying and mining sectors. Revenue from rental operations was 7.2% higher in 2007 compared with 2006, primarily due to a higher asset base while competitive conditions continue to challenge overall rental utilization levels and price realization. In addition, during 2007 management focused on the disposition of Hewden's Tool Hire Division and implementation of a new information technology system for Hewden's continuing operations, thereby reducing focus on market facing activities. As this new system improves processes, and Hewden's revised product line becomes fully embedded in rental operations, management believes that utilization, price realization, and operating results will improve.

New order backlog in local currency at December 2007 remained strong and was comparable to the levels achieved at December 2006.

Gross profit for the year ended December 31, 2007 was higher compared with the same period last year in absolute terms, but decreased as a percentage of revenue partially due to a revenue mix shift towards a higher proportion of new equipment sales which typically generate lower margins compared to customer support services. In addition, the rental business experienced lower margins in 2007 compared to the prior year for the reasons noted above.

SG&A costs were higher in 2007 compared with 2006 in absolute terms reflecting higher revenues and increased information technology costs, partially offset by lower pension costs. SG&A costs as a percentage of revenue were lower compared with 2006, mainly as a result of various initiatives and management's focus on realizing cost efficiencies.

In 2007, the UK Group contributed $73.0 million of EBIT, a 12.3% increase compared with that achieved in 2006. Other expenses incurred in 2006 were primarily project costs at Hewden and related to various initiatives to assess products, the distribution network, organizational structure, and process efficiency to meet customers' needs. Management continues to examine and assess the business model in the U.K. with Finning's goal of building market share, growing the customer service business, generating higher returns on invested capital, and improving financial results.

EBIT as a percentage of revenue for the UK Group of 5.2% in 2007 was slightly lower than 5.3% in 2006.

Subsequent to the end of 2007, in January and early February 2008, Hewden sold certain properties for cash proceeds of approximately $28 million, resulting in a pre-tax gain of approximately $14 million. Also in January 2008, Hewden sold its Hoists business. These sales are in line with Hewden's strategy of increasing focus on core business areas where it has already built, or intends to build, a market leadership position.

Discontinued Operations - Tool Hire and Materials Handling divisions

On September 29, 2006, the Materials Handling Division was sold for cash proceeds of $170.6 million (Pounds Sterling 81.7 million), net of costs, which resulted in a one-time after-tax loss of $32.7 million (approximately Pounds Sterling 15.5 million).

On July 31, 2007, the Company sold its Tool Hire Division for cash proceeds of approximately $242.9 million (approximately Pounds Sterling 112 million), net of costs. The gross sale price, net of taxes and transaction costs, was approximately equal to the net book value of the net tangible assets and goodwill associated with the tools rental business, and resulted in a one-time after-tax gain of $0.1 million. Restructuring and other costs associated with the disposition of this business of $2.0 million after tax were recorded in the second and third quarters of 2007.

These divisions are classified as discontinued operations within the consolidated income statements for all periods presented prior to the disposition. The table below provides details of the discontinued operations of the Tool Hire and Materials Handling divisions, excluding the gain and loss on sale, respectively:



--------------------------------------------------------------------------
Materials Handling
Tool Hire Division Division
For year ended December 31 ----------------------------------------
($ thousands) 2007 2006 2007 2006
--------------------------------------------------------------------------
Revenue from external sources $ 113.3 $ 194.1 $ - $ 183.6
Operating costs (82.2) (138.6) - (147.7)
Depreciation and amortization (23.4) (37.8) - (31.1)
Other expenses (8.0) (3.6) - -
--------------------------------------------------------------------------
Earnings before interest
and taxes $ (0.3) $ 14.1 $ - $ 4.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Approximately 1,200 and 1,000 employees were transferred with the sale of the Tool Hire and Materials Handling divisions, respectively.

Corporate and Other Operations



--------------------------------------------------------------------------
For years ended December 31
($ millions) 2007 2006
--------------------------------------------------------------------------
Operating costs $ (30.9) $ (32.9)
Other expenses - (0.6)
--------------------------------------------------------------------------
Earnings before interest and taxes $ (30.9) $ (33.5)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


For the year ended December 31, 2007, operating costs of $30.9 million were lower than the $32.9 million in 2006. LTIP and pension costs incurred in 2007 were slightly lower than the costs recorded in 2006.

Earnings Before Interest and Taxes (EBIT)

On a consolidated basis, EBIT in 2007 increased by 22.0% over 2006 to $455.8 million. EBIT in the prior year included gains realized on the disposal of surplus properties in Canada and a portion of OEM's business. Adjusting prior year results for these gains, EBIT in 2007 was up 28.2%. Gross profit increased 16.9% to $1,599.2 million in 2007 compared with 2006, up in all business segments. The increase in gross profit was partially offset by an increase in SG&A costs. SG&A costs were higher in 2007 compared with 2006, reflecting higher costs incurred to meet customer demand and inflationary cost increases in South America. EBIT continued to be negatively impacted in 2007 due to the stronger Canadian dollar relative to the U.S. dollar. EBIT as a percentage of revenue increased from 7.7% in 2006 to 8.0% in 2007. Excluding the prior year gains on dispositions noted above, EBIT margin in 2006 would have been 7.3% compared with 8.0% in 2007.

To view EBIT by operation graph, please click on the following link: http://media3.marketwire.com/docs/FTT_j.jpg



Major components of the annual EBIT variance were:

($ millions)
2006 EBIT 373.7
Net growth in operations 101.6
Gain on sale of OEM's railroad and non-Cat
remanufacturing business in 2006 (5.3)
Gain on sale of properties in Canada in 2006 (12.9)
Lower pension expense 8.1
Foreign exchange impact (19.0)
Other net expenses (see Note 2 to the
Consolidated Financial Statements) 9.6
----------
2007 EBIT 455.8
----------
----------


Finance Costs

Finance costs for the year ended December 31, 2007 of $72.8 million were 4.3% higher than 2006. Finance costs in 2006 included a charge of approximately $8.9 million, reflecting costs associated with the recognition of deferred financing costs and related redemption costs. These costs arose following the sale of the Company's Materials Handling Division in the U.K., as the Company used a portion of the proceeds to redeem Pounds Sterling 75 million of its Pounds Sterling 200 million Eurobond notes. Adjusting for the costs associated with the redemption of the Eurobond notes in 2006, finance costs from continuing operations increased 19.5% in 2007 due to:

- Higher average debt levels at each of the Company's operations to support working capital requirements and investment in rental assets.

- Higher short-term interest rates.

Provision for Income Taxes

Finning's 2007 annual income tax expense was $102.9 million (26.9% effective tax rate) compared with $67.7 million (22.3% effective tax rate) for 2006. The higher effective tax rate in 2007 reflects a reduced benefit realized from tax planning strategies and a change in the Company's earnings mix with proportionately more income earned in the higher tax jurisdictions of Canada and the UK. The income tax provision in 2006 was also lower due to a lower capital tax rate on gains on property sales in Canada.

Management anticipates that for 2008, the consolidated effective tax rate will approximate 25 - 30%.

Net Income

Finning's net income from continuing operations increased 18.6% to $280.1 million in 2007 compared with $236.2 million in 2006, reflecting the strength in the Company's Canadian and South American operations as well as improved results from the UK Group. Annual 2007 results were impacted by higher costs to meet customer demand, inflationary operating cost pressures in certain markets, and the unfavourable impact of foreign exchange translation. Finning's 2006 earnings included after-tax gains on the sale of certain properties in Canada and a portion of the OEM business, partially offset by incremental finance costs incurred on the early partial repayment of the Eurobond notes.

Basic EPS from continuing operations increased 18.9% to $1.57 in 2007 compared with $1.32 in 2006. Excluding the gains and incremental finance costs incurred in 2006 noted above, basic EPS would have been $1.27 in 2006, 23.6% lower than 2007.

Liquidity and Capital Resources

Management of the Company assesses liquidity in terms of Finning's ability to generate sufficient cash flow to fund its operations. Net cash flow is affected by the following items:

- operating activities, including the level of accounts receivable, inventories, accounts payable, rental equipment, and financing provided to customers;

- investing activities, including acquisitions of complementary businesses, divestitures of non-core businesses, and capital expenditures; and

- external financing, including bank credit facilities, commercial paper, and other capital market activities, providing both short and long-term financing.

Cash Flow from Operating Activities

For the year ended December 31, 2007, cash flow after working capital changes was $404.4 million, a decrease from cash flow of $460.2 million generated last year. Cash flow before working capital changes from operations increased in 2007 compared to 2006. This was offset by a significant increase in working capital in the first half of 2007 as a result of the timing of equipment and parts deliveries in relation to strong customer demand requirements in 2007, and increased funding of pension plans. Throughout all operations, management continues to focus on improving cash cycle times and operating efficiencies, which was evident in the last half of 2007.

The Company made a net investment in rental assets of $474.6 million during 2007 compared to $343.6 million in 2006, above its annual target of $325 million to $375 million. Rental expenditures increased as the Company experienced higher demand for these assets in all rental lines of business. Rental assets continued to be replenished where they have been utilized to help meet customer demand and offset product availability issues. Rental additions were also higher in the Finning UK Group due to the deferred delivery of rental assets at Hewden into 2007 from the prior year.

Overall, cash flow used by operating activities was $56.7 million in 2007 compared to cash flow provided by operations of $97.2 million in 2006. Cash flow used by operating activities in 2007 was below the Company's target due to strong growth in the Company's business and customer demands required an increase in working capital and rental assets.

Cash Used For Investing Activities

Net cash provided by investing activities in 2007 totalled $181.3 million compared with $107.8 million in 2006. The primary source of cash in 2007 was the net proceeds of $242.9 million received on the sale of the Tool Hire division, and in 2006 was the net proceeds of $170.6 million received on the sale of the Materials Handling Division.

Cash used for capital additions for the year ended December 31, 2007 was $74.2 million compared with $76.1 million for the year ended December 31, 2006. The capital additions in 2007 and 2006 reflect general capital spending to support operations and also included the capitalization of certain costs related to the development of Hewden's new information system.

In 2007, the Company's Canadian operations acquired a Cat Rental Store for $2.7 million and in the third quarter of 2006, the Company made a $10.3 million investment in a new Cat Rental Store.

Proceeds of approximately $4.1 million were paid in 2007 and $6.4 million were received in 2006 on the settlement of foreign currency forwards that hedged foreign subsidiary investments. In 2006, proceeds of $5.3 million were received on the divestiture of a portion of the OEM Remanufacturing business. Investing activities in 2006 also reflected the payment of a $22.4 million (U.S. $20 million) purchase price adjustment as a result of achieving performance criteria by the Argentina Caterpillar dealership acquired by Finning in 2003.

The Company's planned net capital expenditures for 2008 are projected to be in the range of $110 million to $120 million and will be funded through cash flows from operations. This excludes any capital acquired as a result of an acquisition. Net rental additions for 2008 are projected to be in the $300 million to $320 million range.

The Company believes that internally generated cash flow, supplemented by borrowing from existing financing sources, if necessary, will be sufficient to meet anticipated capital expenditures and other cash requirements in 2008. At this time, the Company does not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of cash.

Financing Activities

To complement the internally generated funds from operating and investing activities, the Company has approximately $1,380 million in unsecured credit facilities. Included in this amount is a committed five-year global syndicated bank credit facility entered into in 2005 and maturing in 2011. At December 31, 2007, approximately $560 million was drawn on or backed by the Company's credit facilities.

Longer-term capital resources are provided by direct access to capital markets. The Company is rated by both Standard & Poor's (S&P) and Dominion Bond Rating Service (DBRS). In 2007, the Company's short-term and long-term debt ratings were both reconfirmed at R-1 (low) and BBB (high), respectively, by DBRS. In addition, the Company's long-term debt rating was reconfirmed at BBB+ by S&P. The Company continues to utilize the Canadian commercial paper market as its principal source of short-term funding in Canada. The Company's commercial paper program is backstopped by the global syndicated credit facility. In February 2008, the maximum authorized limit of the Company's commercial paper program was increased from $500 million to $600 million.

As at December 31, 2007, the Company's short and long-term borrowings totalled $1,177.0 million, an increase of $13.4 million or 1.2% since December 31, 2006.

In 2006, following the sale of the Company's Materials Handling Division in the U.K., the Company used a portion of the proceeds to redeem Pounds Sterling 75 million ($156.6 million) of the original Pounds Sterling 200 million Eurobond. In addition, the Company repaid its $75.0 million 6.60% debenture, on maturity, with short-term borrowings from its commercial paper program.

In 2007, an additional pension payment of $17.1 million was made to fund the UK pension plans as agreed at the time of the sale of the Materials Handling Division. In addition, the Company repurchased previously securitized receivables for cash of $45 million.

On May 9, 2007, the Company's shareholders approved a split of the Company's outstanding common shares on a two-for-one basis. Each shareholder of record at the close of business on May 30, 2007, received one additional share for every outstanding share held on the record date. All stock-based compensation plans, share, and per-share data have been adjusted to reflect the stock split.

As a result of the Board's confidence in the future earnings for the Company and its ongoing commitment to the return of value to its shareholders, the Company increased its quarterly dividend in May 2007 by one cent to nine cents per common share, and in November 2007 by a further one cent to ten cents per common share. As a result, dividends paid to shareholders increased in 2007 by $15.3 million to $64.5 million.

The Company has an active share repurchase program in effect until March 29, 2008. During 2007, the Company repurchased 3,691,400 common shares at an average price of $27.82 for an aggregate amount of $102.7 million.

The Company's overall debt to total capital ratio was 42% at the end of 2007 and 2006. The total debt to capital ratio is comparable, year over year, with overall debt levels remaining fairly constant.

Contractual Obligations

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



---------------------------------------------------------------------------
($ millions) 2008 2009 2010 2011 2012 Thereafter Total
---------------------------------------------------------------------------
Long-term debt
- principal
repayment $ 215.7 $ 4.0 $ 4.0 $ 339.5 $ - $ 242.9 $ 806.1
- interest 37.6 29.9 29.6 28.9 13.8 5.6 145.4
Operating leases 70.5 59.8 52.0 38.9 28.1 164.1 413.4
Capital leases 2.3 1.8 1.4 1.2 1.0 15.8 23.5
---------------------------------------------------------------------------
Total contractual
obligations $ 326.1 $ 95.5 $ 87.0 $ 408.5 $ 42.9 $ 428.4 $1,388.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Off-Balance Sheet Arrangement

In 2002, the Company entered into an arrangement and sold a $45.0 million co-ownership interest in a pool of eligible non-interest bearing trade receivables to a multi-seller securitization trust (the "Trust"), net of overcollateralization. Under the terms of the agreement, which expired on November 29, 2007, the Company could sell co-ownership interests of up to $120.0 million on a revolving basis. The Company retained a subordinated interest in the cash flows arising from the eligible receivables underlying the Trust's co-ownership interest. The Trust and its investors did not have recourse to the Company's other assets in the event that obligors failed to pay the underlying receivables when due. Pursuant to the agreement, the Company serviced the pool of underlying receivables.

On the expiry date, the Company terminated the co-ownership interests, ceased all securitization of its accounts receivable, and repurchased previously securitized receivables for cash of $45.0 million. At December 31, 2006, the Company carried a retained interest in the transferred receivables in the amount of $9.5 million, which equalled the amount of overcollateralization in the receivables it sold, which was reported on the consolidated balance sheets in other current assets.

For the 2007 period up to the repurchase of the receivables held by the Trust, the Company recognized a pre-tax loss of $1.8 million (2006: $2.0 million) relating to these transfers.

Proceeds from revolving reinvestment of collections were $451.9 million in 2007 (2006: $520.6 million).

Employee Share Purchase Plan

The Company has an employee share purchase plan for its Canadian employees. Under the terms of this plan, eligible employees may purchase common shares of the Company in the open market at the current market price. The Company pays a portion of the purchase price to a maximum of 2% of employee earnings. At December 31, 2007, 72% of Canadian employees were contributing to this plan. The Company has an All Employee Share Purchase Ownership Plan for its employees in Finning (UK) and Hewden. Under the terms of this plan, employees may contribute up to 10% of their salary to a maximum of Pounds Sterling 125.00 per month. The Company will provide one common share, purchased in the open market, for every three shares the employee purchases. At December 31, 2007, 26% and 14% of eligible employees in Finning (UK) and Hewden, respectively, were contributing to this plan. These plans may be cancelled by Finning at any time.

Accounting Estimates and Contingencies

Accounting, Valuation and Reporting

Changes in the rules or standards governing accounting can impact our financial reporting. The Company employs professionally qualified accountants throughout its finance group and all of the operating unit financial officers have a reporting relationship to the Chief Financial Officer (CFO). Senior financial representatives are assigned to all significant projects that impact financial accounting and reporting systems. 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, and there is restricted physical access to the Treasury and cash settlements area. Accounting, measurement, valuation, and reporting of accounts, which involve estimates and / or valuations, are reviewed quarterly by the CFO and the Audit Committee of the Board of Directors. Significant accounting and financial topics and issues are presented to and discussed with the Audit Committee.

In 2006, Canada's Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The official changeover date from Canadian GAAP to IFRS is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. As the International Accounting Standards Board currently has projects underway that should result in new pronouncements and since this Canadian convergence initiative is very much in its infancy as of the date of these statements, the Company has not yet assessed the impact of the ultimate adoption of IFRS on the Company. The Company seeks to have a global plan in place for 2008, and believes it has the adequate human and financial resources and project oversight in order to be able to meet the implementation timelines currently contemplated by the regulators.

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

A significant portion of goodwill recorded on the consolidated balance sheets relates to the Company's investment in Hewden Stuart plc, acquired in 2001. The Company performs impairment tests on its goodwill balances on at least an annual basis or as warranted by events or circumstances. During the year, the Company performed its assessment of goodwill by estimating the fair value of operations to which the goodwill relates using the present value of expected discounted future cash flows, which resulted in no impairment in 2007.

Due to the size, complexity, and nature of the Company's operations, various legal and tax matters are pending. In the opinion of management, none of these matters will have a material effect on the Company's consolidated financial position or results of operations.

Income Taxes

The Company exercises judgment in estimating the provision for income taxes. Provisions for federal, provincial, and foreign taxes are based on the respective laws and regulations in each jurisdiction within which the Company operates. These complex laws and regulations are potentially subject to different interpretation between the Company and the respective tax authority. Due to the number of variables associated with the differing tax laws and regulations across the multiple jurisdictions, the precision and reliability of the resulting estimates are subject to uncertainties and may change as additional information becomes known.

Future income tax assets and liabilities are comprised of the tax effect of temporary differences between the carrying amount and tax basis of assets and liabilities as well as the tax effect of undeducted tax losses, and are measured according to the income tax law that is expected to apply when the asset is realized or liability settled. Assumptions underlying the composition of future income tax assets and liabilities include estimates of future results of operations and the timing of reversal of temporary differences as well as the tax rates and laws in each respective jurisdiction at the time of the expected reversal. The composition of future income tax assets and liabilities is reasonably likely to change from period to period due to the uncertainties surrounding these assumptions.

Description of Non-GAAP Measure

EBIT is defined herein as earnings from continuing operations before interest expense, interest income, and income taxes and is a measure of performance utilized by management to measure and evaluate the financial performance of its operating segments. It is also a measure that is commonly reported and widely used in the industry to assist in understanding and comparing operating results. EBIT does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Accordingly, this measure should not be considered as a substitute or alternative for net income or cash flow, in each case as determined in accordance with GAAP.

Reconciliation between EBIT and net income from continuing operations:



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For years ended December 31
($ millions) 2007 2006
--------------------------------------------------------------------------
Earnings from continuing operations before
interest and income taxes (EBIT) $ 455.8 $ 373.7
Finance costs (72.8) (69.8)
Provision for income taxes (102.9) (67.7)
--------------------------------------------------------------------------
Net income from continuing operations $ 280.1 $ 236.2
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Risk Management

Finning and its subsidiaries are exposed to market, financial, and other risks in the normal course of their business activities. The Company has adopted an Enterprise Risk Management (ERM) approach in identifying, prioritizing, and evaluating risks. This ERM framework assists the Company in managing business activities and risks across the organization in order to achieve the Company's strategic objectives.

The Company is dedicated to a strong risk management culture to protect and enhance shareholder value. The processes within Finning's risk management function are designed to ensure that risks are properly identified, managed, and reported. The Company discloses all of its key risks in its most recent Annual Information Form (AIF) with key financial risks also included herein. On a quarterly basis, the Company assesses all of its key risks and any changes to key financial or business risks are disclosed in the Company's quarterly MD&A.

Financial Derivatives

The Company uses various financial instruments such as interest rate swaps and forward foreign exchange contracts as well as foreign currency debt to manage its foreign exchange exposures, interest rate exposures, and expenses which fluctuate with share price movements (see Notes 3 and 4 of Notes to the Consolidated Financial Statements). The Company uses derivative financial instruments only in connection with managing related risk positions and does not use them for trading or speculative purposes.

The Company continually evaluates and manages risks associated with financial derivatives, which includes counterparty credit exposure. The Company manages its credit exposure by ensuring there is no significant concentration of credit risk with a single counterparty, and by dealing only with highly rated financial institutions as counterparties.

Financial Risks and Uncertainties

Interest rates

The Company's debt portfolio is comprised of both fixed and floating rate debt instruments, with terms to maturity ranging up to six years. In relation to its debt financing, the Company is exposed to potential changes in interest rates, which may cause the Company's borrowing costs to fluctuate. Floating rate debt exposes the Company to fluctuations in short-term interest rates, while fixed rate debt exposes the Company to future interest rate movements upon refinancing the debt at maturity. Fluctuations in current or future interest rates could result in a material adverse impact on the Company's financial results by causing related finance expense to rise. Further, the fair value of the Company's fixed rate debt obligations may be negatively affected by declines in interest rates, thereby exposing the Company to potential losses on early settlements or refinancing. The Company minimizes its interest rate risk by balancing its portfolio of fixed and floating rate debt, as well as managing the term to maturity of its debt portfolio. At certain times the Company utilizes derivative instruments such as interest rate swaps to adjust the balance of fixed and floating rate debt to appropriately determined levels.

Credit Risk

The Company has a large diversified customer base, and is not dependent on any single customer or group of customers. Credit risk is minimized because of the diversification of the Company's operations as well as its large customer base and its geographical dispersion. Although there is usually no significant concentration of credit risk related to the Company's position in trade accounts or notes receivable, the Company does have a certain degree of credit exposure arising from its foreign exchange derivative contracts. There is a risk that counterparties to these derivative contracts may default on their obligations. However, the Company minimizes this risk by ensuring there is no excessive concentration of credit risk with any single counterparty, by active credit management and monitoring, and by dealing only with highly rated financial institutions.

Financing arrangements

The Company will require capital to finance its future growth and to refinance its outstanding debt obligations as they come due for repayment. If the cash generated from the Company's business, together with the credit available under available bank facilities, is not sufficient to fund future capital requirements, the Company will require additional debt or equity financing in the capital markets. The Company's ability to access capital markets on terms that are acceptable will be dependent upon prevailing market conditions, as well as the Company's future financial condition. Further, the Company's ability to increase its debt financing may be limited by its financial covenants or its credit rating objectives. Although the Company does not anticipate any difficulties in raising necessary funds in the future, there can be no assurance that capital will be available on suitable terms and conditions, or that borrowing costs and credit ratings will not be adversely affected. In addition, the Company's current financing arrangements contain certain restrictive covenants that may impact the Company's future operating and financial flexibility.

Commodity prices

The Company's revenues can be affected by fluctuations in commodity prices; in particular, changes in views on long-term commodity prices. In Canada, commodity price movements in the metals, coal, forestry, and petroleum sectors can have an impact on customers' demands for equipment and customer service. In Chile and Argentina, significant fluctuations in the price of copper and gold can have similar effects, and customers base their capital expenditure decisions on the long-term outlook for metals. In the U.K., changes to prices for thermal coal may impact equipment demand in that sector. While commodity prices continue to be strong, significant fluctuations in future commodity prices could result in a material adverse impact on the Company's financial results.

Foreign exchange exposure

The Company is geographically diversified, with significant investments in several different countries. The Company transacts business in multiple currencies, the most significant of which are the U.S. dollar, the Canadian dollar, the U.K. pound sterling, and the Chilean peso. As a result, the Company has a certain degree of foreign currency exposure with respect to items denominated in foreign currencies. The three main types of foreign exchange risk of the Company can be categorized as follows:

Investment in Foreign Operations

All of the Company's foreign operations are considered self-sustaining. Accordingly, assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the balance sheet dates. Any unrealized translation gains and losses are recorded as an item of comprehensive income and accumulated other comprehensive income. Cumulative currency translation adjustments are recognized in net income when there is a reduction in the Company's net investment in the self-sustaining foreign operations.

It is the Company's objective to manage its exposure in net foreign investments. The Company has hedged a portion of its foreign investments through foreign currency denominated loans and other derivative contracts. Any exchange gains or losses arising from the translation of the hedging instruments are recorded as an item of comprehensive income and accumulated other comprehensive income. A 5% hypothetical strengthening of the Canadian dollar relative to all other currencies from the December 2007 month end rates, assuming the same current level of hedging instruments, would result in an after tax deferred unrealized loss of approximately $50 million.

Transaction Exposure

Many of the Company's operations purchase, sell, rent, and lease products as well as incur costs throughout the world using different currencies. This potential mismatch of currencies creates transactional exposure at the operational level, which may affect the Company's profitability as exchange rates fluctuate. It may also impact the Company's competitive position as relative currency movements affect the business practices and/or pricing strategies of the Company's competitors.

It is the Company's objective to manage the impact of exchange rate movements and volatility in results. Each operation manages the majority of its transactional exposure through effective sales pricing policies. The Company also enters into forward exchange contracts to manage residual mismatches in foreign currency cash flows. As a result, the foreign exchange impact on earnings with respect to transactional activity is not significant.

Translation Exposure

The most significant foreign exchange impact on the Company's net income is the translation of foreign currency based earnings into Canadian dollars each reporting period. All of the Company's foreign subsidiaries report their operating results in currencies other than the Canadian dollar. Therefore, exchange rate movements in the U.S. dollar and U.K. pound sterling relative to the Canadian dollar will impact the consolidated results of the South American and U.K. operations in Canadian dollar terms. In addition, the Company's Canadian results are impacted by the translation of their U.S. dollar based earnings. Some of the Company's earnings translation exposure is offset by interest on foreign currency denominated loans and derivative contracts associated with the net investment hedges.

Sensitivity to variances in foreign exchange rates

The sensitivity of the Company's net earnings to fluctuations in average annual foreign exchange rates is summarized in the table below. The table assumes that the Canadian dollar strengthens 5% against the currency noted, for a full year relative to the December 2007 month end rates, without any change in local currency volumes or hedging activities.



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Increase (decrease)
December 31, 2007 in annual net income
Currency month end rates $ millions
-------------------------------------------------------------------
USD 0.9881 (16)
GBP 1.9600 (1)
CHP 0.0020 3


The sensitivities noted above ignore the impact of exchange rate movements on other macroeconomic variables, including overall levels of demand and relative competitive advantages. If it were possible to quantify these impacts, the results would likely be different from the sensitivities shown above.

Controls and Procedures Certification

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial and non-financial information regarding the Company. Such controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public disclosure.

The Company has a Disclosure Policy and a Disclosure Committee in place to mitigate risks associated with the disclosure of inaccurate or incomplete information, or failure to disclose required information.

- The Disclosure Policy sets out accountabilities, authorized spokespersons, and Finning's approach to the determination, preparation, and dissemination of material information. The policy also defines restrictions on insider trading and the handling of confidential information.

- A Disclosure Committee, consisting of senior management and external legal counsel, review all financial information prepared for communication to the public to ensure it meets all regulatory requirements and is responsible for raising all outstanding issues it believes require the attention of the Audit Committee prior to recommending disclosure for that Committee's approval.

As required by Multilateral Instrument 52-109, "Certification of Disclosure in Issuers' Annual and Interim Filings" issued by the Canadian Securities regulatory authorities, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was conducted as of December 31, 2007, by and under the supervision of management, including the CEO and CFO. The evaluation included documentation review, enquiries, and other procedures considered by management to be appropriate in the circumstances.

Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls were effective as of December 31, 2007.

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian generally accepted accounting principles.

There have been no changes in internal control over financial reporting during the year ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Selected Quarterly Information



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$ millions, except for 2007
share and option data Q4 Q3 Q2 Q1
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Revenue (1)
Canada $ 750.3 $ 639.9 $ 846.4 $ 699.6
South America 348.0 317.4 321.6 338.6
UK Group 361.2 371.8 329.6 337.8
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Total revenue $ 1,459.5 $ 1,329.1 $ 1,497.6 $ 1,376.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income (loss) (1)
from continuing
operations $ 70.5 $ 63.6 $ 75.3 $ 70.7
from discontinued
operations - - (1.2) (0.8)
--------------------------------------------------------------------------
Total net income $ 70.5 $ 63.6 $ 74.1 $ 69.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic Earnings (Loss)
Per Share (1) (2)
from continuing
operations $ 0.40 $ 0.35 $ 0.42 $ 0.39
from discontinued
operations - - (0.01) -
--------------------------------------------------------------------------
Total basic EPS $ 0.40 $ 0.35 $ 0.41 $ 0.39
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted Earnings (Loss)
Per Share (2)
from continuing
operations $ 0.39 $ 0.35 $ 0.42 $ 0.39
from discontinued
operations - - (0.01) -
--------------------------------------------------------------------------
Total diluted EPS $ 0.39 $ 0.35 $ 0.41 $ 0.39
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total assets (1) $ 4,134.2 $ 4,079.7 $ 4,434.4 $ 4,386.2
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Long-term debt
Current $ 215.7 $ 204.2 $ 204.1 $ 2.2
Non-current 590.4 554.5 600.6 753.8
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Total long-term
debt (3) $ 806.1 $ 758.7 $ 804.7 $ 756.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash dividends paid per
common share (2) $ 0.10 $ 0.09 $ 0.09 $ 0.08
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Common shares
outstanding
(000's) (2) 176,132 178,521 179,601 179,272
--------------------------------------------------------------------------
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Options outstanding
(000's) (2) 4,656 4,737 4,934 3,606
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--------------------------------------------------------------------------
2006
Q4 Q3 Q2 Q1
--------------------------------------------------------------------------
Revenue (1)
Canada $ 737.0 $ 594.7 $ 681.0 $ 599.9
South America 301.0 261.0 216.2 231.7
UK Group 327.1 312.0 294.5 297.1
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Total revenue $ 1,365.1 $ 1,167.7 $ 1,191.7 $ 1,128.7
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income (loss) (1)
from continuing
operations $ 53.1 $ 71.8 $ 56.0 $ 55.3
from discontinued
operations (0.4) (33.9) 0.6 1.6
--------------------------------------------------------------------------
Total net income $ 52.7 $ 37.9 $ 56.6 $ 56.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic Earnings (Loss)
Per Share (1) (2)
from continuing
operations $ 0.30 $ 0.40 $ 0.31 $ 0.31
from discontinued
operations - (0.19) - 0.01
--------------------------------------------------------------------------
Total basic EPS $ 0.30 $ 0.21 $ 0.31 $ 0.32
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--------------------------------------------------------------------------
Diluted Earnings (Loss)
Per Share (2)
from continuing
operations $ 0.29 $ 0.40 $ 0.31 $ 0.31
from discontinued
operations - (0.19) - 0.01
--------------------------------------------------------------------------
Total diluted EPS $ 0.29 $ 0.21 $ 0.31 $ 0.32
--------------------------------------------------------------------------
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Total assets (1) $ 4,200.8 $ 3,786.4 $ 3,900.2 $ 3,868.0
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Long-term debt
Current $ 2.2 $ 79.3 $ 79.1 $ 80.3
Non-current 735.9 710.7 851.5 848.9
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Total long-term
debt (3) $ 738.1 $ 790.0 $ 930.6 $ 929.2
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Cash dividends paid
per common share (2) $ 0.08 $ 0.065 $ 0.065 $ 0.065
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Common shares
outstanding
(000's) (2) 179,090 178,808 178,778 178,742
--------------------------------------------------------------------------
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Options outstanding
(000's) (2) 3,904 4,302 4,330 2,610
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(1) On July 31, 2007, the Company's U.K. subsidiary, Hewden Stuart Plc,
sold its Tool Hire Division. On September 29, 2006, the Company's
U.K. subsidiary, Finning (UK), sold its Materials Handling Division.

Results from the Tool Hire and Materials Handling divisions qualify as
discontinued operations and have been reclassified to that category
for all periods presented. Included in the loss from discontinued
operations in the third quarter of 2007 is the after-tax gain on the
sale of the Tool Hire Division of $0.1 million. Restructuring and
other costs associated with the disposition of $2.0 million after
tax were recorded in the second and third quarters of 2007. Included
in the loss from discontinued operations in the third quarter of 2006
is the after-tax loss on the sale of the Materials Handling Division
of $32.7 million or $0.18 per share. Revenues from the UK Tool Hire
and Materials Handling divisions have been excluded from the revenue
figures above. Assets from the Tool Hire and Materials Handling
divisions have been included in the total assets figures for periods
prior to their sale - see Note 13 to the Consolidated Financial
Statements.

(2) On May 9, 2007, the Company's shareholders approved a split of the
Company's outstanding common shares on a two-for-one basis. Each
shareholder of record at the close of business on May 30, 2007,
received one additional share for every outstanding share held on
the record date. All share and per-share data have been adjusted to
reflect the stock split. During 2007, the Company repurchased
3,691,400 common shares at an average price of $27.82 as part of a
normal course issuer bid.

Earnings per share (EPS) for each quarter has been computed based on
the weighted average number of shares issued and outstanding during
the respective quarter; therefore, quarterly amounts may not add to
the annual total.

(3) In the third quarter of 2006, the Company utilized funds from the
sale of the UK Materials Handling Division to redeem Pounds Sterling
75 million of its Pounds Sterling 200 million Eurobond notes.


New Accounting Pronouncements

Changes Adopted in 2007

(a) Financial Instruments and Comprehensive Income

Effective January 1, 2007, the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (CICA): Handbook Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; Section 3865, Hedges; Section 3251, Equity; and Section 3861 Financial Instruments - Disclosure and Presentation. These new standards require all derivatives to be recorded on the balance sheet at fair value and establish new accounting requirements for hedges. In addition, these standards provide guidance for reporting items in other comprehensive income, which is included on the consolidated balance sheets as accumulated other comprehensive income or loss, a separate component of shareholders' equity.

If a derivative qualifies as a hedge, depending on the nature of the hedge, the effective portion of changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of designated hedges will be recognized immediately in income.

The new standards have been applied prospectively; accordingly comparative periods have not been restated. However, prior period financial statements retroactively reflect the classification of currency translation adjustments on the Company's net investment in self-sustaining operations and related hedging gains and losses as components of other comprehensive income. As at January 1, 2007, the impact on the consolidated balance sheet as a result of the adoption of these standards was a decrease in other long-term assets of $8.4 million; an increase in future income tax assets of $5.9 million; a decrease in accounts payable of $4.5 million; a decrease in long-term obligations of $13.1 million; a decrease of $0.8 million in long-term debt; an increase of $5.7 million in accumulated other comprehensive income; and an increase in retained earnings of $10.2 million.

The effect on net income for the year ended December 31, 2007 as a result of adopting the new standards is not material.

Details of the specific impact of these standards on the Company are disclosed in Note 1 to the Company's Consolidated Financial Statements.

(b) Capital Disclosures

Effective December 31, 2007, the Company early adopted the new recommendations of the CICA for disclosure of the Company's objectives, policies, and processes for managing capital, in accordance with Section 1535 Capital Disclosures (see Note 25 to the Company's Consolidated Financial Statements).

Recent Accounting Pronouncements

(a) Financial Instrument Disclosures

In March 2007, the CICA issued Section 3862 Financial Instruments - Disclosures and Section 3863 Financial Instruments - Presentation, which together comprise a complete set of disclosure and presentation requirements that revise and enhance current disclosure requirements for financial instruments. Section 3862 requires disclosure of additional detail by financial asset and liability categories. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset.

The Company will implement these disclosures in the first quarter of 2008.

(b) Inventories

In June 2007, the CICA issued Section 3031 Inventories which provides more guidance on the measurement and disclosure requirements for inventories. Specifically the new pronouncement requires inventories to be measured at the lower of cost and net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The new pronouncement is effective in the first quarter of 2008, and the new standard is not expected to have a material impact on the Company's net income.

(c) Goodwill and Intangible Assets

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. This Section is effective in the first quarter of 2009, and the Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

(d) Convergence with International Financial Reporting Standards

In 2006, Canada's Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The official changeover date from Canadian GAAP to IFRS is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. As the International Accounting Standards Board currently has projects underway that should result in new pronouncements and since this Canadian convergence initiative is very much in its infancy as of the date of this MD&A, the Company has not yet assessed the impact of the ultimate adoption of IFRS on the Company.

Market Outlook

The outlook for Finning's businesses remains solid. The Company's order backlog remains at robust levels and the near term outlook for certain key commodities remains positive. As well, attendant infrastructure in the Company's market areas supports the demand for both equipment and parts and service.

The outlook for Finning's business in western Canada continues, on balance, to be sound. The mining industry (including the oil sands) continues to expand and capital expenditure plans for equipment remain robust for mining customers. General construction activity also continues at high levels and spending on infrastructure remains very strong. The forestry and conventional oil and gas industries in western Canada are presently undergoing challenging business conditions and equipment purchases are lower as a result. This situation is expected to continue through 2008. Weak housing markets and soft economic conditions in the United States are not having a noticeable impact on business conditions for the Company in western Canada at this time. However the economic challenges in the United States are a source of some uncertainty for future economic activity in western Canada.

The heavy equipment markets in the Company's South American operations also remain healthy and demand for the Company's products and services remains strong. The construction and power markets in Argentina and Chile are strong and demand for equipment support services continues to grow. Copper and gold prices are expected to remain at attractive levels supporting ongoing good business conditions in mining. The outlook for strong growth in sales of new mining equipment is beginning to moderate, as expected, as the number of new projects and expansions to existing mining operations slows. However, revenues from support services for mining customers will continue to grow at attractive rates over the next several years reflecting the impact of the large volume of new equipment sales to the industry in the recent past.

Business at the Caterpillar dealership in the UK has improved and is expected to continue as construction activity remains healthy. Demand for power systems products and services also remain strong. Market conditions in the UK plant hire (equipment rental) industry are reasonable, although the business remains highly competitive. At Hewden, the Company continues to manage the effects of the recent disposition of the tool hire division and the start-up of a new information system. Both items have been disruptive to normal operations. While execution of both projects has gone reasonably well to this point, ongoing management of these changes continues to challenge Hewden employees. The improved management information that will be available from the new system will take several quarters of operations to gather and analyze and the operational and pricing changes which may be driven by this information will take a further period of time to implement and become visible in operating results.

Additional human resources are required to meet the projected growth in business in western Canada and South America. To date, Finning has been successful in attracting significant numbers of new employees and anticipates it will attract the requisite human resources to meet future growth.

Finning's financial results are negatively impacted by a stronger Canadian dollar compared to the U.S. dollar and the U.K. pound sterling in the translation of its foreign currency earnings. The Company's 2008 results will be negatively impacted as a result of translating foreign currency based earnings should the strengthening of the Canadian dollar continue against the U.S. dollar and the U.K. pound sterling.

The Company's outlook remains positive for the medium term.

Selected annual information



--------------------------------------------------------------------------
($ millions, except for share data) 2007 2006 2005
--------------------------------------------------------------------------
Total revenue (1) 5,662.2 4,853.2 4,328.3
Net income (loss) (1)
from continuing operations 280.1 236.2 161.7
from discontinued operations (2.0) (32.1) 2.3
--------------------------------------------------------------------------
Total net income 278.1 204.1 164.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic Earnings (Loss) Per Share (2)
from continuing operations 1.57 1.32 0.91
from discontinued operations (0.01) (0.18) 0.01
--------------------------------------------------------------------------
Total basic EPS 1.56 1.14 0.92
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share (2)
from continuing operations 1.55 1.31 0.90
from discontinued operations (0.01) (0.18) 0.01
--------------------------------------------------------------------------
Total diluted EPS 1.54 1.13 0.91
--------------------------------------------------------------------------
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Total assets (1) 4,134.2 4,200.8 3,736.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Long-term debt (3)
Current 215.7 2.2 80.3
Non-current 590.4 735.9 844.6
--------------------------------------------------------------------------
806.1 738.1 924.9
--------------------------------------------------------------------------
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Cash dividends declared per common share (2) 0.36 0.275 0.22
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) On July 31, 2007, the Company's U.K. subsidiary, Hewden Stuart Plc,
sold its Tool Hire Division. On September 29, 2006, the Company's U.K.
subsidiary, Finning (UK), sold its Materials Handling Division.

Results from the Tool Hire and Materials Handling divisions qualify as
discontinued operations and have been reclassified to that category
for all periods presented. Included in the loss from discontinued
operations in 2007 is the after-tax gain on the sale of the Tool Hire
Division of $0.1 million. Restructuring and other costs associated
with the disposition of $2.0 million after tax were recorded in 2007.
Included in the loss from discontinued operations in 2006 is the
after-tax loss on the sale of the Materials Handling Division of $32.7
million or $0.18 per share. Revenues from the UK Tool Hire and
Materials Handling divisions have been excluded from the revenue
figures above. Assets from the Tool Hire and Materials Handling
divisions have been included in the total assets figures for periods
prior to their sale - see Note 13 to the Consolidated Financial
Statements.

(2) On May 9, 2007, the Company's shareholders approved a split of the
Company's outstanding common shares on a two-for-one basis. Each
shareholder of record at the close of business on May 30, 2007,
received one additional share for every outstanding share held on the
record date. All share and per-share data have been adjusted to
reflect the stock split. During 2007, the Company repurchased
3,691,400 common shares at an average price of $27.82 as part of a
normal course issuer bid.

Earnings per share (EPS) for each year has been computed based on
the weighted average number of shares issued and outstanding during
the respective year.

(3) In the third quarter of 2006, the Company utilized funds from the sale
of the UK Materials Handling Division to redeem Pounds Sterling 75
million of its Pounds Sterling 200 million Eurobond notes.


Outstanding Share Data

-------------------------------------------------------------------------
As at February 15, 2008
-------------------------------------------------------------------------
Common shares outstanding 172,912,976
Options outstanding 4,595,604


Attachment 1

Supplementary Information

Quarterly Segmented Revenue Information

--------------------------------------------------------------------------
Three months ended
December 31, 2007 South UK Consol- Revenue
($ millions) Canada America Group idated percentage
--------------------------------------------------------------------------
New mobile
equipment $ 341.8 $ 154.1 $ 114.4 $ 610.3 41.8%
New power & energy
systems 45.9 35.9 61.1 142.9 9.8%
Used equipment 81.1 9.2 26.8 117.1 8.0%
Equipment rental 73.6 9.2 105.2 188.0 12.9%
Customer support
services 201.6 138.5 53.7 393.8 27.0%
Other 6.3 1.1 - 7.4 0.5%
--------------------------------------------------------------------------
Total $ 750.3 $ 348.0 $ 361.2 $ 1,459.5 100.0%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue percentage
by operations 51.4% 23.9% 24.7% 100.0%

--------------------------------------------------------------------------
Three months ended
December 31, 2006 South UK Consol- Revenue
($ millions) Canada America Group idated percentage
--------------------------------------------------------------------------
New mobile
equipment $ 300.5 $ 121.5 $ 76.6 $ 498.6 36.5%
New power & energy
systems 60.2 29.4 43.6 133.2 9.8%
Used equipment 77.7 8.1 35.0 120.8 8.9%
Equipment rental 65.9 10.2 108.0 184.1 13.5%
Customer support
services 224.7 131.0 63.9 419.6 30.7%
Other 8.0 0.8 - 8.8 0.6%
--------------------------------------------------------------------------
Total $ 737.0 $ 301.0 $ 327.1 $ 1,365.1 100.0%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue percentage
by operations 54.0% 22.0% 24.0% 100.0%


Quarterly Segmented EBIT Information

--------------------------------------------------------------------------
Three months ended
December 31, 2007 South UK Consol-
($ thousands) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external sources $ 750.3 $ 348.0 $ 361.2 $ - $ 1,459.5
Operating costs (642.4) (312.7) (309.4) (1.4) (1,265.9)
Depreciation and
amortization (40.6) (5.5) (36.1) - (82.2)
Other income
(expenses) 2.0 (1.6) 0.4 - 0.8
--------------------------------------------------------------------------
Earnings before
interest and
taxes $ 69.3 $ 28.2 $ 16.1 $ (1.4) $ 112.2
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before
interest and tax
- percentage of
revenue 9.2% 8.1% 4.5% - 7.7%
- percentage by
operations 61.8% 25.1% 14.3% (1.2)% 100.0%

--------------------------------------------------------------------------
Three months ended
December 31, 2006 South UK Consol-
($ thousands) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external sources $ 737.0 $ 301.0 $ 327.1 $ - $ 1,365.1
Operating costs (643.0) (265.3) (279.4) (16.3) (1,204.0)
Depreciation and
amortization (38.3) (6.3) (30.8) - (75.4)
Other income
(expenses) (0.1) - (1.1) (0.6) (1.8)
--------------------------------------------------------------------------
Earnings before
interest and
taxes $ 55.6 $ 29.4 $ 15.8 $ (16.9) $ 83.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before
interest and tax
- percentage of
revenue 7.5% 9.8% 4.8% - 6.2%
- percentage by
operations 66.3% 35.0% 18.8% (20.1)% 100.0%


Quarterly Consolidated Statements of Income
--------------------------------------------------------------------------
Three months ended December 31
($ thousands, except share and 2007 2006
per share amounts) unaudited unaudited
--------------------------------------------------------------------------
Revenue
New mobile equipment $ 610,301 $ 498,570
New power and energy systems 142,907 133,208
Used equipment 117,079 120,770
Equipment rental 188,021 184,140
Customer support services 393,831 419,660
Other 7,355 8,805
--------------------------------------------------------------------------
Total revenue 1,459,494 1,365,153
Cost of sales 1,050,678 993,766
--------------------------------------------------------------------------
Gross profit 408,816 371,387
Selling, general, and administrative expenses 297,491 285,649
Other expenses (income) (870) 1,836
--------------------------------------------------------------------------
Earnings from continuing operations before
interest and income taxes 112,195 83,902
Finance costs 18,943 16,454
--------------------------------------------------------------------------
Income from continuing operations before
provision for income taxes 93,252 67,448
Provision for income taxes 22,732 14,360
--------------------------------------------------------------------------
Net income from continuing operations 70,520 53,088
Loss from discontinued operations, net of tax - (418)
--------------------------------------------------------------------------
Net income $ 70,520 $ 52,670
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per share - basic
From continuing operations $ 0.40 $ 0.30
From discontinued operations - -
--------------------------------------------------------------------------
$ 0.40 $ 0.30
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per share - diluted
From continuing operations $ 0.39 $ 0.29
From discontinued operations - -
--------------------------------------------------------------------------
$ 0.39 $ 0.29
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Weighted average number of shares outstanding
Basic 177,594,478 178,924,644
Diluted 179,097,027 180,132,848


Quarterly Consolidated Statements of Cash Flow

--------------------------------------------------------------------------
Three months ended December 31 2007 2006
($ thousands) unaudited unaudited
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 70,520 $ 52,670
Add items not affecting cash
Depreciation and amortization 82,198 87,707
Future income taxes 21,246 (1,653)
Stock-based compensation (5,195) 20,657
Gain on disposal of capital assets (3,340) (1,314)
Other (178) 706
--------------------------------------------------------------------------
165,251 158,773
Changes in working capital items 56,023 (79,720)
--------------------------------------------------------------------------
Cash provided after changes in working
capital items 221,274 79,053
Rental equipment, net of disposals (14,162) (64,148)
Equipment leased to customers, net of
disposals 150 (3,247)
--------------------------------------------------------------------------
Cash flow provided by operating activities 207,262 11,658
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (22,455) (9,268)
Proceeds on disposal of capital assets 10,640 10,270
Payment of contingent consideration (500) -
Proceeds (payments) on settlement of foreign
currency forwards 673 (7,340)
--------------------------------------------------------------------------
Cash used in investing activities (11,642) (6,338)
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt (79,740) 107,950
Increase (repayment) of long-term debt 62,887 (80,350)
Repurchase of securitized accounts receivable (45,000) -
Repayment of Eurobond and premium paid - (604)
Issue of common shares on exercise of stock
options 625 2,044
Repurchase of common shares (67,325) -
Dividends paid (17,791) (14,317)
--------------------------------------------------------------------------
Cash provided by (used in) financing
activities (146,344) 14,723
--------------------------------------------------------------------------
Effect of currency translation on cash
balances (7,801) 1,811
--------------------------------------------------------------------------
Increase in cash and cash equivalents 41,475 21,854
Cash and cash equivalents, beginning of
period 20,385 56,631
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 61,860 $ 78,485
--------------------------------------------------------------------------
--------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF INCOME

--------------------------------------------------------------------------
For years ended December 31
($ thousands, except share and
per share amounts) 2007 2006
--------------------------------------------------------------------------
Revenue
New mobile equipment $ 2,233,512 $ 1,732,766
New power and energy systems 503,012 419,954
Used equipment 417,613 401,056
Equipment rental 781,194 693,183
Customer support services 1,701,253 1,583,515
Other 25,660 22,765
--------------------------------------------------------------------------
Total revenue 5,662,244 4,853,239
Cost of sales 4,063,079 3,485,710
--------------------------------------------------------------------------
Gross profit 1,599,165 1,367,529
Selling, general, and administrative expenses 1,144,753 1,003,797
Other expenses (income) (Note 2) (1,435) (9,976)
--------------------------------------------------------------------------
Earnings from continuing operations before
interest and income taxes 455,847 373,708
Finance costs (Notes 3 and 4) 72,842 69,842
--------------------------------------------------------------------------
Income from continuing operations before
provision for income taxes 383,005 303,866
Provision for income taxes (Note 5) 102,898 67,679
--------------------------------------------------------------------------
Net income from continuing operations 280,107 236,187
Loss from discontinued operations, net of tax
(Note 13) (2,050) (32,111)
--------------------------------------------------------------------------
Net income $ 278,057 $ 204,076
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings (loss) per share - basic
From continuing operations (Note 8) $ 1.57 $ 1.32
From discontinued operations (0.01) (0.18)
--------------------------------------------------------------------------
$ 1.56 $ 1.14
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings (loss) per share - diluted
From continuing operations (Note 8) $ 1.55 $ 1.31
From discontinued operations (0.01) (0.18)
--------------------------------------------------------------------------
$ 1.54 $ 1.13
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Weighted average number of shares outstanding
Basic 178,844,411 178,741,334
Diluted 180,459,955 179,798,940

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


CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (Note 17) $ 61,860 $ 78,485
Accounts receivable 713,677 666,602
Inventories
On-hand equipment 844,699 839,819
Parts and supplies 446,845 450,612
Other assets (Note 9) 181,861 196,509
--------------------------------------------------------------------------
Total current assets 2,248,942 2,232,027

Finance assets (Note 10) 26,714 34,046
Rental equipment (Note 11) 1,028,301 1,038,640
Land, buildings, and equipment (Note 12) 348,923 365,656
Intangible assets (Note 12) 24,548 24,931
Goodwill (Note 14) 251,099 381,870
Other assets (Note 9) 205,636 123,583
--------------------------------------------------------------------------
$ 4,134,163 $ 4,200,753
--------------------------------------------------------------------------
--------------------------------------------------------------------------

LIABILITIES
Current liabilities
Short-term debt (Note 3) $ 370,942 $ 425,423
Accounts payable and accruals 1,106,392 1,176,531
Income tax payable 32,440 33,554
Current portion of long-term debt (Note 3) 215,663 2,224
--------------------------------------------------------------------------
Total current liabilities 1,725,437 1,637,732

Long-term debt (Note 3) 590,382 735,926
Long-term obligations (Note 15) 101,699 131,294
Future income taxes (Note 5) 98,848 71,395
--------------------------------------------------------------------------
Total liabilities 2,516,366 2,576,347
--------------------------------------------------------------------------
Commitments and Contingencies (Notes 22 and 23)

SHAREHOLDERS' EQUITY
Share capital (Note 6) 571,402 573,482
Contributed surplus 15,356 7,791
Accumulated other comprehensive loss (232,223) (87,038)
Retained earnings 1,263,262 1,130,171
--------------------------------------------------------------------------
Total shareholders' equity 1,617,797 1,624,406
--------------------------------------------------------------------------
$ 4,134,163 $ 4,200,753
--------------------------------------------------------------------------
--------------------------------------------------------------------------

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


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Net income $ 278,057 $ 204,076

Other comprehensive income (loss),
net of income tax
Currency translation adjustments,
net of hedges - 46,098
Currency translation adjustments (194,452) -
Unrealized gains on net investment
hedges, net of tax of $20.6 million 47,394 -
Realized translation adjustment, net of
investment hedges, reclassified to
earnings on disposition of investment,
net of tax of $0.2 million 443 -
Unrealized losses on cash flow hedges,
net of tax of $1.5 million (3,512) -
Realized gains on cash flow hedges,
reclassified to earnings, net of tax
of $0.8 million (747) -
--------------------------------------------------------------------------
Comprehensive income $ 127,183 $ 250,174
--------------------------------------------------------------------------
--------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

--------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Income
Share Capital (Loss)
--------------- ----------------
Foreign
Currency
Trans-
lation
and
Gains/
(Losses) Gains/
($ on (Losses)
thousands, Net on Retain-
except Contri- Invest- Cash ed
share buted ment Flow Earn-
amounts) Shares Amount Surplus Hedges Hedges ings Total
--------------------------------------------------------------------------
Balance,
December
31,
2005 178,403,328 $568,121 $ 2,739 $(133,136) $ - $ 975,254 $1,412,978
Compreh-
ensive
income - - - 46,098 - 204,076 250,174
Issued
on
exercise
of
stock
options 687,410 5,361 (221) - - - 5,140
Stock
option
expense - - 5,273 - - - 5,273
Dividends
on
common
shares - - - - - (49,159) (49,159)
--------------------------------------------------------------------------
Balance,
December
31,
2006 179,090,738 $573,482 $ 7,791 $ (87,038) $ - $1,130,171 $1,624,406

Transition
adjustment
(Note 1) - - - 9,992 (4,303) 10,244 15,933
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance,
January
1,
2007 179,090,738 573,482 7,791 (77,046) (4,303) 1,140,415 1,640,339
Compreh-
ensive
income
(loss) - - - (146,615) (4,259) 278,057 127,183
Issued
on
exercise
of
stock
options 732,541 9,848 (1,695) - - - 8,153
Repurchase
of
common
sha-
res (3,691,400) (11,928) - - - (90,764) (102,692)
Stock
option
expense - - 9,260 - - - 9,260
Dividends
on
common
shares - - - - - (64,446) (64,446)
--------------------------------------------------------------------------
Balance,
December
31,
2007 176,131,879 $571,402 $15,356 $(223,661)$(8,562)$1,263,262 $1,617,797
--------------------------------------------------------------------------
--------------------------------------------------------------------------

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


CONSOLIDATED STATEMENTS OF CASH FLOW

--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 278,057 $ 204,076
Add items not affecting cash
Depreciation and amortization 351,289 358,089
Future income taxes 18,393 (9,518)
Stock-based compensation 25,540 25,783
Gain on disposal of capital assets (Note 2) (6,552) (21,359)
Loss (gain) on disposal of discontinued
operations (Note 13) (38,590) 33,974
Other (5,122) 8,191
--------------------------------------------------------------------------
623,015 599,236
Changes in working capital items (Note 17) (218,588) (139,026)
--------------------------------------------------------------------------
Cash provided after changes in working
capital items 404,427 460,210
Rental equipment, net of disposals (474,566) (343,564)
Equipment leased to customers, net of
disposals 13,449 (19,490)
--------------------------------------------------------------------------
Cash flow provided by (used in)
operating activities (56,690) 97,156
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (74,226) (76,074)
Proceeds on disposal of capital assets 20,212 34,171
Proceeds from sale of discontinued
operations (Note 13) 242,851 170,595
Acquisition of business (Note 14) (2,670) (10,250)
Proceeds on sale of business (Note 2) - 5,331
Payment of contingent
consideration (Note 14) (767) (22,350)
Proceeds (payments) on settlement of
foreign currency forwards (4,065) 6,383
--------------------------------------------------------------------------
Cash provided by investing activities 181,335 107,806
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt (43,608) 117,926
Increase (repayment) of long-term debt 135,642 (71,570)
Repurchase of securitized accounts
receivable (Note 19) (45,000) -
Repayment of Eurobond and
premium paid (Note 3) - (159,413)
Defined benefit pension plan special
funding (Note 18) (17,066) -
Issue of common shares on exercise
of stock options 8,153 5,140
Repurchase of common shares (Note 6) (102,692) -
Dividends paid (64,446) (49,159)
--------------------------------------------------------------------------
Cash used in financing activities (129,017) (157,076)
--------------------------------------------------------------------------
Effect of currency translation on
cash balances (12,253) 2,916
--------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (16,625) 50,802
Cash and cash equivalents, beginning of year 78,485 27,683
--------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 61,860 $ 78,485
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See supplemental cash flow information, Note 17

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


Finning International Inc.

Annual 2007 Results

Notes to Consolidated Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

These Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles and are presented in Canadian dollars, unless otherwise stated.

The significant accounting policies used in these Consolidated Financial Statements are as follows:

(a) Principles of Consolidation

The Consolidated Financial Statements include the accounts of Finning International Inc. ("Finning" or "Company"), which includes the Finning (Canada) division, Finning's wholly owned subsidiaries, and its proportionate share of joint venture investments. Principal operating subsidiaries include Finning (UK) Ltd., Finning Chile S.A., Hewden Stuart plc ("Hewden"), Finning Argentina S.A. and Finning Soluciones Mineras S.A. (in Argentina), Finning Uruguay S.A., and Finning Bolivia S.A.

For interests acquired or disposed of during the year, the results of operations are included in the consolidated statements of income from, or up to, the date of the transaction, respectively.

(b) Use of Estimates

The preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principles requires the Company's management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities. Actual amounts may differ from those estimates.

Significant estimates used in the preparation of these consolidated financial statements include, but are not limited to, fair values for goodwill impairment tests, allowance for doubtful accounts, reserves for warranty, provisions for income tax, employee future benefits, the useful lives of the rental fleet and related residual values, and costs associated with maintenance and repair contracts.

(c) Foreign Currency Translation

Transactions undertaken in foreign currencies are translated into Canadian dollars at exchange rates prevailing at the time the transactions occurred. Account balances denominated in foreign currencies are translated into Canadian dollars as follows:

- Monetary assets and liabilities are translated at exchange rates in effect at the balance sheet dates and non-monetary items are translated at historical exchange rates.

- Exchange gains and losses are included in income except where the exchange gain or loss arises from the translation of monetary items designated as hedges, in which case the gain or loss is deferred and accounted for in conjunction with the hedged asset.

Financial statements of foreign operations, all considered self-sustaining, are translated from the functional currency into Canadian dollars as follows:

- Assets and liabilities are translated using the exchange rates in effect at the balance sheet dates.

- Revenue and expense items are translated at average exchange rates prevailing during the period that the transactions occurred.

- Unrealized translation gains and losses are recorded as an item of other comprehensive income and accumulated other comprehensive income. Cumulative currency translation adjustments are recognized in net income when there is a reduction in the net investment in the self-sustaining foreign operation.

The Company has hedged some of its investments in foreign subsidiaries using derivatives and foreign denominated borrowings. Exchange gains or losses arising from the translation of the hedge instruments are accounted for as items of other comprehensive income and presented in the accumulated other comprehensive loss account on the consolidated balance sheet.

(d) Cash and Cash Equivalents

Short-term investments, consisting of highly rated and liquid money market instruments with original maturities of three months or less, are considered to be cash equivalents and are recorded at fair value, which approximates cost.

(e) Securitization of Trade Receivables

In 2002 and 2004, the Company sold a co-ownership interest in certain accounts receivable in Canada to a securitization trust (the "Trust"). These transactions were accounted for as sales to the extent that the Company was considered to have surrendered control over the interest in the accounts receivable and received proceeds from the Trust, other than a beneficial interest in the assets sold. Losses on these transactions were recognized in selling, general, and administrative expenses and were dependent in part on the previous carrying amount of the receivable interest transferred, which was allocated between the interest sold and the interest retained by the Company, based on their relative value at the date of the transfer. The Company determined fair value based on the present value of future expected cash flows using management's best estimates of key assumptions such as discount rates, weighted average life of accounts receivable, dilution rates, and credit loss ratios. The Company serviced the receivables and recognized a servicing liability on the date of the transfer, which was amortized to income over the expected life of the transferred receivable interest. In November 2007, the co-ownership interest was repurchased from the Trust and the securitization program was terminated.

(f) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined on a specific item basis for on-hand equipment. For approximately two-thirds of parts and supplies, cost is determined on a first-in, first-out basis. An average cost basis is used for the remaining inventory of parts and supplies.

(g) Other Assets

Investments in which the Company exercises significant influence, but not control, are accounted for using the equity method. A long-term investment is considered impaired if its fair value falls below its cost, and the decline is considered other than temporary.

(h) Income Taxes

The asset and liability method of tax allocation is used in accounting for income taxes. Under this method, temporary differences arising from the difference between the tax basis of an asset and a liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using tax rates anticipated to be in effect in the periods that the temporary differences are expected to reverse. The effect of a change in income tax rates on future income tax assets and liabilities is recognized in income in the period that the change becomes substantively enacted.

(i) Finance Assets

Finance assets comprises instalment notes receivables and equipment leased to customers on long-term financing leases.

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

Depreciation of equipment leased to customers is provided in equal monthly amounts over the terms of the individual leases after recognizing the estimated residual value of each unit at the end of each lease.

(j) Rental Equipment

Rental equipment is available for short and medium term rentals and is recorded at cost, net of accumulated depreciation. Cost is determined on a specific item basis. Rental equipment is depreciated to its estimated residual value over its estimated useful life on a straight-line or on an actual usage basis.

(k) Capital Assets

Land, buildings and equipment are recorded at cost, net of accumulated depreciation. Depreciation of these capital assets is recorded in selling, general, and administrative expenses in the consolidated statement of income.

Buildings and equipment are depreciated over their estimated useful lives on either a declining balance or straight-line basis using the following annual rates:



Buildings 2% - 5%
General equipment 10% - 33%
Automotive equipment 20% - 33%


Intangible assets with indefinite lives are not amortized. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives to a maximum period of ten years. Amortization is recorded in selling, general, and administrative expenses in the consolidated statement of income.

(l) Goodwill

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

(m) Asset Impairment

The Company reviews both long-lived assets to be held and used and identifiable intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas assets to be disposed of are reported at the lower of carrying amount or fair value less estimated selling costs. As at December 31, 2007 and 2006, the Company determined that there were no triggering events requiring an impairment analysis.

Goodwill and intangible assets with indefinite lives are subject to an annual assessment for impairment unless events or changes in circumstances indicate that the value may not be fully recoverable, in which case the assessment is done at that time. Goodwill and intangible assets with indefinite lives are assessed primarily by applying a fair value-based test at the reporting unit level. The fair value is estimated using the present value of expected future cash flows. The Company also considers projected future operating results, trends and other circumstances in making such evaluations. An impairment loss would be recognized to the extent the carrying amount of goodwill or intangible assets exceeds their fair value.

(n) Leases

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

(o) Asset Retirement Obligations

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

(p) Revenue Recognition

Revenue recognition, with the exception of cash sales, occurs when there is a written arrangement in the form of a contract or purchase order with the customer, a fixed or determinable sales price is established with the customer, performance requirements are achieved, and ultimate collection of the revenue is reasonably assured. Revenue is recognized as performance requirements are achieved in accordance with the following:

- Revenue from sales of equipment is recognized at the time title to the equipment and significant risks of ownership passes to the customer, which is generally at the time of shipment of the product to the customer;

- Revenue from sales of power and energy systems includes construction contracts with customers that involve the design, installation, and assembly of power and energy equipment systems. Revenue is recognized on a percentage of completion basis proportionate to the work that has been completed which is based on associated costs incurred;

- Revenue from equipment rentals and operating leases is recognized in accordance with the terms of the relevant agreement with the customer, either evenly over the term of that agreement or on a usage basis such as the number of hours that the equipment is used; and

- Revenue from customer support services includes sales of parts and servicing of equipment. For sales of parts, revenue is recognized when the part is shipped to the customer or when the part is installed in the customer's equipment. For servicing of equipment, revenue is recognized as the service work is performed. Customer support services are also offered to customers in the form of long-term maintenance and repair contracts. For these contracts, revenue is recognized on a basis proportionate to the service work that has been performed based on the parts and labour service provided. Parts revenue is recognized based on parts list price and service revenue is recognized based on standard billing labour rates. At or near the completion of the contract, any remaining deferred revenue on the contract is recognized as revenue. Any losses estimated during the term of the contract are recognized when identified.

(q) Stock-Based Compensation

The Company has stock option plans and other stock-based compensation plans for directors and certain eligible employees which are described in Note 7. Stock-based awards are measured and recognized using a fair value-based method of accounting.

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

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

(r) Employee Future Benefits

The Company and its subsidiaries offer a number of benefit plans that provide pension and other benefits to many of its employees in Canada and the U.K. These plans include defined benefit and defined contribution plans.

The Company's South American employees do not participate in employer pension plans but are covered by country specific legislation with respect to indemnity plans. The Company accrues its obligations to employees under these indemnity plans based on the actuarial valuation of anticipated payments to employees.

Defined benefit plans: The cost of pensions and other retirement benefits is determined by independent actuaries using the projected benefit method prorated on service and management's best estimates of assumptions including the expected return on plan assets and salary escalation rate, along with the use of a discount rate as prescribed under Canadian Institute of Chartered Accountants (CICA) Section 3461 Employee Future Benefits. For the purpose of calculating the expected return on plan assets, those assets are valued at market value.

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

Actuarial gains and losses arise from differences between actual experience and that expected as a result of economic, demographic, and other assumptions made. These include the difference between the actual and expected rate of return on plan assets for a period, and differences from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulated actuarial gains or losses over 10% of the greater of the accrued benefit obligation and the market value of the plan assets is amortized on a straight-line basis over the expected average remaining service life of the active employees covered by the plans.

Upon adoption of CICA 3461 on January 1, 2000, a transitional asset or obligation was determined for each plan as a result of the new standard. The Company is amortizing these transitional amounts on a straight-line basis over 13 years for the Finning (Canada) and Hewden plans and over 14 years for the Finning (UK) plan, representing the average remaining service period of employees expected to receive benefits under the benefit plans as of January 1, 2000, the transition date.

Defined contribution plans: The cost of pension benefits includes the current service cost, which comprise the actual contributions made by the Company during the year. These contributions are based on a fixed percentage of member earnings for the year.

(s) Comprehensive Income, Financial Instruments, and Hedges

Comprehensive Income

Comprehensive income comprises the Company's net income and other comprehensive income. Comprehensive income represents changes in shareholders' equity during a period arising from non-owner sources and, for the Company, other comprehensive income includes currency translation adjustments on its net investment in self-sustaining foreign operations and related hedging gains and losses, unrealized gains and losses on available-for-sale securities, and hedging gains and losses on cash flow hedges. The Company's comprehensive income, components of other comprehensive income, and accumulated other comprehensive income are presented in the Statements of Comprehensive Income and the Statements of Shareholders' Equity.

Financial Assets and Financial Liabilities

Classification

The Company has implemented the following classification of its financial assets and financial liabilities:

- Accounts and notes receivable are classified as "Loans and Receivables". They are measured at amortized cost using the effective interest rate method. At December 31, 2007, the recorded amount approximates fair value.

- Short-term and long-term debt and accounts payable and accruals are classified as "Other Financial Liabilities". They are measured at amortized cost using the effective interest rate method. At December 31, 2007, the measured amount approximates cost, with the exception of long-term debt. The estimated fair value of the Company's long-term debt as at December 31, 2007 and 2006 is disclosed in Note 4.

Transaction costs directly attributable to the acquisition or issue of a financial asset or financial liability are included in the carrying amount of the financial asset or financial liability, and are amortized to income using the effective interest rate method.

Derivatives

All derivative instruments are recorded on the balance sheet at fair value.

Embedded Derivatives

Derivatives may be embedded in other financial instruments (host instruments). Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not classified as held for trading. These embedded derivatives are measured at fair value on the balance sheet with subsequent changes in fair value recognized in income. The Company selected January 1, 2003 as its transition date for embedded derivatives. The Company has not identified any embedded derivatives that are required to be accounted for separately from the host contract.

Hedges

The Company utilizes derivative financial instruments and foreign currency debt in order to manage its foreign currency, interest rate exposures, and expenses which fluctuate with share price movements. 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 balance sheet or specific firm commitments or forecasted transactions. For hedges designated as such for accounting purposes, the Company formally assesses, both at inception and on an ongoing basis, whether the hedging item is highly effective in offsetting changes in fair value or cash flows associated with the identified hedged items. When derivative instruments have been designated as a hedge and are highly effective in offsetting the identified hedged risk, hedge accounting is applied to the derivative instruments. The ineffective portion of hedging gains and losses of highly effective hedges is reported in income. The accounting treatment for the types of hedges used by the Company is described below.

Cash Flow Hedges

The Company uses foreign exchange forward contracts to hedge the currency risk associated with certain foreign currency purchase commitments, payroll, and associated accounts payable and accounts receivable. The effective portion of hedging gains and losses associated with these cash flow hedges is recorded in other comprehensive income and is released from accumulated other comprehensive income and recorded in income when the hedged item affects income.

When a hedging instrument expires or is sold, or when a hedge is discontinued or no longer meets the criteria for hedge accounting, any accumulated gain or loss recorded in other comprehensive income at that time remains in other comprehensive income until the originally hedged transaction is recorded. 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 income statement.

Gains and losses relating to forward foreign exchange contracts that are not designated as hedges for accounting purposes are recorded in selling, general, and administrative expenses.

From time to time, the Company uses derivative financial instruments to hedge interest rate risk associated with future proceeds of debt.

As at December 31, 2007, approximately $0.4 million of deferred net losses (net of tax) included in accumulated other comprehensive income are expected to be reclassified to current earnings over the next twelve months when earnings are affected by the hedged transactions.

Fair Value Hedges

Changes in the fair value of derivatives designated and qualifying as fair value hedging instruments are recorded in income along with changes in the fair value of the hedged item attributable to the hedged risk.

Generally, if a hedging relationship no longer meets the criteria for hedge accounting, the cumulative adjustment to the carrying amount of the hedged item is amortized to income based on a recalculated effective interest rate over the remaining expected life of the hedged item, unless the hedged item has been derecognized in which case the cumulative adjustment is recorded immediately in the income statement.

Net Investment Hedges

The Company uses forward contracts, cross-currency interest rate swaps, and foreign currency debt to hedge foreign currency gains and losses on its long-term net investments in self-sustaining foreign operations. The effective portion of the gain or loss of such instruments associated with the hedged risk is recorded in other comprehensive income each period. These gains or losses will be recorded in income in the same period during which corresponding exchange gains or losses arising from the translation of the financial statements of self-sustaining foreign operations are recognized in net income.

The Company uses the forward rate method for net investment hedges where derivative financial instruments are used. The Company uses the spot method, as required, when the Company uses debt to hedge foreign currency net investments.

(t) Change in Accounting Policies

Effective January 1, 2007, the Company adopted the following new accounting standards issued by the CICA: Handbook Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; Section 3865, Hedges; Section 3251, Equity; and Section 3861, Financial Instruments - Disclosure and Presentation (the New Standards). The New Standards require all derivatives to be recorded on the balance sheet at fair value and establish new accounting requirements for hedges. In addition, these standards provide guidance for reporting items in other comprehensive income, which is included on the Consolidated Balance Sheets as accumulated other comprehensive income or loss, a separate component of shareholders' equity.

If a derivative qualifies as a hedge, depending on the nature of the hedge, the effective portion of changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of designated hedges will be recognized immediately in income.

The New Standards have been applied prospectively; accordingly comparative periods have not been restated. However, prior period financial statements retroactively reflect the classification of currency translation adjustments on the Company's net investment in self-sustaining operations and related hedging gains and losses as components of other comprehensive income. The adoption of the New Standards resulted in the following adjustments as of January 1, 2007 in accordance with the transition provisions:

(i) Deferred Debt Costs

Previously deferred debt issue costs and discounts of $3.5 million were reclassified from other long-term assets, resulting in a reduction of long-term debt of $3.5 million.

(ii) Cash Flow Hedges

The Company discontinued hedge accounting for hedges of foreign currency purchase commitments that existed at the time of adoption of the New Standards. As such, upon adoption, the carrying value of the forward foreign exchange contracts was adjusted to fair value and the previously unrecognized after-tax gain of $2.5 million was recorded as an increase to accumulated other comprehensive income, with a corresponding decrease in accounts payable of $3.3 million, an increase in future income tax liability of $1.0 million and a decrease in retained earnings of $0.2 million. These gains are being recognized in cost of sales at the time the hedged inventory is sold.

In accordance with the Company's policy, deferred losses of $6.8 million associated with prior cash flow hedges of debt proceeds recorded in other long-term assets were reclassified as a reduction to accumulated other comprehensive income at the time of adoption of the New Standards.

(iii) Fair Value Hedges

Upon transition to the New Standards, the Company had no interest rate swaps. A $2.7 million deferred gain from a previous fair value hedge recorded in other long-term assets was reclassified as an adjustment to the carrying value of the hedged debt.

(iv) Net Investment Hedges

Prior to adoption of the New Standards, the Company valued its derivative instruments hedging net investments in self-sustaining foreign operations using spot exchange rates. Upon transition, the carrying value of the hedging derivative instruments was adjusted to their fair value and the effective portion of the gains and losses, net of associated income taxes, including amounts previously reported in cumulative currency translation adjustments, were recorded in accumulated other comprehensive income based on the previously designated hedged risk. As a result, accounts payable decreased by $1.2 million, long-term other assets decreased by $0.8 million, long-term obligations decreased by $13.1 million, future income tax assets increased by $6.9 million, accumulated other comprehensive income increased by $10.0 million, and retained earnings increased by $10.4 million on January 1, 2007.

The effect on net income for the year ended December 31, 2007 as a result of adopting the New Standards is not material.

(u) Comparative Figures

Certain comparative figures have been reclassified to conform to the 2007 presentation. The consolidated income statement has been restated for discontinued operations (see Note 13).

(v) Recent Accounting Pronouncements

(i) Financial Instrument Disclosures

In March 2007, the CICA issued Section 3862 Financial Instruments - Disclosures and Section 3863 Financial Instruments - Presentation, which together comprise a complete set of disclosure and presentation requirements that revise and enhance current disclosure requirements for financial instruments. Section 3862 requires disclosure of additional detail by financial asset and liability categories. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset.

The Company will implement these disclosures in the first quarter of 2008.

(ii) Capital Disclosures

Effective December 31, 2007, the Company early adopted the new recommendations of the CICA for disclosure of the Company's objectives, policies, and processes for managing capital, in accordance with Section 1535 Capital Disclosures (Note 25).

(iii) Inventories

In June 2007, the CICA issued Section 3031 Inventories which provides more guidance on the measurement and disclosure requirements for inventories. Specifically the new pronouncement requires inventories to be measured at the lower of cost and net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The new pronouncement is effective in the first quarter of 2008, and the new standard is not expected to have a material impact on the Company's net income.

(iv) Goodwill and Intangible Assets

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. This Section is effective in the first quarter of 2009, and the Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

(v) Convergence with International Financial Reporting Standards

In 2006, Canada's Accounting Standards Board ratified a strategic plan that will result in Canadian generally accepted accounting principles (GAAP), as used by public companies, being evolved and converged with International Financial Reporting Standards (IFRS) over a transitional period to be complete by 2011. The official changeover date from Canadian GAAP to IFRS is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. As the International Accounting Standards Board currently has projects underway that should result in new pronouncements and since this Canadian convergence initiative is very much in its infancy as of the date of these statements, the Company has not yet assessed the impact of the ultimate adoption of IFRS on the Company.

2. OTHER EXPENSES (INCOME)

Other expenses (income) include the following items:



--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Gain on disposition of distribution
arrangement in Canada (a) $ (2,408) $ -
Gain on sale of properties in Canada (b) - (12,854)
Gain on sale of railroad and non-Cat
remanufacturing business in Canada (c) - (5,331)
Project costs and other 5,117 11,383
Gain on sale of other surplus properties (4,144) (3,174)
--------------------------------------------------------------------------
(1,435) (9,976)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The tax expense on other income for the year ended December 31, 2007 was $0.1 million (2006: $0.6 million).

(a) In 2007, Finning (Canada) terminated its distribution arrangement with Shell Canada Products for net cash proceeds of approximately $7 million, resulting in a pre-tax gain of $2.4 million.

(b) In the first quarter of 2006, the Company sold certain surplus properties at Finning (Canada) for cash proceeds of $6.3 million, resulting in a pre-tax gain of $5.1 million. In the third quarter of 2006, the Company sold its interest in its Canadian operation's head office properties in Edmonton. As part of this transaction, the Company also terminated lease agreements for land and buildings in the same area and assigned the repurchase option to the buyer so as to lease back the entire property over lease terms ranging from 2 to 22 years. Net proceeds from this transaction were $12.7 million, resulting in a pre-tax gain of $7.8 million and a deferred gain of $2.5 million, which is being amortized to income over the lease terms.

(c) In the first quarter of 2006, the Company sold its railroad and non-Caterpillar engine component remanufacturing business for cash proceeds of $5.3 million, resulting in a pre-tax gain of approximately $5.3 million.

3. SHORT-TERM AND LONG-TERM DEBT



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Short-term debt $ 370,942 $ 425,423
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Long-term debt:
Medium Term Notes
7.40%, $200 million, due June 19, 2008 200,812 200,000
4.64%, $150 million, due December 14, 2011 149,622 150,000
5.625%, Pounds Sterling 125 million
Eurobond, due May 30, 2013 242,881 285,301
Other term loans (a) 212,730 102,849
--------------------------------------------------------------------------
806,045 738,150
Less current portion of
long-term debt (215,663) (2,224)
--------------------------------------------------------------------------
Total long-term debt $ 590,382 $ 735,926
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(a) Other loans include U.S. $130.6 million and Pounds Sterling 30.0 million (2006: U.S. $83.6 million) of unsecured borrowings under a five-year committed bank facility that is classified as long-term debt, and other unsecured term loans primarily from supplier merchandising programs. Other loans also include Pounds Sterling 11.2 million of rental equipment financing secured by the related equipment, with varying rates of interest from 5.5% - 10.3% and maturing on various dates up to 2011.

Short-Term Debt

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

The Company maintains a maximum authorized commercial paper program of $500 million which is utilized as its principal source of short-term funding. This commercial paper program is backstopped by credit available under an $800 million long-term committed credit facility. In addition, the Company also maintains, as required, certain other unsecured bank credit facilities to support its subsidiary operations. As at December 31, 2007, the Company had approximately $1,380 million of unsecured credit facilities, and including all bank and commercial paper borrowings drawn against these facilities, approximately $800 million of capacity remained available.

Included in short-term debt is foreign currency denominated debt of U.S. $14.3 million (2006: U.S. $38.1 million) and Pounds Sterling 27.2 million (2006: Pounds Sterling 8.0 million).

The average interest rate applicable to the consolidated short-term debt for 2007 was 5.3% (2006: 4.8%).

Long-Term Debt

The Company's Canadian dollar denominated medium term notes are unsecured, and interest is payable semi-annually with principal due on maturity. The Company's Pounds Sterling 125.0 million 5.625% Eurobond is unsecured, and interest is payable annually with principal due on maturity. Following the September 2006 sale of the Company's Materials Handling Division in the U.K. (see Note 13), the Company used a portion of the proceeds to redeem Pounds Sterling 75 million ($156.6 million) of the original Pounds Sterling 200 million Eurobond. The Company recorded a pre-tax charge of approximately $8.9 million in 2006, reflecting the early recognition of deferred financing costs and other costs associated with this redemption.

In December 2006, the Company repaid its $75.0 million 6.60% debenture, on maturity, with short-term borrowings from its commercial paper program.

The Company has an $800 million unsecured syndicated revolving credit facility, maturing in 2011. The facility is available in multiple borrowing jurisdictions and may be drawn by a number of the Company's principal operating subsidiaries. Borrowings under this facility are available in multiple currencies and at various floating rates of interest. At December 31, 2007, $187.8 million (2006: $97.4 million) was drawn on this facility.

Covenant

The Company is subject to a maximum debt to capitalization level pursuant to a covenant within its syndicated bank credit facility. As at December 31, 2007 and 2006, the Company is in compliance with this covenant.

Long-Term Debt Repayments

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



--------------------------------------------------------------------------
($ thousands)
--------------------------------------------------------------------------
2008 $ 215,663
2009 4,024
2010 3,971
2011 339,504
2012 -
Thereafter 242,883
--------------------------------------------------------------------------
$ 806,045
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Finance Costs

Finance costs as shown on the consolidated statement of income comprise the following elements:



--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Interest on debt securities:
Short-term debt $ 25,600 $ 16,618
Long-term debt 46,444 53,822
--------------------------------------------------------------------------
72,044 70,440
Interest on swap contracts (823) (319)
Costs associated with debt redemption - 8,864
Other finance related expenses, net of
sundry interest earned 5,381 7,257
--------------------------------------------------------------------------
76,602 86,242
Less: interest expense related to
discontinued operations (3,760) (16,400)
--------------------------------------------------------------------------
Finance costs from continuing operations $ 72,842 $ 69,842
--------------------------------------------------------------------------
--------------------------------------------------------------------------


4. FINANCIAL INSTRUMENTS

Foreign Exchange

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

Finance Costs

The Company monitors its debt portfolio mix of fixed and variable rate instruments and at times, will use forward interest rate agreements, swaps and collars to manage this balance of fixed and floating rate debt.

In contemplation of the planned refinancing of the $200 million Medium Term Note maturing June 19, 2008, the Company has entered into a bond forward to hedge a portion of the interest rate risk associated with the replacement debt. Hedge accounting has been applied to this bond forward.

Long-Term Incentive Plans

The Company's earnings are affected by its long-term incentive plans (LTIP) as a result of movements in the Company's share price. During 2007, the Company entered into a Variable Rate Share Forward (VRSF) with a financial institution to hedge a portion of its LTIP which is marked-to-market on a quarterly basis. The VRSF is cash-settled at the end of a five-year term, or at any time prior to that at the option of the Company, based on the difference between the Company's common share price at that time and the execution price plus accrued interest. The average execution price per share is $28.71 on 2.0 million common shares, which approximates the number of outstanding deferred share units and vested share appreciation units as at December 31, 2007. As the Company's share price changes, the mark-to-market impact related to the stock-based compensation liability is effectively offset by the mark-to-market impact related to the VRSF.

Fair Values

The following fair value information is provided solely to comply with financial instrument disclosure requirements. The Company cautions readers in the interpretation of the impact of these estimated fair values. The fair value of financial instruments is determined by reference to quoted market prices for actual or similar instruments, where available, or by estimates derived using present value or other valuation techniques. The fair value of accounts receivable, notes receivable, short-term debt, and accounts payable and accruals approximates their recorded values due to the short-term maturities of these instruments.

The fair values of the derivatives below have been estimated using market information as at December 31, 2007 and 2006. These fair values approximate the amount the Company would receive or pay to terminate the contracts:



--------------------------------------------------------------------------
($ or Pounds Fair
Sterling thousands) Value
2007 Balance Sheet Notional Term to Receive
Foreign Exchange Classification Value Maturity (Pay)
--------------------------------------------------------------------------
Cross Currency
Interest Rate Swaps

Pay Pounds Sterling Pounds
fixed/receive CAD Other assets - Sterling
$ fixed long-term 150,000 perpetual $ 41,637

Forwards Buy US$ Accounts payable
(sell CAD $) and accruals US$166,921 1-12 months $ (3,283)

Forwards Buy US$ Accounts payable
(sell Chilean peso) and accruals US$48,000 1-2 months $ (48)

Forward Buy US$
(sell CAD $) Other assets - current US$3,875 3 months $ 71
--------------------------------------------------------------------------
Interest Rates
--------------------------------------------------------------------------
Bond Forward Accounts payable $200,000 September $ (5,028)
and accruals 2008

Interest Rate Swaps Accounts payable US$11,250 1-4 years $ (325)
and accruals
--------------------------------------------------------------------------
Long-Term Incentive
Plans
--------------------------------------------------------------------------
Variable Rate Share November
Forward Long-term obligations $57,422 2012 $ (193)

--------------------------------------------------------------------------
Fair
Value
2006 Notional Term to Receive
Foreign Exchange Value Maturity (Pay)
--------------------------------------------------------------------------
Cross Currency
Interest Rate Swaps

Pay Pounds Sterling Pounds
fixed/receive CAD Sterling
$ fixed (a) Long-term obligations 150,000 perpetual $ (1,094)

Forwards Sell Pounds
Pounds Sterling Accounts payable Sterling
(buy CAD $)(b) and accruals 155,000 perpetual $(28,612)

Forwards Buy US$ Accounts payable
(sell CAD $) and accruals US$215,998 1-12 months $ 9,806

Forwards Buy US$
(sell Chilean Accounts payable
peso) and accruals US$32,000 1-2 months $ 278
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The amounts above are recorded at fair value on the balance sheet as indicated above, except for the following:

(a) At December 31, 2006, the mark-to-market loss of $14.2 million was recorded in long-term obligations.

(b) At December 31, 2006, the mark-to-market loss of $29.8 million was recorded in accounts payable and accruals. These forwards were unwound during 2007.

Long-Term Debt

The fair value of the Company's long-term debt is estimated as follows:



--------------------------------------------------------------------------
December 31 2007 2006
($ thousands) Book Value Fair Value Book Value Fair Value
--------------------------------------------------------------------------
Long-term debt $ 806,045 $ 788,459 $ 738,150 $ 745,734
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Credit Risk

The Company operates internationally as a full service provider (selling, servicing, and renting) of heavy equipment and related products. The Company is not overly dependent on any single customer or group of customers. There is no significant concentration of credit risk related to the Company's position in trade accounts or notes receivables. Credit risk is minimized because of the diversification of the Company's operations, as well as its large customer base and its geographical dispersion.

The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. However, the credit risk is limited to those contracts where the Company would incur a loss in replacing the instrument. In order to minimize this risk, the Company enters into derivative transactions only with highly rated financial institutions.

5. INCOME TAXES

Provision for Income Taxes

As the Company operates in several tax jurisdictions, its income is subject to various rates of taxation. The components of the Company's income tax provision are as follows:



--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Provision for income taxes
--------------------------
Current
Canada $ 70,954 $ 51,703
International 19,352 24,470
--------------------------------------------------------------------------
90,306 76,173
--------------------------------------------------------------------------
Future
Canada 230 (10,459)
International 12,362 1,965
--------------------------------------------------------------------------
12,592 (8,494)
--------------------------------------------------------------------------
$ 102,898 $ 67,679
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income from continuing operations before income taxes as follows:



-------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
-------------------------------------------------------------------------
Combined Canadian federal and
provincial income taxes at
the statutory tax rate $ 125,971 32.89% $ 100,914 33.21%
Increase / (decrease)
resulting from:
Lower statutory rates on
the earnings of foreign
subsidiaries (24,183) (6.31)% (33,007) (10.86)%
Change in statutory tax
rates in UK and Canada (4,536) (1.18)% 664 0.22%
Non-deductible stock-based
compensation and other
expenses 6,012 1.57% 3,014 0.99%
Income not subject to tax (410) (0.11)% 1,548 0.51%
Non-taxable capital gain (277) (0.07)% (2,210) (0.73)%
Other 321 0.08% (3,244) (1.07)%
-------------------------------------------------------------------------
Provision for income taxes $ 102,898 26.87% $ 67,679 22.27%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Future Income Tax Asset and Liability

Included in other assets on the consolidated balance sheets are a current future income tax asset and long-term future income tax asset of $51.8 million (2006: $47.6 million) and $2.6 million (2006: $5.2 million), respectively.

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



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Future income tax assets:
Accounting provisions not currently
deductible for tax purposes $ 51,096 $ 47,151
Loss carry-forwards 5,416 9,885
Other stock-based compensation 10,938 11,128
Goodwill of foreign subsidiaries 849 965
Other 1,800 5,911
--------------------------------------------------------------------------
70,099 75,040
--------------------------------------------------------------------------
Future income tax liabilities:
Derivative financial instruments (12,968) -
Capital, rental and leased assets (63,392) (71,368)
Employee benefits (38,214) (22,252)
--------------------------------------------------------------------------
(114,574) (93,620)
--------------------------------------------------------------------------
Net future income tax liability $ (44,475) $ (18,580)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The Company has recognized the benefit of the following tax loss carry-forwards available to reduce future taxable income and capital gains expiring through 2026 for Canada and available indefinitely for International:



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Canada $ 14,464 $ 23,652
International 5,821 9,229
--------------------------------------------------------------------------
$ 20,285 $ 32,881
--------------------------------------------------------------------------
--------------------------------------------------------------------------


6. SHARE CAPITAL

The Company is authorized to issue an unlimited number of preferred shares without par value, of which 4.4 million are designated as cumulative redeemable preferred shares. The Company had no preferred shares outstanding for the years ended December 31, 2007 and 2006.

The Company is authorized to issue an unlimited number of common shares.

On May 9, 2007, the Company's shareholders approved a split of the Company's outstanding common shares on a two-for-one basis. Each shareholder of record at the close of business on May 30, 2007, received one additional share for every outstanding share held on the record date. All stock-based compensation plans, share, and per-share data have been adjusted to reflect the stock split.

The Company repurchased 3,691,400 common shares during 2007 as part of a normal course issuer bid. These shares were repurchased at an average price of $27.82, which has been allocated to reduce share capital by $11.9 million and retained earnings by $90.8 million.

A shareholders' rights plan is in place which is intended to provide all holders of common shares with the opportunity to receive full and fair value for all of their shares in the event a third party attempts to acquire a significant interest in the Company. The Company's dealership agreements with subsidiaries of Caterpillar Inc. are fundamental to its business and any change in control must be approved by Caterpillar Inc.

The plan provides that one share purchase right has been issued for each common share and will trade with the common shares until such time as any person or group, other than a "permitted bidder", bids to acquire or acquires 20% or more of the Company's common shares, at which time the plan rights become exercisable. The rights may also be triggered by a third party proposal for a merger, amalgamation or a similar transaction. The rights plan will expire at the termination of the Annual Meeting of shareholders to be held in May 2008.

The plan will not be triggered if a bid meets certain criteria (a permitted bidder). These criteria include that:

- the offer is made for all outstanding voting shares of the Company;

- more than 50% of the voting shares have been tendered by independent shareholders pursuant to the Takeover Bid (voting shares tendered may be withdrawn until taken up and paid for); and

- the Takeover Bid expires not less than 60 days after the date of the bid circular.

7. STOCK-BASED COMPENSATION PLANS

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

Stock Options

The Company has several stock option plans for certain employees and directors with vesting occurring over a three-year period. The exercise price of each option is based on the closing price of the common shares of the Company on the date of the grant. Options granted after January 1, 2004 are exercisable over a seven-year period. Options granted prior to January 1, 2004 are exercisable over a ten-year period. Under the 2005 Stock Option Plan, the Company may issue up to 7.5 million common shares pursuant to the exercise of stock options. At December 31, 2007, 3.7 million common shares remain eligible to be issued in connection with future grants under this Stock Option Plan.

Details of the stock option plans, adjusted for the May 2007 stock split, are as follows:



---------------------------------------------------------------------------
2007 2006
Weighted Weighted
Average Average
Exercise Exercise
For years ended December 31 Options Price Options Price
---------------------------------------------------------------------------
Options outstanding,
beginning of year 3,903,526 $ 14.44 2,948,586 $ 9.77
Issued 1,721,000 $ 31.59 1,769,400 $ 19.75
Exercised / cancelled (968,124) $ 13.42 (814,460) $ 9.08
---------------------------------------------------------------------------
Options outstanding,
end of year 4,656,402 $ 20.99 3,903,526 $ 14.44
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Exercisable at year end 1,745,280 $ 11.92 1,691,974 $ 8.59
---------------------------------------------------------------------------
---------------------------------------------------------------------------


In the second quarter of 2007, the Company issued 1,721,000 common share options to senior executives and management of the Company (2006: 1,769,400 common share options). In 2007 and 2006, long term incentives for executives and senior management were all made in the form of stock options. It is the Company's practice to grant and price stock options only when it is felt that all material information has been disclosed to the market.

The Company determines the cost of all stock options granted since January 1, 2003 using the fair value-based method of accounting for stock options. This method of accounting uses an option-pricing model to determine the fair value of stock options granted which is amortized over the vesting period. The fair value of the options granted has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



--------------------------------------------------------------------------
2007 Grant 2006 Grant
--------------------------------------------------------------------------
Dividend yield 1.21% 1.16%
Expected volatility 21.57% 21.32%
Risk-free interest rate 4.09% 4.21%
Expected life 5.5 years 5.5 years


At the grant date, the weighted average fair value of options granted during the year was $7.89 (2006: $4.96). Total stock option expense recognized in 2007 was $9.3 million (2006: $5.3 million).

The following table summarizes information about stock options outstanding at December 31, 2007:



---------------------------------------------------------------------------
Options Outstanding Options Exercisable
Range Weighted Weighted Weighted
of Average Average Average
exercise Number Remaining Exercise Number Exercise
prices outstanding Life Price Outstanding Price
---------------------------------------------------------------------------
$4.52 - $8.50 914,734 2.3 years $ 6.26 914,734 $ 6.26
$14.69 - $16.27 468,668 4.0 years $ 15.79 320,542 $ 15.60
$19.75 - $19.82 1,585,600 5.3 years $ 19.75 510,004 $ 19.75
$25.85 - $31.67 1,687,400 6.3 years $ 31.59 - $ -
---------------------------------------------------------------------------
4,656,402 5.0 years $ 20.99 1,745,280 $ 11.92
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Other Stock-Based Compensation Plans

The Company has other stock-based compensation plans in the form of deferred share units and stock appreciation rights plans that use notional common share units. These notional units, upon vesting, are valued based on the Company's common share price on the Toronto Stock Exchange and are marked to market at the end of each fiscal quarter. Changes in the value of the units as a result of fluctuations in the Company's share price and new issues as they vest are recognized in selling, general, and administrative expense in the consolidated statement of income with the corresponding liability recorded on the consolidated balance sheet in long-term obligations.

In December 2007, the Company entered into a Variable Rate Share Forward (VRSF) with a financial institution to hedge a portion of its outstanding deferred share units and vested share appreciation units, reducing the exposure to movements in the Company's share price due to the impact on these stock-based compensation plans - see Note 4. The VRSF had a minimal impact on the stock based compensation expense for the year ended December 31, 2007.

Details of the plans are as follows:

Directors

Directors' Deferred Share Unit Plan A (DDSU)

The Company offers a Deferred Share Unit Plan (DDSU) for members of the Board of Directors. Under the DDSU Plan, non-employee Directors of the Company may elect to allocate all or a portion of their annual compensation as deferred share units. These units are fully vested upon issuance. These units accumulate dividend equivalents in the form of additional units based on the dividends paid on the Company's common shares. Units are redeemable for cash or shares only following termination of service on the Board of Directors and must be redeemed by December 31st of the year following the year in which the termination occurred. The value of the deferred share units when converted to cash will be equivalent to the market value of the Company's common shares at the time the conversion takes place.

Non-employee Directors of the Company were allocated a total of 13,859 share units in 2007 (2006: 22,952 share units), which were issued to the Directors and expensed equally over the calendar year as the units are issued.

Executive

Deferred Share Unit Plan A (DSU-A)

Under the DSU-A Plan, senior executives of the Company may be awarded deferred share units as approved by the Board of Directors. This plan utilizes notional units that are fully vested upon issuance to the executives. These units accumulate dividend equivalents in the form of additional units based on the dividends paid on the Company's common shares. Units are redeemable only following termination of employment and must be redeemed by December 31st of the year following the year in which the termination occurred. No units have been awarded under the DSU-A plan since 2001.

Deferred Share Unit Plan B (DSU-B)

Under the DSU-B Plan, executives of the Company may be awarded performance based deferred share units as approved by the Board of Directors. This plan utilizes notional units that become vested at specified percentages or become vested partially on December 30th of the year following the year of retirement, death or disability. These specified levels and vesting percentages are based on the Company's common share price at those specified levels exceeding, for ten consecutive days, the common share price at the date of grant. Vested deferred share units are redeemable for a period of 30 days after termination of employment, or by December 31st of the year following the year of retirement, death or disability. The notional deferred share units that have not vested within five years from the date that they were granted expire. Only vested units accumulate dividend equivalents in the form of additional units based on the dividends paid on the Company's common shares. No units have been awarded under the DSU-B plan since 2005.

As at December 31, 2007 and 2006, all outstanding DSU units have vested.

Details of the deferred share unit plans, which reflect the vestings in the year as well as mark-to-market adjustments, are as follows:



--------------------------------------------------------------------------
2007
For years ended December 31 ----------------------------------------------
Units DSU-A DSU-B DDSU Total
--------------------------------------------------------------------------
Outstanding, beginning
of year 104,964 1,353,496 358,280 1,816,740
Additions 789 14,525 25,402 40,716
Exercised/cancelled (48,574) (228,321) (89,649) (366,544)
--------------------------------------------------------------------------
Outstanding, end of year 57,179 1,139,700 294,033 1,490,912
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Vested, beginning of year 104,964 1,353,496 358,280 1,816,740
Vested 789 14,525 25,402 40,716
Exercised/cancelled (48,574) (228,321) (89,649) (366,544)
--------------------------------------------------------------------------
Vested, end of year 57,179 1,139,700 294,033 1,490,912
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Liability ($ thousands)
--------------------------------------------------------------------------
Balance, beginning of year $ 2,508 $ 32,342 $ 8,561 $ 43,411
Expensed 406 6,632 2,636 9,674
Exercised/cancelled (1,275) (6,310) (2,770) (10,355)
--------------------------------------------------------------------------
Balance, end of year $ 1,639 $ 32,664 $ 8,427 $ 42,730
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
2006
For years ended December 31 ----------------------------------------------
Units DSU-A DSU-B DDSU Total
--------------------------------------------------------------------------
Outstanding, beginning
of year 103,566 1,510,172 316,958 1,930,696
Additions 1,398 16,680 41,322 59,400
Exercised/cancelled - (173,356) - (173,356)
--------------------------------------------------------------------------
Outstanding, end of year 104,964 1,353,496 358,280 1,816,740
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Vested, beginning of year 103,566 1,337,522 316,958 1,758,046
Vested 1,398 172,830 41,322 215,550
Exercised/cancelled - (156,856) - (156,856)
--------------------------------------------------------------------------
Vested, end of year 104,964 1,353,496 358,280 1,816,740
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Liability ($ thousands)
--------------------------------------------------------------------------
Balance, beginning of year $ 1,923 $ 24,838 $ 5,886 $ 32,647
Expensed 585 10,682 2,675 13,942
Exercised/cancelled - (3,178) - (3,178)
--------------------------------------------------------------------------
Balance, end of year $ 2,508 $ 32,342 $ 8,561 $ 43,411
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Management Share Appreciation Rights Plan (SAR)

Beginning in 2002, awards under the SAR were granted to senior managers within Canada and the U.K. The exercise price is determined based on the Company's common share price on the Toronto Stock Exchange on the grant date. Under the SAR Plan, awards are expensed over the vesting period of three years when the market price of the common shares exceeds the exercise price under the plan for vested units. Changes, either increases or decreases, in the quoted market value of common shares between the date of grant and the measurement date result in a change in the measure of compensation for the award and will be amortized over the remaining vesting period. The SAR Plan uses notional units that are valued based on the Company's common share price on the Toronto Stock Exchange.

In 2007 and 2006, there were no SAR units issued to management. Details of the SAR plans are as follows:



--------------------------------------------------------------------------
For years ended December 31
Units 2007 2006
--------------------------------------------------------------------------
Outstanding, beginning of year 1,162,132 1,430,000
Exercised/cancelled (325,257) (267,868)
--------------------------------------------------------------------------
Outstanding, end of year 836,875 1,162,132
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Vested, beginning of year 762,722 573,400
Vested 265,937 409,056
Exercised (317,557) (219,734)
--------------------------------------------------------------------------
Vested, end of year 711,102 762,722
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Liability ($ thousands)
--------------------------------------------------------------------------
Balance, beginning of year $ 9,965 $ 4,655
Expensed 6,413 6,588
Exercised (4,935) (1,278)
--------------------------------------------------------------------------
Balance, end of year $ 11,443 $ 9,965
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Strike price ranges: $13.03 - $16.22


Summary - Impact of Stock Based Compensation Plans

Changes in the value of all deferred share units and share appreciation rights as a result of fluctuations in the Company's common share price and the impact of new issues, including stock options, was an expense of $25.5 million in 2007 (2006: $25.8 million).

8. EARNINGS PER SHARE

Basic earnings per share (EPS) is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated to reflect the dilutive effect of exercising outstanding stock options by applying the treasury stock method.

Earnings used in determining earnings per share from continuing operations are presented below. Earnings used in determining earnings per share from discontinued operations are the earnings from discontinued operations as reported within the consolidated statements of income and retained earnings.



---------------------------------------------------------------------------
($ thousands, except share and per share amounts)
2007 Income Shares Per Share
---------------------------------------------------------------------------
Basic EPS from continuing operations:
Net income from continuing operations $ 280,107 178,844,411 $ 1.57
Effect of dilutive securities:
stock options - 1,615,544 -
---------------------------------------------------------------------------
Diluted EPS from continuing operations:
Net income from continuing operations
and assumed conversions $ 280,107 180,459,955 $ 1.55
---------------------------------------------------------------------------
2006
---------------------------------------------------------------------------
Basic EPS from continuing operations:
Net income from continuing operations $ 236,187 178,741,334 $ 1.32
Effect of dilutive securities:
stock options - 1,057,606 -
---------------------------------------------------------------------------
Diluted EPS from continuing operations:
Net income from continuing operations
and assumed conversions $ 236,187 179,798,940 $ 1.31
---------------------------------------------------------------------------


9. OTHER ASSETS



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Other assets - current:
Future income taxes (Note 5) $ 51,806 $ 47,611
Value Added Tax receivable 6,519 14,416
Prepaid expenses 13,817 20,980
Current portion of finance assets (Note 10) 11,789 14,274
Supplier claims receivable 45,780 42,630
Retained interest in transferred
receivables (Note 19) - 9,481
Income taxes recoverable 582 5,337
Other 51,568 41,780
--------------------------------------------------------------------------
$ 181,861 $ 196,509
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Other assets - long-term:
Accrued defined benefit pension asset (Note 18) $ 126,747 $ 77,285
Long-term swap contracts receivable (Note 4) 41,637 -
Deferred financing costs - 8,937
Investment in Energyst B.V. (a) 17,105 16,388
Deferred project costs 746 2,988
Future income taxes (Note 5) 2,567 5,204
Other 16,834 12,781
--------------------------------------------------------------------------
$ 205,636 $ 123,583
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(a) The Company accounts for its 24.4% investment in Energyst using the equity method of accounting. In January 2008, the Company increased its interest in Energyst by purchasing 14,582 new shares that were issued from Treasury for cash of $4.6 million (EUR 3.0 million). As a result of this transaction, the Company's equity interest in Energyst increased to 24.85% from 24.4%.

10. FINANCE ASSETS



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Instalment notes receivable $ 36,590 $ 27,176
--------------------------------------------------------------------------
Equipment leased to customers 2,636 38,303
Less accumulated depreciation (723) (17,159)
--------------------------------------------------------------------------
1,913 21,144
--------------------------------------------------------------------------
Total finance assets 38,503 48,320
Less current portion of instalment notes
receivable (11,789) (14,274)
--------------------------------------------------------------------------
$ 26,714 $ 34,046
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Depreciation of equipment leased to customers for the year ended December 31, 2007 was $5.7 million (2006: $9.9 million).

11. RENTAL EQUIPMENT



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Cost $ 1,707,545 $ 1,918,880
Less accumulated depreciation (679,244) (880,240)
--------------------------------------------------------------------------
$ 1,028,301 $ 1,038,640
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Depreciation of rental equipment for the year ended December 31, 2007 was $278.7 million (2006: $241.9 million).

12. CAPITAL ASSETS

Land, Buildings and Equipment



---------------------------------------------------------------------------
December 31 2007 2006
Net Net
Accumulated book Accumulated book
($ thousands) Cost depreciation value Cost depreciation value
---------------------------------------------------------------------------
Land $ 55,217 $ - $ 55,217 $ 58,805 $ - $ 58,805
Buildings and
equipment 488,848 195,142 293,706 516,274 209,423 306,851
---------------------------------------------------------------------------
$544,065 $ 195,142 $348,923 $575,079 $ 209,423 $365,656
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Land, buildings, and equipment under capital leases of $13.5 million (2006: $13.0 million), net of accumulated amortization of $2.2 million (2006: $11.7 million), are included above.

Depreciation of buildings and equipment for the year ended December 31, 2007 was $38.1 million (2006: $34.9 million).

Intangible Assets



---------------------------------------------------------------------------
December 31 2007 2006
Net Net
Accumulated book Accumulated book
($ thousands) Cost amortization value Cost amortization value
---------------------------------------------------------------------------
Subject to
amortization
Customer
contracts
and related
customer
relation-
ships $ 3,132 $ 1,549 $ 1,583 $ 9,400 $ 4,095 $ 5,305
Software 34,994 12,675 22,319 28,431 9,451 18,980
-------------------------------------------------------------
38,126 14,224 23,902 37,831 13,546 24,285
Indefinite
lives
Distribution
rights 646 - 646 646 - 646
---------------------------------------------------------------------------
$ 38,772 $ 14,224 $ 24,548 $ 38,477 $ 13,546 $ 24,931
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company acquired intangible assets subject to amortization of $10.8 million in 2007 (2006: $15.1 million). Depreciation of intangible assets subject to amortization for the year ended December 31, 2007 was $4.1 million (2006: $2.9 million).

Certain intangible assets are considered to have indefinite lives because they are expected to generate cash flows indefinitely.

13. DISPOSITION OF DISCONTINUED OPERATION

Finning UK Group - Tools Hire Division

On July 31, 2007, the Company sold the business and assets of the Tool Hire Division of the Company's U.K. subsidiary, Hewden Stuart Plc, excluding real estate, for cash proceeds of $242.9 million (approximately Pounds Sterling 112 million), net of costs.

The gross sale price, net of taxes and transaction costs, was approximately equal to the net book value of the net tangible assets and goodwill associated with the tools rental business, and resulted in an after-tax gain on disposal of $0.1 million.

Restructuring and other costs associated with the disposition of this business of $2.0 million after tax were recorded in 2007.

Finning UK Group - Materials Handling Division

On September 29, 2006, the Company sold its Materials Handling Division for cash proceeds of $170.6 million (Pounds Sterling 81.7 million), net of costs. The sale of this business resulted in an after-tax loss on disposal of $32.7 million (Pounds Sterling 15.5 million) in the third quarter of 2006, which included the write-off of the goodwill and intangible assets associated with this business.

The results of operations of the Tool Hire and the Materials Handling divisions have been included in the consolidated statements of cash flow up to the date of disposition and as discontinued operations in the consolidated statements of income up to the date of disposition. The results of the Tool Hire and the Materials Handling divisions had previously been reported in the Finning UK Group segment.

Income (loss) from the Tool Hire and Materials Handling divisions to the date of disposition is summarized as follows:



--------------------------------------------------------------------------
Materials Handling
Tool Hire Division Division
For years ended December 31 ----------------------------------------------
($ thousands) 2007 2006 2007 2006
--------------------------------------------------------------------------
Revenue $ 113,272 $ 194,090 $ - $ 183,563
--------------------------------------------------------------------------
Income (loss) before
provision for income taxes (4,108) 8,214 - (5,690)
Gain (loss) on sale of
discontinued operations 38,590 - - (33,974)
Provision for income taxes
(expense) recovery (36,532) (3,663) - 3,002
--------------------------------------------------------------------------
Income (loss) from
discontinued operations $ (2,050) $ 4,551 $ - $ (36,662)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The assets and liabilities of the Materials Handling Division were removed from the Consolidated Balance Sheet upon disposition in 2006 and are not presented on the Consolidated Balance Sheet at December 31, 2007 or 2006. The carrying amounts of assets and liabilities related to the Tool Hire Division as at the date of disposition, and for the comparative period presented, are as follows:



--------------------------------------------------------------------------
July 31,
2007
(date of December 31,
($ thousands) disposition) 2006
--------------------------------------------------------------------------
ASSETS
Current assets
Accounts receivable $ 35,270 $ 38,284
Inventories 3,893 5,169
Other assets 1,277 3,130
--------------------------------------------------------------------------
Total current assets 40,440 46,583
Rental equipment 77,334 81,775
Land, building and equipment 13,841 16,526
Goodwill 91,136 95,861
Other assets - 7,529
--------------------------------------------------------------------------
$ 222,751 $ 248,274
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable and accruals $ 19,071 $ 32,726
Income tax payable - 1,011
--------------------------------------------------------------------------
Total current liabilities 19,071 33,737
Long-term obligations - 2,915
--------------------------------------------------------------------------
$ 19,071 $ 36,652
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The significant net cash flows from discontinued operations up to the date of disposition included in the Consolidated Statements of Cash Flow are as follows:



---------------------------------------------------------------------------
Materials Handling
Tool Hire Division Division
For years ended December 31 ----------------------------------------------
($ thousands) 2007 2006 2007 2006
---------------------------------------------------------------------------
Cash provided by (used in)
operating activities $ (3,795) $ 31,528 $ - $ 28,052
Cash provided by (used in)
investing activities $ (561) $ 860 $ - $ -
---------------------------------------------------------------------------


14. GOODWILL

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



--------------------------------------------------------------------------
December 31 2007 South Consol-
($ thousands) Canada America UK Group idated
--------------------------------------------------------------------------
Goodwill, beginning of year $ 32,388 $ 33,342 $ 316,140 $ 381,870
Acquired (a) 1,043 - - 1,043
Adjustment to purchase
price (c) - 253 - 253
Disposed (Note 13) - - (91,136) (91,136)
Foreign exchange
translation adjustment - (5,091) (35,840) (40,931)
--------------------------------------------------------------------------
Goodwill, end of year $ 33,431 $ 28,504 $ 189,164 $ 251,099
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
December 31 2006 South Consol-
($ thousands) Canada America UK Group idated
--------------------------------------------------------------------------
Goodwill, beginning of year $ 30,304 $ 29,862 $ 304,661 $ 364,827
Acquired (a) 2,084 - - 2,084
Adjustment to purchase
price (b) - 3,402 - 3,402
Disposed (Note 13) - - (28,274) (28,274)
Foreign exchange
translation adjustment - 78 39,753 39,831
--------------------------------------------------------------------------
Goodwill, end of year $ 32,388 $ 33,342 $ 316,140 $ 381,870
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(a) In 2007, the Company acquired the assets and business operations of Mainline Rent-All (1986) Ltd., an equipment rental company based in Alberta, Canada, for cash of approximately $2.7 million. In 2006, the Company acquired the assets and business operations of Wirtanen Electric Ltd., an electric distribution rental company based in Alberta, Canada, for cash of approximately $10.3 million.

(b) In April 2003, the Company acquired 100% of the voting shares of Matreq S.A. (subsequently renamed Finning Bolivia S.A.), the Caterpillar dealership in Bolivia. As part of this agreement, additional contingent consideration of U.S. $4.0 million was advanced to the seller in April 2003, and was settled in 2006 for U.S. $3.8 million. The agreed consideration was reclassified from other assets to goodwill and future income tax asset.

(c) In January 2003, the Company acquired 100% of the voting shares of Macrosa Del Plata S.A. (subsequently renamed Finning Argentina S.A.) and Servicios Mineras S.A. (subsequently renamed Finning Soluciones Mineras S.A.), the Caterpillar dealerships in Argentina. As part of this agreement, the sellers were entitled to additional future consideration based on the realization of certain performance criteria over a six-year period ending December 31, 2008 for the Argentina operations. Any additional consideration would be payable only if certain performance criteria were achieved and maintained for a stipulated period. The strong performance of the dealership in Argentina since acquisition to the end of 2005 indicated that the maximum future consideration criteria would likely be met, and was recorded in 2005 in accordance with the agreement as $24.7 million (U.S. $21.2 million) to goodwill.

In June 2006, a provisional payment of this additional consideration of approximately $14.8 million (U.S. $13.2 million) was paid directly to the sellers, and an additional $7.6 million (U.S. $6.8 million) was paid in trust as partial security, which has now been paid upon achievement of the performance criteria.

15. LONG-TERM OBLIGATIONS



--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Stock-based compensation (Note 7) $ 54,173 $ 53,376
Leasing obligations (a) (Note 22) 12,618 28,453
Employee future benefit obligations 17,498 14,727
Long-term swap contract payable (Note 4) - 14,170
Sale leaseback deferred gain 8,470 9,230
Asset retirement obligations (b) 1,423 6,223
Argentina additional consideration (Note 14) - 1,414
Other 7,517 3,701
--------------------------------------------------------------------------
$ 101,699 $ 131,294
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(a) Capital leases issued at varying rates of interest from 0.9% - 10.6% and maturing on various dates up to 2026.

(b) Asset retirement obligations relate to estimated future costs to remedy dilapidation costs on certain operating leases in the U.K. and are based on the Company's prior experience, including estimates for labour, materials, equipment, and overheads such as surveyor and legal costs. To determine the recorded liability, the future estimated cash flows have been discounted using the Company's credit-adjusted risk-free rate of 4%. Should changes occur in estimated future dilapidation costs, revisions to the liability could be made. Due to the disposition of the Tool Hire Division in the U.K, the liability has been reduced by approximately $2.8 million. The total undiscounted amount of estimated cash flows is $2.2 million, and the expected timing of payment of the cash flows is estimated to be over the next thirty years.

16. CUMULATIVE CURRENCY TRANSLATION ADJUSTMENTS

The Company's subsidiaries operate in three functional currencies: Canadian dollars, U.S. dollars, and the U.K. pound sterling. The Company experiences foreign currency translation gains or losses as a result of consolidating the financial statements of self-sustaining foreign operations. These unrealized foreign currency translation gains or losses are recorded in the Accumulated Other Comprehensive Income/Loss account on the Consolidated Balance Sheet. Currency translation adjustments arise as a result of fluctuations in foreign currency exchange rates at the period end. The cumulative currency translation adjustment for 2007 mainly resulted from the stronger Canadian dollar relative to the U.S. dollar (15.2% stronger), and the U.K. pound sterling (14.1% stronger), from December 31, 2006 to December 31, 2007.

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



--------------------------------------------------------------------------
December 31
Exchange rate 2007 2006
--------------------------------------------------------------------------
U.S. dollar 0.9881 1.1653
U.K. pound sterling 1.9600 2.2824

--------------------------------------------------------------------------
For years ended December 31
Average exchange rates
--------------------------------------------------------------------------
U.S. dollar 1.0748 1.1341
U.K. pound sterling 2.1487 2.0886


17. SUPPLEMENTAL CASH FLOW INFORMATION



Non cash working capital changes

--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Accounts receivable and other $ (158,857) $ (127,177)
Inventories - on-hand equipment (65,548) (186,024)
Inventories - parts and supplies (31,897) (66,344)
Accounts payable and accruals 31,215 255,050
Income taxes 6,499 (14,531)
--------------------------------------------------------------------------
Changes in working capital items (218,588) (139,026)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Components of cash and cash equivalents

--------------------------------------------------------------------------
December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Cash $ 16,533 $ 13,059
Short-term investments 45,327 65,426
--------------------------------------------------------------------------
Cash and cash equivalents $ 61,860 $ 78,485
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Interest and tax payments

--------------------------------------------------------------------------
For years ended December 31
($ thousands) 2007 2006
--------------------------------------------------------------------------
Interest paid $ (74,668) $ (89,045)
Income taxes paid $ (105,091) $ (84,258)


18. EMPLOYEE FUTURE BENEFITS

The Company and its subsidiaries in Canada and the U.K. have defined benefit pension plans and defined contribution pension plans providing retirement benefits for most of their permanent employees.

The defined benefit pension plans 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 Canada, defined benefit plans exist for eligible employees. Final average earnings are based on the highest 3-5 year average salary and there is no standard indexation feature. Effective July 1, 2004, non-executive members of the defined benefit plan were offered a voluntary opportunity to convert their benefits to a defined contribution pension plan. The registered defined benefit plan was subsequently closed to all new non-executive employees, who are eligible to enter one of the Company's defined contribution plans. The defined benefit pension plan continues to be open to new executives. Pension benefits under the registered plans' formula that exceed the maximum taxation limits are provided from a non-registered supplemental pension plan. Benefits under this plan are partially funded by a Retirement Compensation Arrangement.

- Finning (UK) provides a defined benefit plan for all employees hired prior to January 2003. Final average earnings are based on the highest 3-year period and benefits are indexed annually with inflation subject to limits. Effective January 2003, this plan was closed to new non-executive employees and replaced with a defined contribution pension plan. The defined benefit plan was temporarily re-opened in June 2003, on a one-time basis, to allow for the transfer of employees assumed upon the acquisition of the Lex Harvey business. These employees were allowed to join the Finning (UK) defined benefit pension plan, for future service only. With the sale of the UK Materials Handling business, certain employees became non-active members of the defined benefit plan.

- Hewden has two defined benefit plans that are open to eligible management and executive members by invitation only. Final average earnings are based on the highest 3-year period and benefits are indexed annually with inflation subject to limits. With the sale of the Hewden Tool Hire business, certain employees became non-active members of the defined benefit plan.

The defined contribution pension plans in Canada are registered pension plans that offer a base contribution rate for all members. For certain plans, the Company will partially match employee contributions to a maximum of 1% of employee earnings. The defined contribution pension plan in the UK offers a match of employee contributions, within a required range, plus 1%.

The Company's South American employees do not participate in employer pension plans but are covered by country specific legislation with respect to indemnity plans. The Company has recorded a liability to employees based on an actuarial valuation of anticipated payments to employees. An amount of $4.8 million was expensed in 2007 (2006: $3.2 million) for a total obligation of $17.5 million (2006: $14.7 million).

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



--------------------------------------------------------------------------
For years ended December 31 2007
($ thousands) Canada UK Hewden Total
--------------------------------------------------------------------------
Defined contribution plans
Net benefit plan expense $ 16,193 $ 823 $ 241 $ 17,257
--------------------------------------------------------------------------
Defined benefit plans
Current service cost, net of
employee contributions $ 8,343 $ 5,328 $ 2,039 $ 15,710
Interest cost 16,563 26,238 10,582 53,383
Actual return on plan assets (8,120) (17,619) (7,321) (33,060)
Actuarial (gains) losses (3,559) (75,643) (21,148) (100,350)
Plan curtailment (a) - - 958 958
--------------------------------------------------------------------------
Employee future benefit costs
before adjustments to
recognize the long-term
nature of employee future
benefit costs 13,227 (61,696) (14,890) (63,359)
Adjustments to recognize
the long-term nature of
employee future benefit
costs:
Difference between expected
return and actual return
on plan assets for year (11,707) (11,498) (4,280) (27,485)
Difference between actuarial
loss recognized for year
and actual actuarial
loss on accrued benefit
obligation for year 5,769 82,102 22,894 110,765
Difference between
amortization of past
service costs for year
and actual plan amendments
for year 298 (709) - (411)
Amortization of transitional
obligation / (asset) (19) (1,248) 1,523 256
--------------------------------------------------------------------------
Defined benefit costs
recognized 7,568 6,951 5,247 19,766
--------------------------------------------------------------------------
Total $ 23,761 $ 7,774 $ 5,488 $ 37,023
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
For years ended December 31 2006
($ thousands) Canada UK Hewden Total
--------------------------------------------------------------------------
Defined contribution plans
Net benefit plan expense $ 12,838 $ 948 $ 244 $ 14,030
--------------------------------------------------------------------------
Defined benefit plans
Current service cost, net
of employee contributions $ 8,465 $ 9,557 $ 2,673 $ 20,695
Interest cost 15,956 21,137 9,808 46,901
Actual return on plan assets (30,932) (43,336) (9,639) (83,907)
Actuarial (gains) losses (4,349) 28,202 (8,776) 15,077
Plan curtailment (a) - 3,342 - 3,342
--------------------------------------------------------------------------
Employee future benefit
costs before adjustments
to recognize the long-term
nature of employee future
benefit costs (10,860) 18,902 (5,934) 2,108
Adjustments to recognize
the long-term nature of
employee future benefit
costs:
Difference between expected
return and actual return
on plan assets for year 12,882 19,944 (98) 32,728
Difference between actuarial
loss recognized for year
and actual actuarial
loss on accrued benefit
obligation for year 8,348 (21,515) 11,452 (1,715)
Difference between
amortization of past
service costs for year and
actual plan amendments for
year 298 (3,739) - (3,441)
Amortization of transitional
obligation / (asset) 1,047 (1,213) 1,552 1,386
--------------------------------------------------------------------------
Defined benefit costs
recognized 11,715 12,379 6,972 31,066
--------------------------------------------------------------------------
Total $ 24,553 $ 13,327 $ 7,216 $ 45,096
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(a) As a result of the sales of the Tool Hire and Materials Handling
divisions, the Company recognized a curtailment to reflect the impact
of the significant reduction of the expected years of future services
of active employees participating in the Hewden and Finning (UK)
defined benefit plans, respectively.


Total cash payments for employee future benefits for 2007, which is made up of cash contributed by the Company to its defined benefit plans and its defined contribution plans was $78.5 million and $17.2 million, respectively (2006: $55.8 million and $14.0 million, respectively).

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



--------------------------------------------------------------------------
For years ended December 31 2007
($ thousands) Canada UK Hewden Total
--------------------------------------------------------------------------
Accrued benefit obligation
Balance at beginning of year $ 313,435 $ 531,799 $ 215,008 $ 1,060,242
Current service cost 10,068 8,126 3,298 21,492
Interest cost 16,563 26,238 10,582 53,383
Benefits paid (18,355) (19,959) (8,820) (47,134)
Actuarial (gains) losses (3,559) (75,643) (21,148) (100,350)
Foreign exchange rate changes - (69,741) (28,956) (98,697)
Plan curtailment - - - -
Plan amendments (a) - - - -
--------------------------------------------------------------------------
Balance at end of year $ 318,152 $ 400,820 $ 169,964 $ 888,936
--------------------------------------------------------------------------

Plan assets
Fair value at beginning
of year $ 295,019 $ 424,982 $ 160,792 $ 880,793
Actual return on plan assets 8,120 17,619 7,321 33,060
Employer contributions (b) 12,485 46,169 23,268 81,922
Employees' contributions 1,725 2,798 1,259 5,782
Benefits paid (18,355) (19,959) (8,820) (47,134)
Foreign exchange rate changes - (64,123) (24,734) (88,857)
--------------------------------------------------------------------------
Fair value at end of year $ 298,994 $ 407,486 $ 159,086 $ 865,566
--------------------------------------------------------------------------

Funded status - plan
surplus/(deficit) $ (19,158) $ 6,666 $ (10,878) $ (23,370)
Unamortized net
actuarial loss 64,670 63,740 22,306 150,716
Unamortized past
service costs 2,067 (7,762) - (5,695)
Contributions remitted after
valuation date 3,984 1,833 998 6,815
Unamortized transitional
obligation/asset (102) (6,756) 5,139 (1,719)
--------------------------------------------------------------------------
Accrued benefit
asset/(liability) (c) $ 51,461 $ 57,721 $ 17,565 $ 126,747
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
For years ended December 31 2006
($ thousands) Canada UK Hewden Total
--------------------------------------------------------------------------
Accrued benefit obligation
Balance at beginning of year $ 307,646 $ 415,787 $ 192,306 $ 915,739
Current service cost 10,190 13,446 4,039 27,675
Interest cost 15,956 21,137 9,808 46,901
Benefits paid (16,008) (12,910) (8,783) (37,701)
Actuarial (gains) losses (4,349) 28,202 (6,792) 17,061
Foreign exchange rate changes - 62,795 26,414 89,209
Plan curtailment - 3,342 - 3,342
Plan amendments (a) - - (1,984) (1,984)
--------------------------------------------------------------------------
Balance at end of year $ 313,435 $ 531,799 $ 215,008 $ 1,060,242
--------------------------------------------------------------------------

Plan assets
Fair value at beginning
of year $ 269,358 $ 312,418 $ 125,848 $ 707,624
Actual return on plan assets 30,932 43,336 9,639 83,907
Employer contributions (b) 9,012 26,928 13,730 49,670
Employees' contributions 1,725 3,889 1,366 6,980
Benefits paid (16,008) (12,910) (8,783) (37,701)
Foreign exchange rate changes - 51,321 18,992 70,313
--------------------------------------------------------------------------
Fair value at end of year $ 295,019 $ 424,982 $ 160,792 $ 880,793
--------------------------------------------------------------------------

Funded status - plan
surplus/(deficit) $ (18,416) $ (106,817) $ (54,216) $ (179,449)
Unamortized net
actuarial loss 58,732 149,223 47,661 255,616
Unamortized past
service costs 2,365 (9,791) - (7,426)
Contributions remitted after
valuation date 505 6,818 1,915 9,238
Unamortized transitional
obligation/asset (121) (9,194) 8,621 (694)
--------------------------------------------------------------------------
Accrued benefit
asset/(liability) (c) $ 43,065 $ 30,239 $ 3,981 $ 77,285
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(a) The plan amendment of $2.0 million in 2006 in Hewden related to a
reduction in the accrued benefit obligation of the defined benefit
pension plan due to pension benefit changes that were agreed between
the Company and the plan's trustees and communicated with the employee
members of the plan. It was agreed that employee members' pension
benefits would cease to be linked to their final pensionable salary
after April 2010. From April 2010, employee members' pension benefits
will increase broadly in line with inflation, as opposed to future
salary increases. This resulted in a reduction in the pension plan's
accrued benefit obligation because employee members' pension benefits
are now assumed to increase in line with the salary increase
assumption until April 2010 and then in line with the lower inflation
assumption thereafter.

(b) In 2007, an additional pension payment of $17.1 million was made to
fund the UK pension plans as agreed at the time of the sale of the
Materials Handling Division.

(c) The accrued benefit asset or liability is classified in either other
assets or long-term obligations, respectively, on the consolidated
balance sheets.


Included in the above accrued benefit obligation and fair value of plan assets at the year-end are the following amounts in respect of plans that are not fully funded:



---------------------------------------------------------------------------
For years ended December 31 2007
($ thousands) Canada UK Hewden Total
---------------------------------------------------------------------------
Accrued benefit obligation $ 262,895 $ - $ 154,093 $ 416,988
Fair value of plan assets 236,336 - 143,011 379,347
---------------------------------------------------------------------------
Funded status - plan deficit $ 26,559 $ - $ 11,082 $ 37,641
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
For years ended December 31 2006
($ thousands) Canada UK Hewden Total
---------------------------------------------------------------------------
Accrued benefit obligation $ 256,477 $ 531,800 $ 215,009 $1,003,286
Fair value of plan assets 229,213 424,983 160,793 814,989
---------------------------------------------------------------------------
Funded status - plan deficit $ 27,264 $ 106,817 $ 54,216 $ 188,297
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For measurement purposes, assets and liabilities of the plans are valued as at November 30. Plan assets no longer include direct investment in common shares of the Company at December 31, 2007 and 2006.

Plan assets are principally invested in the following securities at November 30, 2007:



----------------------------------------------------------------------
Canada UK Hewden
----------------------------------------------------------------------
Equity 54% 67% 69%
Fixed-income 39% 33% 31%
Real estate 7% - -


The significant actuarial assumptions are as follows:



--------------------------------------------------------------------------
2007 2006
Canada UK Hewden Canada UK Hewden
--------------------------------------------------------------------------
Discount rate - obligation 5.80% 6.20% 6.20% 5.25% 5.30% 5.30%
Discount rate - expense 5.25% 5.30% 5.30% 5.15% 4.95% 4.95%
Expected long-term rate of
return on plan assets 7.25% 7.00% 7.25% 7.25% 7.00% 7.25%
Rate of compensation increase 3.50% 4.00% 4.00% 3.50% 3.50% 3.50%
Estimated remaining service
life (years) 10-15 14 13 10-15 14 13


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



---------------------------------------------------------------------------
Last Actuarial Next Actuarial
Defined Benefit Plan Valuation Date Valuation Date
---------------------------------------------------------------------------
Canada - BC Regular & Executive Plan December 31, 2006 December 31, 2009
Canada - Executive Supplemental
Income Plan December 31, 2006 December 31, 2009
Canada - General Supplemental
Income Plan December 31, 2006 December 31, 2009
Canada - Alberta Defined
Benefit Plan December 31, 2005 December 31, 2008
Finning UK Defined Benefit Scheme December 31, 2005 December 31, 2008
Hewden Stuart Pension Scheme December 31, 2005 December 31, 2008
Hewden Pension Plan January 1, 2005 January 1, 2008


19. ACCOUNTS RECEIVABLE SECURITIZATION

In 2002, the Company entered into an arrangement and sold a $45.0 million co-ownership interest in a pool of eligible non-interest bearing trade receivables to a multi-seller securitization trust (the "Trust"), net of overcollateralization. Under the terms of the agreement, which expired on November 29, 2007, the Company could sell co-ownership interests of up to $120.0 million on a revolving basis. The Company retained a subordinated interest in the cash flows arising from the eligible receivables underlying the Trust's co-ownership interest. The Trust and its investors did not have recourse to the Company's other assets in the event that obligors failed to pay the underlying receivables when due. Pursuant to the agreement, the Company serviced the pool of underlying receivables.

On the expiry date, the Company terminated the co-ownership interests, ceased all securitization of its accounts receivable, and repurchased previously securitized receivables for cash of $45.0 million. At December 31, 2006, the Company carried a retained interest in the transferred receivables in the amount of $9.5 million, which equalled the amount of overcollateralization in the receivables it sold, which was reported on the consolidated balance sheet in other current assets (Note 9).

For the 2007 period up to the repurchase of the receivables held by the Trust, the Company recognized a pre-tax loss of $1.8 million (2006: $2.0 million) relating to these transfers.

Proceeds from revolving reinvestment of collections were $451.9 million in 2007 (2006: $520.6 million).

20. ECONOMIC RELATIONSHIPS

The Company distributes and services heavy equipment and related products. The Company has dealership agreements with numerous equipment manufacturers, of which the most significant are with subsidiaries of Caterpillar Inc. Distribution and servicing of Caterpillar products account for the major portion of the Company's operations. Finning has a strong relationship with Caterpillar Inc. that has been ongoing since 1933.

21. SEGMENTED INFORMATION

The Company and its subsidiaries have operated primarily in one industry during the year, that being the selling, servicing, and renting of heavy equipment and related products.

During the fourth quarter of 2006, the UK Group business model was reorganized to combine the operations of Finning (UK) and Hewden into one organization creating four distinct market units to more effectively service customers, improve alignment with Caterpillar, and to generate operating efficiencies. At the same time a new management team was appointed. These four market units will, over time, be supported by an integrated back office operation that will provide common head office services, generating additional synergies among the market units. As a result of this reorganization, the Finning UK Group is reported as one operating segment beginning in 2007, with the four market units being: Heavy Construction, General Construction, Power Systems, and Rental (Hewden).

Prior to 2007, results from the UK Group were reported as two separate operating segments: Finning UK Operations, reflecting the results of Finning (UK), the UK Caterpillar dealership operation and Diperk UK, which distributes and services Perkins engines in the U.K; and Hewden Operations, an equipment rental and associated services operation in the U.K.

Operating units are as follows:

- Canadian operations: British Columbia, Alberta, the Yukon Territory, the Northwest Territories, and a portion of Nunavut

- South American operations: Chile, Argentina, Uruguay, and Bolivia

- UK Group operations: England, Scotland, Wales, Falkland Islands, and the Channel Islands

- Other: corporate head office

The reportable operating segments are:



--------------------------------------------------------------------------
For year ended
December 31,
2007 South UK Consol-
($ thousands) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external
sources $ 2,936,229 $ 1,325,582 $ 1,400,427 $ 6 $5,662,244
Operating
costs (2,486,030) (1,171,761) (1,191,290) (30,867) (4,879,948)
Depreciation
and
amortization (165,488) (25,922) (136,474) - (327,884)
Other income
(expenses) 1,602 (551) 384 - 1,435
--------------------------------------------------------------------------
Earnings from
continuing
operations
before interest
and taxes $ 286,313 $ 127,348 $ 73,047 $ (30,861) $ 455,847
Finance costs (72,842)
Provision for
income taxes (102,898)
--------------------------------------------------------------------------
Net income
from continuing
operations 280,107
Loss from
discontinued
operations,
net of tax (2,050)
--------------------------------------------------------------------------
Net income $ 278,057
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Identifiable
assets $ 1,820,394 $ 810,465 $ 1,434,608 $ 68,696 $4,134,163
Capital
assets $ 158,301 $ 58,339 $ 156,014 $ 817 $ 373,471
Gross capital
expenditures
(1) $ 23,604 $ 21,856 $ 32,359 $ - $ 77,819
Gross rental
asset
expenditures $ 449,894 $ 76,481 $ 238,416 $ - $ 757,485


--------------------------------------------------------------------------
For year ended
December 31,
2006 South UK Consol-
($ thousands) Canada America Group Other idated
--------------------------------------------------------------------------
Revenue from
external
sources $ 2,612,597 $ 1,009,906 $ 1,230,730 $ 6 $4,853,239
Operating
costs (2,251,348) (876,286) (1,042,438) (32,916) (4,202,988)
Depreciation
and
amortization (145,664) (24,660) (116,195) - (286,519)
Other income
(expenses) 17,729 - (7,105) (648) 9,976
--------------------------------------------------------------------------
Earnings from
continuing
operations
before interest
and taxes $ 233,314 $ 108,960 $ 64,992 $ (33,558) $ 373,708
Finance costs (69,842)
Provision for
income taxes (67,679)
--------------------------------------------------------------------------
Net income
from continuing
operations 236,187
Loss from
discontinued
operations,
net of tax (32,111)
--------------------------------------------------------------------------
Net income $ 204,076
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Identifiable
assets $ 1,691,743 $ 779,817 $ 1,692,212 $ 36,981 $4,200,753
Capital
assets $ 158,485 $ 55,224 $ 176,450 $ 428 $ 390,587
Gross capital
expenditures
(1) $ 41,817 $ 15,003 $ 32,550 $ - $ 89,370
Gross rental
asset
expenditures $ 295,512 $ 42,157 $ 200,656 $ - $ 538,325

(1) includes capital leases


22. CONTRACTUAL OBLIGATIONS

Future minimum lease payments due under capital lease contracts and payments due under various operating lease contracts are as follows:



--------------------------------------------------------------------------
For years ended December 31 Capital Operating
($ thousands) Leases Leases
--------------------------------------------------------------------------
2008 $ 2,311 $ 70,472
2009 1,766 59,771
2010 1,396 52,037
2011 1,208 38,924
2012 1,064 28,064
Thereafter 15,798 164,125
--------------------------------------------------------------------------
23,543 $ 413,393
Less imputed interest (9,442) n/a
--------------------------------------------------------------------------
14,101 413,393
Less current portion of capital lease obligation (1,483) n/a
--------------------------------------------------------------------------
Total long-term capital lease obligation $ 12,618 $ 413,393
--------------------------------------------------------------------------
--------------------------------------------------------------------------


23. COMMITMENTS AND CONTINGENCIES

(a) Due to the size, complexity, and nature of the Company's operations, various legal and tax matters are pending. In the opinion of management, these matters will not have a material effect on the Company's consolidated financial position or results of operations.

(b) The Company has committed to pay approximately $26.3 million over the next two years for the software licenses and implementation support for a new information technology system solution for its global operations.

24. GUARANTEES AND INDEMNIFICATIONS

The Company enters into contracts with rights of return, in certain circumstances, for the repurchase of equipment sold to customers for an amount based on an estimate of the future value of the fair market price at that time. As at December 31, 2007, the total estimated value of these contracts outstanding is $161.2 million coming due at periods ranging from 2008 to 2014. The Company's experience to date has been that the equipment at the exercise date of the contract is worth more than the repurchase amount. The total amount recognized as a provision against these contracts is $0.7 million.

As part of the Tool Hire and Materials Handling divisions Purchase and Sale Agreements, Finning has provided indemnifications to the respective third party purchaser, covering breaches of representation and warranties as well as litigation and other matters set forth in the agreement. Claims may be made by the third party purchaser under these agreements for various periods of time depending on the nature of the claim. The maximum potential exposure of Finning under these indemnifications is 100% of the purchase price with respect to the Tool Hire Division, and 75% of the purchase price with respect to the Materials Handling Division. As at December 31, 2007, Finning had no material liabilities recorded for these indemnifications.

In connection with the sale of the Materials Handling Division in 2006, the Company provided a guarantee to a third party with respect to a property lease. If the lessee were to default, the Company would be required to make the annual lease payments of approximately $1.2 million to the end of the lease term in 2020. As at December 31, 2007, the Company had no liability recorded for this guarantee.

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

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

25. MANAGEMENT OF CAPITAL

The Company's objectives when managing capital are:

(i) to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk; and

(ii) to manage capital in a manner which balances the interests of equity and debt holders.

In the management of capital, the Company includes shareholders' equity, short-term and long-term debt in the definition of capital.

The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, and/or issue new debt to replace existing debt with different characteristics.

The Company monitors the following ratios in this respect: debt to total capitalization; and dividend payout ratio. Debt to total capitalization and dividend payout ratio are Non-GAAP measures which do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers.

Debt to total capitalization is calculated as short-term and long-term debt (total debt) divided by total capitalization. Total capitalization is defined as the sum of total debt and all components of equity (share capital, contributed surplus, accumulated other comprehensive loss, and retained earnings).

Dividend payout ratio is calculated as the annual dividend declared per share divided by basic earnings per share from continuing operations for the past twelve month period.

During 2007, the Company's strategy, which was unchanged from 2006, was to maintain the targets set out in the following table. The Company believes that these ratios are currently in the optimal range and provide access to capital at a reasonable cost.



----------------------------------------------------------------
As at and for years ended December 31
($ millions, except as noted) 2007 2006
----------------------------------------------------------------
Components of Debt and Coverage Ratios
Short-term debt $ 370.9 $ 425.5
Current portion of long-term debt 215.7 2.2
Long-term debt 590.4 735.9
----------------------------------------------------------------
Total debt 1,177.0 1,163.6
Shareholders' equity 1,617.8 1,624.4
----------------------------------------------------------------
Company
Targets 2007 2006
----------------------------------------------------------------
Total debt to capital 40 - 50% 42% 42%
Dividend payout ratio 25 - 30% 23% 21%


The total debt to capital ratio is comparable, year over year, and is within the Company's target.

In 2007, the Company increased its dividend payout ratio target from 20-25% to 25-30%. The dividend payout ratio has increased over the 2006 level with the dividend rate per common share increasing twice during 2007, as the Company moves towards its stated target.

26. SUBSEQUENT EVENTS

(a) In January 2008, the Company's Canadian operations, Finning (Canada), acquired all of the issued and outstanding common shares of Collicutt Energy Services Ltd. The total value of this transaction is approximately $145 million, comprising $96 million of cash, 14,365 Finning common shares (valued at $0.4 million) issued in connection with the acquisition, with the difference being the assumption of debt. The purchase price allocation has not been finalized.

(b) In January and early February 2008, the Company's UK subsidiary, Hewden sold certain properties for cash proceeds of approximately $28 million, resulting in a pre-tax gain of approximately $14 million.

Contact Information