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Finning Reports First Quarter Results; Increases Quarterly Dividend to $0.12 Per Share

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 13, 2010) - Finning International Inc. (TSX:FTT) - 

- Diluted earnings of $0.12 per share were on plan, compared to $0.26 in the first quarter of 2009 and $0.10 in the fourth quarter of 2009. Strong results from South America were offset by weak results from Canada and the U.K due to ongoing difficult market conditions.

- Market activity continued to increase across all sectors and in all operations in the first quarter. Consolidated order backlog increased by 60% from the fourth quarter of 2009 to $0.9 billion as order intake improved from the prior quarter, primarily driven by mining equipment orders.

- Selling, general and administrative expenses decreased by $38 million from the first quarter of 2009, and the Company remains on track to achieve its cost reduction initiatives.

- Free cash flow was $99 million in the first quarter. The Company expects free cash flow to moderate for the next two quarters, and is on track to generate approximately $200 million in free cash flow for the full year.

- Subsequent to the quarter end, the Company sold Hewden, its UK equipment rental business, for gross proceeds of GBP 110 million (C$ 171 million). The sale resulted in a non-cash loss estimated at $247 million or $1.44 per share in the second quarter. This transaction completes the strategic realignment of our UK operations. Combined sale proceeds from this divestiture, Hewden Tools in 2007, and the dealership's Materials Handling division in 2006 total almost $600 million. Finning remains fully committed to the UK Caterpillar dealership.

Finning International Inc. today reported first quarter 2010 revenues of $1.0 billion, earnings before interest and income taxes (EBIT) of $37 million and diluted earnings per share (EPS) of $0.12. The first quarter 2010 results included net non-operational charges of $0.02 per share ($0.04 per share in Q1 2009).

The Company raised its quarterly dividend to $0.12 per share from $0.11 per share, reflecting strengthening business conditions, an improving outlook, significant liquidity and a strong balance sheet.

"First quarter results came in as expected and free cash flow remained very strong," said Mike Waites, president and chief executive officer of Finning International Inc. "Our business is improving, particularly in South America. The consolidated order intake was the highest since the third quarter of 2008, and we are seeing an increase in product support activity in all our operations. Importantly, the mining sector is posting a strong recovery, which will support earnings growth for us going forward."

"Last week, we announced the sale of our UK Hewden division for gross proceeds of GBP 110 million (C$171 million). We now have the correct strategic footprint in the U.K. and, near term, sale proceeds will be used to reduce debt and further strengthen our balance sheet."

/T/

FINANCIAL HIGHLIGHTS

------------------------------------------------------------------------
C$ millions, except per share amounts        Three months ended March 31
 (unaudited)                                 2010      2009     % Change
------------------------------------------------------------------------
Revenue                                     1,028     1,364          (25)
Earnings before interest and income taxes
 (EBIT) (1)                                    37        76          (51)
Net income                                     20        45          (55)
Diluted EPS                                  0.12      0.26          (54)
Earnings before interest, income taxes,
 depreciation and amortization (EBITDA) (1)    95       150          (37)
Free cash flow (1)(2)                          99        (2)
------------------------------------------------------------------------

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- Quarterly revenues decreased by 25% from the first quarter of 2009 to $1.0 billion primarily due to the decline in new equipment sales in all operations. Product support revenues were supported by the mining sectors and were comparable to the first quarter of 2009. In local currency, product support revenues increased in all operations compared to the first quarter of 2009. New equipment sales were down 45% as a result of soft market conditions outside of mining. Used equipment sales and rental revenues decreased by 23% and 19% respectively. The stronger Canadian dollar also negatively impacted results compared to the first quarter of 2009.

- Gross profit decreased by $78 million or 20% from the prior year's quarter. Gross profit margin of 29.7% was higher than 28.1% in the first quarter of 2009, primarily due to the revenue mix shift to higher margin product support revenue. Product support accounted for 48% of the total revenues compared to 36% in the first quarter of last year. 

- Selling, general and administrative (SG&A) expenses decreased by $38 million or 13% from the first quarter of 2009 as a result of targeted cost savings, productivity improvement initiatives and lower sales volumes. The Company had targeted SG&A expense reductions of $200 million compared to 2008 levels. Excluding Hewden, the adjusted annual target for cost savings is $170 million, and the Company is on track to meet this goal. 

- EBIT of $37 million was 51% below the first quarter 2009. Consolidated EBIT margin was 3.6% compared to 5.5% in the first quarter of 2009, mainly due to lower results from Canada. EBIT margin in the first quarter improved from 2.6% in the fourth quarter of 2009. EBIT margin in South America was lower compared to the first quarter of 2009, and UK Group's EBIT margin improved year over year.

- Net income decreased by 55% to $20 million. Diluted EPS was $0.12 per share compared to $0.26 in the first quarter of 2009 and $0.10 in the fourth quarter of 2009. Foreign exchange had a negative impact of $0.08 per share compared to the first quarter of 2009. 

- EBITDA, which is an indicator of a company's cash operating performance and generation of operating cash flow, was $95 million compared to $150 million in the first quarter of 2009.

- Free cash flow was $99 million, compared to $2 million use of cash in the first quarter of 2009. Free cash flow is expected to moderate in the second and third quarters due to higher inventory purchases to meet anticipated growth in customer demand. The Company expects to generate approximately $200 million of free cash flow in 2010. 

- Net debt to capital declined to 37% from 39% at December 31, 2009.  By year end, the company's net debt to capital ratio is expected to be in the mid 30% range.

- New order intake increased from the fourth quarter of 2009, primarily driven by large mining equipment orders, and was the highest since the third quarter of 2008. Consolidated backlog was $0.9 billion at March 31, 2010, up from $0.6 billion at December 31, 2009, the second consecutive quarterly increase in backlog. The initial Kearl order is included in the first quarter backlog. 

HIGHLIGHTS BY OPERATIONS 

Canada

- First quarter revenues were down 31% from the first quarter of 2009. Revenues were impacted primarily by a 59% decline in new equipment sales, reflecting lower demand in 2010 compared to 2009. Used equipment sales and rental revenues were down 25% and 23% respectively. Product support revenues were 2% higher than in the first quarter of 2009 driven by mining customers, including the oil sands. Mining product support revenues increased 15% from the first quarter of 2009. 

- SG&A costs were lower than in the first quarter of 2009 as a result of cost reduction and productivity improvement initiatives. EBIT was $9 million compared to $46 million in the first quarter of 2009. The Canadian operations incurred restructuring and IT system implementation costs of $5 million in the first quarter of 2010 ($2 million in the first quarter of 2009).

- Order intake continued to improve in the first quarter as a result of increasing activity in the mining sector, including the oil sands. The backlog increased from the fourth quarter of 2009 and was at the highest level since the fourth quarter of 2008. The first quarter backlog includes the initial order for Kearl. 

South America

- First quarter revenues decreased by 16%; however, in functional currency (USD), revenues were up 1% from the first quarter of 2009. New equipment sales declined 32% (down 18% in functional currency). Lower new equipment sales in mining were partly offset by higher deliveries to the construction sector. Product support revenues remained strong in mining and improved in construction. In functional currency, product support revenues grew by 17% from the first quarter of 2009 (in Canadian dollars, product support revenues were down 2%). Mining product support revenues increased 18% in functional currency from the first quarter of 2009.

- EBIT of $34 million was down 27% from the first quarter of 2009 due to increased headcount to support a growing product support business as well as the costs incurred in connection with the earthquake and the new IT system. In functional currency, EBIT declined by 13%. EBIT margin was 9.8% compared to 11.3% in the first quarter of 2009. First quarter results included new IT system implementation costs of $2 million.

- First quarter SG&A expenses included approximately $1 million of costs incurred in connection with the earthquake that struck Chile in February 2010. Fortunately, the earthquake had minimal impact on the South American operations and its customers, and the Company's information systems were not disrupted.

- Order intake was down from the very strong fourth quarter, but increased considerably compared to the first quarter of 2009. Demand from the construction sector improved in the first quarter of 2010, and strong mining activity continued as well. Market conditions are expected to continue to improve in South America throughout 2010 driven by solid growth in mining and moderate growth in the construction and power systems sectors. Product support business is expected to remain strong, driven primarily by mining contracts. 

United Kingdom

- The UK Group's revenues declined 20% from the first quarter of last year, largely due to weaker new equipment sales and lower revenues from Hewden. In functional currency (GBP), quarterly revenues were down 12%, with new and used equipment sales declining 16% and 34% respectively, and rental revenues down 7%. Product support revenues were down 8%, but were 2% higher in functional currency. SG&A costs decreased in functional currency from the first quarter of 2009. 

- The UK Group incurred an EBIT loss of $1 million compared to $5 million EBIT loss in the first quarter of 2009. The dealership's positive EBIT of $3 million in the first quarter ($7 million in the first quarter of 2009) was offset by a $4 million EBIT loss at Hewden (EBIT loss of $12 million in the first quarter of 2009).

- Market conditions in the U.K. remained soft in the first quarter. However, there are signs of noticeable improvement in heavy construction and power system sectors, including coal mining, infrastructure construction, waste management and utilities. Order intake continued to improve in the first quarter resulting in the highest order backlog since the first quarter of 2009.

CORPORATE AND BUSINESS DEVELOPMENTS

Hewden

Following an extensive strategic review, on May 5, 2010 the Company sold Hewden, its UK equipment rental business, for gross proceeds of GBP 110 million or approximately C$171 million to an affiliate of Sun European Partners, LLP. The consideration comprises cash of GBP 90 million, an interest bearing 5-year loan note receivable of GBP 20 million and a 5% equity warrant subject to certain conditions being met. Finning will use the proceeds primarily to reduce debt.

The impact of the transaction will be accretive to shareholder return on equity, but will result in an estimated second quarter accounting loss of $247 million or $1.44 per share. The $247 million loss includes the realization of $101 million of foreign exchange losses relating to the investment in Hewden which was previously recorded in Accumulated Other Comprehensive Income, and a $68 million charge relating to the recognition of the unfunded pension liability which the buyer has assumed. After taking this into account, the balance of $78 million or $0.45 per share is the loss on Finning's net carrying value of Hewden, net of tax. Hewden will be reported as a discontinued operation in the second quarter of 2010. 

Dividend 

The Board of Directors approved an increase in the Company's quarterly dividend to $0.12 per common share, payable on June 11, 2010, to shareholders of record on May 28, 2010. The increase in dividend reflects strengthening business conditions, an improving outlook, significant liquidity and a strong balance sheet. This dividend will be considered an eligible dividend for Canadian income tax purposes.

/T/

SELECTED CONSOLIDATED FINANCIAL INFORMATION: FIRST QUARTER 2010,
 UNAUDITED
(C$ millions, except per share amounts)

                                    -----------------------------
                                      Three months ended March 31
                                    -----------------------------
Revenue                                 2010      2009   % Change
                                    -----------------------------
 New equipment                         345.7     632.3        (45)
 Used equipment                         71.7      92.5        (22)
 Equipment rental                      113.9     140.2        (19)
 Product support                       493.9     496.3          0
 Other                                   2.9       3.0         (3)
-----------------------------------------------------------------
Total revenue                        1,028.1   1,364.3        (25)
-----------------------------------------------------------------
Gross profit                           305.3     383.6        (20)
Gross profit margin(3)                  29.7%     28.1%
SG&A                                  (261.7)   (299.6)        13
Other expenses                          (6.4)     (8.4)        24
-----------------------------------------------------------------
EBIT                                    37.2      75.6        (51)
EBIT margin(4)                           3.6%      5.5%
-----------------------------------------------------------------
Net income                              20.1      45.0        (55)
-----------------------------------------------------------------
Diluted EPS                             0.12      0.26        (54)
-----------------------------------------------------------------
EBITDA                                  94.6     150.1        (37)
Free cash flow                          99.3      (1.8)
-----------------------------------------------------------------
                                    Mar 31, 2010     Dec 31, 2009
                                    -----------------------------
Total assets                             3,492.2          3,671.4
Total shareholders' equity               1,450.6          1,515.7
Net debt to total capital(5)                  37%              39%
-----------------------------------------------------------------

/T/

To download Finning's complete first quarter 2010 results in PDF, please open the following link: http://media3.marketwire.com/docs/ftt513.pdf

FIRST QUARTER 2010 RESULTS INVESTOR CALL

Management will hold an investor conference call on Friday, May 14 at 11:00 am Eastern Time. Dial-in numbers: 1-866-223-7781 (anywhere within Canada and the U.S.)

(416) 340-8018 (for participants dialing from Toronto and overseas)

The call will be webcast live and subsequently archived at www.finning.com. Playback recording will be available at 1-800-408-3053 from 1:00 pm Eastern Time on May 14 until May 22. The pass code to access the playback recording is 8088574 followed by the number sign.

NEXT QUARTERLY RESULTS - AUGUST 11, 2010

Finning International's second quarter 2010 results will be released on August 11, 2010 after market close. An investor conference call will be held on August 12, 2010.

About Finning

Finning International Inc. (TSX:FTT) is the world's largest Caterpillar equipment dealer delivering unrivalled service to customers since 1933. Finning sells, rents and services equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in western Canada, Chile, Argentina, Bolivia, Uruguay, and the United Kingdom. 

Footnotes

(1) These amounts do not have a standardized meaning under generally accepted accounting principles. For a reconciliation of these amounts to net income and cash flow from operating activities, see the heading "Description of Non-GAAP Measures" in the Company's management discussion and analysis that accompanies the first quarter consolidated financial statements. 

(2) Free cash flow is defined as cash flow provided by (used in) operating activities less net capital expenditures.

(3) Gross profit margin is defined as gross profit as a percentage of total revenue.

(4) EBIT margin is defined as earnings before interest and income taxes as a percentage of total revenue.

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

Forward-Looking Disclaimer

This report contains statements about the Company's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements may include words such as aim, anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will. Forward-looking statements in this report include, but are not limited to, statements with respect to: expectations with respect to the economy and associated impact on the Company's financial results; the estimated annualized cost savings and anticipated restructuring charges related to actions taken by the Company in response to the economic downturn; expected revenue levels and EBIT growth; anticipated effective tax rate; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions; and expected target range of Debt Ratio. All such forward-looking statements are made pursuant to the 'safe harbour' provisions of applicable Canadian securities laws. 
Unless otherwise indicated by us, forward-looking statements in this report describe our expectations at May 13, 2010. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize. Factors that could cause actual results or events to differ materially from those expressed in or implied by our forward-looking statements include: general economic and credit market conditions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, our products and services; our dependence on the continued market acceptance of Caterpillar's products and Caterpillar's timely supply of parts and equipment; our ability to continue to implement our cost reduction initiatives while continuing to maintain customer service; the intensity of competitive activity; our ability to raise the capital we need to implement our business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments for operations outside Canada. Forward-looking statements are provided in this report for the purpose of giving information about management's current expectations and plans and allowing investors and others to get a better understanding of our operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.

Forward-looking statements made in this report are based on a number of assumptions that we believed were reasonable on the day we made the forward-looking statements. Refer in particular to the Market Outlook section of the MD&A. Some of the assumptions, risks, and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this report are discussed in the Company's current Annual Information Form (AIF) in Section 4.

We caution readers that the risks described in the AIF are not the only ones that could impact us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, financial condition, or results of operations.

Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and non-recurring and other unusual items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business.
Finning International Inc. Mauk Breukels Director, Investor Relations and Corporate Affairs (604) 331-4934 mauk.breukels@finning.com www.finning.com

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