Finning International Inc.

Mauk Breukels - Head, Investor Relations Scott Thomson - President and Chief Executive Officer Steve Nielsen - Chief Financial Officer Anna Marks - Senior Vice President and Controller

Cherilyn Radbourne - TD Securities Yuri Lynk - Canaccord Genuity Michael Finnegan - Bank of America Merrill Lynch Jacob Bout - CIBC Bert Powell - BMO Capital Markets Sara O’Brien - RBC Benoît Poirier - Desjardins Capital Markets Ben Cherniavsky - Raymond James Maxim Sytchev - Dundee Capital Markets

Thank you, operator and thanks to everyone for joining us. On the call with me today are Scott Thomson, President and CEO; Steve Nielsen, CFO; and Anna Marks, Senior Vice President and Controller.

Following the remarks by Scott and Steve, we will open up the lines to questions. An audio file of this conference call will be archived at finning.com.

Before I turn the call over to Scott, I want to remind everyone that some of the statements provided during this call and in the press release are forward-looking. This forward-looking information is subject to risks and uncertainties as discussed in the company’s annual information form under Key Business Risks.

Please treat this information with caution as Finning’s actual results could differ materially from current expectations. Our forward-looking disclaimer statement is part of our quarterly releases and filings.

Finning does not accept any obligation to update this information. Scott, over to you.

Good morning, everyone. I will focus my comments today on how we are addressing business realities in a lower commodity price environment while continuing to advance our operational excellence agenda and capitalize on our opportunities.

As you know, we had already taken significant actions across the company to adjust our cost structure, while continuing to drive sustainable operational improvements. Market conditions weakened in the third quarter.

In South America, new equipment sales declined 26% in functional currency sequentially from the second quarter and new equipment sales were down 37% sequentially in Canada. In response, we began taking further decisive actions across our operations given the reality of the current market and our view that we will be in this environment for a considerable period of time.

We will decrease our workforce by another 1,100 positions before the end of the year. For the full year, our workforce will be down by 1,900 employees.

Going back to the start of the downturn in mid 2013, we have reduced the size of our global workforce by 2,500 people or 16%. Looking at the Canadian business specifically, we had already eliminated 650 positions to align with market conditions earlier this year.

By year end, this number will have increased to 1,100 workforce reductions, or 20% since the beginning of 2015. As you will recall, we have also been assessing our Canadian facilities network to determine how best to support our customers more effectively and efficiently today and in the future.

To this end, we had already made substantial changes, including the closure of 16 facilities and the centralization of oil sands work in Fort McKay, which I spoke about during our second quarter call. Today, we are announcing further closures and consolidation involving 11 facilities.

I want to be clear that while today’s environment has been a catalyst, we have been deliberate about restructuring and redistributing activities with the aim of improving customer service and optimizing capacity. The decisions we have made are with our customers needs firmly in mind.

In some cases, this means switching from a traditional bricks-and-mortar approach to meet our customers’ evolving needs and cost pressures. To illustrate, while we will no longer have a physical location in Medicine Hat, we will continue to serve customers in the area with resident mechanics while moving shop service work to Lethbridge.

Importantly, we are also consolidating activity to make better and more efficient use of our remaining facilities. This includes closing one of our two buildings at the COE in Red Deer and consolidating the majority of new equipment preparation in the remaining building.

COE will also take on more machine overhaul work with the closure of our Sparwood shop. Another example is shovels and drills.

We see an opportunity to integrate that part of our business into our existing footprint and closed the former Bucyrus facility in Edmonton. Although our combined facility closures represented 20% reduction in our facility footprint, our resulting product support infrastructure still provides us with sufficient capacities to support increased activity levels, while delivering on our customer commitment in a cost-effective, sustainable manner.

Throughout this facility optimization review, our main concern has been maintaining and improving our customer support capabilities, in line with our service excellent initiative. This focus is reflected in our customer loyalty score, which has been improving on a month-to-month basis and reached a new high in September.

As we work to address today’s business realities, there is no question that we have had to make some very difficult decisions. While not easy, these decisions are absolutely necessary to align our business with what is happening in the global economy and respond to our customers’ cost pressures in today’s lower commodity price environment.

As a result of our actions and despite significantly lower volumes, we have demonstrated sequential improvement in our EBIT margin in Canada. On an adjusted basis, we went from 5.8% in Q1 to 6.5% in Q2 to 7% in Q3.

Similar to Canada, our South America team has responded swiftly to the further decline in market activity. In South America, our workforce reduction will total 600 people by year end.

This is on top of actions taken since the downturn began. Since mid 2013, we will reduce the total number of employees by 1,200, or 16%.

By taking action to align our business with current activity levels, we are confident that we will return to operating at historical profitability levels. While business conditions are challenging, we also see this environment as an opportunity to transform our business to drive long-term benefits.

To that end, our employees remain focused on managing the factors within our control and making sustainable changes that are positioning us to be stronger when business activity strengthens. This includes addressing inefficiencies and duplication as well as evolving our service delivery to better meet customer needs and enhance our competitiveness.

In Canada, this is demonstrated by the positive trend in our customer loyalty scores as I mentioned as well as improvements in service profitability and parts service levels in turns. Since beginning our operational excellence journey, our supply chain improvements are evidenced by our parts customer loyalty score, which has increased 30 percentage points since 2012.

Over the same timeframe, our 24-hour parts spill rate went from the mid-70s to close to 90%. And over the last year, parts turns are up from 3.0 times to 3.5 times.

These improvements demonstrate our focus on driving sustainable changes to our operating performance and give me confidence in our SG&A run-rate going forward. It is also a tremendous credit to our employees that our safety performance improved over last year in each of our regions and engagement levels remained solid and steady amidst economic backdrop.

We look forward to our Investor Meeting in December in Fort McKay, where we will share more about how we are delivering on our operational excellence agenda in Canada in order to generate value over the long-term. While we expect low commodity prices to persist into 2016, we are sizing our business to ensure our success in today’s environment.

In addition, the actions we are taking now provide us with a more streamlined operating structure, increase our competitiveness and ensure that Finning will emerge stronger when demand increases. While positioning Finning to capitalize on our future growth opportunity when the market warrants, we are also capturing strategic and financial opportunities.

Namely, we successfully acquired and integrated the Saskatchewan dealership, plus we have purchased close to $70 million worth of shares as part of our share buyback program. Moving forward, we remain committed to generating value through the economic cycle by adapting quickly the market conditions, implementing operational improvements and continuing to work hard to earn our customer’s loyalty.

I will now turn it over to Steve.

Thank you, Scott and good morning everyone. Our leadership team is very pleased with how the teams in all regions are responding to the challenging market conditions and improving efficiencies to support our customers, while at the same time preserving profitability and the financial strength of our organization.

While the third quarter was marked by significant weakening in equipment markets across our regions, we were able to maintain our overall market share and achieve meaningful gains in the core equipment in all our regions. Product support trends varied regionally.

In South America, some mining customers began reducing production levels and parking equipment, which negatively impacted part sales in the quarter. However, in Canada, product support revenue was up 5% from the second quarter and included a positive contribution from the Saskatchewan business.

Our view is that the deferral product support work we have experienced over the past quarters is not sustainable in the long-term. However, we don’t have visibility into when demand will return.

With this in mind, we have taken further decisive actions to right size our business across all regions. As Scott said, this includes the workforce reductions and the facility optimization that you just said – that we have spoken about.

As reported today, we are reducing our workforce by another 550 people in South America, 450 in Canada and 100 people in the UK and Ireland over the third and fourth quarters. While the majority of these reductions will occur during the fourth quarter, we recorded a total of $25 million in severance costs in the third quarter.

This was made up by about $10 million in South America, $12 million in Canada and the $3 million in the UK and Ireland. In addition, we incurred a $6 million loss on a building sublease due to our Edmonton head office consolidation into one building.

And finally, there were $3 million of acquisition costs associated with the Saskatchewan dealership purchase. Excluding these items our adjusted EBIT would have been $97 million or 6.5% of revenues.

In the third quarter, our Canadian team successfully transitioned Saskatchewan dealership into our business and we achieved the sequential improvement in our adjusted EBIT margin to 7% in Canada in spite of the market challenges and significantly lower volumes. This reflects some of the benefits from the operating improvements and restructuring initiatives implemented over the last few quarters.

As Scott mentioned, we achieved significant improvements in service levels and efficiencies, supply chain and procurement metrics, customer loyalty scores and safety performance. We will continue to transform our Canadian organization to achieve a more effective and sustainably lower cost structure.

Excluding severance and facility closure costs, our SG&A in Canada year-to-date was down by 13% from the comparable period in 2014. We estimate that the decisive cost actions we have taken throughout 2015, including workforce reductions, facilities optimization and operational improvement initiatives will translate into over $150 million in non-volume related annual SG&A savings from the 2014 levels.

These cost savings will be fully realized in 2016. In South America, the cost savings associated with the workforce reductions announced today have not yet benefited our SG&A as the majority of these reductions will occur in the fourth quarter.

As a result, our adjusted EBIT margin excluding severance, declined to 8.4%. We expect to return to historical profitability levels in South America once the cost savings are fully realized.

Our adjusted earnings per share was $0.34, excluding the severance cost of 11, facility closure costs of 3 and the Saskatchewan dealership acquisition cost of 1. In the fourth quarter, we expect to incur up to $15 million in restructuring costs related to the facilities optimization we announced this morning.

Our invested capital declined by about $70 million, excluding the acquisition of Saskatchewan and the impact of foreign currency translation. We remain focused on reducing inventories, particularly in Canada and tightly controlling our capital and rental expenditures across all regions.

Free cash flow was $140 million in the third quarter, about $30 million higher than in the same quarter last year. While we continue to expect strong free cash flow in the fourth quarter of 2015, it will most likely not be at the level generated during the fourth quarters of the prior two years due to the significantly weaker market conditions, particularly in Canada.

Our balance sheet is healthy with a net debt to total capital ratio under 39% after the Saskatchewan dealership acquisition. In addition, we have substantial liquidity and access to capital markets, including our global operating credit facility, which was recently extended to 2020.

Our strong financial position provides us with the ability to support our shareholders with dividends and share buybacks in times of economic uncertainty. To-date, we repurchased about 3.1 million shares for approximately $70 million.

We believe that buying back our shares is an effective use of capital when our stock is under pressure and we remain committed to repurchasing shares in step with free cash flow delivery. We have taken significant steps to restructure our operations and reduce our cost base to align with lower business volumes, which are expected to continue into 2016.

However, we are confident that Finning is becoming a much leaner and more efficient organization to drive long-term value for all its stakeholders. Before we open the call for questions, I wanted to take a moment to say a few words to our employees as I know many of you listen to these calls.

I want to recognize our employees around the world. This is a tough environment and I thank you for your continued commitment and exceptional performance.

I am extremely proud of how the Finning team has stepped up in these challenging times. Due to your efforts, Finning will be in an unprecedented position to capitalize on our opportunities when demand strengthens.

With that, I will now turn it over to you, Mauk.

Operator, that concludes our remarks. Before we go to the Q&A, we request everyone on the line that as a courtesy to your colleagues, we ask no more than two questions when it is your turn.

Please go to the end of the queue if you have more questions. Operator, can you please open up the lines?

Thanks very much and good morning. Clearly, things got tougher in Q3 relative to Q2.

And listening to you and some of your peers, it sounds like things got tougher even sequentially during the quarter. So, on that basis, are the restructuring initiatives that you have announced today is sufficient or based on kind of market conditions as you exited September, do you think there is more that you need to do?

No. I think these actions, Cherilyn, are with today’s environment in mind.

We – some of the headcount reductions have taken place in the third quarter. So, we have been on this for a while.

This wasn’t in reaction to earnings release that came out today. This has been in process for probably a month.

Most of them happened in the fourth quarter, but this has been a pretty thoughtful and deliberate piece of work. So, we are sizing to today’s environment and we are sizing to $40 to $50 oil price environment and we are sizing to 225 to 250 copper environment and that’s kind of where we are today.

Okay. And then my second question is revenue in Canada was down almost 15% sequentially, which is kind of staggering and that’s with Saskatchewan, can you tell us what the decline was on a same-store basis?

Same-store basis, well, revenue in Saskatchewan in the quarter was $50 million and that was a little bit lower than we were expecting, just kind of a little bit of slowness in the transition and some acceleration of sales from the previous seller to us. We will get that a little bit higher as we go forward to get back to the forecast that we think.

So you can back that out. But the main drivers of revenue decline in Canada were new equipment sales.

And it was across all three regions. It was our all three segments mining, core and power systems.

Actually product support held up pretty well, product support as you think about these last two quarters were, it was relatively weak both year-over-year. We saw that weakness go away in the third quarter and we actually saw sequential growth in the third quarter.

So I was pleased with the product support piece, but definitely the new equipment piece was a big reduction.

Okay, that’s might do. Thank you.

Thanks Cherilyn.

Hi. Good morning guys.

Hi.

Just on the cost reductions, can you give us a little more color on the types of employees that are going to be leaving, particularly around what that might do to technician count?

Yes. Sure.

So and then this actually builds on one of Cherilyn’s questions, too. Most of the headcount reductions have been non-sales force related.

So we are very focused on keeping that revenue generating capacity in our organization. And actually we are really pleased with that.

Despite the reduction in new equipment in the third quarter, we are really please with the market share. As I think I have said on the previous calls, our first quarter market share started off slowly.

But the third quarter, we got back to where we should be, so I am pleased with that. In terms of its mechanic breakdown versus salaried employee breakdown, I think it’s kind of in the 50-50, 60-40 type range, either way.

I don’t have that exact numbers with me, but we have been pretty sensitive to keeping the mechanic population in place given the highly skilled nature of that workforce.

Okay. But you are trimming some mechanics?

Yes.

Yes. And how do we square that with product support, up sequentially in Canada and I mean I guess you had additional capacity hoping for a rebound or are most of those technicians in South America?

A significant number of those technicians are in South America, so that is true. And I would also say, there is a whole parts versus service breakdown in that product support piece.

And we have had some weakness on the service side, which is not unexpected for you guys. So that has been the driver of the Canadian reductions.

Okay. Last for me, just Scott on, I guess it’s intertwined inventory and free cash flow, it looks like you have taken your expectations for free cash flow generation for this year down a little bit, can you just talk about what’s changed and particularly as it relates to getting inventory down in the back half of the year?

Yes. So I mean, just completely related to lower activity levels.

And on the one hand, I was pleased with free cash flow deliveries. If you look $140 million when compared to last year is $109 million.

So it gave us some confidence that the business model is working as we thought, so that’s great. And as we look to the fourth quarter, typically the fourth quarter is a significantly free cash flow positive quarter.

And I suspect that that will be the case this quarter. But given activity levels, it won’t be at the level that we saw in 2014 and 2013.

I think we have $350 million to $400 million type generation in those fourth quarters and that’s modestly given the activity levels we will see this quarter.

Okay, that’s it for me guys. I will turn it over.

Thanks Yuri.

Hi guys. Thanks for taking my call.

First off, when you discussed Kramer and product support, what was the product support if we strip out Kramer, was the product support still for the core Finning, was that still up and is that mostly parts?

So we don’t disclose that and you can – but you can assume product support was flat to slightly up in Canada without the Kramer acquisition.

And you mentioned how the Kramer revenue was a little lower than you were expecting due to the transition, what are you seeing within Kramer’s business, is it down, also weakened through the quarter?

I mean we are here into Saskatchewan right now actually. And I mean obviously the province has been impacted by lower energy prices and not a surprise to people, but it’s a little bit more diversified economy than Alberta, there is uranium, potash, ag as well.

So, the revenue decline is not a concern to us to tell you the truth. I mean, one that we gave you the forecast of I think we said how many what do we say in terms of the forecast, $0.07 to $0.10?

For ‘16 that’s still the forecast. And we have seen – it’s been accretive in ‘15, we’ll be $0.07 to $0.10 in ‘16.

I think we started out a little bit slow. We took out over on July 1.

And as you would expect the seller accelerated some sales into the June period and some of the July period, but we will get that back in the back half of the year in ‘16.

Thanks, Scott.

Thanks.

Good morning. I had a couple of more questions here on the cost reduction, so heard a bit about the Centre of Excellence, maybe you can comment on what you are doing at the Remand facility?

And also what you are doing within Kramer, any of the facility closures at Kramer?

Yes. We have highlighted in the release a couple of the big facility closures.

I think there is 11 in total. And we are in the process right now, Jacob, of communicating internally.

So, in terms of – as opposed to giving you details on the 11 facilities which now are known internally, but I would rather you follow off with Mauk offline, if you don’t mind. In terms of your comments on COE and OEM, I mean, this is a big change in COE.

We have, for those of who you have been there we have got two big buildings. We are moving all of the activity to one of the back buildings and consolidating NEP there and also moving the rebuilds from Sparwood back to COE to increase the utilization in COE and provide a pretty consistent service to the customer.

So, that’s a big change in COE. On OEM, actually I think there is no change.

OEM in this environment, what we are looking at is maximizing product support and this engine rebuild opportunity is key to that. So, the OEM business model, which I think as some of the investors saw about a month ago, is pretty important in this environment.

What capacity utilization is running there?

I don’t have that number on the back of my...

It’s improved over the last….

Yes. I think it’s improved over the last year given the environment, but I don’t have the actual number, we will have to follow up with you on that, Jacob.

Okay. And then maybe my second question is just how Cat is looking at this whole restructuring?

I mean, is there a – how involved are they in this and is there – like is there a dealership concentration that they look out or how are they thinking?

That’s the first question. I didn’t quite understand the dealership concentration question.

But in terms of Cat and our involvement, I mean, obviously, we have a pretty detailed discussions with Cat regularly. So, they are aware of what we are doing.

This is, as I look at the Cat announcement, this is 1.5 months ago now. There is a recognition that the environment is going to be lower for longer.

And I looked at that Cat announcement and talking with the Cat, folks, I think that’s a pretty consensus view. And so I don’t think it’s surprising to anyone that we are resizing the business for longer type approach.

Your second question on dealership consolidation, I didn’t quite get to that. Can you?

Yes. I mean, really what I am getting out there assuming you are talking about reducing your footprint by 20%, is there any rule of thumb how Caterpillar looks at dealership concentration?

Oh, I see. I get the question is 20% reduction of facilities is that a good amount or the right amount or is it too much or too little?

We have spent – I have been on this call now, this is the third time this year and we have, you can tell we have done this pretty thoughtfully, alright? We did Phase 1, Phase 2, and I’d say this is Phase 3.

So, it’s been a big effort on this over the last 6 months to get this right. It’s been done with customer inputs means number of these have been done with customers in terms of deciding how to optimize.

And I would view this less as a cost-cutting effort and more as a transformation. I mean, our customers’ needs are changing.

Our business model is changing. The bricks-and-mortar footprint that we have that was built for 20 years ago is in my own personal view that’s relevant going forward.

I think we need to centralize and give customers a consistent experience from a service perspective and that there is ways to get parts to customers without bricks and mortar. And without that fixed investment, we should be doing it.

So, I think this is skating to the puck a little bit in terms of where our business is heading. And so in my mind, this facility optimization is good for all seasons, it would accelerate it by the environment we are in, but I think it’s the right approach moving forward.

Thank you.

Thanks Jacob.

Yes. Thanks.

Scott, I am just wondering if you can comment maybe a little bit on the trends in the parts and service in terms of an exit rate for the quarter, it’s been this kind of trim for insurance environment for a while. And I think there is a general acknowledgment that deferrals can’t go on in perpetuity.

Some I am just wondering is there any signs or data points that you have either in machine hours or customer availability issues where you are starting to get to that pinch point and customers say, look I can’t do this any longer?

Yes. I mean, I think that’s the million dollar question, because we expect that this can’t go on forever.

But I think you have to look at South America a little bit differently than Canada on this. So on Canada, the product support reaction was pretty positive.

So when we look at the parts and service, the parts in particular business, I think we are pretty pleased with that and in line with what we are thinking. And I suspect there are still some trucks parts in Canada, actually quite a number of trucks parts in Canada.

But you are right, I don’t think that can go on forever. So I think the normal kind of movement in Canada is progressing.

I think South America was a little bit different this quarter and that you saw a much lower copper price, copper is $2.20 today. You saw some issues with a large – with Codelco in terms of budget and some labor issues.

And you also saw two of our big customers shut-in for a period. So if you think about the El Abra mine and the Collahuasi mine, again 90,000 tons shut-in there in copper, which means a lot of trucks were parked.

So and this is a little bit different dynamics and do I think this is going to change, yes. Do I know when it’s going to change, no.

And I know that’s probably not what you want to hear, but there is not a lot of visibility looking forward.

It’s an honest answer and I think we can’t ask for anything else, Scott. And then, the next question I had just relating to I know that the staff cuts are probably still pretty raw.

And I know you have always been very concerned about the core capabilities of the firm remaining intact and I think the analogy you used is, we want to cut the fat, we don’t want to cut the bone or the muscle. When you look at what you have had to do and in the current environment, are you still like how much have you gone into the muscle a little bit with these cuts or no, it’s been purposeful enough that you are still having compromised, what do you think is the core capability of the value proposition for the customers?

Yes. I can assure you this has been purposeful.

And I think, the way we have looked at this through the performance management lens has been, I have been very pleased with. And the fact that we haven’t and tried to avoid taking away the sales capability, recognizing that this is an environment market share and continue revenue generation, both on the product support and equipment side, is pretty important.

So from that perspective, I am very happy. I think in South America, it’s provided us an opportunity actually on the technician side to build capabilities because you – we have added so many technicians over the years on this growth and we have been trying to build up the capabilities.

But I think this accelerates the buildup of capabilities. In Canada, there are some tough decisions, I mean on the mechanic side and there are some tough decisions because of some of the flexibility in the union agreements and that’s not – it doesn’t make me feel that good.

But given where we are from activity perspective, I think decisions had to be made like that. So as I look forward, I think business gets done differently with customers.

And so some of these facility optimization moves, I think are as I said in the previous call are probably good for all seasons. And when you take out facilities, you take out headcount.

And so to that extent, I think there is an efficiency transformation agenda going on here that allows us to streamline the organization, be more effective with customers and continue to improve customer loyalty. I will tell you, one of the really pleasing things about this Bert, as I look at our customer loyalty scores or I think we have gone through the first part of the year and we have closed 16 facilities.

Our customer loyalty scores in September were at the highest level since I began this job 2.5 years ago. And so if we can continue improving customer loyalty, improving market share, but addressing the cost base, I think that is the transformation we are looking for.

Okay. Well, I am sure your customers appreciate you being proactively interfacing with them during this time, so….

Yes. And I think that’s important.

A lot of these decisions have been made in discussions with customers.

Okay. Thanks, Scott.

Thanks, Bert.

Hi, good morning. Scott, can you comment on how much FX impact has gone through top line in Canada?

I am just wondering if the new equipment that has sold has been kind of older inventory, so we are just not seeing that impact or is it just being taken on the margin by Finning having to get it out and no customer acceptance so that FX pass-through? Can you just help us understand sort of where that’s at and where you see that going into F ‘16?

Yes, Sara, this is Steve. On a consolidated basis from translation, we had about $100 million impact on the top line revenue.

When we look at the pass-through question in Canada, it’s very difficult to dissect the market pressures on price. We are experiencing market pressures on price and that puts pressure on our margins.

I look at FX in that equation as one of the cost elements. So, there is price pressure.

We don’t look at FX as a cost plus pass-through, because the market is too dynamic. So, there is – our customers have pressure.

There is market competition. So, I would say, overall, it’s the consequence of all that is reflected in our margins.

Maybe just a follow on to that is in terms of your inventory level, is that primarily new FX inventory or is it older FX inventory? I am just trying to gauge what kind of margin expectation you might have going forward on that?

Yes. So, to share again what Scott said and what we said in the past two quarters, this equipment was ordered before the sharp drop in October, November last year, was mostly receded in the latter part of the first quarter into the second quarter.

So – and it’s all general construction equipment. There is no big, heavy or special mining equipment.

So, the sell-through – we are confident in the value of the sell-through and it’s a matter of timing with the economy.

Okay. And then secondly just how do we – maybe you can help us put in a context the SG&A savings you are looking for?

I know you commented $150 million run-rate in Canada for F ‘16, but if we look consolidated, SG&A has been pretty consistent at $1.5 billion, $1.6 billion for the last two years. Do you have either a number in mind or a percentage of sales in terms of what you look to achieve in the new environment for ‘16?

Yes. The difficulty on looking at it today as we speak as a percentage of revenue is the difficulty in forecasting where the economy and the commodity prices are going to go and how fast they will return.

When we look at the absolute dollar amount and the reason why we shared with you the $150 million in Canada directionally is because it becomes very difficult to look forward today in Latin America, where the other – the next largest amount would be due to FX issues as well as the inflation in Latin America. So, I think there is possibility on a consolidation basically it being higher, but the $150 million figure, is the one that I would use for Canada and make some assumptions to consolidate from there.

Can you just comment on how much has already been realized or you expect to be realized in ‘15 of that $150 million?

I don’t have that on top of mind. It’s been partially realized.

We started the reductions coming out of the first quarter in Canada and we have shared those numbers as we have gone through the quarter, so…

What we know year-to-date SG&A is down 13% year-over-year, right. So, you can – that exclude – if you exclude severance and you excluded the one-offs year-to-date, Canadian SG&A, I think year-over-year is down 13% or 14%, so that gives you a answer.

Okay, thanks.

Yes. Good morning gentlemen and just in terms of restructuring, we clearly recognize your pro-activeness, you have been very thoughtful about the restructuring.

Now, when we look at 2016, I was wondering, I understand, you might be reluctant to provide some specific number, but with the restructuring you have done, what is kind of the bottom EBIT margin you are aiming at to at least target or sustain going through 2016 and is your assumptions – should you expect further drop in terms of revenues or?

Yes. So you are asking for guidance?

No.

I know it’s a volatile environment. I am not going to give you guidance, but I will give you some framework for thinking about it.

One, South America, we have been really pleased over the last 2 years with South America’s ability to stay in that 9% to 10% margin range. And we saw a real reduction in activity this year, which was unexpected this quarter – sorry, it was unexpected associated with the issues we talked about.

So the decisive actions that Marcelo and his team have taken with the 600 headcount reductions are intended to get South America back to those historically profitability levels. I would say that’s point one.

Point two, in Canada we don’t see a catalyst on the horizon for revenue. We think we are going to be in this environment for a period of time.

There are some green shoots associated with the Liberal infrastructure plan and the MDP infrastructure and right fee, etcetera. But I am not sure we should be counting on any of that to increase revenue in ‘16 versus ‘15.

And this $150 million run rate SG&A non-volume related savings, I think gives you a sense of you are putting your own macro view on this and you will know what we have done here from a SG&A perspective. That’s run rate savings in ‘16 relative to ‘14, so it’s a big change.

And I think we believe the management team here believes we sized it both from a facilities and a people perspective for the current environment we are in. You can never say we are done because if the environment gets worse then we are going to have to react.

I think we have demonstrated through the year that we have been pretty nimble. But right now, I am hopeful the environment stays where it is and we can move into ‘16 with a pretty clean year and start to show some progress.

Yes. Is 7% EBIT margin kind of a level that you would like at least to maintain with the current restructuring you have done, Scott?

Put it this way, I am really pleased in the Canadian business how we have seen sequential improvement. Alright, I mean if you look at the 5.8 to the 6.5, to the 7, that to me in spite of all this negativity in the market, I think you can look at that and say there is some progress being made.

And I would like to see the continued progress, so that’s what I found that.

Okay, perfect. And now when we look at the federal election obviously, a positive on the infrastructure spending, the new budget from the Alberta government, so just wondering if you would comment a little bit about the opportunities and your understanding on when it could quite potentially flow to backlog and revenues?

Yes. So I feel like I am a little bit of a déjà vu build here from last year when we are talking about FINSA and Chile infrastructure spend.

So I wanted to be a little bit – and we didn’t see any of that benefit this year. So I want to be a little bit careful on projecting benefits from the infrastructure spend.

But if you take a step back, I mean its good news for Finning, right I mean to have the premier of Alberta take a very constructive view on stimulating the economy and to – I mean that was a big infrastructure budget and that should be helpful for us. I think the Liberal government also is going to be what we know, they are going to be very constructive on infrastructure.

So that should be helpful for us in all three provinces. So I am pleased with that.

And I think the offset to this was you just have to be a little bit thoughtful about is how quickly we move on the climate change agenda. And that is going to impact oil sands activity, if it’s not done very thoughtfully.

And so I think we just need to be careful on that aspect of the two new governments coming in.

Okay. Thank you for the time.

Good morning guys.

Hi, Ben.

Most of my questions have been asked. But actually Scott just obviously, a tough market for you, but I wanted to see it’s nice to get the kind of transparency and the very sort of balanced view that you are providing, it’s a refreshing change.

If I could maybe just pick up a little bit on the SG&A, I know there are some questions that have been asked about that. But as you like one of the things that I have always struggled to get a really solid understanding of is what – how you guys would sort of breakdown your true variable cost, which I think would be shipping and selling costs in there from your more fixed costs.

And how we should assume SG&A behaves if you get another drop in revenues or to that matter if revenues start to recover? I mean, one way or the other, we are probably not going to look at the same number revenue next year as we did this year.

So, how do we model, particularly now that you have taken a lot of the fixed cost out, how can we think about SG&A going forward just as a variable versus fixed cost structure?

Yes, this is Steve. So, the $150 million that we gave as a forward-looking number for Canada run-rate is fixed cost.

And so we don’t have a clean line of sight to our consolidated variable costs, but as a rule of thumb, I would estimate it at about 20%.

Yes, I mean, not to sound cynical, but the last time there was a downturn, Finning talked about taking $150 million to $200 million of fixed cost out of the business. And soon as the business started growing and the costs were back in the equation.

So, like I mean – that’s why I am trying to get a better understanding of how that line item, because clearly, that’s a big component of operating leverage either way, up or down, to your equation. And frankly, it’s the line item as a percentage of sales that sort of seems to be so much higher than many of your peers.

So, I think it’s great that you guys are tackling that, but how do we know how that behaves going forward?

Yes, Ben. I mean, you hit on the key issue for us now, right, is I think the team has done a fantastic job getting cost out of the system in a year.

You think of this year in Canada, 1,100 headcount reduction 20% of the workforce and 20% of facility footprint in 1 year, I mean that’s pretty amazing to my mind and congratulations to the team for doing that. The key now to all of this is activity will return.

And how do you do, how do you run your business in such a way that the cost don’t come back in and that is what we are spending all of our time on right now and that means changing processes. That means from that technology, that means thinking about your facility footprint differently, I mean, thinking about your staff and layer differently.

I mean, thinking about – and so when you actually go through, it’s really interesting and when you go through – and we will hear a few more about this in Fort McKay by the way when we have Investor Day in December. So, when you go through the headcount reductions and you see some of the control decisions, some of – these are not decisions just in the mid-layer of the corporation.

I mean, these are done at the highest level of this company in terms of increasing efficiency. And part of this is going to be technology in terms of how we equip our people with easier to use tools to provide service for people, how do we do our supply chain with lower touches.

I mean, this is what Juan Carlos and the team are doing there is a redesign of how that Canadian business operates and that’s why this should not be thought of cost reduction effort, this is truly a transformation effort. And when we come out of this, I am confident that you are going to see the earnings leverage, because these costs are not going to come back in the system, they cannot come back into the system or we didn’t do our job through this downturn.

Yes, that’s what I am getting at. And so can you maybe just I guess is my second or follow-up question to that, can you talk a little bit and I guess we will hear more about it in December, but can you give a little preview now about how you guys – like how do you think about your different – in your processes differently?

For example, you closed the branch in Squamish and there is fair amount of logging and roadwork, little bit of mining up in that area, all the way as it goes up out to Lillooet. And yet you have got – you have branched now only in Surrey.

So just is that as a case study, like how do you service that? How do you make sure you don’t lose the customers up there?

How do you get the parts turns and the equipment through the shop faster or as fast with a smaller footprint?

Yes. So I will give you a couple of examples.

Let’s look at the Sparwood decision, I mean, this is a difficult decision, but we are trying to address our customers’ concerns on costs and provide them with a better experience from a customer experience. So, we are going to consolidate that Sparwood activity back in COE.

We will have a big Centre of Excellence there for rebuilds. We will also be able to service them out of a branch, that’s very close to Cranbrook.

And we are going to work with the customer to put people onsite. And so the customer experience we think will actually get better.

And from a supply chain perspective, we are going to work with the customer to go direct from Spokane. So, we think we are convinced the customer experience gets better.

New equipment preps, we are going to consolidate all of that new equipment preps. We have done a lot of that, but we are going to consolidate most of that new equipment prep in COE consistent, predictable, experience for customers is a lot better than a different experience depending on what branch you are in.

Drills and shovels, I mean, there is no reason that drills and shovels shouldn’t be incorporated into the rest of our Canadian business. In fact, our customers want that to happen.

So, this, I think, is a great thing for our customers and for us. So, the way we thought about this facility optimization is through the lens of the customer.

And we are going to check with them continually to make sure we are meeting their expectations and improving on that customer loyalty perspective. Again I will come back to the customer loyalty improvement, we have seen an improvement – continual improvement quarter-over-quarter, month-by-month and our customer loyalty scores in Canada.

And I think we got to continue to drive that forward.

That’s great. So, just to be clear then, so are you closing Sparwood, is that what you are saying, the branch there?

That is one of the branches that is going to be – that was announced that we are closing.

It’s kind of hell of a ground, so those are big moves. Thanks very much.

Yes, Ben and thanks for your comments, I mean – and I wanted these are difficult decisions. I mean, these are impacting long-term very loyal, very good Finning employees and we are trying to be very transparent and open with our employees that we recognize these are difficult decisions, but necessary given where the business is heading and given where the environment is and given the need to transform this business that we have to make these decisions.

Hi, good morning. Can you please comment briefly on the competitive environment just what’s happening on the ground?

Thank you. It’s competitive.

So, I think there is, I think what you have seen is an environment in all three of our sectors, mining, core and power, where the competition has increased. I think you have seen a shift in the market from large machines to small machines.

So, in this reactivity is down, but it’s not only industry activity down, but it’s also a shift from big excavators to smaller skid steer type machines. Second, there is – and this is not surprising, but there is a movement from new to used.

And you see – you have seen Finning now and you have seen all of our competitors in Western Canada announce pretty similar results. I think the good news for us is our market share continues to maintain strong.

So, we know we are getting our market share. And you also saw Ritchie generate a very good option outcome, which in fact that we did our first option this quarter as well with our environment and we are pretty pleased with that.

So, there is the dynamic of new to used given pressure customers are under and there is the dynamic big machines to small machines and then lower activity. So, I guess that’s how I would answer your question, Maxim.

Okay, now that’s helpful. And then just quick sort of accounting question, I think there is some speculation, but maybe Cat would have to do a good little write-down on Bucyrus.

I am just wondering where you guys are standing from kind of pure DCF perspective? I mean, I assume that not a ton of big shovels have been sold in all the territories.

Can you maybe walk us through the math how you think about that asset specifically? I mean, I understand that you do the goodwill test once a year, but any thoughts would be appreciated?

And Maxim, we do the test of our evaluations and then potential impairment every quarter and we will go through that process beginning the fourth quarter. As the end of the third quarter, we didn’t see it necessary to take an impairment charge, but we will do the process again as we regularly do in the fourth quarter.

Okay, thank you. And then maybe just one last one if I can sneak in, can you disclose the amount of inventory that you had from Kramer right now in the balance sheet, if it’s possible?

No. I mean, we have been looking at that as a combined inventory, even frankly before the acquisition we worked well with the Kramer team to coordinate.

So, that’s embedded now in our Canadian numbers. What I would tell you is inventory in Canada, Steve mentioned this in the script, was down $70 million.

So, we did see despite a 30% reduction in the market, we did see some inventory sell-through, which was encouraging and we will continue to see that in the fourth quarter.

Okay. Now, that’s helpful.

Thank you very much.

Great. Thanks, Maxim.

Well, thank you very much operator and thanks everyone for listening. We look forward to speaking with you again next quarter.

Bye for now.