STRONGCO CORPORATION 2015 ANNUAL REPORT · STRONGCO CORPORATION 2015 ANNUAL REPORT 4 Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada

STRONGCO CORPORATION 2015 ANNUAL REPORT 1

STRONGCO CORPORATION 2015 ANNUAL REPORT


Strongco Corporation is a major multiline mobile equipment dealer with operations

across Canada and in the United States, operating through Chadwick-BaRoss, Inc.

Strongco sells, rents and services equipment used in diverse sectors such as

construction, infrastructure, mining, oil and gas, utilities, municipalities, waste

management and forestry. The Company has approximately 720 employees serving

customers from 27 branches in Canada and five in the United States. Strongco is

listed on the Toronto Stock Exchange under the symbol SQP.

MANAGEMENT’S DISCUSSION AND ANALYSIS

4 Financial Highlights

5 Outlook

6 Company Overview

7 Financial Results – Annual

18 Financial Results – Fourth Quarter

24 Summary of Quarterly Data

24 Contractual Obligations

25 Shareholder Capital

25 Non-IFRS Measures

25 Critical Accounting Estimates

27 Risks and Uncertainties

29 Disclosure Controls and Internal Controls Over Financial Reporting

29 Forward-Looking Statements

FINANCIAL STATEMENTS

32 Management’s Responsibility for Financial Reporting

33 Independent Auditors’ Report

34 Consolidated Statements of Financial Position

35 Consolidated Statements of Income

36 Consolidated Statements of Comprehensive Income

37 Consolidated Statements of Changes in Shareholders’ Equity

38 Consolidated Statements of Cash Flows

39 Notes to Consolidated Financial Statements

WE ARE STRONGCO

STRONGCO CORPORATION 2015 ANNUAL REPORT 1 STRONGCO 2013 THIRD QUARTER REPORT 1

To Our Shareholders

In the third quarter, Strongco extended its record of solid revenue growth through market share gains in construction equipment despite declines in several of our key markets, as well as through strong growth in crane sales. Our improved sales performance is a result of the recent upgrades made to the branch infrastructure and to enhancing our sales organization. Overall, demand in heavy equipment markets has been adversely affected by substantially less demand in Quebec, the Atlantic provinces and New England. Despite this market softness, I believe the Company will continue to benefi t from the organizational investments that we have made to realize higher revenues and market share gains across the country in the future.

We are also keenly focused on reducing fl oor plan debt through equipment inventory reductions. In the third quarter, equipment notes declines by $8 million as inventory decreased by approximately $8 million from the second quarter and is running $10 million lower than at the same time last year. Inventory committed to rental contracts with purchase options (RPOs) did increase slightly with the delay of some conversions into the fourth quarter. However, with our anticipated level of sales combined with the RPO conversions expected in the fourth quarter, we look forward to a substantial reduction in inventory by the end of the year. Revenues for the quarter increased by 10.5% over last year to $131.7 million, with equipment sales up 16% from 2012, rentals down by 19%and product support revenues up 8% from the prior year. Gross margin increased by $1.7 million to $24.2 million. As a percentage of revenue, gross margin declined slightly to 18.3% from 18.9% last year, due primarily to a lower margin percentage on equipment sales and a slightly higher proportion of equipment sales.

EBITDA for the quarter decreased to $13.8 million, down from $15.1 million last year.

Strongco fi nished the third quarter with net income of $2.0 million or $0.15 per share, compared to $2.4 million or $0.18 per share in the same period of 2012.

Looking ahead to the fourth quarter, demand for equipment remains fl at to slightly down from last year for Canada overall and economic forecasts continue to project modest growth across the country overall. Construction activity is expected to stay fl at for the balance of the year except in Quebec.

In Alberta, a price rebound for Alberta-produced oil has lifted some of the uncertainty in the province, activity in the oil sands has resumed but at a more controlled pace and the outlook for the fourth quarter and long term is positive. Construction markets in Ontario are continuing to recover slowly following the recession, but a general lack of optimism and uncertainty over the economy still exists. In Quebec, construction activity declined signifi cantly in 2013. Demand for heavy equipment in the region was substantially lower in the fi rst nine months of the year and is expected to remain depressed in the fourth quarter.

In the United States, while there were positive signs of economic recovery, the improvement has been less noticeable in New England and has not translated into any signifi cant upturn in construction markets in the area. Heavy equipment markets in the region remain depressed. No meaningful recovery is expected in New England in 2013, which will continue to dampen heavy equipment markets and hamper Strongco’s sales in the region.

Going forward, we continue to make further strategic investments in our branch network to heighten visibility in our markets, better serve customers and drive regional business growth. Our new branch near Quebec City will be completed in November and, as part of our northern Alberta initiative, our new Fort McMurray branch, currently under construction, will open for business in the fi rst quarter of 2014.

Strongco’s sales backlogs and level of rental contracts with purchase options (RPOs) are strong. This suggests a continuing demand for heavy equipment and we are, therefore, cautiously optimistic about our performance for the balance of the year.

Robert H.R. DryburghPresident and Chief Executive Offi cer

October 31, 2013

To Our Shareholders

For Strongco Corporation, 2015 was not the year it was stacked up to be.

Over the past several years, we invested heavily in new branches, in

technology, in new products and in our people, with the expectation of

beginning to realize the benefits in 2015. However, softening resource

and energy markets, along with a weak Canadian dollar, led to disappointing

financial results for the year, which—in concert with a challenging

outlook—is requiring us to re-evaluate our priorities, and to focus on

building the financial footings that will provide more security and stability

through every phase of the business cycle.

The re-evaluation process is ongoing, but we can share with you three

primary objectives that we have identified to put the business in a better

position to succeed going forward. Simply put, they are:

#1 Focus on what we do best. We are taking steps to fully optimize

our allocation of talent and resources;

#2 Profitability without revenue growth. We are determined and

committed to achieving better performance in all of our regions,

even in difficult markets; and,

#3 Financial certainty. While 2015 saw improvements to inventory

and debt levels, we intend to accelerate these and other de-

risking initiatives to achieve the financial stability—and credibility—

necessary to grow the business over the long term.

Strongco represents some of the best known and highest quality

construction equipment and cranes in the industry. We are diversified

by brand, equipment type, services, geography and industries served.

These factors provide both economies of scale and the flexibility to

respond and adapt to the unique demands of key markets.

While parts of Central and Eastern Canada and the Northeastern U.S.

performed acceptably in 2015, Alberta faced real headwinds. On a

consolidated basis, Strongco’s revenue dropped from $498.3 million to

$474.3 million year over year, with equipment sales in Western Canada

accounting for a decline of approximately $47 million, a 43% decline

from the previous year. While there is little that Strongco can do to

stimulate demand in the face of such declining market conditions, the

Company is taking action to adjust to the current economic realities.

Strongco recognizes that its inventory levels and cost structure generally

are not sustainable and need to be resized. Accordingly, the Company

has taken and is continuing to take steps to restructure and reduce

expenses, improve the balance sheet and increase cash flow.

We were pleased to see notable balance sheet improvements in 2015 with

equipment inventories down $27 million from a year earlier, which led to

meaningful reductions in equipment notes payable and interest expense.

To further advance these initiatives, in the fourth quarter Strongco provided

a reserve against inventory in the amount of $4.5 million. We intend to be

proactive to make a more rapid disposition of slow-moving product over

the next four quarters, including aged equipment and other items we

believe do not belong in our lineup in the future. This decision reinforces

our commitment to core suppliers, allows our salesforce to focus on top

sellers, and should result in higher turns on core products while alleviating

interest and depreciation costs, all of which by intention leads to improving

the business and the bottom line.

With past experience, and the expectation of ongoing weak markets in

2016, we are taking further aggressive actions to reduce balance sheet

leverage and free up cash. In an effort to optimize our allocation of talent

and capital, layoffs in 2015 resulted in a 7% headcount reduction in

Canada. As difficult markets persist, we are continuing to reduce the size

of our payroll in 2016, but not at the expense of the customer experience

as we ensure the appropriate level of technicians, sales and service

people. In fact, we are still hiring on the front lines based on the demands

of the marketplace.

Looking ahead, challenging market conditions are expected to continue

in Canada, particularly in Alberta and Quebec.

In Alberta, the ongoing impact of low oil prices has significantly reduced

demand for heavy equipment across the province, and curtailed new

development in the oil sands region, with no recovery anticipated in the

near term.

In Ontario, small-scale construction activity is growing, but an overall air

of caution continues to impede purchasing decisions for heavy equipment.

While Ontario’s manufacturing sector should benefit from the current low

oil prices and the weak dollar, no significant government infrastructure

spending has been announced and few large projects are underway or

planned for the near term.


In Quebec, demand for heavy equipment and cranes is expected

to remain soft. While the Charbonneau Commission report was issued

late in 2015, there has been little improvement in construction activity.

Two of the province’s larger infrastructure projects: the reconstruction of

the Turcot Interchange in Montreal and the construction of the new

Champlain Bridge, which began late in 2015, were positive signs, but

beyond these two large projects, infrastructure activity in the province

remains low. In northern regions of Quebec, mining activity and demand

for associated heavy equipment is expected to remain slow, as low

commodity prices persist.

Turning to the U.S., we expect continued modest improvement in both

equipment sales and product support, led by ongoing demand for heavy

equipment in residential construction and forestry.

Finally, with the Canadian dollar expected to remain weak in the near

term, the associated rising cost of new equipment to Canadian dealers

will continue to affect sales and margins, as soft construction markets

make it more difficult for dealers to pass on these higher costs.

With this economic backdrop, the overall markets for heavy equipment

across Canada are expected to be flat to down while competition is

expected to remain strong.

While the coming year will not be easy, this is not the first time Strongco

has had to navigate challenging times. Given our strong reputation and

our relative size, we believe that there is an opportunity to make this

business profitable, irrespective of market conditions. We are presently

establishing clear priorities and mapping deliberate steps to ensure that

we become a more sustainable Company through market downturns,

while continuing to build our leadership position in key markets.

We have great faith in the quality of our world-class brands, and in the

dedication and expertise of our people. We are committed to all Strongco

stakeholders – and to our shareholders, we share your frustrations with

recent performance and appreciate your patience as we take foundational

steps to promote long-term value creation.

In closing, we’d like to provide an update on the Board’s search for a new

CEO. Currently, we are in the business evaluation process, an important

pre-cursor to establishing the leadership characteristics that we will look

for when the executive-search process begins. We will continue to keep

you apprised of developments in this regard, as well as our need to fill

the vacancies on the Board of Directors.

We’d like to thank all our staff and the Directors of Strongco for their

commitment and perseverance as we refresh our efforts to be the

equipment provider of choice.

Robert J. Beutel

Executive Chairman

J. David Wood, CPA

Vice President and Chief Financial Officer

March 23, 2016


MANAGEMENT’SDISCUSSION & ANALYSIS


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Strongco Corporation Management’s Discussion and Analysis The following management’s discussion and analysis (“MD&A”) provides a review of the consolidated financial condition and results of operations of Strongco Corporation, Strongco GP Inc. and Strongco Limited Partnership, collectively referred to as “Strongco” or “the Company”, as at and for the year ended December 31, 2015. This discussion and analysis should be read in conjunction with the accompanying audited consolidated financial statements as at and for the year ended December 31, 2015. For additional information and details, readers are referred to the Company’s quarterly unaudited consolidated financial statements and quarterly MD&A for fiscal 2015 and fiscal 2014 as well as the Company’s Annual Information Form (“AIF”) dated March 23, 2016, all of which are published separately and are available on SEDAR at www.sedar.com. Unless otherwise indicated, all financial information within this discussion and analysis is in millions of Canadian dollars except per share amounts. The information in this MD&A is current to March 23, 2016. FINANCIAL HIGHLIGHTS Revenue decreased by 5% to $474.3 million Gross margin of $82.7 million, down from $86.3 million in 2014 Operating loss of $1.5 million compared to income of $13.0 million in 2014 EBITDA of $24.7 million compared to $43.0 million in 2014 Net loss of $7.4 million compared to net income of $0.9 million in 2014 Loss per share of $0.56 compared to earnings per share of $0.07 per share in 2014 ($ millions, except per share amounts)Income Statement Highlights 2015 2014 2013

Revenue 474.3$ 498.3$ 485.7$

Operating income (loss) (1.5) 13.0 14.5

Earnings (loss) before income taxes (before impairment of intangible asset) (1.5) 1.9 3.7

Impairment of intangible asset - 1.8 -Net income (loss) (7.4)$ 0.9$ 3.0$

Basic and diluted earnings (loss) per share (0.56)$ 0.07$ 0.23$ EBITDA (note 1) 24.7$ 43.0$ 45.0$

Balance Sheet HighlightsEquipment inventory in stock 146.5$ 179.1$ 156.8$ Equipment inventory on rental contracts with purchase options 24.8 28.6 38.9 Equipment inventory on short-term rental contracts 27.7 18.6 16.3 Total equipment inventory 199.0$ 226.3$ 212.0$ Total assets 373.4$ 393.8$ 386.6$

Debt (bank debt and other notes payable) 54.8$ 43.7$ 67.3$ Equipment notes payable 180.3 197.8 193.0

Total liabilities 301.8$ 321.7$ 313.5$

Year Ended December 31

Note 1 – “EBITDA” refers to earnings before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards (“IFRS”) and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company’s management believes that EBITDA is an important supplemental measure in evaluating the Company’s performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company’s performance or to cash flows from operating, investing and financing activities as measures of the Company’s liquidity and cash flows.


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SUMMARY OF OPERATING RESULTS 2015 proved to be a challenging year in heavy equipment markets in Canada as a result of the negative impact of the sharp decline in oil prices and weakening Canadian dollar. Strongco’s revenues in 2015 were $474.3 million, down $24.0 million or 5% from $498.3 million in 2014. The entire decrease was from lower equipment sales and rentals while sales of parts and service were flat year-over-year. The decline in revenues occurred mainly in Alberta where weak market conditions brought on by the decline in oil prices resulted in revenues that were $60.9 million below the prior year. The decline in the price of oil has caused a significant reduction in activity in and around the oil sands area of northern Alberta, and had a negative impact on the entire Alberta economy. Construction and infrastructure activity was lower across the entire province which, in turn, caused weaker demand for heavy construction equipment and cranes. Demand for heavy equipment in Alberta was estimated to be down more than 40% year over year with general purpose equipment (GPE) down almost 60% and the market for cranes was off close to 80%. With the lower construction activity, large amounts of equipment were sitting idle which curtailed demand for parts and service in the province. Gross profit in 2015 was $82.7 million, down from $86.3 million in 2014. While lower revenues impacted margins, the decline in gross profit resulted mainly from an additional $4.5 million reserve for aged equipment inventory recorded in the fourth quarter. In response to the weak and challenging market conditions facing the Company, management has decided to take aggressive action to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash, and as a result recorded an additional reserve against certain aged machines. Before this large reserve, gross profit was $87.1 million or 18.4% of revenue compared to $86.3 million or 17.3% of revenue in 2014. Operating expenses were $82.6 million, up slightly from $81.3 million in 2014 as a result of higher lease costs on the four branches sold and leased back in 2015, depreciation on the Company’s new SAP computer system that went live during the year and the impact of the weaker Canadian dollar on the translation of the U.S. dollar expenses of the Company’s U.S. operations. The weakening Canadian dollar also resulted in foreign exchange losses on US dollar liabilities of $2.2 million in 2015 which reduced operating income to a loss of $1.5 million compared to an operating profit of $4.3 million before the large gains on the sale of real estate of $8.7 million in 2014. Interest expenses were lower in 2015 by $2.6 million as a direct result of actions to reduce equipment inventory and the associated debt. The net result was a loss before income taxes of $10.1 million which compared to loss before tax of $8.6 million, before real estate gains in 2014. Strongco has achieved a significant reduction in equipment inventories and the associated equipment finance debt. At December 31, 2015 equipment inventory was $199.0 million, which was down $27.3 million from the same time last year and equipment notes payable were down $17.5 million from a year ago. OUTLOOK Management anticipates a continuation of challenging market conditions in Canada in 2016, particularly in Alberta and Quebec, while, in New England, ongoing recovery in traditional markets for residential construction and forestry should continue to benefit heavy equipment markets. In Alberta, with no recovery in the price of oil anticipated in the near term, economic activity across the entire province is expected to remain depressed. New development in the oil sands region of northern Alberta has been severely curtailed, which has led to significant cutbacks and layoffs by the oil companies and related service companies. Activity in the northern region is expected to remain very low in 2016. In addition, the low oil prices have had a negative impact on the entire Alberta economy, and created significant uncertainty across the whole construction sector in the province. As a consequence, demand for heavy equipment and cranes is expected to remain weak throughout 2016. In response to the current market conditions and weak outlook, management has made adjustments to the cost structure with layoffs and other cost reductions and is focusing on continuously improving operating efficiency and our level of sales execution. In Quebec, overall, demand for heavy equipment and cranes is expected to remain soft in the near term. While the report on the investigation into corruption in the construction industry by the Charbonneau Commission was issued late in 2015, there has been little improvement in construction activity in the province and with no plans for significant new government infrastructure spending, construction activity in Quebec is expected to remain weak in the near term. There have been positive signs with increased activity on the reconstruction of the Turcot Interchange in Montreal, which began in the summer of 2015, and activity related to the initial preparation for construction of a new Champlain Bridge but beyond these two large projects, activity is expected to remain slow. In northern regions of the province, commodity prices are expected to remain at low levels and mining activity and demand for associated heavy equipment is expected to remain low.


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In Ontario, while construction activity remains somewhat buoyant, most activity is of a smaller scale and there remains an overall air of caution which is affecting the purchase decisions for heavy equipment. The current low oil prices and weak Canadian dollar should be of benefit to Ontario’s manufacturing sector which could lead to improved confidence and new investment and increased demand for heavy equipment. However, no significant government infrastructure spending has been announced and few large projects are underway or planned for the near term. As a result, larger scale construction activity is expected to remain low and demand for heavy equipment, especially GPE, is not expected to increase significantly in 2016. As the majority of heavy equipment is priced in US dollars, the weak Canadian dollar has resulted in the cost of new equipment to Canadian dealers rising. In the current weak construction markets, it has become more difficult for dealers to pass on these higher costs, which has resulted in lower sales and margins. The Canadian dollar is expected to remain weak in the near term in response to continuing low oil prices, which will continue to impact sales and margins. With this economic backdrop, the overall markets for heavy equipment across Canada are expected to be flat to down while competition is expected to remain strong. In light of the weak market conditions in Canada during 2015, particularly in Alberta, actions were taken to contain and reduce costs. Layoffs in 2015 resulted in a reduction in headcount of 45 or 7% of the Company’s workforce in Canada. Management has taken additional measures early in 2016 to further reduce costs without impacting the Company`s ability to service its customers. In addition, with the expectation of continuing weak markets, management is taking further aggressive action to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash. Additional inventory reserves were recorded in the fourth quarter of 2015 to provide for aged equipment. Heavy equipment markets in New England are expected to show further modest improvement in 2016 as the U.S. economy continues to grow. The traditional markets for residential construction and forestry, which experienced an uptick in 2015, are expected to remain active in 2016 which will result in continued demand for heavy equipment. COMPANY OVERVIEW Strongco is one of the largest multiline mobile equipment distributors in Canada. In addition, the Company is also a multiline distributor of mobile construction equipment in the New England region of the United States through its wholly owned subsidiary, Chadwick-BaRoss, Inc. Strongco sells and rents new and used equipment and provides after-sale product support (parts and service) to customers who operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets. This business distributes numerous equipment lines in various geographic territories. The primary lines distributed include those manufactured by:

i. Volvo Construction Equipment North America Inc. (“Volvo”), for which Strongco has distribution agreements in each of Alberta, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland in Canada, and Maine and New Hampshire in the United States;

ii. Case Corporation (“Case”), for which Strongco has a distribution agreement for a substantial portion of Ontario; and iii. Manitowoc Crane Group (“Manitowoc”), for which Strongco has distribution agreements for the Manitowoc, Grove and

National brands, covering much of Canada. The distribution agreements with Volvo and Case provide Strongco exclusive rights to distribute the products manufactured by these manufacturers in specific regions and/or provinces. In addition to the above noted primary lines, Strongco also distributes several other equipment lines and attachments which are complementary to its primary lines, including SDLG, Terex Trucks, Terex Cedarapids, Terex Finlay, Ponsse, Fassi, Allied Construction, Konecranes, ESCO, Dressta, Sennebogen, Jekko, Takeuchi, Link-Belt and Kawasaki. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.


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FINANCIAL RESULTS – ANNUAL Consolidated Results of Operations

($ thousands, except per share amounts) 2015 2014 2013 $ Change % Change $ Change % ChangeRevenue 474,285$ 498,328$ 485,721$ (24,043)$ -5% 12,607$ 3%Cost of sales 391,571 412,017 396,869 (20,446) -5% 15,148 4%Gross margin 82,714 86,311 88,852 (3,597) -4% (2,541) -3%Administrative, distribution and selling expenses 82,555 81,273 77,728 1,282 2% 3,545 5%Other (income) expense 1,656 (7,959) (3,359) 9,615 -121% (4,600) 137%Operating income (expense) (1,497) 12,997 14,483 (14,494) -112% (1,486) -10%Impairment of intangible asset - 1,800 - (1,800) Interest expense 8,578 11,127 10,814 (2,549) -23% 313 3%Earnings before income taxes (10,075) 70 3,669 (11,945) -16968% (3,599) 98%Provision for (recovery of) income taxes (2,707) (859) 674 (1,848) 215% (1,533) -228%Net income (loss) (7,368)$ 930$ 2,995$ (10,098)$ -1086% (2,066)$ -69%

Basic and diluted earnings (loss) per share from continuing operations (0.56)$ 0.07$ 0.23$ (0.63)$ -892% (0.16)$ -69%Basic and diluted earnings (loss) per share (0.56) 0.07 0.23 (0.63) -892% (0.16) -69%Weighted average number of shares - Basic 13,221,719 13,221,719 13,164,900 - Diluted 13,221,719 13,221,719 13,184,278 Key financial measuresGross margin as a percentage of revenues 17.4% 17.3% 18.3%Administrative, distribution and selling expenses as a percentage of revenues 17.4% 16.3% 16.0%Operating income (loss) as a percentage of revenues -0.3% 2.6% 3.0%EBITDA (note 1) 24,729$ 42,978$ 45,003$ (18,249)$ -42% (2,025)$ -4%

2015/2014Year Ended December 31 2014/2013

Note 1 – “EBITDA” refers to earnings before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards (“IFRS”) and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company’s management believes that EBITDA is an important supplemental measure in evaluating the Company’s performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company’s performance or to cash flows from operating, investing and financing activities as measures of the Company’s liquidity and cash flows. Market Overview Strongco participates in a number of geographic regions and in a wide range of end-use markets that utilize heavy equipment and which may have differing economic cycles. Construction markets generally follow the cycles of the broader economy, but typically lag by periods ranging up to 12 months. When construction markets are robust, demand for heavy equipment is normally strongest. In addition, as the financial resources of heavy equipment customers strengthen, they have historically replenished and upgraded their fleets after a period of restrained capital expenditures. Demand in oil and gas and mining markets is affected by the economy but also tends to be driven by the global demand and pricing of the relevant commodities. Activity in equipment markets is normally first evident in equipment used in earth moving applications and followed by cranes, which are typically utilized in later phases of construction. Cranes are also extensively utilized in the oil and gas sector. Rental of heavy equipment is typically greater following periods of recession until confidence is restored and financial resources of customers improve. As anticipated, rental activity, including rentals with an option to purchase (“RPO”), increased as markets recovered following the recession in 2009. However , rental activity has remained strong even after markets recovered and the number of customers choosing RPOs has continued to increase. Rental activity is expected to remain strong in the future. While market conditions varied from region to region, overall demand for heavy equipment in Canada was down in 2015. Excluding cranes, it is estimated that total heavy equipment units sold in Canada was down close to 15% overall with GPE units down close to 20%. Crane units sold across the country were down even further. Most of the decline was in Alberta which has been negatively impacted by the significant drop in oil prices. The resulting weakness in the Canadian dollar also impacted heavy equipment markets across the country by driving up the cost of new equipment and parts. By comparison, markets in the northeastern United States fared much better as economic conditions in the United States continued to improve.


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Weak economic conditions continued in Alberta as a result of ongoing impact of low oil prices. Unemployment levels rose in the province as companies cut back and laid off employees and spending for capital projects and maintenance was severely curtailed. Demand for heavy equipment, particularly in northern Alberta, has been directly affected by the spending cuts and the current level and weak outlook for oil prices. The weak economic condition curtailed construction activity across the entire province which depressed impacted demand for heavy equipment. Overall, the market for heavy equipment in Alberta was estimated to be down greater than 40% in 2015 with the GPE market off close to 60% year over year. The situation was even worse for cranes where the market was off by close to 80% from a year ago. Large amounts of used and in some cases new equipment have been put to auction by both customers and certain dealers which negatively impacted demand for new equipment and competition amongst equipment dealers has intensified. In addition, with a general slowdown in construction and mining activity in the province, large amounts of equipment have been parked and sitting idle which resulted in reduced spending for parts and service. Markets in Ontario were mixed. Reduced mining activity in the northern part of the province continued to stifle demand for heavy equipment, while construction activity in the south, particularly around the Toronto area showed some improvement, especially related to residential condo construction and other smaller construction projects. An air of caution, particularly with respect to the purchase of larger equipment remained, but sales of smaller, lower priced machines and used equipment were stronger. A reduction in larger scale construction projects in certain regions of the province has impacted sales of GPE equipment in 2015. Rental activity in Ontario remained steady in 2015 while sales of parts and service was stronger as customers repaired and maintained their fleets. Construction and infrastructure activity in Quebec remained low throughout 2015 as a result of the ongoing investigation of corruption in the construction industry by the Charbonneau Commission which was concluded late in the year, weak commodity prices and lack of government spending. As a consequence, demand for heavy equipment generally remained soft in 2015. Heavy equipment markets in Quebec, other than Cranes, were estimated to be down a further 5% from the low levels in 2014. The reconstruction of the Champlain Bridge and the rebuilding of the Turcot interchange, which both commenced during the year, were positive signs for the construction sector but the lack of government spending on infrastructure continued to dampen demand for heavy equipment and cranes. In Atlantic Canada, extreme cold temperatures throughout much of the first quarter and into the second quarter curtailed customer buying decisions for the upcoming season and delayed construction activity. With the arrival of more seasonal weather construction activity increased but, with the lack of government infrastructure spending, demand for heavy equipment remained soft. Weak oil prices also impacted activity and demand for equipment in Newfoundland. The market for heavy equipment in Atlantic Canada overall was estimated to be flat year over year in 2015 with a modest improvement in GPE. Construction activity in northeastern United States continued to improve in 2015 with the traditional markets for residential construction and forestry showing the most strength. The market for heavy equipment was estimated to be up by 18% overall with growth in GPE of close to 19%.


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Revenue A breakdown of revenue for the years ended December 31, 2015, 2014 and 2013 is as follows:

2015/2014 2014/2013($ millions) 2015 2014 2013 % Chg % Chg

Eastern Canada (Atlantic and Quebec)Equipment Sales 82.2$ 60.8$ 77.9$ 35% -22%Equipment Rentals 5.6 6.4 9.8 -13% -35%Product Support 41.2 41.7 43.8 -1% -5%Total Eastern Canada 129.0$ 108.9$ 131.5$ 18% -17%

Central Canada (Ontario)Equipment Sales 108.4$ 112.1$ 103.9$ -3% 8%Equipment Rentals 7.2 7.8 7.2 -8% 8%Product Support 44.1 41.3 38.8 7% 6%Total Central Canada 159.7$ 161.2$ 149.9$ -1% 8%

Western Canada (Manitoba to British Columbia)Equipment Sales 62.0$ 109.2$ 105.9$ -43% 3%Equipment Rentals 6.0 10.7 9.5 -44% 13%Product Support 28.3 37.3 32.1 -24% 16%Total Western Canada 96.3$ 157.2$ 147.5$ -39% 7%

Northeastern United StatesEquipment Sales 54.9$ 44.4$ 33.5$ 24% 33%Equipment Rentals 6.5 5.5 4.8$ 18% 15%Product Support 27.9 21.1 18.5$ 32% 14%Total Northeastern United States 89.3$ 71.0$ 56.8$ 26% 25%

Total RevenueEquipment Sales 307.5$ 326.5$ 321.2$ -6% 2%Equipment Rentals 25.3 30.4 31.3 -17% -3%Product Support 141.5 141.4 133.2 0% 6%Total 474.3$ 498.3$ 485.7$ -5% 3%

Years Ended December 31

Strongco’s overall revenues were down 5% from 2014, with most of the decline occurring in Alberta due to the weak economic conditions in Alberta. Overall revenues in Canada were down $42.3 million or 10% primarily due to the drop in Alberta. This was partially offset by strong growth in the Company’s U.S. operations. Equipment Sales Strongco’s equipment sales decreased by $19.0 million, or 6%, in 2015 to $307.5 million. The decline is due almost entirely to the sales drop in Alberta where markets have experienced a severe decline due to the weakness in oil prices. Markets were stronger in the northeastern United States, where sales were up $10.5 million, or 24%, to $54.9 million in 2015. Sales were also stronger in eastern Canada due primarily to strong sales of cranes in Quebec.


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On a regional basis, equipment sales in Eastern Canada (Quebec and Atlantic regions) totalled $82.2 million, which was up $21.4 million, or 35%, from $60.8 million in 2014. The increase was primarily due to the sales of a few large cranes in Quebec which more than offset a decrease in sales of other construction equipment in the province. In the Atlantic region, strong sales of wheel loaders and excavators contributed to a small overall increase in equipment sales. Construction and infrastructure markets remained weak in Quebec as a result of the ongoing investigation of corruption in the construction industry by the Charbonneau Commission which was only completed late in the year, and continued lack of spending on the significant infrastructure deficit in the province by the Quebec government. With continuing weak commodity prices, mining activity in northern Quebec has not recovered and the areas around St-Augustin, Chicoutimi and Baie-Comeau have been significantly impacted by the lack of construction activity. The market for heavy equipment in Quebec, other than cranes, was estimated to be down 5% overall in 2015 and competition for what little business remains has intensified. After some market share gains in the first half of the year, Strongco`s market share in Quebec declined slightly in the latter half of the year primarily due to lower excavator sales in the competitive environment. Lack of government spending on infrastructure and the impact of weaker oil prices on activity in Newfoundland has resulted in a continued low level of construction activity in the Atlantic region and as a result, demand for heavy equipment has generally remained weak. However, strength in the forestry sector and related industries has generated demand for harvesting and related material handling equipment and with the severe winter weather in the early part of the year, demand for loaders and other snow removal equipment has been stronger. The overall market for heavy equipment in Atlantic Canada was flat overall but up slightly year over year in GPE. Strongco outperformed the market with higher sales of GPE, especially wheel loaders, and road equipment which resulted in an increase market share. Strongco’s equipment sales in Central Canada were $108.4 million, which was down $3.7 million, or 3%, from 2014 due to lower cranes sales offset partially by stronger sales of construction equipment. Construction equipment sales were higher in 2015 due to stronger sales of compact equipment and a large multi-unit sale of GPE to the Department of National Defense early in the year. GPE sales were impacted by lower sales to certain equipment rental companies while sales of compact equipment to rental houses were higher. Many of these rental customers are currently carrying high stocks of GPE machines and have scaled back their purchases because of the lower level of larger scale construction projects currently underway or planned in the province. Sales of cranes in Ontario were lower than in 2014 when there were several units on RPO contracts which converted to sale, a sale of a large telescoping crane and a higher level of sales of hydraulic cranes. Equipment sales in Western Canada were $62.0 million, which was down $47.2 million, or 43% over 2014. As a result of the decline in oil prices, market conditions across the province have been very weak in 2015, especially in northern Alberta, which has resulted in significantly lower demand for heavy equipment, including cranes. The market for heavy equipment, other than cranes, was estimated to be down greater than 40%, with GPE equipment down by almost 60%. In this weak market, Strongco’s unit sales of GPE equipment were down, but were down less than the market overall which resulted in an increase in the Company’s market share. The market for cranes has been impacted even more by the low price of oil and is estimated to be off more than 80% year over year. While the Company benefitted in the second quarter from conversion to sale of a few large cranes that had been on RPO, Strongco’s crane sales in Western Canada in 2015 were down 54% year over year. Sales of smaller truck mounted articulating cranes were steady but at a much reduced pace than in the previous year, while the market for larger cranes were very soft. Market conditions and demand for heavy equipment and cranes are expected to remain depressed into 2016. Strongco’s equipment sales in the northeastern United States were $54.9 million, up $10.5 million, or 24%, from $44.4 million in 2014. Most of the year over year increase was due to the impact of the weaker Canadian dollar on translation of revenues of the Company’s U.S subsidiary. In US dollars, equipment revenues were up 6.5% over 2014. Stronger sales of equipment to customers in forestry and related industries and residential construction contributed to the increase. The heavy equipment market overall in New England was estimated to be up 18% compared to the prior year, with GPE up 19% year over year. At the same time, Strongco maintained its GPE market share in the region with an increase in unit volumes of 20%.

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

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rsEquipment Sales By Quarter - Fiscal 2013 to Fiscal 2015

Fiscal 2015Fiscal 2014Fiscal 2013


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Equipment Rentals It is common industry practice for certain customers to rent to meet their heavy equipment needs rather than commit to a purchase. In some cases, this is in response to the seasonal demands of the customer, as in the case of municipal snow removal contracts, or to meet customers’ needs for a specific project. In other cases, certain customers prefer to enter into short-term rental contracts with an option to purchase after a period of time or hours of machine usage. This latter type of contract is referred to as a rental purchase option contract (“RPO”). Under an RPO, a portion of the rental revenue is applied toward the purchase price of the equipment should the customer exercise the option to purchase. This provides the customer flexibility and results in a more affordable purchase price after the rental period. Normally, the significant majority of RPOs are converted to sales within a six-month period and this market practice is a method of building sales revenues and increasing the field population of equipment. Rental activity tends to be more robust in periods when the economy and construction markets are soft or recovering from recession, as customers generally lack the confidence or financial resources to commit to purchase equipment and prefer instead to rent to meet their equipment needs. Traditionally, when construction markets and demand for heavy equipment are strong, more customers are willing to purchase equipment and rental activity normally subsides. However, rental is becoming a more significant part of the heavy equipment market in the United States and Canada and more customers are choosing RPOs or rentals without purchase options to meet their equipment needs. Rental activity is expected to remain strong in the future. Strongco’s rental revenue in 2015 was $25.3 million, which was down 17% from $30.4 million in 2014. Most of the decline was In Alberta where rental activity is much lower as a result of the weak market conditions in the region. Rental activity in other regions of Canada remained strong. Improving market conditions in the northeastern United States, especially in residential construction and road building, contributed to higher rental revenues for Strongco’s U.S. operations. Product Support Sales of new equipment usually carry the warranty from the manufacturer for a defined term. Product support revenues from the sales of parts and service are therefore not impacted until the warranty period expires. Warranty periods vary from manufacturer to manufacturer and depend on customer purchases of extended warranties. Product support activities (sales of parts and service outside of warranty), therefore tend to increase at a slower rate and lag equipment sales by three to five years. The increasing equipment population in the field leads to increased product support activities over time. Strongco’s product support revenues in 2015 totalled $141.5 million, which was flat to 2014 with higher revenue from US operations offsetting lower revenues in Canada. Parts and service revenues were lower in Canada due primarily to a reduction product support in activity in Alberta where low oil prices has led to a low level of construction activity in the province and large amounts of equipment sitting idle. Parts and service revenues in Alberta were down 24% while revenues from product support were up 7% year over year in Ontario and essentially unchanged from a year ago in Eastern Canada. Revenues from sales of parts and service in New England were 32% higher due in part to the weaker Canadian dollar. In US dollars product support revenues were 14% higher due to increased construction activity and utilization of machines in the region. Gross Profit ($ millions)

Gross Margin GM% GM% GM% $ Change % Chg $ Change % ChgEquipment Sales 19.9$ 6.5% 22.4$ 6.9% 29.1$ 9.1% (2.5)$ -11% (6.7)$ -23%Equipment Rentals 4.4 17.4% 5.3 17.4% 5.2 16.6% (0.9) -17% 0.1 2%Product Support 58.4 41.3% 58.6 41.4% 54.6 41.0% (0.2) 0% 4.0 7%Total Gross Margin 82.7$ 17.4% 86.3$ 17.3% 88.9$ 18.3% (3.6)$ -4% (2.6)$ -3%

2015/2014 2014/20132015 2014 2013Year Ended December 31

Strongco’s overall gross profit was $82.7 million or 17.4% of revenue for 2015, compared to $86.3 million or 17.3% of revenue in 2014. While lower revenues impacted margins, the decline in gross profit resulted mainly from an additional $4.5 million reserve for aged equipment inventory recorded in the fourth quarter. In response to the weak and challenging market conditions facing the Company, management has decided to take a more aggressive approach to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash, and as a result a reserve of $4.5 million against certain aged machines was recorded. Before this large reserve, gross profit was $87.2 million or 18.4% of revenue compared to $86.3 million or 17.3% of revenue in 2014. Equipment margins were 6.5% or 7.9% excluding the impact of the inventory provision in the fourth quarter. This compared to a margin 6.9% in 2014 which was negatively impacted by a large sale of equipment at auction early in the year. With the weakness in the Canadian dollar the dealer cost in Canada of new equipment was higher in 2015 which has been difficult to pass on to customers in the current weak markets. This has put downward pressure on equipment margins. Lower margins were also realized on certain aged units sold during the year. Lower volume of crane sales, which generally command higher margins than other heavy equipment, also contributed to softness in overall equipment margins.


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The gross profit on rentals was lower in 2015 due to lower rental revenues while the margin on rentals was unchanged from the prior year at 17.4%. Gross profits and margins from product support sales was essentially flat compared to 2014 at $58.3 million or 41.3% of revenue Administrative, Distribution and Selling Expense Administrative, distribution and selling expense in 2015 were $82.6 million, up from $81.3 million in 2014 as a result of $2.1 million of higher lease costs on the four branches sold and leased back in the prior year and $1.9 million from the impact of the weaker Canadian dollar on the translation of the U.S. dollar expenses of the Company’s U.S. operations. In addition, implementation of the Company’s new computer system on a SAP platform was successfully completed during the year which resulted in incremental depreciation of $0.5 million in 2015. Before the incremental lease costs and depreciation and impact of the weaker Canadian dollar, operating expenses were down year over year due to actions taken by management to curtail and reduce costs. During 2015, the Company’s workforce was reduced in total by 7%. In response to the current market conditions and weak outlook, management has made further adjustments to the cost structure with layoffs and other cost reductions in 2016 and is continuing to focus on improving operating efficiency and sales execution. As a percentage of revenue, administrative, distribution and selling expenses were 17.4% in 2015, up from 16.3% in 2014 and 16.0% in 2013. Other Income Other income is primarily comprised of gains or losses on disposition of fixed assets, foreign exchange gains or losses, service fees received by Strongco as compensation for sales of new equipment by other third parties in the regions where Strongco has distribution rights for that equipment and commissions received from third party financing companies for customer purchase financing Strongco places with such finance companies. Other expense in 2015 amounted to $1.7 million compared to other income of $8.0 million in 2014. Other expense in 2015 is the result of foreign exchange losses which arose on the translation and settlement of the Company’s US dollar liabilities as a result of a decline in the value of the Canadian dollar. Other income for 2014 primarily represents gains from the sale and leaseback of four properties of $8.7 million. Interest Expense Strongco’s interest-bearing debt comprises interest-bearing equipment notes, operating lines and various term loans with the Company’s banks, and other notes payable. Strongco typically finances equipment inventory under lines of credit available from various non-bank finance companies. Most equipment financing has interest-free periods of up to 12 months from the date of financing, after which the equipment notes become interest-bearing. In addition, bank term loans and other notes payable were used to finance Strongco’s construction of new branches and mortgage financing of other owned branch facilities. The rate of interest on the Company’s bank operating lines and term loans, interest-bearing equipment notes and other notes payable vary with bank prime rates and Bankers’ Acceptance rates (“BA rates”). (See discussion under “Cash Flow, Financial Resources and Liquidity.”) Prime rates and BA rates have remained fairly stable throughout 2013, 2014 and 2015. Strongco’s interest expense was $8.6 million in 2015, compared to $11.1 million in 2014. Interest expense was lower in 2015 as a result of decreased interest-bearing debt levels primarily related to the financing of the equipment inventory. Management was successful in selling off aged equipment and reducing the level of equipment inventory and the associated interest-bearing equipment notes in 2015 which resulted in the lower interest. Management continues to focus on reducing equipment inventory with anticipated lower interest expense going forward. Earnings Before Income Taxes Strongco’s loss before income taxes in 2015 was $10.1 million, which compared to earnings before income taxes of $0.1 million in 2014. Excluding the gains on sales of branches and the intangible impairment charge in 2014, the Company incurred a loss before taxes of $7.0 million in the prior year. Lower gross profit in 2015 as a result of the $4.5 million additional inventory reserve recorded in the fourth quarter to reflect management plans to aggressively reduce aged equipment inventory and foreign exchange losses on US dollar liabilities caused by the weakening Canadian dollar contributed to the larger loss in 2015. Provision for Income Taxes The provision for income taxes in 2015 was a recovery of $2.7 million, which represented a $3.2 million recovery in Canada net of a provision of $0.5 million in the United States. By comparison, the provision for income taxes in 2014 was $0.8 million, which represented $1.4 million recovery in Canada net of a provision of $0.6 million in the United States. Net Income (Loss) Strongco’s net loss in 2015 was $7.4 million ($0.56 per share) compared to net income of $0.9 million ($0.07 per share) in 2014.


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EBITDA EBITDA (see note 1 below) in 2015 was $24.7 million (5.2% of revenue) which compared to $43.0 million (8.6% of revenue) in 2014 and $45.0 million (9.3% of revenue) in 2013. EBITDA was calculated as follows:

EBITDA ($ millions) 2015 2014 2013 2015/2014 2014/2013Net earnings (7.4)$ 0.9$ 3.0$ (8.3)$ (2.1)$ Add back:

Interest 8.6 11.1 10.8 (2.5) 0.3 Income taxes (2.7) (0.8) 0.7 (1.9) (1.5) Impairment of intangible asset - 1.8 - (1.8) 1.8 Depreciation of capital assets 6.1 5.6 5.1 0.5 0.5 Depreciation of equipment inventory on rent 13.6 19.0 21.7 (5.4) (2.7) Depreciation of rental fleet 6.1 5.4 3.7 0.6 1.7 Amortization of intangible asset 0.5 - - 0.5 -

EBITDA (note 1) 24.7$ 43.0$ 45.0$ (18.3)$ (2.0)$

Year Ended December 31 Change

Note 1 – “EBITDA” refers to earnings before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards (“IFRS”) and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company’s management believes that EBITDA is an important supplemental measure in evaluating the Company’s performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company’s performance or to cash flows from operating, investing and financing activities as measures of the Company’s liquidity and cash flows. Cash Flow, Financial Resources and Liquidity Cash Flow Provided By (Used In) Operating Activities: In 2015, Strongco provided $25.8 million of cash from operating activities before changes in working capital. By comparison, in 2014, Strongco provided $35.2 million of cash from operating activities before changes in working capital. The components of the cash used in operating activities were as follows:

($ millions) 2015 2014Net earnings $ (7.4) $ 0.9Non-cash items:

Depreciation – equipment inventory on rent 13.6 19.0Depreciation – capital assets 6.1 5.6Depreciation – rental fleet 6.1 5.4 Amortization of intangible asset 0.5 - Gain on disposal of property and equipment - (8.7) (Gain) Loss on sale of rental equipment (1.6) (1.2) Impairment of intangible asset - 1.8 Share-based payment expense 0.1 0.3 Interest expense 8.6 11.1 Income tax expense (2.7) (0.8) Employee future benefit expense 2.5 1.8

25.8 35.2Changes in non-cash working capital balances (3.2) (33.2)Employee future benefit funding (2.5) (3.0) Interest paid (9.6) (11.3) Income taxes paid (0.3) (0.1) Cash provided by (used in) operating activities $ 10.2 $ (12.4)


Non-cash items include depreciation of equipment inventory on rent of $13.6 million, which compared to $19.0 million in 2014. During 2015, there was a net increase in non-cash working capital of $3. million resulting primarily from a decrease in inventories and trade receivables partially offset by a decrease in trade payables and equipment notes. By comparison, during 2014, there was a net increase in non-cash working capital of $33.2 million. Components of cash flow from the net change in non-cash working capital for 2015 and 2014 were as follows:


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Trade and other receivables at December 31, 2015 were $57.0 million which was down slightly from $59.9 million at December 31, 2014. The average age of receivables at December 31, 2015 was comparable to the end of 2014. Given the seasonality of construction and the buying patterns of customers, the majority of Strongco’s inventory purchases are normally ordered for delivery the first half of the year to support the anticipated sales level of equipment and parts during the prime spring and summer selling seasons and as a result equipment stocks increase during the first half of the year and decrease during the second half. Management has continued its focus on reducing equipment inventory, especially aged equipment, and made improvements to the process for ordering new equipment. At the same time, the Company’s OEM suppliers have reduced delivery lead times for certain standard product categories. As a consequence the Company was able to scale back the amount of equipment purchased for the season and delay purchasing closer to the selling season. Equipment inventory at the end of December was $199.0 million, which was down $27.3 million from $226.3 million at the beginning of the year. A portion of the decrease resulted from the additional reserve of $4.5 million recorded at December 31st against certain aged equipment that management is taking aggressive action to sell. Before this reserve, equipment inventories were down $22.8 million. The significant decrease from last year would have been even larger were it not for the weakening Canadian dollar which increased the cost of incoming inventory in 2015 and the associated equipment notes by approximately $25 million. A breakdown of equipment inventory at December 31, 2015 compared to prior quarters is as follows: ($ millions)

Equipment in-stock $ 146.5 $ 188.4 $ 177.5 $ 167.5 $ 179.1 Equipment on RPO 24.8 34.8 29.6 23.6 28.6 Equipment on a short-term rental contract 27.7 13.1 10.7 16.4 18.6 Equipment inventory $ 199.0 $ 236.3 $ 217.8 $ 207.5 $ 226.3

June 30,2015

March 31,2015

December 31,2015

December 31,2014

September 30,2015

Equipment notes followed the same pattern as the equipment inventory they were financing. Equipment notes opened the year at $197.8 million and declined to $180.3 million at December 31, 2015. As noted above, the weakening Canadian dollar added approximately $20 million to equipment notes payable financing incoming inventory during the year. The majority of the decrease in equipment notes was of interest-bearing notes which dropped by $44.8 million during the year. This was the result of management’s actions to reduce aged equipment inventory. A breakdown of equipment notes payable at December 31, 2015 and the change throughout the year is as follows: ($ millions)

Non-interest-bearing $ 63.9 $ 74.5 $ 64.7 $ 32.7 $ 36.6 Interest-bearing 116.4 123.6 125.7 150.5 161.2 Equipment notes $ 180.3 $ 198.1 $ 190.4 $ 183.2 $ 197.8

June 30,2015

March 31,2015

December 31,2015

December 31,2014

September 30,2015

Trade and other payables at December 31, 2015 were $44.3 million which was down from $55.3 million at December 31, 2014, primarily as a result of the timing of receipts of parts and equipment inventory and timing in payment of amounts owing to suppliers.

($ millions)(Increase) Decrease 2015 2014Trade and other receivables $ 4.4 $ (10.5)Inventories 21.3 (49.2)Prepaids 0.5 (0.6)Other assets 0.1 -

$ 26.3 $ (60.3)

Trade and other payables (10.6) 21.8Deferred revenue and customer deposits 2.6 2.1Equipment notes payable (21.5) 3.2

$ (29.5) $ 27.1Net increase in non-cash working capital $ (3.2) $ (33.2)



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Cash Provided By (Used In) Investing Activities Net cash used in investing activities amounted to $8.8 million in 2015. During the year, the Company purchased and sold rental fleet assets resulting in a net increase in rental fleet and use of cash of $2.8 million. Capital expenditures totalled $6.0 million, of which $5.6 million related to implementation of the new Dealer Management System. The balance of the capital expenditures related to branch upgrades and miscellaneous shop equipment purchases. The components of cash provided by investing activities were as follows:

($ millions) 2015 2014Purchase of rental fleet assets (20.2)$ (12.6)$ Proceeds from sale of rental fleet assets 17.4 18.3Purchase of capital assets (6.0) (10.1)Proceeds from sale of property and equipment - 43.9Cash provided by (used in) investing activities (8.8)$ 39.5$


Cash Provided By (Used in) Financing Activities For the twelve months ended December 31, 2015, $0.8 million of cash was used in financing activities primarily to reduce long-term equipment notes and finance leases net of the an increase in bank operating lines. During the year the Company also refinanced the mortgage term loans financing its U.S. branch locations with another bank which provided net incremental cash of $0.5 million. The components of cash used in financing activities are summarized as follows:

($ millions) 2015 2014Repayment of Canadian Term Loan $ - $ (5.0) Repayment of Fort McMurray Term Loan - (13.9) Repayment of Saint-Augustin-de-Desmaures Term Loan - (6.0) Construction loan – new Fort McMurray branch - 2.4 Construction loan – new Saint-Augustin-de-Desmaures branch - 0.7 Increase (decrease) in long-term equipment notes (6.8) 0.7 Increase (decrease) in bank indebtedness 9.5 (2.1) Repayment of finance lease obligations (4.3) (3.7) Repayment of U.S. Term Loan (4.2) (0.2) Proceeds of new U.S. Term Loan 5.0 - Cash provided by (used in) financing activities $ (0.8) $ (27.1)


Bank Credit Facilities The Company has credit facilities with banks in Canada and the United States which provide various operating lines and term loan facilities as described below. Operating Lines During the second quarter, the Company renegotiated and renewed early its bank credit facility in Canada which was scheduled to expire in September 2015. The new Canadian bank credit facility is a three-year committed facility expiring in September 2018 with an increased operating line of $35 million. In March of 2015, the Company replaced its U.S. bank credit facility with a new facility as part of a consolidated facility under its Canadian bank facility. The new U.S. bank facility provides for an operating line of credit of US$3 million which expires in March 2017. Borrowings under the operating lines of credit under both the Canadian and U.S. credit facilities are limited by standard borrowing base calculations based on accounts receivable and inventory, which are typical of such bank credit facilities. As collateral, the Company has provided a security interest in accounts receivable, inventories (subordinated to the collateral provided to the equipment inventory lenders), capital assets (subordinated to collateral provided to lessors), real estate and intangible and other assets. The Canadian and U.S. bank operating lines bear interest at rates that vary with bank prime rates or Bankers Acceptances Rates (“BA rates”). Interest rates range between bank prime rate plus 1.75% and bank prime rate plus 4.0% or between the one-month Canadian BA rate plus 2.75% and the one-month Canadian BA rate plus 5.0%, depending on the Company’s ratio of debt


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to tangible net worth. Under its bank credit facilities, the Company is able to issue letters of credit up to a maximum of $5 million. Outstanding letters of credit reduce availability under the Company’s operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongco’s performance on the sale of equipment to the customer. At December 31, 2015, there were outstanding letters of credit totaling $0.01 million. In addition to its operating lines of credit, Strongco has a line of approximately US$18.4 million for foreign exchange forward contracts as part of its bank credit facilities (“FX Line”) available to hedge foreign currency exposure. Under this FX Line, the Company can purchase foreign exchange forward contracts up to a maximum of US$18.4 million. As at December 31, 2015, the Company had outstanding foreign exchange forward contracts under this facility totalling US$4.4 million at an average exchange rate of $1.3601 Canadian for each US$1.00 with settlement dates between January 2016 and April 2016. Term Loans The Company’s U.S. bank credit facilities also include term loans secured by real estate in the United States. These loans require monthly principal payments of US$22,222 plus accrued interest at prime plus 3% and mature in March 2019. At December 31, 2015, the outstanding balance on these term loans was US$3.8 million. Financial Covenants The bank credit facilities in Canada contain financial covenants typical of such credit facilities that require the Company to maintain certain financial ratios and meet certain financial thresholds. A summary of the financial covenants under the bank credit facilities at December 31, 2015 is as follows:

Minimum ratio of total current assets to current liabilities (“Current Ratio covenant”) of 1.0:1, Minimum tangible net worth (“TNW covenant”) of $58 million, Maximum ratio of debt to tangible net worth (“Debt to TNW Ratio covenant”) of 4.25:1, and Minimum ratio of EBITDA to total interest (“Interest Coverage Ratio covenant”) of 3.0:1.

In addition to these financial covenants, the Company’s bank credit facility requires the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). As noted above, management is taking aggressive action to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash. As part of this plan, management has identified certain aged equipment inventory that is being aggressively priced to sell which has necessitated an additional reserve of $4.5 million being recorded at December 31, 2015. As a result of this additional reserve, the ratio of EBITDA to total interest was below the minimum allowed under the Interest Coverage Ratio covenant and the Company was in breach of that covenant. Subsequent to December 31, 2015, the Company obtained waivers for the breach at December 31st from its bank and certain other equipment lenders in Canada where the same covenant had been breached. The Company also obtained waivers from other affected lenders in Canada and the United States for defaults that had been triggered by cross default provisions under the lending agreements with those lenders. In addition, the Interest Coverage Ratio covenant under the bank credit facility and lending agreement with certain other equipment lenders in Canada was amended going forward for the first three quarters of 2016 to a minimum ratio of 2.5:1. The Company was in compliance with all other financial covenants under its bank credit facilities at December 31, 2015. Equipment Notes In addition to its bank credit facilities, the Company has lines of credit available totalling approximately $283 million from various non-bank equipment lenders in Canada and the United States that are used to finance equipment inventory and rental fleet. At December 31, 2015, there was approximately $196 million borrowed on these equipment finance lines. Typically, these equipment notes are interest-free for periods of up to 12 months from the date of financing, after which they bear interest in Canada at variable rates based upon 30-day and 90-day Bankers’ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing company’s margin. As at December 31, 2015, the rates ranged from 3.08% to 6.95% with a weighted average effective rate of 5.19%. As collateral for these equipment notes, the Company has provided liens on the specific inventory financed and any related accounts receivable. In the normal course of business, these liens cover substantially all of the inventories. Monthly principal repayments equal to 3.00% of the original principal balance of the note commence 12 months from the date of financing and the remaining balance is due in full at the earlier of 24 months after financing or when the financed equipment is sold. While financed equipment is out on rent, monthly curtailments are required equal to the greater of 70% of the rental revenue and 2.5% of the original value of the note. Any remaining balance after 24 months, which is due in full, is normally refinanced with the lender over an additional period of up to 24 months. All of the Company’s equipment notes facilities are renewable annually.


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As outlined above, the interest-bearing equipment notes in Canada bear interest at floating BA rates plus a fixed component or premium over BA rates. Strongco put interest rate swaps in place that have effectively fixed the variable rate of interest on $50.0 million of its interest-bearing equipment notes at approximately 5.94% until September 2016. (See discussion under “Interest Rate Swaps” below.) Certain of the Company’s equipment finance credit agreements contain restrictive financial covenants identical to those of the Company’s Canadian bank credit facility, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). As noted above, the Company was in breach of the Interest Coverage Ratio covenant under its bank credit facility and certain equipment finance agreements as a result of the additional inventory reserve booked at the end of the year, which triggered cross defaults with other lenders in Canada and the United States. Subsequent to December 31, 2015, the Company obtained waivers from all of these lenders for the defaults and cross defaults. The Company was in compliance with all other financial covenants under its equipment finance facilities at December 31, 2015. Interest Rate Swaps Strongco has a Swap Facility in Canada with its bank that allows the Company to swap the floating interest rate component (BA rate) on up to $100 million of its floating interest rate debt to a five-year fixed swap rate of interest. On September 8, 2011, the Company entered into an interest rate swap agreement under this facility to fix the floating BA rate on $15.0 million of interest-bearing debt at a fixed interest rate equal to 1.615% for a period of five years to September 8, 2016. On June 8, 2012, the Company entered into an additional interest rate swap agreement under this facility to fix the floating BA rate on an additional $10.0 million of interest-bearing debt at a fixed interest rate equal to 1.58% for a period of five years to June 8, 2017. On May 6, 2015, the Company entered into an additional interest rate swap agreement under this facility to fix the floating BA rate on an additional $25.0 million of interest-bearing debt at a fixed interest rate equal to 1.78% for a period of three years to May 6, 2017. The Company has put these swaps in place to effectively fix the interest rate on $50.0 million of its interest-bearing equipment notes at approximately 5.94%.

Summary of Outstanding Debt The balance outstanding under Strongco’s debt facilities at December 31, 2015 and 2014 consisted of the following: Debt Facilities As at December 31($ millions) 2015 2014Bank indebtedness (including outstanding cheques) $ 33.2 $ 23.4Equipment notes payable – non-interest-bearing 63.9 36.6Equipment notes payable – interest-bearing 116.4 161.2Rental fleet equipment notes payable 16.4 16.5U.S. Term Loans 5.3 3.7

$ 235.2 $ 241.4 Total borrowing under the Company’s debt facilities was $235.2 million at December 31, 2015 compared to $241.4 million a year ago. The decrease of $6.2 million was primarily due to the reduction of equipment notes payable offset by an increase in bank indebtedness. As at December 31, 2015, there was $10 million of unused credit available under the Company’s bank credit lines. While availability under the bank lines fluctuates daily depending on the amount of cash received and cheques and other disbursements clearing the bank, availability normally ranges between $5.0 million and $15.0 million. The Company also had approximately $90 million available under its equipment finance facilities at December 31, 2015. With the level of funds available under the Company’s bank credit lines, the current availability under the equipment finance facilities and anticipated improvement in cash flows from operations, management believes the Company will have adequate financial resources to fund its operations and make the necessary investment in equipment inventory and fixed assets to support its operations in the future.


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FINANCIAL RESULTS – FOURTH QUARTER Consolidated Results of Operations for the Three Months Ended December 31

($ thousands, except per share amounts) 2015 2014 $ Change % ChangeRevenue 128,185$ 128,804$ (619)$ 0%Cost of sales 110,233 107,294 2,940 3%Gross margin 17,952 21,511 (3,559) -17%Administrative, distribution and selling expenses 24,097 20,945 3,152 15%Other income (74) (65) (9) 14%Operating income (loss) (6,071) 631 (6,702) -1062%Impairment of intangible asset - 1,800 (1,800) Interest expense 1,278 2,668 (1,390) -52%Loss before income taxes (7,349) (3,837) (5,311) 138%Recovery of income taxes (2,046) (545) (1,501) 275%

Net loss (5,303)$ (3,292)$ (3,810)$ 116%

Basic and diluted earnings (loss) per share (0.40)$ (0.25)$ (0.15)$ 0,060%Weighted average number of shares - Basic 13,221,719 13,221,719 - Diluted 13,221,719 13,221,719 Key financial measuresGross margin as a percentage of revenues 14.0% 16.7%Administrative, distribution and selling expenses as a percentage of revenues 18.8% 16.3%Operating income as a percentage of revenues -4.7% 0.5%EBITDA (note1) 1,247$ 8,885$ (7,638)$ -86%

Three Months EndedDecember 31 2015/2014



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Revenues Strongco’s revenues for the quarter ended December 31, 2015 were $128.2 million, which was comparable to 128.8 million in the fourth quarter of 2014. Overall, equipment sales were up slightly compared to the prior year while product support and rental revenues were down slightly. Revenues in Canada decreased by $6.8 million, or 6%, from the fourth quarter of 2014, primarily due to weak market conditions in Alberta. Revenues were up significantly year over year in Eastern Canada due to sales of a few large cranes in Quebec and were down slightly in Central Canada. Revenues in the United States at the Company’s operations in New England were up $6.2 million or 30%. Most of the increase from U.S. operations was from the impact of the weaker Canadian dollar on translation of U.S. dollar revenue. In U.S. dollars, revenues were up $1.8 million, or 10% at the Company’s U.S. subsidiary. A breakdown of revenue for the three months ended December 31, 2015 and 2014 is as follows:

2015/14($ millions) 2015 2014 % ChgEastern Canada (Atlantic and Quebec)Equipment Sales 28.4$ 13.7$ 107%Equipment Rentals 1.5 2.2 -30%Product Support 10.3 10.4 -1%Total Eastern Canada 40.2$ 26.3$ 53%

Central Canada (Ontario)Equipment Sales 27.7$ 32.9$ -16%Equipment Rentals 2.2 2.2 1%Product Support 11.3 10.3 10%Total Central Canada 41.2$ 45.4$ -9%

Western Canada (Manitoba to British Columbia)Equipment Sales 12.8$ 24.6$ -48%Equipment Rentals 1.3 2.8 -55%Product Support 5.9 9.1 -36%Total Western Canada 20.0$ 36.5$ -45%

Northeastern United StatesEquipment Sales 17.9$ 13.4$ 34%Equipment Rentals 1.5 1.5 -1%Product Support 7.3 5.7 29%Total Northeastern United States 26.8$ 20.6$ 30%

Total Equipment DistributionEquipment Sales 86.9$ 84.6$ 3%Equipment Rentals 6.5 8.7 -25%Product Support 34.8 35.5 -2%Total Equipment Distribution 128.2$ 128.8$ 0%

Three Months Ended December 31

Equipment Sales Strongco’s equipment sales in the fourth quarter of 2014 totalled $86.9 million, up $2.3 million, or 3%, from $84.6 million in the fourth quarter of 2014. Equipment sales in Canada were down $2.2 million, due primarily to the weakness in Alberta and lower sales in Ontario. Equipment sales at the Company’s U.S. subsidiary were up $4.5 million, or 34% year-over-year due in part to the impact of the weaker Canadian dollar on translation of U.S. dollar revenues. In U.S. dollars, equipment sales in the United States were up $1.5 million or 13%. On a regional basis, equipment sales in Eastern Canada (Quebec and Atlantic regions) were $28.4 million in the fourth quarter, more than double a year ago, primarily due to the sales of a few large cranes in Quebec which more than offset a decrease in sales of other construction equipment in the province. In the Atlantic region, strong sales of wheel loaders contributed to a small overall increase in equipment sales. Construction and infrastructure markets remained weak in Quebec as a result of the ongoing investigation of corruption in the construction industry by the Charbonneau Commission which was only completed late in the year, and continued lack of spending on infrastructure. In addition, with continuing weak commodity prices, mining activity in northern Quebec has not recovered. The market overall for heavy equipment in Quebec, other than cranes, was estimated to be down 10% compared to the fourth quarter of 2014, with a drop of 12% in the market for GPE.


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Strongco’s equipment sales in the fourth quarter in Central Canada were down $5.2 million, or 16%, compared to the same period in 2014 as sales of a few large cranes and loaders in the fourth quarter of 2014 were not repeated in 2015. In addition, sales of graders and backhoes were lower in 2015 following Volvo’s decision to discontinue the manufacture of those product categories. Equipment sales in Western Canada were $12.8 million which was down 48% from a year ago as a result of the weak market in Alberta brought on by the decline in oil prices. Market conditions across the province have been very weak in 2015, especially in northern Alberta which has contributed to significantly lower demand for heavy equipment and cranes. The market for heavy equipment, other than cranes, was estimated to be down close to 50% overall in the fourth quarter compared to the prior year with GPE off greater than 60%. At the same time, Strongco’s unit sales of GPE equipment were down only 7%, which resulted in an increase in the Company’s market share. The market for cranes in Alberta also remained very weak in the fourth quarter. Strongco’s equipment sales in the northeastern United States were $17.9 million, up from $13.4 million in the fourth quarter of 2014. The weakness in the Canadian dollar and the impact on translation accounts for almost half of the increase, but sales in U.S. dollars were up 13%. The overall market in the region continued to show improvement as the traditional heavy equipment markets for residential construction, road construction and forestry continued to recover. The market also saw a seasonal pick-up in sales of loaders and other equipment used for snow removal. Equipment Rentals Strongco’s rental revenue in the fourth quarter of 2015 was $6.5 million, down from $8.7 million in the fourth quarter of 2014. Rental revenue in Western Canada accounts for most of the year over year decline due to the weak market conditions in Alberta. Rental activity was also soft in the quarter in Eastern Canada due to continuing weak markets in Quebec but remained strong in Ontario. Rental revenue was essentially flat year over year in the northeastern United States. Product Support Strongco’s product support revenues in the fourth quarter of 2015 totalled $34.8 million, compared to $35.5 million in the fourth quarter of 2014. Product support revenues were strong in all regions of Canada with the exception of Alberta. Sales of parts and service were higher in the northeastern United States due in part the impact of the weak Canadian dollar on translation of U.S revenues, but in U.S. dollars product support was up 10% year over year. Gross Margin ($ millions)

Gross Margin GM% GM% $ Change % ChangeEquipment Sales 2.7$ 3.0% 7.6$ 9.0% (4.9)$ -64%Equipment Rentals 1.1 16.9% 1.6 18.4% (0.5) -31%Product Support 14.2 40.8% 14.7 41.4% (0.5) -3%Total Gross Margin 18.0$ 14.0% 23.9$ 18.6% (5.9)$ -25%

2015/20142015 2014 Three Months Ended December 31

Strongco’s overall gross profit was $18.0 million or 14.0% of revenue in the fourth quarter of 2015, compared to $23.9 million or 18.6% of revenue a year ago. While lower revenues impacted margins, the decline in gross profit resulted mainly from an additional reserve for aged equipment inventory recorded in the fourth quarter of $4.5 million. In response to the weak and challenging market conditions facing the Company, management has decided to take a more aggressive approach to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash, which resulted in a reserve against certain aged machines of $4.5 million. Before this large reserve, gross profit was $22.4 million or 17.5% of revenue which was down from the prior year to primarily to lower revenues and margins in Alberta. Equipment margins were 3.0% or 8.2% excluding the impact of the inventory provision in the fourth quarter. This compared to a margin 9.0% in the final quarter of 2014. With the weakness in the Canadian dollar the dealer cost in Canada of new equipment was higher in 2015 which has been difficult to pass on to customers in the current weak markets. This has put downward pressure on equipment margins. Lower margins were also realized on certain aged units sold in the fourth quarter. Lower volume of crane sales, which generally command higher margins than other heavy equipment, also contributed to softness in overall equipment margins. The gross profit on rentals was down slightly in the fourth quarter due to lower rental revenues in Alberta while the margin on rentals was lower due to the mix of rentals between RPO and other rentals. Gross profits and margins from product support sales remained strong in the fourth quarter and were down very slightly from the prior year.


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Administrative, Distribution and Selling Expense Administrative, distribution and selling expense in the fourth quarter of 2015 were $24.1 million, or 18.8% of revenue, compared to $20.9 million, or 16.3% of revenue in the fourth quarter of 2014. Expenses were higher in the quarter primarily as a result of the impact of the weaker Canadian dollar on the translation of the U.S. dollar expenses of the Company’s U.S. operations. Expenses in the fourth quarter of 2015 also includes depreciation of the new SAP computer systems which went live during the year, and ongoing consulting costs related to the new system, which had been capitalized in the pre-implementation phase in the prior year added to expense levels in the fourth quarter. Severance costs for employees laid off in the last three month of the year also contributed to higher expenses in the fourth quarter of 2015. Other Income Other income is primarily comprised of gains or losses on disposition of fixed assets, foreign exchange gains or losses, service fees received by Strongco as compensation for sales of new equipment by other third parties in the regions where Strongco has distribution rights for that equipment and commissions received from third party financing companies for customer purchase financing Strongco places with such finance companies. Other income in the fourth quarter of 2015 was $0.1 million, unchanged from the fourth quarter of 2014. Interest Expense Strongco’s interest expense was $1.3 million in the fourth quarter of 2015, compared to $2.7 million in the fourth quarter of 2014. Interest expense was lower in 2015 as a result of decreased interest-bearing debt levels primarily related to the financing of the equipment inventory. Management was successful in selling off aged equipment and reducing the level of equipment inventory and the associated interest-bearing equipment notes in 2015 which resulted in the lower interest in the quarter. Management continues to focus on reducing equipment inventory with anticipated lower interest expense going forward. Provision for Income Tax The recovery of income tax in the fourth quarter of 2015 was $2.0 million representing a tax recovery in Canada. By comparison, the provision for income taxes in the fourth quarter of 2014 was $0.5 million, which represented the tax recovery in Canada of $0.8 million and tax provision in the U.S. of $0.3 million. Net Income (Loss) Strongco’s net loss in the fourth quarter of 2015 was $5.3 million ($0.40 per share), which compared to net loss of $3.3 million ($0.25 per share) in the same quarter of the prior year. EBITDA EBITDA in the fourth quarter of 2015 was $1.2 million (1.0% of revenues), compared to $8.9 million (6.9% of revenue) in the fourth quarter of 2014. EBITDA is calculated as follows:

ChangeEBITDA ($ millions) 2015 2014 2015/2014Net earnings (5.3)$ (3.3)$ (2.0)$ Add back:

Interest 1.3 2.6 (1.3) Income taxes (2.0) (0.5) (1.5) Impairment of intangible asset - 1.8 (1.8) Depreciation of capital assets 1.9 1.1 0.8 Depreciation of equipment inventory on rent 3.3 5.3 (2.1) Depreciation of rental fleet 1.7 1.9 (0.3) Amortization of intangible asset 0.5 - 0.5

EBITDA (note 1) 1.2$ 8.9$ (7.7)$




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Cash Flow, Financial Resources and Liquidity Cash Flow Provided By (Used In) Operating Activities During the fourth quarter of 2014, Strongco provided $1.4 million of cash from operating activities before changes in working capital compared to $7.9 million in the comparable quarter last year. During the quarter, non-cash working capital decreased by $17.3 million, $0.6 million of cash was used to fund future employee benefits and $2.6 million to pay interest and $0.1 million to pay income taxes, resulting in net cash provided by operations of $15.3 million. By comparison, in the fourth quarter of 2014, non-cash working capital increased by $16.2 million, $0.3 million of cash was used to fund future employee benefits and $2.6 million to pay interest, resulting in net cash used in operations of $11.2 million. The components of the cash used in operating activities were as follows:

($ millions) 2015 2014Net earnings $ (5.3) $ (3.3)Non-cash items:

Depreciation – equipment inventory on rent 3.3 5.2Depreciation – capital assets 1.9 1.1Depreciation – rental fleet 1.7 1.9 Amortization - intangible asset 0.5 - Gain on sale of property and equipment - (0.5) Gain on sale of rental equipment (0.7) (0.9) Impairment of intangible asset - 1.8 Share-based payment expense 0.1 0.1 Interest expense 1.3 2.6 Income tax expense (2.0) (0.5) Employee future benefit expense 0.5 0.4

$ 1.3 $ 7.9 Changes in non-cash working capital balances 17.3 (16.2)Employee future benefit funding (0.6) (0.3) Interest paid (2.6) (2.6) Income taxes paid (0.1) - Cash provided by (used in) operating activities $ 15.3 $ (11.2)


Non-cash items in the quarter include depreciation of equipment inventory on rent of $3.3 million, which compared to $5.2 million in the fourth quarter of 2014. During the fourth quarter of 2015, non-cash working capital decreased by $17.3 million due primarily to decreases in inventories offset by a reduction in trade payables and equipment notes, as shown in the table below. By comparison, during 2014, net working capital increased by $16.2 million due to increases in trade and other receivables and repayments of equipment notes payable, partially offset by a reduction in inventories. Components of cash flow from the net change in non-cash working capital for 2015 and 2014 are as follows: ($ millions)(Increase) Decrease 2015 2014Trade and other receivables $ (1.1) $ (5.3)Inventories 44.7 15.9Prepaids 0.6 (0.4)

$ 44.2 $ 10.2

Trade and other payables (14.5) 1.0Deferred revenue and customer deposits 6.0 2.5Equipment notes payable (18.4) (29.9)

$ (26.9) $ (26.4)Net increase in non-cash working capital $ 17.3 $ (16.2)


As noted above, equipment inventory and floor plan debt decreased in the last quarter of 2015. Equipment inventory at the end of the fourth quarter was $199.0 million, declining from $236.3 million at September 30, 2015, and compared to $226.3 million at the previous year end. Consistent with the reduction in equipment inventory, equipment notes declined from $198.1 million at September 30, 2015 to $180.0 million at December 31, 2015, and compared to $197.8 million at December 31, 2014.


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Cash Provided By (Used In) Investing Activities Cash provided by investing activities in the fourth quarter of 2015 totalled $2.0 million, which compared to $7.0 million cash provided by investing activities in the fourth quarter of 2014. During the quarter the Company sold rental fleet assets for proceeds of $7.7 million and purchased new rental fleet assets for $6.2 million. Capital expenditures in the fourth quarter of 2015 totalled $0.5 million relating to miscellaneous shop equipment purchases. In addition, during the fourth quarter of 2014 the Company sold property, plant and equipment for proceeds of $2.8 million, including the sale of its Moncton, New Brunswick branch for proceeds of $1.1 million. The components of the cash provided by investing activities are as follows:

($ millions) 2015 2014Purchase of rental fleet assets $ (7.7) $ - Proceeds from sale of rental fleet assets 6.2 6.7Purchase of capital assets (0.5) (2.5)Proceeds from sale of property and equipment 0.0 2.8Cash provided by (used in) investing activities $ (2.0) $ 7.0


Cash Provided By (Used In) Financing Activities In the fourth quarter of 2015, net cash of $12.5 million was used in financing activities which compared to net cash of $4.2 million provided by financing activities in the fourth quarter of 2014. During the quarter, the Company repaid its bank operating line by $6.6 million, repaid long-term equipment notes by $4.7 million, and $1.1 million was used to repay finance leases. The components of cash provided by financing activities in the fourth quarter are summarized as follows:

($ millions) 2015 2014Increase (decrease) in bank indebtedness $ (6.6) $ 1.6 Increase (decrease) in long-term equipment notes (4.7) 3.4 Repayment of U.S. term loan (0.1) - Repayment of finance lease obligations (1.1) (0.8) Cash provided by (used in) financing activities $ (12.5) $ 4.2



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SUMMARY OF QUARTERLY DATA In general, business activity follows a weather-related pattern of seasonality. Typically, the first quarter is the weakest of the year as construction and infrastructure activity is constrained in the winter months. This is followed by a strong gain in the second quarter as construction and other contracts begin to be tendered and companies begin to prepare for summer activity. The third quarter generally tends to be slightly slower from an equipment sales standpoint, which is partially offset by continued strength in equipment rentals and customer support activities. Fourth quarter activity generally strengthens as customers make year-end capital spending decisions and exercise purchase options on equipment which has previously gone out on RPOs. In addition, purchases of snow removal equipment are typically made in the fourth quarter. A summary of quarterly results for the current and previous two years is as follows: 2015($ millions, except per share amounts) Q4 Q3 Q2 Q1

Revenue $ 128.2 $ 108.4 $ 125.0 $ 112.6Earnings (loss) from operations before income taxes (7.3) (2.8) 1.1 (1.0)Net income (5.3) (2.1) 0.9 (0.8)

Basic and diluted earnings (loss) per share $ (0.40) $ (0.16) $ 0.06 $ (0.06)

2014($ millions, except per share amounts) Q4 Q3 Q2 Q1

Revenue $ 128.8 $ 129.2 $ 135.9 $ 104.4Earnings (loss) from operations before income taxes (1.2) 5.6 2.3 (4.0)Net income (3.2) 5.5 1.7 (3.0)

Basic and diluted earnings (loss) per share $ (0.25) $ 0.42 $ 0.13 $ (0.23)

2013($ millions, except per share amounts) Q4 Q3 Q2 Q1

Revenue $ 116.4 $ 131.7 $ 140.2 $ 97.5Earnings (loss) from operations before income taxes (0.2) 2.9 4.0 (3.0)Net income 0.3 2.0 2.9 (2.2)

Basic and diluted earnings (loss) per share $ 0.02 $ 0.15 $ 0.22 $ (0.16) Note 1 – Comparative figures have been adjusted to reflect the impact of IAS 19, adopted on January 1, 2013. A discussion of the Company’s previous quarterly results can be found in the quarterly Management’s Discussion and Analysis reports available on SEDAR at www.sedar.com. CONTRACTUAL OBLIGATIONS The Company has contractual obligations for operating lease commitments totalling $72.7 million. In addition, the Company has contingent contractual obligations where it has agreed to buy-back equipment from customers at the option of the customer for a specified price at future dates (“buy-back contracts”). These buy-back contracts are subject to certain conditions being met by the customer and range in term from 3 to 10 years. The Company’s maximum potential losses pursuant to the majority of these buy-back contracts are limited, under an agreement with a third party, to 10% of the original sale amounts. In addition, this agreement provides a financing arrangement in order to facilitate the buy-back of equipment. As at December 31, 2015, outstanding buy-back contracts totalled $9.7 million, which compared to $11.7 million at December 31, 2014. A reserve of $0.1 million has been accrued in the Company’s accounts as at December 31, 2015 with respect to these commitments, compared to a reserve of $0.4 million a year ago. Contractual obligations are set out in the following tables. Management believes that the Company will generate sufficient cash flow from operations to meet its contractual obligations.

Less than 1 to 3 4 to 5 After 5($ millions) Total 1 Year years years yearsOperating leases $72.7 $10.9 $16.4 $11.9 $33.5


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Less than 1 to 3 4 to 5 After 5($ millions) Total 1 Year years years yearsBuy-back contracts $9.7 $4.3 $3.3 $1.5 $0.6

Contingent obligation by period

SHAREHOLDER CAPITAL The Company is authorized to issue an unlimited number of shares. All shares are of the same class of common shares with equal rights and privileges. There were no changes in issued and outstanding shares during 2015. Common Shares Issued and Outstanding Shares

Common shares outstanding as at December 31, 2014 13,221,719 Common shares purchased for RSU obligation (18,670) Common shares issued for RSU settlement 18,670 Common shares outstanding as at December 31, 2015 13,221,719 The Company did not grant any options during 2015. NON-IFRS MEASURES “EBITDA” refers to earnings before interest, income taxes, impairment of intangible assets, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards (“IFRS”) and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company’s management believes that EBITDA is an important supplemental measure in evaluating the Company’s performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company’s performance or to cash flows from operating, investing and financing activities as measures of the Company’s liquidity and cash flows. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the financial statements. The Company bases its estimates and assumptions on past experience and various other assumptions that are believed to be reasonable in the circumstances. This involves varying degrees of judgment and uncertainty which may result in a difference in actual results from these estimates. The more significant estimates are as follows: Inventory Valuation The value of the Company’s new and used equipment is evaluated by management throughout each year. Where appropriate, a provision is recorded against the book value of specific pieces of equipment to ensure that inventory values reflect the lower of cost and estimated net realizable value. The Company identifies slow moving or obsolete parts inventory and estimates appropriate obsolescence provisions by aging the inventory. The Company takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods. The inventory provision as at December 31, 2015 with changes from December 31, 2014 is as follows: Provision for Inventory Obsolescence ($ millions)Provision for inventory obsolescence as at December 31, 2014 $ 5.1Provision related to inventory disposed of during the year (0.4)Additional provisions made during the year 5.6Provision for inventory obsolescence as at December 31, 2015 $ 10.3


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Allowance for Doubtful Accounts The Company performs credit evaluations of customers and limits the amount of credit extended to customers as appropriate. The Company is however exposed to credit risk with respect to accounts receivable and maintains provisions for possible credit losses based upon historical experience and known circumstances. The allowance for doubtful accounts as at December 31, 2015 with changes from December 31, 2014 is as follows: Allowance for Doubtful Accounts ($ millions)Allowance for doubtful accounts as at December 31, 2014 $ 2.1Accounts written off during the year (0.3)Amounts unused and reversed (0.2)Additional provisions made during the year 0.4Allowance for doubtful accounts as at December 31, 2015 $ 2.0 Post-Retirement Obligations Strongco performs a valuation at least every three years to determine the actuarial present value of the accrued pension and other non-pension post-retirement obligations. Pension costs are accounted for and disclosed in the notes to the financial statements on an accrual basis. Strongco records employee future benefit costs other than pensions on an accrual basis. The accrual costs are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management's best estimates. The assumptions were determined by management recognizing the recommendations of Strongco’s actuaries. These key assumptions include the rate used to discount obligations, the expected rate of return on plan assets, the rate of compensation increase and the growth rate of per capita health care costs. The discount rate is used to determine the present value of future cash flows that management expects will be required to pay employee benefit obligations. Management’s assumptions of the discount rate are based on current interest rates on long-term debt of high-quality corporate issuers. In accordance with IAS 19, rev. 2011, the assumed return on pension plan assets is based on the same discount rate used to determine the present value of future cash flows as described above. The costs of employee future benefits other than pension are determined at the beginning of the year and are based on assumptions for expected claims experience and future health care cost inflation. Changes in assumptions will affect the accrued benefit obligation of Strongco’s employee future benefits and the future years’ amounts that will be charged to results of operations. Future Income Taxes At each quarter end the Company evaluates the value and timing of the Company’s temporary differences. Future income tax assets and liabilities, measured at substantively enacted tax rates, are recognized for all temporary differences caused when the tax bases of assets and liabilities differ from those reported in the consolidated financial statements. Changes or differences in these estimates or assumptions may result in changes to the current or future tax balances on the consolidated balance sheet, a charge or credit to income tax expense in the consolidated statements of earnings and may result in cash payments or receipts. Where appropriate, the provision for future income taxes and future income taxes payable are adjusted to reflect management’s best estimate of the Company’s future income tax accounts.


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RISKS AND UNCERTAINTIES Strongco’s financial performance is subject to certain risk factors which may affect any or all of its business sectors. The following is a summary of risk factors which are felt to be the most relevant. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or which it currently considers immaterial, may also impair operations of the Company. If any such risks actually occur, the business, financial condition, or liquidity and results of operations of the Company, its ability to make cash dividends to shareholders and the trading price of the Company’s shares could be adversely affected. BUSINESS AND ECONOMIC CYCLES Strongco operates in a capital intensive environment. Strongco’s customer base consists of companies operating in the construction and urban infrastructure, aggregates, forestry, mining, municipal, utility, industrial and resource sectors which are all affected by trends in general economic conditions within their respective markets. Changes in interest rates, commodity prices, exchange rates, availability of capital and general economic prospects may all impact their businesses by affecting levels of consumer, corporate and government spending. Strongco’s business and financial performance is largely affected by the impact of such business cycle factors on its customer base. The Company has endeavoured to minimize this risk by: (i) operating in various geographic territories across Canada and in the United States with the belief that not all regions are subject to the same economic factors at the same time, (ii) serving a variety of industries which respond differently at different points in time to business cycles, and (iii) seeking to increase the Company’s focus on customer support (parts and service) activities which are less subject to changes in the economic cycle. OIL PRICES The Company operates in the province of Alberta and a portion of its business is tied directly to activity in the oil sands area in northern Alberta. The level of activity in northern Alberta and to a degree, the entire economy in the province, is impacted by changes in oil prices. In particular, a decline in the price of oil could have an impact on the exploration and development activities and capital expenditure plans of oil companies in northern Alberta, as well as construction and infrastructure spending throughout the province, which could in turn reduce the demand for the Company’s products and services. The Company believes an element of this risk is mitigated by its diverse customer base and broad offering of products used in various applications not direct ly impacted by oil prices. COMPETITION Strongco faces strong competition from various distributors of products that compete with the products it sells. The Company competes with regional and local distributors of competing product lines. Strongco competes on the basis of: (i) relationships maintained with customers over many years of service; (ii) prompt customer service through a network of sales and service facilities in key locations; (iii) access to products; and (iv) the quality and price of its products. In most product lines in most geographic areas in which Strongco operates, its main competitors are distributors of products manufactured by Caterpillar, John Deere, Komatsu, Hitachi, and other smaller brands. MANUFACTURER RISK Most of Strongco’s equipment distribution business consists of selling and servicing mobile equipment products manufactured by others. As such, Strongco’s financial results may be directly impacted by: (i) the ability of the manufacturers it represents to provide high quality, innovative and widely accepted products on a timely and cost-effective basis and (ii) the continued independence and financial viability of such manufacturers. Most of Strongco’s equipment distribution business is governed by distribution agreements with the original equipment manufacturers (“OEMs”), including Volvo, Case and Manitowoc. These agreements grant the right to distribute the manufacturer’s products within defined territories which typically cover an entire province. It is an industry practice that, within a defined territory, a manufacturer grants distribution rights to only one distributor. This is true for the majority of the distribution arrangements entered into by Strongco. Most distribution agreements are cancellable upon 60 to 90 days notice by either party. Some of Strongco’s equipment suppliers provide floor plan financing to assist with the purchase of equipment inventory. In some cases this is done by the manufacturer, and in other cases the manufacturer engages a third party lender to provide the financing. Floor plan arrangements include an interest-free period of up to twelve months. The termination of one or more of Strongco's distribution agreements with its OEMs, as a result of a change in control of the manufacturer or otherwise, may have a negative impact on the operations of Strongco. In addition, availability of products for sale is dependent upon the absence of significant constraints on supply of products from OEMs. During times of intense demand or during any disruption of the production of such equipment, Strongco's equipment manufacturers may find it necessary to allocate their limited supply of particular products among their distributors.


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The ability of Strongco to maintain and expand its customer base is dependent upon the ability of Strongco’s suppliers to continuously improve and sustain the high quality of their products at a reasonable cost. The quality and reputation of their products is not within Strongco’s control and there can be no assurance that Strongco’s suppliers will be successful in improving and sustaining the quality of their products. The failure of Strongco’s suppliers to maintain a market presence could have a material impact upon the earnings of the Company. The Company believes that this element of risk has been mitigated through the representation of its equipment manufacturers with demonstrated ability to produce a competitive, well accepted, high-quality product range and by distributing products of multiple manufacturers. In addition, distribution agreements with these manufacturers are cancellable by either party within a relatively short notice period as specified in the relevant distribution agreement. However, Strongco believes that it has established strong relationships with its key manufacturers and maintains significant market share for their products and as a result is at little risk of distribution agreements being cancelled. CONTINGENCIES In the ordinary course of business, the Company may be exposed to contingent liabilities in varying amounts and for which provisions have been made in the consolidated financial statements as appropriate. These liabilities could arise from litigation, environmental matters or other sources. As at December 31, 2015, there are no amounts accrued for contingent liabilities. DEPENDENCE ON KEY PERSONNEL The expertise and experience of its senior management is an important factor in Strongco's success. Strongco's continued success is thus dependent upon its ability to attract and retain experienced management. FOREIGN EXCHANGE While the majority of the Company’s sales are in Canadian dollars, significant portions of its purchases are in US dollars. While the Company believes that it can maintain margins over the long term, short, sharp fluctuations in exchange rates may have a short-term impact on earnings. In order to minimize the exposure to fluctuations in exchange rates, the Company enters into foreign exchange forward contracts on a transaction-specific basis. INTEREST RATE Interest rate risk arises from potential changes in interest rates which impacts the cost of borrowing. The majority of the Company’s debt is floating rate debt which exposes the Company to fluctuations in short-term interest rates. See discussion under “Cash Flow, Financial Resources and Liquidity” above. RISKS RELATING TO THE SHARES Unpredictability and Volatility of Share Price A publicly-traded company will not necessarily trade at values determined by reference to the underlying value of its business. The prices at which the shares will trade cannot be predicted. The market price of the shares could be subject to significant fluctuations in response to variations in quarterly operating results and other factors. The annual yield on the shares as compared to the annual yield on other financial instruments may also influence the price of shares in the public trading markets. In addition, the securities markets have experienced significant price and volume fluctuations from time to time in recent years that often have been unrelated or disproportionate to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of the shares. LEVERAGE AND RESTRICTIVE COVENANTS The existing credit facilities contain restrictive covenants that limit the discretion of Strongco’s management with respect to certain business matters and may, in certain circumstances, restrict the Company’s ability to pay dividends, which could adversely impact cash dividends on the shares. These covenants place restrictions on, among other things, the ability of the Company to incur additional indebtedness, to create other security interests, to complete amalgamations and acquisitions, make capital expenditures, to pay dividends or make certain other payments and guarantees and to sell or otherwise dispose of assets. The existing credit facilities also contain financial covenants requiring the Company to satisfy financial ratios and tests, (see discussion under “Cash Flow, Financial Condition and Liquidity” above). A failure of the Company to comply with its obligations under the existing credit facilities could result in an event of default which, if not cured or waived, could permit the acceleration of the relevant indebtedness. The existing credit facilities are secured by customary security for transactions of this type, including first ranking security over all present and future personal property of the Company, a mortgage over the Company’s central real property and an assignment of insurance. If the Company is not able to meet its debt service obligations, it risks the loss of some or all of its assets to foreclosure or sale. There can be no assurance that, at any particular time, if the indebtedness under the existing credit facilities were to be accelerated, the Company’s assets would be sufficient to repay in full that indebtedness.


26

The existing credit facilities are payable on demand following an event of default and are renewable annually. If the existing credit facilities are replaced by new debt that has less favourable terms or if the Company cannot refinance its debt, funds available for operations may be adversely impacted. RESTRICTIONS ON POTENTIAL GROWTH The payout by the Company of a significant portion of its operating cash flow will make additional capital and operating expenditures dependent on increased cash flow or additional financing in the future. Lack of those funds could limit the future growth of the Company and its cash flow. DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING Disclosure Controls Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company is made known to them in a timely manner and that information required to be disclosed is reported within time periods prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on management’s evaluation of the design and effectiveness of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2015 to provide reasonable assurance that the information being disclosed is recorded, summarized and reported as required. Internal Controls Over Financial Reporting Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. Internal control systems, no matter how well designed, have inherent limitations and therefore can only provide reasonable assurance as to the effectiveness of internal controls over financial reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures. Management used the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as the control framework in designing its internal controls over financial reporting. Based on management’s design and testing of the effectiveness of the Company’s internal controls over financial reporting, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2015 to provide reasonable assurance that the financial information being reported is materially accurate. During the year ended December 31, 2015, there have been no changes in the design of the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. FORWARD-LOOKING STATEMENTS This Management’s Discussion and Analysis contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. These statements relate to future events or future performance and reflect management’s current expectations and assumptions which are based on information currently available to the Company’s management. The forward-looking statements include but are not limited to: (i) the ability of the Company to meet contractual obligations through cash flow generated from operations, (ii) the expectation that customer support revenues will grow following the warranty period on new machine sales, and (iii) the outlook for 2015. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for Strongco’s products and services. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. The inclusion of this information should not be regarded as a representation of the Company or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. These forward-looking statements are made as of the date of this MD&A, or as otherwise stated and the Company does not assume any obligation to update or revise them to reflect new events or circumstances. Additional information, including the Company’s Annual Information Form, may be found on SEDAR at www.sedar.com.



CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2015


Management’s Responsibility for Financial Reporting The accompanying audited consolidated financial statements of Strongco Corporation (“the Company”) were prepared by management in accordance with International Financial Reporting Standards. Management acknowledges responsibility for the preparation and presentation of the audited consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting policies of the Company are summarized in note 2 to the audited consolidated financial statements. Management has established processes, which are in place to provide them with sufficient knowledge to support management representations that they have exercised reasonable diligence that: (i) the audited consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the years presented by the audited consolidated financial statements; and (ii) the audited consolidated financial statements present fairly in all material respects the financial position, financial performance and cash flows of the Company, as of the date of and for the years presented by the audited consolidated financial statements. The Board of Directors is responsible for reviewing and approving the audited consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the audited consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the audited consolidated financial statements together with other financial information of the Company for issuance to the shareholders. Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, applicable laws and regulations, and for maintaining proper standards of conduct for its activities. [Signed] [Signed] Robert Beutel J. David Wood Executive Chairman Vice President and Chief Financial Officer March 23, 2016 March 23, 2016


INDEPENDENT AUDITORS’ REPORT To the Shareholders of Strongco Corporation: We have audited the accompanying consolidated financial statements of Strongco Corporation, which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, and the consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Strongco Corporation as at December 31, 2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. [signed] Toronto, Canada Ernst & Young, LLP March 23, 2016 Chartered Professional Accountants Licensed Public Accountants


Strongco Corporation Consolidated Statements of Financial Position As at December 31 (in thousands of Canadian dollars, unless otherwise indicated)

Approved by the Board of Directors __________________________________ Director _________________________________ Director

2015 2014Assets

Current assetsCash $ 644 $ 60Trade and other receivables [note 4] 56,951 59,887Inventories [note 5] 240,815 262,782Prepaid expenses and other deposits 2,315 2,812Assets classified as held for sale [notes 6 and 7] - 731

300,725 326,272Non-current assetsProperty and equipment [note 7] 18,202 31,960Rental fleet [note 7] 30,338 30,687Deferred income tax asset [note 8] 4,868 2,915Intangible asset [note 9] 17,368 -Other assets 1,867 1,974

72,643 67,536Total assets $ 373,368 $ 393,808

Liabilities and shareholders' equity

Current liabilitiesBank indebtedness [note 10 (a)] $ 33,155 $ 23,426Trade and other payables [note 11] 44,288 55,282Deferred revenue and customer deposits 6,239 3,608Equipment notes payable

- non-interest-bearing [note 13] 63,864 36,569- interest-bearing [note 13] 116,407 161,213

Current portion of finance lease obligations [note 10 (b)] 3,772 4,582Current portion of notes payable [note 10 (c)] 21,681 186Current portion of provisions for other liabilities [note 12] 62 165

289,468 285,031Non-current liabilitiesDeferred income tax liability [note 8] 4,963 3,712Finance lease obligations [note 10 (b)] 3,762 4,589Notes payable [note 10 (c)] - 20,042Long-term portion of provisions for other liabilities [note 12] 71 203Employee future benefit obligations [note 14] 3,499 8,155

12,295 36,701Total liabilities $ 301,763 $ 321,732Contingencies, commitments and guarantees [note 22]Shareholders' equityShareholders' capital [note 15] 65,417 65,324Accumulated other comprehensive income 5,747 2,346Contributed surplus 1,073 1,158Retained earnings (deficit) (632) 3,248Total shareholders' equity 71,605 72,076Total liabilities and shareholders' equity $ 373,368 $ 393,808

The accompanying notes are an integral part of these consolidated financial statements.

Strongco Corporation Consolidated Statements of Financial Position As at December 31 (in thousands of Canadian dollars, unless otherwise indicated)

Approved by the Board of Directors __________________________________ Director _________________________________ Director

2015 2014Assets

Current assetsCash $ 644 $ 60Trade and other receivables [note 4] 56,951 59,887Inventories [note 5] 240,815 262,782Prepaid expenses and other deposits 2,315 2,812Assets classified as held for sale [notes 6 and 7] - 731

300,725 326,272Non-current assetsProperty and equipment [note 7] 18,202 31,960Rental fleet [note 7] 30,338 30,687Deferred income tax asset [note 8] 4,868 2,915Intangible asset [note 9] 17,368 -Other assets 1,867 1,974

72,643 67,536Total assets $ 373,368 $ 393,808

Liabilities and shareholders' equity

Current liabilitiesBank indebtedness [note 10 (a)] $ 33,155 $ 23,426Trade and other payables [note 11] 44,288 55,282Deferred revenue and customer deposits 6,239 3,608Equipment notes payable

- non-interest-bearing [note 13] 63,864 36,569- interest-bearing [note 13] 116,407 161,213

Current portion of finance lease obligations [note 10 (b)] 3,772 4,582Current portion of notes payable [note 10 (c)] 21,681 186Current portion of provisions for other liabilities [note 12] 62 165

289,468 285,031Non-current liabilitiesDeferred income tax liability [note 8] 4,963 3,712Finance lease obligations [note 10 (b)] 3,762 4,589Notes payable [note 10 (c)] - 20,042Long-term portion of provisions for other liabilities [note 12] 71 203Employee future benefit obligations [note 14] 3,499 8,155

12,295 36,701Total liabilities $ 301,763 $ 321,732Contingencies, commitments and guarantees [note 22]Shareholders' equityShareholders' capital [note 15] 65,417 65,324Accumulated other comprehensive income 5,747 2,346Contributed surplus 1,073 1,158Retained earnings (deficit) (632) 3,248Total shareholders' equity 71,605 72,076Total liabilities and shareholders' equity $ 373,368 $ 393,808



Strongco Corporation Consolidated Statements of Income (Loss) For the years ended December 31 (in thousands of Canadian dollars, unless otherwise indicated, except share and per share amounts)

2015 2014

Revenue [note 16] $ 474,285 $ 498,328Cost of sales [notes 5 and 18] 391,571 412,017Gross profit 82,714 86,311

ExpensesSelling and administrative expenses [notes 4, 14 and 18] 82,555 81,272Other (income) expense [note 17] 1,656 (7,959)Operating income (loss) (1,497) 12,998

Impairment of intangible asset [note 9] - 1,800Interest expense [note 19] 8,578 11,127Income (loss) before income taxes (10,075) 71

Recovery of income taxes [note 8] (2,707) (859)

Net income (loss) attributable to shareholders for the year $ (7,368) $ 930

Earnings (loss) per share [note 20]Basic and diluted $ (0.56) $ 0.07

Weighted average number of shares [note 20]- Basic 13,221,719 13,221,719- Diluted 13,221,719 13,221,719



Strongco Corporation Consolidated Statements of Comprehensive Income (Loss) For the years ended December 31 (in thousands of Canadian dollars, unless otherwise indicated)

2015 2014

Net income (loss) attributable to shareholders for the year $ (7,368) $ 930

Other comprehensive income (loss)

Items that will not be reclassified subsequently to net income:Actuarial (loss) gain on post-employment benefit obligations 3,486 (3,661) (net of tax of $1,282 for 2015; 2014 – $1,302)Adjustment to employee benefit obligation due to Ontario tax rate change 2 (2)

Items that may be reclassified subsequently to net income:Currency translation adjustment 3,401 1,396Total other comprehensive income (loss) 6,889 (2,267)

Comprehensive loss attributable to shareholders for the year $ (479) $ (1,337)



Strongco Corporation Consolidated Statements of Changes in Shareholders’ Equity For the years ended December 31 (in thousands of Canadian dollars, unless otherwise indicated)

NUMBER OF SHARES

RETAINED EARNINGS

(DEFICIT) TOTAL

Balance – December 31, 2013 13,221,719 $ 65,324 $ 950 $ 875 $ 5,981 $ 73,130

Net income for the year - - - 930 930

Other comprehensive income

Post-employment benefit obligations (net of tax) - - - (3,661) (3,661)

Adjustment to employee benefitobligation due to tax rate change - - - (2) (2)

Currency translation adjustment - 1,396 - - 1,396Total other comprehensive income - 1,396 - (3,663) (2,267)

Share-based compensation expense - - 283 - 283

Balance – December 31, 2014 13,221,719 $ 65,324 $ 2,346 $ 1,158 $ 3,248 $ 72,076

NUMBER OF SHARES TOTAL

Balance – December 31, 2014 13,221,719 $ 65,324 $ 2,346 $ 1,158 $ 3,248 $ 72,076

Net loss for the year - - - (7,368) (7,368)

Other comprehensive income (loss)

Post-employment benefit obligations (net of tax) - - - 3,486 3,486

Adjustment to employee benefitobligation due to tax rate change - - - 2 2

Currency translation adjustment - 3,401 - - 3,401Total other comprehensive income (loss) - 3,401 - 3,488 6,889

Purchase of common shares for RSU obligation (18,670) (43) - - - (43)

Settlement of RSU obligation:- in common shares 18,670 136 - (136) - -- in cash - - (30) - (30)

Share-based compensation expense - - 81 - 81

Balance – December 31, 2015 13,221,719 $ 65,417 $ 5,747 $ 1,073 $ (632) $ 71,605


RETAINED EARNINGS

ACCUMULATED OTHER

COMPREHENSIVE INCOME

CONTRIBUTED SURPLUS

SHAREHOLDERS' CAPITAL

SHAREHOLDERS' CAPITAL

ACCUMULATED OTHER

COMPREHENSIVE INCOME

CONTRIBUTED SURPLUS


Strongco Corporation Consolidated Statements of Cash Flows For the years ended December 31 (in thousands of Canadian dollars)

2015 2014

Cash flows from operating activitiesNet income (loss) for the year $ (7,368) $ 930Adjustments for

Depreciation – property and equipment 6,109 5,560Depreciation – equipment inventory on rent 13,596 19,048Depreciation – rental fleet 6,064 5,373Amortization - intangible asset 454 -(Gain) loss on disposal of property and equipment 46 (8,688)Gain on sale of rental fleet (1,635) (1,191)Impairment of intangible asset - 1,800Share-based payment expense 81 283Interest expense 8,578 11,127Income tax recovery (2,707) (859)Employee future benefit expense 2,532 1,750

Changes in non-cash working capital [note 27] (3,215) (33,212)Funding of employee future benefit obligations (2,487) (2,987)Interest paid (9,550) (11,184)Income taxes paid (257) (140)Net cash provided by (used in) operating activities $ 10,241 $ (12,390)Cash flows from investing activitiesPurchases of rental fleet (20,246) (12,559)Proceeds from sale of rental fleet 17,365 18,327Purchases of property and equipment (5,973) (10,144)Proceeds from sale of property and equipment - 43,916Net cash provided by (used in) investing activities $ (8,854) $ 39,540Cash flows from financing activitiesIncrease (decrease) in bank indebtedness 9,470 (2,138)Increase (decrease) in long-term debt (5,626) 3,776Repayment of long-term debt (337) (25,101)Repayment of finance lease obligations (4,322) (3,689)Purchase of common shares for equity-settled RSU obligation (43) -Net cash provided by (used in) financing activities $ (858) $ (27,152)Foreign exchange on cash balances 55 5Change in cash and cash

equivalents during year $ 584 $ 3Cash and cash equivalents – Beginning of year 60 57Cash and cash equivalents – End of year $ 644 $ 60



Strongco Corporation Notes to Consolidated Financial Statements December 31, 2015 and 2014 (in thousands of Canadian dollars, unless otherwise indicated)

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1 General information

Strongco Corporation (“Strongco” or ”the Company”) sells and rents new and used equipment and provides after-sale product support (parts and service) to customers who operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets in Canada and the United States.

The Company is a public entity, incorporated and domiciled in Canada and listed on the Toronto Stock Exchange. The address of its registered office is 1640 Enterprise Road, Mississauga, Ontario L4W 4L4.

2 Summary of significant accounting policies

Statement of compliance and basis of presentation The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are in compliance therewith. The consolidated financial statements were approved and authorized for issue by the Board of Directors on March 23, 2016.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

The consolidated financial statements have been prepared on a going concern basis and the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair value.

Basis of consolidation

The consolidated financial statements include the financial statements of Strongco and subsidiaries over which it has control. The Company controls an investee when the Company is exposed to, or has rights to, variable returns from its relationship with the investee and has the ability to affect those returns through its power over the investee. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power. These facts and circumstances include: the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; and rights arising from other contractual arrangements. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences and are deconsolidated on the date when control ceases.



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Intra-group balances and transactions are eliminated on consolidation. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Strongco Corporation, through its wholly owned subsidiary Strongco USA Inc., owns 100% of Chadwick-BaRoss, Inc. (“Chadwick-BaRoss” or “CBR”). CBR is a multiline equipment dealer headquartered in Westbrook, Maine, with three branches in Maine and one in each of New Hampshire and Massachusetts. CBR sells, rents and services equipment used in sectors such as construction, infrastructure, utilities, municipalities, waste management and forestry.

Segment reporting

Reportable segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, with appropriate aggregation. The chief operating decision maker is the President and Chief Executive Officer who is responsible for allocating resources, assessing performance of the reportable segment and making key strategic decisions. The Company has determined that it has one reportable segment, Equipment Distribution, which is located in Canada and the United States. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements.

Revenue recognition

Revenue is recognized 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, ultimate collection of the revenue is reasonably assured and when specific criteria have been met for each of the Company’s activities as described below.

a. Revenue from equipment sales is recognized at the time title to the equipment and significant risks of ownership pass to the customer, which is generally at the time of shipment of the product to the customer. From time to time, the Company agrees to buy back equipment from certain customers at the option of the customer for a specified price at future dates. The Company’s maximum potential losses pursuant to the majority of these buy-back contracts are limited, under an agreement with a third party, to 10% of the original sale amounts. These transactions are accounted for as finance leases under IAS 17 – Leases. In accordance with the standard, these types of transactions are accounted for as a sale.

b. Revenue from equipment rentals 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. Certain rental contracts contain an option for the customer to purchase the equipment at the end of the rental period. Should the customer exercise this option to purchase, revenue from the sale of the equipment is recognized as in (a) above.

c. Product support services include sales of parts and servicing of equipment. For the sale of parts, revenue is recognized when the part is shipped to the customer. For servicing of equipment, revenue related to the service performed and parts consumed is recognized as the service work is completed.



3

Foreign currency translation

a) Functional and presentational currency

The Company’s consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency.

The financial statements of entities that have a functional currency different from that of Strongco (foreign operations) are translated into Canadian dollars as follows: assets and liabilities – at the closing rate as at the dates of the consolidated statements of financial position; income and expenses – at the average rate of the period (as this is considered a reasonable approximation of actual rates). All resulting changes are recognized in other comprehensive income (“OCI”) as currency translation adjustments.

b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized as other income in the consolidated statements of income (loss).

Employee benefit obligations

a) Pension obligations

Employees of the Company have entitlements under Company pension plans, which are either defined contribution or defined benefit plans.

The liability recognized in the consolidated statements of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is updated annually by management with key input assumptions provided by independent actuaries using the projected unit credit method. Actuarial valuations for defined benefit plans are carried out every three years. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.

Net interest is determined by multiplying the net defined benefit liability or asset by the discount rate used to determine the defined benefit obligation (at the beginning of the year) and is included in the employee future benefit expense.

Changes in actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and fair value of plan assets are recognized in OCI in the period in which they arise and charged or credited to retained earnings. On an interim basis, management estimates the changes in the actuarial



4

gains and losses. These estimates are adjusted when the annual valuation or estimate is completed by the independent actuaries.

Past-service costs are recognized immediately within operating expenses in the consolidated statements of income.

For defined contribution plans, contributions are recognized as post-employment benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

b) Other employee future obligations

The Company also has other employee future obligations, including an unfunded retirement allowance plan and a non-contributory dental and health-care plan. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. These obligations are valued annually by independent qualified actuaries.

Contributed surplus

Strongco operates an equity-settled, share-based compensation plan, under which the Company receives services from employees as consideration for equity instruments (options) of the Company. The options vest over a period of time. The fair value of the services received in exchange for the grant of the options is recognized as an expense. Awards under the share-based compensation plan are made in tranches. Each tranche is considered a separate award with its own vesting period and grant date value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. The expense is recognized over the tranche’s vesting period, based on the number of awards expected to vest, by increasing contributed surplus, a component within shareholders’ equity. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately. For expired and cancelled options, contributed surplus expense is not reversed and the related credit remains in contributed surplus. When options are exercised, the Company issues new shares. The proceeds received are credited to shareholders’ capital, together with the related amounts previously added to contributed surplus.

Shareholders’ capital

Shareholders’ capital is classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds.

Inventories

Inventories are recorded at the lower of cost and net realizable value. The cost of equipment inventory is determined on a specific-item basis. The cost of parts is determined on a weighted average cost basis. Net realizable value is the estimated selling price in the ordinary course of business, less applicable selling expenses. Equipment inventory on rent, but primarily held for sale, is amortized based on expected usage during the rental period, which is generally at a rate of between 60% and 80% of rental revenue, which approximates the usage.



5

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment. Cost includes expenditures that are directly attributable to the acquisition of the assets. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment and each component is depreciated separately. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs and maintenance costs are charged to operating expenses in the consolidated statements of income during the period in which they are incurred. The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted, if appropriate, at each financial period end. Land is not depreciated.

Depreciation is provided on other assets at rates that approximate the estimated useful life on a diminishing balance method as follows:

Buildings and leasehold improvements 3% to 5% Machinery and equipment 10% to 30% Vehicles 25% to 30% Computer equipment 30%

Computer equipment under finance lease and leasehold improvements are amortized on a straight-line basis over the remaining term of the lease.

An asset’s carrying amount is immediately written down to its recoverable amount if the asset’s carrying amount is greater than its estimated fair value. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognized within operating expenses in the consolidated statement of income.

Rental fleet

The Company’s rental fleet is stated at cost, less accumulated depreciation. The rental fleet includes specifically identified equipment that is not held for sale and only available for rent. For financial statement purposes, depreciation is computed on a percentage of rent basis, generally at a rate of between 60% and 80% of rental revenue, which approximates the usage. Cost includes expenditures that are directly attributable to the acquisition of the assets, as well as charges that increase the useful life of the asset. Routine repair and maintenance costs are charged to operating expenses in the consolidated statements of income during the period in which they are incurred.

Intangible asset

The intangible asset is comprised of business enterprise software used to perform most business operations in Canada. The intangible asset is amortized on a straight line basis over 10 years which is management’s estimate of its expected useful life.



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Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognized as interest expense in the consolidated statements of income in the period in which they are incurred.

Income taxes

The provision for (recovery of) income taxes for the period comprises current and deferred income taxes. Income taxes are recognized as an expense in the consolidated statements of income, except to the extent that they relate to items recognized in other comprehensive income or directly in equity. For items recognized in other comprehensive income or directly in equity, any applicable income taxes are also recognized in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the consolidated statements of financial position date. Management periodically evaluates positions taken in tax returns with respect to situations in which the applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted as at the consolidated statements of financial position dates and that are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Deferred income tax assets and liabilities are presented as non-current.



7

Provisions

Provisions for restructuring costs, legal claims, equipment buy backs and certain other obligations are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

Equipment notes payable

Equipment notes payable are used to finance the purchase of equipment inventory. The equipment notes payable are recognized initially at fair value and are subsequently measured at amortized cost; any difference between the proceeds and redemption value is recognized as interest expense in the consolidated statements of income over the term of the equipment notes payable using the effective interest rate method.

Debt

Debt comprises bank indebtedness under the Company’s operating line of credit, finance lease obligations and notes payable. Debt is recognized initially at fair value, net of transaction costs incurred. Debt is subsequently measured at amortized cost. Any difference between the proceeds and redemption value is recognized as interest expense in the consolidated statements of income over the term of the borrowings using the effective interest rate method.

Impairment of non-financial assets

Property and equipment and the Company’s rental fleet are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived assets that are not amortized, comprising the Company’s distribution right intangible asset, are subject to an annual impairment test. For the purpose of measuring recoverable amounts, assets are grouped into the lowest levels for which there are separately identifiable cash inflows (“cash-generating units” or “CGUs”). The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized fo r the amount by which the asset’s carrying amount exceeds its recoverable amount.

The Company evaluates potential reversals on previously recorded impairment losses when events or circumstances warrant such consideration.

Assets classified as held for sale

Non-current assets and disposal groups are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its immediate condition. Management must be committed to the sale, and it should be expected to qualify for recognition as a completed sale within one year from the date of classification. Assets (and disposal groups) classified as held for sale are measured at the lower of the carrying amount or fair value less costs to sell. Assets held for sale are transferred to property and equipment when it is determined that they no longer meet the criteria to be assets classified as held for sale.



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Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to operating expenses in the consolidated statements of income on a straight-line basis over the period of the lease.

Leases of property and equipment, in which the Company has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at the lease commencement date at the lower of the fair value of the leased asset and the present value of the minimum lease payments.

Finance lease payments are allocated between their liability and finance components so as to achieve a constant rate on their outstanding obligations. The interest element of the finance cost is charged to the consolidated statements of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

Financial instruments

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

At initial recognition, the Company classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired:

a. Financial assets and liabilities at fair value through profit or loss: a financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term. Derivatives are also included in this category unless they are designated as hedges. The only instruments held by the Company classified in this category are foreign currency forward contracts and interest rate swaps.

Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are recorded as an expense in the consolidated statements of income. Gains and losses arising from changes in fair value are presented in the consolidated statements of income within other income in the period in which they arise. Financial assets and liabilities at fair value through profit or loss are classified as current except for the portion expected to be realized or paid beyond 12 months of the consolidated statements of financial position dates, which is classified as non-current.



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b. Loans and receivables: loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company’s loans and receivables are comprised of trade and other receivables, and are included in current assets due to their short-term nature. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment.

c. Financial liabilities at amortized cost: financial liabilities at amortized cost include bank indebtedness, trade and other payables, provisions, income taxes payable, interest-bearing and non-interest-bearing equipment notes payable, finance lease obligations and notes payable.

d. Derivative financial instruments: the Company uses derivatives in the form of foreign currency forward contracts to reduce the impact of currency fluctuations on the cost of equipment ordered for future delivery to customers. The Company also uses interest rate swaps to reduce the impact of interest rate fluctuations on their borrowings. Derivatives that have been classified as held-for-trading are included in the balance within trade and other payables.

Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset, and this loss event, or events, has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred, discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized within operating expenses in the consolidated statements of income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, such as an improvement in a customer’s credit rating, the reversal of the previously recognized impairment loss is recognized as a reduction in expense in the consolidated statements of income.

Earnings (loss) per share

Basic earnings (loss) per share (“EPS”) is calculated by dividing the net income for the period attributable to shareholders of Strongco by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The number of shares included with respect to options, warrants and similar instruments is computed using the treasury stock method. Strongco’s potentially dilutive common shares comprise options granted to employees.



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New accounting standards adopted during the year

On January 1, 2015, the Company applied, for the first time, certain amendments to IAS 19 Employee Benefits and IFRS 8 Operating Segments. These changes were made in accordance with the applicable transitional provisions. The adoption of these amendments did not have an impact on the audited financial position performance or disclosures of the Company. The nature and the impact of each amendment to standards which affect the Company are described below: IAS 19 Employee Benefits The IASB amended IAS 19 to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. IFRS 8 Operating Segments This standard has been amended to require (i) disclosure of judgments made by a company’s management in aggregating segments, and (ii) a reconciliation of segment assets to the entity's assets when segments are reported. Future changes in accounting standards The following amendments to accounting standards will be effective for the Company subsequent to 2015: IAS 1 Presentation of Financial Statements In December 2014, the IASB amended IAS 1 to apply materiality and management’s judgment regarding the content and the order of notes to the financial statements. The amendment is effective January 1, 2016. IAS 16 Property, Plant and Equipment In May 2014, the IASB amended IAS 16 to prohibit the use of revenue-based depreciation for property, plant and equipment and rental equipment. The amendment is effective January 1, 2016. IFRS 9 Financial Instruments In July 2015, the IASB issued IFRS 9 to replace IFRS 39 Financial Instruments: Recognition and Measurement. The new standard defines new requirements for the recognition and measurement of financial assets and financial liabilities, the impairment of financial assets and the application of hedge accounting. The new standard becomes effective January 1, 2018.

IFRS 15 Revenues from Contracts with Customers In May 2015, the IASB issued IFRS 15 which outlines a single comprehensive model for the recognition and measurement of revenue arising from contracts with customers. The new standard applies a five-step model that permits the recognition of revenue after the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to in exchange for those goods or services. IFRS 15 requires numerous disclosures, such as the disaggregation of total revenue, disclosures about performance obligations, changes in contract asset and liability account balances, and key judgments and



11

estimates. In July 2015, the IASB deferred the effective date of the standard one year to January 1, 2018. The standard may be applied using a full retrospective or modified retrospective approach. IFRS 16 Leases In 2016, the IASB issued IFRS 16 replacing IAS 17 Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) has been adopted. The Company does not anticipate early adoption and plans to adopt the standards on their effective dates. The Company is in the process of reviewing the standards to determine their impact on the consolidated financial statements. Comparative figures Certain comparatives figures have been reclassified to conform to the current year’s presentation.

3 Critical accounting estimates and judgments

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities in the consolidated financial statements. The Company bases its estimates and assumptions on past experience and various other assumptions that are believed to be reasonable in the circumstances. This involves varying degrees of judgment and uncertainty, which may result in a difference in actual results from these estimates. The more significant estimates are as follows:

Allowance for doubtful accounts

The Company performs credit evaluations of customers and limits the amount of credit extended to customers as appropriate. The Company is, however, exposed to credit risk with respect to trade receivables and maintains provisions for possible credit losses based upon historical experience and known circumstances. The allowance for doubtful accounts as at December 31, 2015 with changes from January 1, 2015 is disclosed in note 4.

Inventory valuation

The value of the Company’s new and used equipment is evaluated by management throughout each period. Where appropriate, a provision is recorded against the book value of specific pieces of equipment to ensure that inventory values reflect the lower of cost and estimated net realizable value. The Company identifies slow-moving or obsolete parts inventory and estimates appropriate obsolescence provisions by aging the inventory. Refer to note 5 for details regarding obsolescence provisions. The Company takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods.



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Impairment of intangible and long-lived assets

An impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell (“FVLCS”) and its value in use. In its assessment of the recoverable amount at December 31, 2015 the Company considered the FVLCS approach and calculated the recoverable amount using a forward multiple of forecasted adjusted forward EBITDA. The FVLCS calculation uses projections for a one year period and a forward multiple. The key assumptions in the FVLCS calculations are:

Earnings before interest, taxes and depreciation and amortization and impairment charges (“EBITDA”). The projections are based on the most recent financial budgets approved by the Company’s Board of Directors.

Forward multiples which are based on public market data including information from analysts covering the Company as well as competition data.

Deferred income taxes

At each year end, the Company evaluates the value and timing of its temporary differences. Deferred income tax assets and liabilities, measured at substantively enacted tax rates, are recognized for all temporary differences caused when the tax bases of assets and liabilities differ from those reported in the consolidated financial statements.

Changes or differences in these estimates or assumptions may result in changes to the current or deferred income tax balance in the consolidated statements of financial position and a charge or credit to income tax expense in the consolidated statements of income, and may result in cash payments or receipts. Where appropriate, the provisions for deferred income taxes and deferred income taxes payable are adjusted to reflect management’s best estimate of the Company’s income tax accounts.

Judgment is also required in determining whether deferred income tax assets are recognized in the consolidated statements of financial position. Deferred income tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize recognized deferred income tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred income tax assets recorded at the reporting date could be impacted. Additional information is disclosed in note 8.

Employee future benefit obligations

The present value of the employee future benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for these obligations include the discount rate.

The Company determines the appropriate discount rate at the end of each period. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the obligations. In determining the appropriate discount rate, the Company considers the interest rates of high-



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quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related employee future benefit liability.

Other key assumptions for employee future benefit obligations are based in part on current market conditions. Additional information is disclosed in note 14. Any changes in these assumptions will impact the carrying amount of the employee future benefit obligations.

Share-based payment transactions The Company measures the cost of share-based transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 21.

4 Trade and other receivables

Due to their short-term nature, the fair value of trade and other receivables is not materially different from their carrying value.

As at December 31, 2015, trade receivables of $24,071 (December 31, 2014 – $17,211) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default. The aging of these receivables is as follows:

As at December 31

Trade receivables $ 47,065 $ 52,610 Less: Provision for impairment of trade receivables 1,989 2,143 Trade receivables, net $ 45,076 $ 50,467

Other receivables 11,875 9,420 Total trade and other receivables $ 56,951 $ 59,887

2015 2014

As at December 31 2015 2014

Up to 3 months $ 19,242 $ 15,211 3 to 6 months 1,713 1,722 Over 6 months 3,116 278

$ 24,071 $ 17,211



14

As at December 31, 2015, trade receivables of $4,797 (2014 – $3,116) were impaired. The amount of provision was $1,989 as at December 31, 2015 (December 31, 2014 – $2,143). The individually impaired receivables mainly relate to parts and service invoices. It was assessed that a portion of the receivables is expected to be recovered. The aging of these receivables is as follows:

Movements in the Company’s provision for impairment of trade receivables are as follows:

The provision for impaired receivables is recognized in the consolidated statements of income within administrative expenses in the period of provision. When a balance is considered uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to administrative expenses in the consolidated statements of income.

Other receivables within trade and other receivables do not contain impaired amounts.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Company does not hold any collateral as security.


Up to 3 months $ 982 $ 542 3 to 6 months 291 171 Over 6 months 3,524 2,403

$ 4,797 $ 3,116

2015 2014

As at January 1 $ 2,143 $ 1,225 Provisions for impairment 422 1,420 Amounts written off as uncollectible (370) (502) Amounts unused and reversed (206) - As at December 31 $ 1,989 $ 2,143



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5 Inventories

Inventory components as at December 31 (net of write-downs and provisions) are as follows:

The value of the Company’s new and used equipment is evaluated by management throughout each year. Where appropriate, a write-down is recorded against the book value of specific pieces of equipment to ensure that inventory values reflect the lower of cost or estimated net realizable value. For the year ended December 31, 2015, the Company recorded $5,189 of equipment write-downs (December 31, 2014 – $1,894) and reversals of equipment write-downs for units sold during the year of $294 (December 31, 2014 – $1,162).

Throughout the year, management identifies slow-moving or obsolete parts inventory and estimates appropriate obsolescence provisions by aging the inventory. The changes in the inventory provision as at December 31, 2015 are as follows:

Inventory costs recognized as an expense and reflected in cost of sales in the consolidated statements of income amounted to $354,342 (December 31, 2014 – $371,717). Cost of sales also includes depreciation of equipment inventory on rent of $13,596 (December 31, 2014 – $19,048). The carrying value of equipment inventory on rent as at December 31, 2015 was $52,483 (December 31, 2014 – $47,223)

As at December 31

Equipment in-stock $ 146,551 $ 179,056 Equipment on rental contract with a purchase option 24,788 28,645 Equipment on a short-term rental contract 27,695 18,578 Equipment $ 199,034 $ 226,279

Parts 35,171 30,446 Work-in-process 6,610 6,057 Total inventories $ 240,815 $ 262,782

2015 2014

2015 2014

Inventory obsolescence as at January 1 $ 5,097 $ 4,365 Inventory disposed of during the year (402) (2,462) Additional provision made during the year 5,815 3,194 Inventory obsolescence as at December 31 $ 10,510 $ 5,097



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6 Assets classified as held for sale

Land and buildings are transferred to assets classified as assets held for sale from property and equipment when they meet the criteria to be assets classified as held for sale. Land and buildings previously included in assets classified as held for sale are transferred to property and equipment when it is determined that they no longer meet the criteria to be assets classified as held for sale.

The fair value measurement of assets held for sale is categorized within Level 2 of the fair value hierarchy.

Land and buildings classified as assets held for sale are facilities which the Company has previously announced that it intends to sell through sale leaseback transactions. The Company has entered into agreements or received letters of intent to sell certain properties in Canada subject to due diligence and normal commercial conditions.

During the year, $731 of land and buildings previously classified as assets held for sale were re-classified to property, plant and equipment as these assets were no longer for sale. As at December 31, 2015, $nil of assets are held for sale (2014 – $731).



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7 Property and equipment and rental fleet

At December 31, 2015, machinery, equipment and vehicles include $nil of assets under construction (December 31, 2014 – $12,509).

All trade accounts receivable related to the rental fleet at December 31, 2015 have maturities of less than one year.

The Company leases various computers and equipment under non-cancellable finance lease agreements. The lease terms are between one and eight years.

During the year ended December 31, 2014, the Company entered into arrangements for the sale and leaseback of four branches. Gross proceeds of the sales totalled $45,800, and resulted in a net gain on the sales of $8,625. As part of the arrangements, Strongco entered into lease agreements with the purchasers to lease the branches back for periods of 10 to 15 years.

Year endedDecember 31, 2014

Opening net book value $ 13,930 $ 27,436 10,474 9,545 $ 61,385 $ 29,844 $ 91,229 Additions - 647 9,894 2,836 13,377 23,271 36,648 Disposals (13,406) (21,799) (351) (955) (36,511) (17,055) (53,566)

(101) (630) - - (731) - (731)Depreciation - (718) (935) (3,907) (5,560) (5,373) (10,933)Closing net book value 423 4,936 19,082 7,519 31,960 30,687 62,647 As at December 31, 2014Cost 423 12,896 32,097 15,879 61,295 37,669 98,964 Accumulated depreciation - (7,960) (13,015) (8,360) (29,335) (6,982) (36,317)Net book value 423 4,936 19,082 7,519 31,960 30,687 62,647 Year ended

December 31, 2015Opening net book value 423 4,936 19,082 7,519 31,960 30,687 62,647 Additions - 1,008 5,868 2,575 9,451 28,961 38,412 Disposals - - (5) - (5) (15,493) (15,498)Transfer from held for sale 101 630 - - 731 - 731 Transfer to intangible assets - - (17,822) - (17,822) - (17,822)Transfer to equipment inventory - - - - - (7,753) (7,753)Depreciation - (1,121) (1,144) (3,848) (6,113) (6,064) (12,177)Closing net book value 524 5,453 5,979 6,246 18,202 30,338 48,540 As at December 31, 2015Cost 524 16,157 20,118 18,266 55,065 38,352 93,417 Accumulated depreciation - (10,704) (14,139) (12,020) (36,863) (8,014) (44,877)Net book value $ 524 $ 5,453 $ 5,979 $ 6,246 $ 18,202 $ 30,338 $ 48,540

Assets classified as held for sale

Total property and equipment and rental fleet Land

Buildings and leasehold

improvements

Machinery, equipment and

vehicles

Computers and equipment under finance

lease Total property and equipment Rental fleet



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8 Income taxes

Significant components of the provision for (recovery of) income taxes are as follows:

The tax on the profit before tax differs from that which would be obtained by applying the statutory tax rate as a result of the following:

The analysis of deferred income tax assets and liabilities is as follows:

As at December 31 2015 2014 Components of current income tax expense:Relating to current year income taxes $ 469 $ 588Relating to prior year income taxes (391) 119Total current income tax expense 78 707

Components of deferred income tax expense:Origination and reversal of temporary differences (3,172) (1,566)Expense of previously unrecognized tax attributes 387 -Total deferred income tax recovery (2,785) (1,566)

Total income tax expense (recovery) $ (2,707) $ (859)

For the year ended December 31 2015 2014Earnings before taxes $ (10,075) $ 70Statutory tax rate 26.62% 26.19%

Provision for income taxes at statutory tax rate $ (2,681) $ 18Adjustments thereon for the effect of:Non-taxable portion of capital gains - (1,345)Foreign rate differential 239 191Permanent and other (265) 277Total income tax expense (recovery) $ (2,707) $ (859)

Deferred income tax assets and liabilitiesAs at December 31 2015 2014

Eligible capital expenditures and other reserves $ 4,716 $ 3,328Pension 514 1,608Loss carryforward 5,884 1,580Deferred income tax assets 11,114 6,516Capital and other assets (11,209) (6,595)Partnership income taxes payable in future periods - (718)Deferred income tax liabilities (11,209) (7,313)Net deferred income tax liability $ (95) $ (797)



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The above is presented on the consolidated statements of financial position as follows:

The recognition of deductible temporary differences represented by the deferred income tax asset above is dependent on taxable profits in the future that arise in the same taxation periods and jurisdictions in which those deductible temporary differences are to be utilized.

The gross movement on deferred tax is as follows:

As at December 31, 2015, deferred tax liabilities related to the subsidiaries in the United States totalled $28 (December 31, 2014 – $2,146).


Deferred income tax asset $ 4,868 $ 2,915Deferred income tax liability $ (4,963) $ (3,712)

2015 2014As at January 1 $ (797) $ (3,365)Other (803) (299)Income statement charge (deferred tax) 2,786 1,566Tax charges relating to components of other comprehensive income (1,281) 1,301As at December 31 $ (95) $ (797)



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The movement in deferred income tax assets and liabilities during the year, without taking into account offsetting, is as follows:

Deferred income tax liabilities

Property and equipment and other

assets

Partnership income taxes

payable in the following year Other Total

As at December 31, 2013 $ (6,547) $ (1,749) $ - $ (8,296)Other (468) - - (468)Charged to income statement 420 1,031 - 1,451As at December 31, 2014 $ (6,595) $ (718) $ - $ (7,313)

Deferred income tax assets

Eligible capital

expenditures and other

reserves Employee

Benefits Unused tax

losses Total As at December 31, 2013 $ 2,568 $ 710 $ 1,653 $ 4,931Other 56 26 87 169Charged to income statement 598 (323) (160) 115Charged to other comprehensive income 106 1,195 - 1,301As at December 31, 2014 $ 3,328 $ 1,608 $ 1,580 $ 6,516 Gross unused tax losses of $28 in the United States will expire in 2031 and 2033.

Deferred income tax liabilities

Property and equipment and

other assets

Partnership income taxes

payable in the following year Other Total

As at December 31, 2014 $ (6,595) $ - $ - $ (6,595)Other (1,435) - - (1,435)Charged to income statement (3,179) - - (3,179)As at December 31, 2015 $ (11,209) $ - $ - $ (11,209)

Deferred income tax assets

Eligible capital expenditures

and other reserves

Employee Benefits

Unused tax losses Total

As at December 31, 2014 $ 3,328 $ 1,608 $ 862 $ 5,798Other 776 (145) 631Charged to income statement 728 71 5,167 5,966Charged to other comprehensive income (116) (1,165) - (1,281)As at December 31, 2015 $ 4,716 $ 514 $ 5,884 $ 11,114



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9 Intangible asset

Impairment test for indefinite-life intangible asset

The distribution right intangible asset was tested for impairment at the Ontario region CGU level. In November 2014, Volvo Construction Equipment announced that it would be discontinuing development and production of equipment related to the distribution right. It is uncertain what products will be manufactured for the North American market. Consequently, the Company fully impaired the carrying value of the intangible asset as at December 31, 2014.

Year endedDecember 31, 2014

Opening net book value $ - $ 1,800 $ 1,800 Additions - - - Disposals - - - Impairment - (1,800) (1,800)Amortization - - - Closing net book value - - - As at December 31, 2014Cost - - - Accumulated amortization - - - Net book value - - - Year ended

December 31, 2015Opening net book value - - - Additions 17,822 - 17,822 Disposals - - - Amortization (454) - (454)Closing net book value 17,368 - 17,368 As at December 31, 2015Cost 17,822 - 17,822 Accumulated amortization (454) - (454)Net book value $ 17,368 $ - $ 17,368

Total intangible assets

Definite life intangible asset

Indefinite life intangible asset



22

10 Debt

a. Bank indebtedness

The Company has credit facilities with banks in Canada and the United States that provide committed operating lines of credit totalling approximately $39.2 million. During the second quarter 2015, the Company renegotiated and renewed early its bank credit facility in Canada which was scheduled to expire in September 2015. The new Canadian bank credit facility is a three-year committed facility expiring in September 2018 with an operating line of $35 million. During the first quarter 2015 the Company replaced its U.S. bank facility with a new facility as part of a consolidated facility under its Canadian bank facility. The new U.S. bank facility provides for a maximum operating line of credit of US$3.0 million which expires in March 2017.

Borrowings under the operating lines of credit under both the Canadian and U.S. credit facilities are limited by standard borrowing base calculations based on accounts receivable and inventories, which are typical of such bank credit facilities. The Canadian bank operating line bears interest at rates that vary with bank prime rates or Bankers’ Acceptance rates (“BA rates”). Interest rates under the Canadian bank facility range between bank prime rate plus 2.00% and bank prime rate plus 4.00%, and between the one-month Canadian BA rates plus 3.00% and BA rates plus 5.00% depending on the ratio of total debt to tangible net worth. The bank operating line in the United States bears interest at LIBOR plus 3.00%. At December 31, 2015, the effective interest rate of the operating lines was 7.00% in Canada (December 31, 2014 – 7.00%) and 3.93% in the United States (December 31, 2014 – 4.40%).

Under its bank credit facilities, the Company is able to issue letters of credit up to a maximum of $5 million. Outstanding letters of credit reduce the Company’s availability under its operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongco’s performance on the sale of equipment to the customer. As at December 31, 2015, there were outstanding letters of credit of $10 (December 31, 2014 – $10). The bank credit facilities contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. As a result of additional inventory reserves recorded at

As at December 31

Current Bank indebtedness (a) $ 33,155 $ 23,426 Finance lease obligations (b) 3,772 4,582 Notes payable (c) 21,681 186

$ 58,608 $ 28,194

Non-current Finance lease obligations (b) $ 3,762 $ 4,589 Notes payable (c) - 20,042 Total Debt $ 62,370 $ 52,825

2015 2014



23

December 31, 2015, the Company was in breach of one of these covenants. This also resulted in a breach of covenants with certain equipment note lenders in Canada with the same covenant requirement and consequently other equipment note lenders due to cross default clauses. Subsequent to year end, the Company obtained waivers for the breach at December 31, 2015 from its bank and all equipment note lenders. Additionally, the covenant under the banking facility and the equipment finance credit agreements with certain equipment note lenders in Canada was amended for the first three quarters of 2016 to reflect the effect of the additional inventory provision.

b. Finance lease obligations

As at December 31, 2015, the Company had vehicles and computer equipment under finance leases. The weighted average effective interest rate is 6.5% (December 31, 2014 – 5.9%). The future minimum annual payments, interest and balance of obligations are as follows:

The present value of financial lease liabilities is as follows:

As at December 31

No later than 1 year $ 3,772 $ 4,604 Later than 1 year but no later than 5 years 4,337 4,826 Later than 5 years - - Total minimum lease payments $ 8,109 $ 9,430

Future finance charges on finance leases (575) (259) Present value of finance lease liabilities $ 7,534 $ 9,171

2015 2014

As at December 31

No later than 1 year $ 3,772 $ 4,604 Later than 1 year but no later than 5 years 3,762 4,567 Later than 5 years - -

$ 7,534 $ 9,171

2015 2014



24

c. Notes payable

Notes payable are comprised of the following:

As at December 31, 2015, the breach of bank covenants and similar covenants with certain equipment lender in Canada triggered a breach of covenants with other equipment note lenders due to cross default provisions. Consequently, the long-term portion of notes payable has been classified as current as at December 31, 2015.

(i) In addition to equipment notes payable as described in note 13, the Company utilizes floor plan notes

payable to finance its rental fleet. Payment is required at the earlier of the sale of items and per contractual schedules ranging from 12 to 24 months. Effective interest rates range from 2.82% to 6.25% with various maturity dates.

(ii) The Company’s bank credit facilities in the United States included a term note secured by real estate and

cross-collateralized with the Company’s revolving line of credit in the United States which matures March 2019. Monthly payments of principal of US$22 plus accrued interest at a rate of prime plus 3.00% are required under the terms of the note.

d) The carrying amount and fair value of the debt are as follows:

The fair values were determined using a discount rate equivalent to the interest charged against the relevant debt item. The fair values of finance lease obligations do not differ materially from their carrying values.

As at December 31 2015 2014Equipment notes payable – rental fleet (i) $ 16,391 $ 16,563Term note – United States (ii) 5,290 3,665

$ 21,681 $ 20,228Current portion 21,681 186Long-term portion $ - $ 20,042

Carrying amountAs at December 31

Bank indebtedness $ 33,155 $ 23,426Notes payable 21,681 20,228Finance lease obligations 7,534 9,171

$ 62,370 $ 52,825

Fair ValueAs at December 31

Bank indebtedness $ 33,155 $ 23,426Notes payable 21,263 19,890Finance lease obligations 7,534 9,171

$ 61,952 $ 52,487

2015 2014

2015 2014



25

11 Trade and other payables

12 Provision for other liabilities

Equipment buy-back obligation

At as January 1, 2015 $ 369Charged (credited) to the income statement

Additional provision 3Unused amounts reversed (173)Used during the year (66)

As at December 31, 2015 $ 133Current portion 62Long-term portion $ 71

At as January 1, 2014 $ 983Charged (credited) to the income statement

Additional provision 62Unused amounts reversed (517)Used during the year (159)

As at December 31, 2014 $ 369Current portion 165Long-term portion $ 204

The Company has agreed to buy back equipment from certain customers at the option of the customer for a specified price at a future date (“buy-back contracts”). These contracts are subject to certain conditions being met by the customer and range in term from three to 10 years. As at December 31, 2015, the total obligation under these contracts was $9,740 (December 31, 2014 – $11,657). The Company’s maximum potential losses pursuant to the majority of these buy-back contracts are limited, under an agreement with a third party, to 10% of the original sale amounts. A reserve of $133 (December 31, 2014 – $368) has been accrued in the Company’s accounts with respect to these commitments. The long-term portion of the reserve related to these contracts of $71 (December 31, 2014 – $204) is classified as long-term liabilities.

As at December 31

Trade payables $ 24,630 $ 25,904 Accrued liabilities 19,658 29,378

$ 44,288 $ 55,282

2015 2014



26

13 Equipment notes payable

The Company has lines of credit available totalling approximately $259 million from various non-bank equipment lenders in Canada and the United States, which are used to finance equipment inventory (December 31, 2014 – $276 million). As at December 31, 2015, there was approximately $180 million borrowed on these equipment finance lines (December 31, 2014 – $198 million).

Typically, these equipment notes are interest-free for periods of up to 12 months from the date of financing, after which they bear interest at variable rates based upon 30-day and 90-day Bankers’ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing company’s margin. As at December 31, 2015, the rates ranged from 3.08% to 6.95% with an effective weighted average rate of 5.19% (2014 – 5.40%). As collateral for these equipment notes, the Company has provided liens on the specific inventory financed and any related accounts receivable. In the normal course of business, these liens cover substantially all of the equipment inventories. Monthly principal repayments equal to 3.00% of the original principal balance of the note commence 12 months from the date of financing and the remaining balance is due in full at the earlier of 24 months after financing or when the financed equipment is sold. While financed equipment is out on rent, monthly curtailments are required equal to the greater of 70% of the rental revenue and 2.5% of the original value of the note. Any remaining balance after 24 months, which is due in full, is normally refinanced with the lender over an additional period of up to 24 months. All of the Company’s equipment note facilities are renewable annually.

Certain of the Company’s equipment finance credit agreements contain restrictive financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). As a result of additional inventory reserves recorded at December 31, 2015, the Company was in breach of one of these covenants with certain equipment note lenders in Canada. This also resulted in a breach of covenants with other equipment note lenders due to the cross default provisions. Subsequent to year end, the Company obtained waivers for the breach at December 31, 2015 from its bank and all equipment note lenders. Additionally, the covenant under the banking facility and the equipment finance credit agreements with certain equipment note lenders in Canada was amended for the first three quarters of 2016 to reflect the effect of the additional inventory provision.

The equipment notes are payable on demand and therefore have been classified as current liabilities. The carrying amount of equipment notes payable is as follows:

Due to the short-term nature of equipment notes payable, management has determined that the fair value does not differ materially from the carrying value.

As at December 31

Equipment notes payable – non-interest-bearing $ 63,864 $ 36,569 Equipment notes payable – interest-bearing 116,407 161,213

$ 180,271 $ 197,782

2015 2014



27

14 Employee benefit obligations

Total cash payments for employee future benefits for 2015, consisting of cash contributed by the Company to its funded defined benefit plans, cash payments directly to beneficiaries for its unfunded other benefit plans and cash contributed to its funded defined contribution plan, were $3,766 (2014 – $3,745). The history and experience adjustments in respect of post-employment benefit obligations are as follows:

Present value of benefit obligations $ 47,715 $ 49,940 Fair value of plan assets 44,216 41,785

Deficit in the plan 3,499 8,155

Experience adjustments in plan liabilities – gains (losses)Plan experience $ 4,012 $ (239)Changes in demographic assumptions (276)Changes in financial assumptions 19 (6,858)

Experience adjustments in plan assets – gains $ 735 $ 2,411

Obligations in the consolidated statements of financial position for:

Pension benefits $ 1,907 $ 6,136Dental, health and other post-employment benefits 1,592 2,019

$ 3,499 $ 8,155Charges to the consolidated statements of income for:

Pension benefits $ 3,678 $ 2,565Dental, health and other post-employment benefits 73 75

$ 3,751 $ 2,640

2015 2014 As at December 31



28

a. Pension benefits

The Company has a number of funded and unfunded benefit plans that provide pension, as well as other retirement benefits, to some of its employees.

a. Defined contribution plans

The Company maintains a defined contribution plan available only to certain employees (approximately 22% of the workforce (2014 – 12%)). In 2015, the Company’s contributions were $380 (2014 – $217). The Company also maintains a group retirement savings plan (RSP/LIRA) available only to certain employees (approximately 17% of the workforce (2014 – 17%)) under the terms of a collective bargaining agreement. In 2015, the Company’s contributions were $444 (2014 – $320).

The Company maintains a defined contribution retirement savings program available only to certain executive officers (“DCRSP” plan), which has been in effect since January 2006. The expense related to the DCRSP plan for the year ended December 31, 2015 was $220 (2014 – $225).

The Company maintains a defined contribution retirement savings program available only to certain management employees (“DCRSP – GM” plan), which has been in effect since June 2007. The expense related to the DCRSP – GM plan for the year ended December 31, 2015 was $74 (2014 - $58).

The Company maintains a defined contribution retirement savings program available only to employees of CBR (“401(k)” plan) which has been in effect since the Company’s acquisition of CBR in February 2011. The expense related to the 401(k) for the year ended December 31, 2015 was $45 (2014 – $40). Employees receiving the 401(k) benefit made up approximately 8% of the workforce in 2015 (2014 – 7%).

b. Defined benefit pension plans

Risks associated with these plans are similar to those of typical benefit plans including market risk, interest rate risk, liquidity risk, credit risk, longevity risk, etc. There are no significant risks associated with this plan that could be deemed unusual or require special disclosure.

The amounts recognized in the consolidated statements of financial position are determined as follows:

As at December 31

Fair value of plan assets $ 43,003 $ 1,213 $ 40,553 $ 1,232Present value of funded obligations 44,363 1,760 46,078 1,842

Accrued benefit liability $ 1,360 $ 547 $ 5,525 $ 610

2015 2014Employee

planExecutive

planEmployee

planExecutive

plan



29

The movement in the defined benefit obligation over the year is as follows:

The movement in the fair value of plan assets over the year is as follows:

Plan assets consist of:

Year ended December 31

Accrued benefit obligation as at January 1 $ 46,078 $ 1,842 $ 37,182 $ 1,763Current service cost 2,725 2,102 -Interest cost 1,912 58 1,906 71Benefits paid (2,745) (170) (1,900) (170)Actuarial (gain) loss

Plan experience (3,607) 36 41 32Changes in demographic assumptions - 237 17Changes in financial assumptions (6) 6,510 129

Accrued benefit obligation as at December 31 $ 44,363 $ 1,760 $ 46,078 $ 1,842

2014Employee

planExecutive

plan

2015Employee

planExecutive

plan


Fair value of plan assets as at January 1 $ 40,553 $ 1,232 $ 34,975 $ 1,171Actual return on plan assets 2,364 47 4,099 140Employer contributions 2,314 134 2,791 134Employee contributions 867 - 807 -Benefits paid (2,745) (170) (1,900) (170)Administration costs (350) (30) (219) (43)Fair value of plan assets as at December 31 $ 43,003 $ 1,213 $ 40,553 $ 1,232

2014Employee

planExecutive

plan

2015Employee

planExecutive

plan

As at December 31

Asset category % % % %Canadian equity 15.2 17.8 20.7 23.8Non-domestic equity 28.6 33.5 24.2 27.7Bonds 42.1 33.7 42.4 35.7REITs/infrastructure/utilities 7.2 8.6 5.2 5.9Mortgages 5.5 6.4 5.2 5.9Cash and money market 1.4 - 2.3 1.0

100.0 100.0 100.0 100.0

2015 2014Employee

planExecutive

planEmployee

planExecutive

plan



30

The amounts recognized in the consolidated statements of income (loss) and comprehensive income (loss) are as follows:

Expected employer contributions to the defined benefit employee pension plan for the year ending December 31, 2016 are $2,266 (2015 – $2,358). Expected employer contributions to the defined benefit executive pension plan for the year ending December 31, 2016 are $134 (2015 – $134).

The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as of December 31 of each year. For the employee pension plan, the most recent actuarial valuation for funding purposes was performed as at March 31, 2014 and the next required valuation is due no later than March 31, 2017.

For the executive pension plan, the most recent actuarial valuation for funding purposes was performed as at June 30, 2012 and the next required valuation is due no later than as at June 30, 2015.

Consolidated statements of income (loss)


Employer current service costs $ (1,858) $ - $ (1,294) $ -Interest on net defined benefit asset (liability) (275) (19) (126) (23)Administration costs (350) (30) (219) (43)Sub-total $ (2,483) $ (49) $ (1,639) $ (66)

Consolidated statements of comprehensive income (loss)

Gain (loss) for the year on obligations $ 3,607 $ (30) $ (6,788) $ (178)Gain for the year on assets 726 8 2,319 92Sub-total 4,333 (22) (4,469) (86)

Total $ 1,850 $ (71) $ (6,108) $ (152)

2015 2014Employee

planExecutive

planEmployee

planExecutive

plan



31

The principal actuarial assumptions used are as follows:

The sensitivity of the overall pension liability to changes in assumptions is as follows:

Valuation 1% Change Change in overallassumption liability

Employee planDiscount rate 4.00% (5,720)Salary growth rate 3.00% 31

Executive planDiscount rate 3.30% (119)

5.00%4.00%

4.30%

b) Post-employment health and dental benefits and retirement allowance

The Company has other post-employment benefit obligations, which include an unfunded retirement allowance and a non-contributory dental and health-care plan.

The amounts recognized in the consolidated statements of financial position are determined as follows:

As at December 31

Discount rate 4.00% 3.30% 4.00% 3.25%

Average life expectancy> Male aged 45 40.2 40.1 N/A> Female aged 45 43.5 43.5 N/A> Male aged 65 21.5 21.5 21.4 21.4> Female aged 65 24.0 24.0 23.9 23.9

Duration of plan in years 15.4 7.2 17.8 8.0

2015 2014Employee

planExecutive

planEmployee

planExecutive

plan

As at December 31 Present value of obligation $ 1,592 $ 2,020Accrued benefit obligation in the consolidated statements of financial position $ 1,592 $ 2,020

2015 2014



32

The movement in the accrued benefit obligation over the year is as follows:

The assumed initial health-care cost trend rate is 6.50%, declining by 0.25% per annum to 4.75% per annum in 2022 and thereafter. The assumed dental cost trend rate is 3.75% per annum.

Assumed health-care and dental-care cost trend rates have a significant effect on the amounts reported for the health-care and dental-care plans. A 1% change in assumed health and dental care cost trend rates would have the following effects for 2015:

15 Shareholders’ equity

Authorized: Unlimited number of shares Issued:

As at December 31, 2015, a total of 13,221,719 shares (December 31, 2014 – 13,221,719 shares) with a stated value of $65,417 (December 31, 2014 – $65,324) were issued and outstanding.

As at December 31 Accrued benefit obligations as at January 1 $ 2,020 $ 1,606Current service cost -Interest cost 74 74Benefits paid (47) (67)Actuarial (gain) loss - Plan experience (442) 166 - Changes in demographic assumptions - 22 - Changes in financial assumptions (13) 219Accrued benefit obligations as at December 31 $ 1,592 $ 2,020

2015 2014

Increase DecreaseAccrued benefit obligations as at December 31, 2015 (at 3.80%) $ 187 $ (159)



33

16 Segment information

Management has determined that the Company has one reportable segment, Equipment Distribution based on reports reviewed by the President and Chief Executive Officer, with appropriate aggregation. This business sells and rents new and used equipment and provides after-sale product support (parts and service) to customers who operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets.

A breakdown of revenue from the Equipment Distribution segment is as follows:

Geographic information for the year ended and as at is as follows:

December 31, 2015

Revenue $ 385,002 $ 89,283 $ 474,285Property and equipment 12,595 5,607 18,202Rental fleet 1,145 29,193 30,338Intangible asset 17,368 - 17,368Other non-current assets other than deferred income tax assets $ 1,867 $ - $ 1,867

December 31, 2014

Revenue $ 427,257 $ 71,071 $ 498,328Property and equipment 27,114 4,846 31,960Rental fleet 6,327 24,360 30,687Intangible asset - - -Other non-current assets other - than deferred income tax assets $ 1,974 $ - $ 1,974

Canada US Total

Canada US Total

Year ended December 31 2015 2014Analysis of revenue by category:Equipment sales $ 307,452 $ 326,576Equipment rental 25,313 30,404Product support 141,520 141,348Total revenue $ 474,285 $ 498,328



34

17 Other (income) expense

Other expense for the year ended December 31, 2015 of $1,656 (December 31, 2014 – income of $7,959) included foreign currency translation losses, gains from the sale of property and equipment, mark-to-market adjustments for foreign currency swaps and interest rate swaps, and miscellaneous commission income from suppliers.

Other income for the year ended December 31, 2014 includes the net gain of $8,676 on the sale and leaseback of four branches (note 7).

18 Expenses by nature

Salaries, wages and commission expense comprises the following:

Year ended December 31 2015 2014

Changes in inventories of equipment, parts and work-in-process $ 373,068 $ 395,769Raw materials and consumables used 1,226 706Depreciation 3,166 2,131Utilities 1,748 1,873Operating lease expenses 11,860 9,482Transportation expenses 3,570 4,329Advertising expenses 1,000 1,021Salaries, wages and commissions 71,526 71,080Telephone, fax and office supplies 2,646 2,448Other 4,316 4,450Total cost of sales, administration, distribution and selling expenses $ 474,126 $ 493,289

Year ended December 31 2015 2014Salaries and wages $ 66,671 $ 66,794Commissions 2,323 2,506Employee future benefits 2,532 1,780

$ 71,526 $ 71,080



35

19 Interest expense

20 Earnings (loss) per share

Basic earnings (loss) per share is calculated by dividing the income attributable to shareholders of the Company by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive shares.

The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of the shares during the period. At December 31, 2015, dilutive options totalled nil shares (December 31, 2014 – nil shares) and anti-dilutive options totalled 439,141 shares (December 31, 2014 – 469,141 shares).

Year ended December 31 2015 2014

Bank indebtedness $ 1,286 $ 2,074Equipment notes payable – interest-bearing 7,097 8,789Notes payable 182 150Finance lease obligations 13 114

$ 8,578 $ 11,127


Weighted average number of shares for basic earnings per share calculationEffect of dilutive options outstandingWeighted average number of shares for dilutive earnings per share calculation

13,221,719

13,221,719

13,221,719

13,221,719

- -



36

21 Share-based compensation

The Company has a stock option plan under which common shares may be acquired by employees and officers of the Company. The following table summarizes the changes to the number of stock options outstanding during the year:

The following table summarizes the exercise prices of outstanding stock options:

The Company uses the Black-Scholes option pricing model to estimate the fair value of the options at their grant date. The following assumptions were used in determining the fair value of the options using the Black-Scholes model. No options were granted during 2015.


Number of options

Weighted average exercise

price Number of

options


price

Options outstanding – beginning of year 469,141 $ 4.63 374,141 $ 4.87Granted - - 95,000 3.67Exercised - - - -Forfeited (30,000) (3.67) - -Options outstanding – end of year 439,141 $ 4.69 469,141 $ 4.63Options vested and exercisable – end of year 250,092 $ 4.64 260,000 $ 4.40

2014Expected volatility 38%Risk-free interest rate 1.43%Expected term (years) 7Expected forfeiture rate 8.5%Expected annual dividend nil

As at December 31, 2015 Options outstanding Options exercisable

Range of exercise prices

Number of options

outstanding

Weighted average

remaining contractual

life


price Number of

options


price

$3.50 – $4.00 65,000 64.9 months $ 3.67 - $ -$4.50 – $5.00 313,863 21.1 months 4.61 230,000 4.50$6.00 – $6.50 60,278 38.9 months 6.20 20,092 6.20$3.50 – $6.50 439,141 30.0 months $ 4.69 250,092 $ 4.64



37

The expected volatility reflects the assumption that the historical volatility of the Company’s common shares over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. The risk-free interest rate is based on Government of Canada bond yields for terms that match the expected term of the stock option grants. The expected term of each option tranche is estimated at the time of the option grant. The expected dividend rate considers historical dividend payments and the Company’s expectations for future periods.

The Company also has a restricted share units (“RSUs”) plan which can be settled by the Company either through the purchase of common shares on the open market, or in cash. RSUs vest fully on the third anniversary of date of grant. The Company uses the Black-Scholes option pricing model to estimate the fair value of the RSUs at their grant date. The following table summarizes outstanding RSUs:

Stock-based compensation expense resulting from the stock options and RSUs is $81 (2014 – $290).

22 Contingencies, commitments and guarantees

a. In the ordinary course of business, the Company may be contingently liable for litigation. On an ongoing basis, the Company assesses the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable costs or losses. A determination of the provision required, if any, is made after analysis of each individual matter. The required provision may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy dealing with these matters.

A statement of claim has been filed naming a former division of the Company as one of several defendants in proceedings under the Court of Queen’s Bench of Manitoba. The action claims errors and omissions in the contractual execution of work entrusted to the defendants and names the Company as jointly and severally liable for damages of approximately $4.8 million plus interest. Management believes that the Company has a strong defence against this claim and that it is without merit. The Company’s insurer has provided conditional coverage for this claim.


Number of RSUs

Number of RSUs

RSUs outstanding – beginning of year 80,965 $ 5.50 80,965 $ 5.50Granted - - - -Exercised (36,474) (6.20) - -Forfeited - - - - RSUs outstanding – end of year 44,491 $ 4.92 80,965 $ 5.50

Weighted average unit

value

Weighted average unit

value



38

b. The Company has entered into various operating leases for its premises, certain vehicles, furniture and fixtures, and equipment. The lease terms are between one and eight years, and the majority of lease agreements are renewable at the end of the lease period at market rates. Approximate future minimum annual payments under these operating leases are as follows:

23 Categories of financial assets and liabilities

Financial instruments are classified into one of five categories: assets and liabilities held at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets, and other financial liabilities. The carrying values of the Company’s financial instruments are classified into the following categories:

(1) Includes trade and other receivables (2) Includes bank indebtedness, trade and other payables, finance lease obligations, equipment and other notes

payable (excludes Provision) Fair value estimation

The Company applies the following fair value measurement hierarchy to assets and liabilities in the consolidated statements of financial position that are carried at fair value:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data

As at December 31 2015 2014No later than 1 year $ 10,891 $ 10,669Later than 1 year but no later than 5 years 28,327 30,744Later than 5 years 33,475 38,948

$ 72,693 $ 80,361

As at December 31

Derivatives held at fair value $ (468) $ (252)Loans and receivables (1) 56,951 59,887Liabilities (2) $ 286,930 $ 305,889

2015 2014



39

This fair value measurement hierarchy applies to the Company’s derivative instruments, consisting of foreign exchange forward contracts and interest rate swap contracts, which are all considered Level 2 inputs. The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are interest rate swaps and foreign exchange forward contracts. The most frequently applied valuation techniques include forward pricing and swap models using present value calculations. The models incorporate various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodity.

The fair value of the Company’s equipment notes payable, finance lease obligations, notes payable, foreign exchange forward contracts and interest rate swap contracts as at December 31, 2015 and 2014 are as follows:

Liabilities for which fairvalues are disclosed

Equipment notes payable $ 180,271 $ - $ 180,271 $ -Finance lease obligations 7,534 - 7,534 -Notes payable (excludes Provision) 21,681 - 21,681 -Liabilities measured

at fair valueForeign exchange

forward contracts 107 - 107 -Interest rate swap contracts (575) - (575) -

Liabilities for which fairvalues are disclosed

Equipment notes payable $ 197,782 $ - $ 197,782 $ -Finance lease obligations 9,171 - 9,171 -Notes payable (excludes Provision) 20,228 - 20,228 -Liabilities measured

at fair valueForeign exchange

forward contracts 23 - 23 -Interest rate swap contracts (275) - (275) -

December 31,2015

Level 1 Level 2 Level 3

December 31,2014

Level 1 Level 2 Level 3



40

24 Financial risk management

The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange and interest rate risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company does not purchase any derivative financial instruments for speculative purposes.

Financial risk management is the responsibility of the corporate finance function. The Company’s operations, along with the corporate finance function, identify, evaluate and, where appropriate, hedge financial risks. Material risks are monitored and are regularly discussed with the Audit Committee of the Board of Directors.

Market risk

a. Foreign exchange risk

The Company operates in Canada and the northeastern United States. Foreign exchange risk arises because of varying currency exposure, primarily to the US dollar, and impacts receivables or payables on transactions denominated in foreign currencies, which vary due to changes in exchange rates (transaction exposures). The consolidated statements of financial position include US dollar-denominated trade payables and trade receivables. These amounts are translated into Canadian dollars at each year end, with resulting gains and losses recorded in the consolidated statements of income.

The objective of the Company’s foreign exchange risk management activities is to minimize transaction exposures. The Company manages this risk by entering into foreign exchange forward contracts on a transaction-specific basis. The Company does not currently hedge translation exposures. Substantially all of the Company’s purchases are translated into Canadian dollars at the date of receipt.

As at December 31, 2015, the Company carried $7,068 in US dollar denominated liabilities net of US dollar denominated trade receivables (December 31, 2014 – $12,242). A $0.10 change in the exchange rate between the Canadian and US currencies would have an effect of approximately $707 on net income for the year ended December 31, 2015 (December 31, 2014 – $1,224). Foreign exchange forward contracts

On a transaction-specific basis, the Company utilizes financial instruments to manage the risk associated with fluctuations in foreign exchange.

The Company enters into foreign exchange forward contracts to reduce the impact of currency fluctuations on the cost of certain pieces of equipment ordered for future delivery to customers. The Company has a line for foreign exchange forward contracts (“FX line”), totalling US$18.4 million, as part of its Canadian facility, available to hedge foreign currency exposure. Under the FX Line, Strongco can purchase foreign exchange forward contracts up to a maximum of approximately US$18.4 million with terms not to expire beyond the remaining term of the operating line of credit. As at December 31, 2015, the Company had outstanding foreign exchange forward contracts under this facility totalling US$4.4 million at an average exchange rate of $1.3598 Canadian for each US$1.00 with settlement dates between January 1, 2016 and the end of April



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2016 (December 31, 2014 – US$2.4 million). Foreign currency forward contracts are classified as a derivative financial instrument and are recorded at fair value using observable inputs. The fair values of foreign currency forward contracts are based on the settlement rates on those contracts compared to the current forward exchange rate. Strongco has not adopted hedge accounting for these foreign currency forward contracts and, accordingly, the change in the fair values of the contracts is recorded in Other Income. As at December 31, 2015, the unrealized gain associated with foreign currency forward contracts is $107 (December 31, 2014 – unrealized gain of $23).

Interest rate swap contracts

In September 2012, the Company secured a Swap Facility with its bank which allows the Company to swap the floating interest rate component (the BA rate) on up to approximately $100 million of the Company’s debt for a five-year fixed swap rate of interest. The value relating to outstanding interest rate swaps at December 31, 2015 totalled $50.0 million. Their interest rates range from 1.58% to 1.78%, with maturity from September 2016 to June 2017. The interest rate swap is classified as a derivative financial instrument and is recorded at fair value using observable market information. Interest rate swaps are valued using the notional amount of the interest rate swaps multiplied by the observable inputs of time to maturity, interest rates and credit spreads. Strongco has not adopted hedge accounting for the interest rate swap and, accordingly, the change in the fair value of the swap is recorded in interest expense. As at December 31, 2015, the unrealized loss associated with the swap is $575 (December 31, 2014 – loss of $275).

b) Interest rate risk

Strongco’s interest rate risk primarily arises from its floating rate debt, in particular its bank operating line of credit and its interest-bearing equipment notes payable. As at December 31, 2015, a portion of the Company’s interest-bearing debt is subject to movements in floating interest rates.

The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on the consolidated statements of income of a defined interest rate shift.

As at December 31, 2015, the Company had $115,953 in interest-bearing floating rate debt (December 31, 2014 – $151,201). A 1.0% change in interest rates would have an effect of approximately $1,160 on net income for the year ended December 31, 2015 (December 31, 2014 – $1,512).

Credit risk

Credit risk arises from cash and cash equivalents held with banks and financial institutions, derivative financial instruments (foreign exchange forward contracts and interest rate swap contracts), as well as credit exposure to customers, including outstanding trade receivables. The maximum exposure to credit risk is equal to the carrying value of the financial assets.

The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company’s management continuously performs credit evaluations of customers and limits the amount of credit extended to



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customers as appropriate. The Company is, however, exposed to credit risk with respect to trade receivables and maintains provisions for possible credit losses based upon historical experience and known circumstances. In certain circumstances, the Company registers liens, priority agreements and other security documents to further reduce the risk of credit losses. From time to time the Company requires deposits before certain services are provided or contracts undertaken. As at December 31, 2015, the Company held customer deposits of $254 (December 31, 2014 – $2,080).

Liquidity risk

Liquidity risk arises through an excess of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company achieves this by maintaining sufficient availability of funding from committed credit facilities. As at December 31, 2015, the Company had undrawn lines of credit available to it of $6.0 million (December 31, 2014 – $10.1 million). The maturity of the carrying value of the Company’s non-derivative debt and contractual obligations relating to outstanding derivative instruments as at December 31, 2015 is as follows:

Non-derivativesBank indebtedness $ 33,155 $ $ 33,155Equipment notes 180,271 180,271Notes payable 21,681 21,681

DerivativesForeign exchange forward contracts $ 6,016 $ $ 6,016Interest rate swap contracts 55,290 55,290

Less than 1 year

Between 1 and 5 years

Total

25 Management of capital

The Company defines capital that it manages as shareholders’ equity and total managed debt instruments consisting of equipment notes payable (both interest-bearing and non-interest-bearing) and other interest-bearing debt.

The Company’s objectives when managing capital are to ensure that the Company has adequate financial resources to maintain the liquidity necessary to fund its operations and provide returns to its shareholders.

Equipment notes payable comprise a significant portion of the Company’s capital. Increases and decreases in equipment notes payable can be significant from period to period and are dependent upon multiple factors including: availability of supply from manufacturers, seasonal market conditions, local market conditions and date of receipt of inventories from the manufacturer.

The Company manages its capital structure in a manner to ensure that its ratio of total managed debt instruments to shareholders’ equity does not exceed 4.0.



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As at December 31, 2015 and 2014, the above capital management criteria can be illustrated as follows:

The Company has credit facilities with a Canadian bank and US bank, which provides an operating lines of credit (refer to note 10).

The Company’s bank credit facilities contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. In particular, the facility contains covenants that require the Company to maintain a minimum ratio of total current assets to current liabilities (“Current Ratio” covenant) of 1.0:1, a minimum tangible net worth (TNW covenant) of $58 million, a maximum ratio of total debt to tangible net worth (“Debt to TNW Ratio”) covenant of 4.25:1 and a minimum ratio of earnings before interest, taxes, depreciation and amortization to total interest (“Interest Coverage Ratio”) covenant of 3.0:1. For the purposes of calculating covenants under the credit facility, debt is defined as total liabilities less future income tax amounts, subordinated debt, trade payables, customer deposits, employee future benefit obligation, less cash and cash equivalents. The Interest Coverage Ratio is measured at the end of each quarter on a trailing 12-month basis. Other covenants are measured as at the end of each quarter.

As a result of additional inventory reserves recorded at December 31, 2015, the Company was in breach of the Interest Coverage Ratio with its bank and certain equipment note lenders in Canada. This also resulted in a breach of covenants with other equipment note lenders due to the cross default provisions. Subsequent to year end, the Company obtained waivers for the breach at December 31, 2015 from its bank and all equipment note lenders. Additionally, this covenant under the banking facility and the lending agreements with certain equipment note lenders in Canada was amended for the first three quarters of 2016 to a minimum ratio of 2.50:1 to reflect the effect of the additional inventory provision.

As at December 31

Interest-bearing debt $ 33,155 $ 23,426Equipment notes payable 180,271 197,782Other debt 21,681 20,228Total managed debt instruments $ 235,107 $ 241,436Shareholders' equity $ 71,605 $ 72,076Ratio of total managed debt instruments to shareholders' equity 3.3 3.3

2015 2014



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26 Key management compensation

Key management is comprised of the President and Chief Executive Officer, Chief Financial Officer, external directors and vice-presidents of the Company. The compensation paid or payable to key management for employee services is shown below:

27 Changes in non-cash working capital

The components of the changes in non-cash working capital are detailed below:

Year ended December 31 2015 2014Salaries and short-term benefits $ 3,223 $ 3,067Employee future benefits 216 201Share-based payments 79 255

$ 3,518 $ 3,523

Year ended December 31 2015 2014Changes in non-cash working capitalAssets (increase) decrease:

Trade and other receivables $ 4,421 $ (10,514)Inventories 21,338 (49,245)Prepaid expenses and other deposits 541 (608)Other assets 107 22

Liabilities increase (decrease):Trade and other payables (10,605) 21,759Provision for other liabilities (102) (12)Deferred revenue and customer deposits 2,572 2,179Equipment notes payable (21,487) 3,207

$ (3,215) $ (33,212)



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28 Seasonality

Historically, the Company’s revenue and earnings throughout the year follow a weather-related pattern of seasonality. Typically, the first quarter is the weakest quarter as construction and infrastructure activity is constrained in the winter months. This is followed by a strong increase in the second quarter as construction and other contracts begin to be put out for bid and companies begin to prepare for summer activity. The third quarter generally tends to be slower from an equipment sales standpoint, which is partially offset by continued strength in equipment rentals and product support (parts and service) activities. Fourth quarter activity generally strengthens as companies make year-end capital spending decisions in addition to the exercise of purchase options on equipment that has previously gone out on rental contracts.

29 Economic relationship

The Company sells and services equipment and related parts. Distribution agreements are maintained with several equipment manufacturers, of which the most significant are with Volvo Construction Equipment North America Inc. The distribution and servicing of Volvo products account for a substantial portion of the Company’s operations. The Company has had an ongoing relationship with Volvo since 1991.

30 Subsequent events

Subsequent to year-end the Company eliminated certain positions and terminated other employees which will result in a charge in the first quarter for approximately $1.9 million.


CORPORATE ADDRESSStrongco Corporation1640 Enterprise RoadMississauga, OntarioCanada L4W 4L4Telephone: 905 670-5100Fax: 905 565-1907Website: strongco.com

INVESTOR RELATIONSJ. David Wood, CPAVice President and Chief Financial OfficerTelephone: 905 670-5100Email: [email protected]

AUDITORSErnst & Young LLPToronto, Ontario

TRANSFER AGENT AND REGISTRARInquiries regarding change of address, registered shareholdings, share transfers, lost certificates and duplicate mailings should be directed to the transfer agent:Computershare Investor Services Inc.100 University AvenueToronto, Ontario M5J 2Y1Telephone: 1 800 564-6253Fax: 1 800 453-0330Email: [email protected]

STOCK EXCHANGE LISTINGToronto Stock ExchangeStock symbol: SQP

CORPORATE AND SHAREHOLDER INFORMATION

John K. Bell1, 2

Corporate Director

Robert J. Beutel1, 2

Executive Chairman

Anne Brace1, 2

Corporate Director

Ian C.B. Currie, Q.C.1, 2

Corporate Director

DIRECTORS

Robert J. BeutelExecutive Chairman

J. David Wood, CPAVice President and Chief Financial Officer

Christopher D. ForbesVice President and Chief Human Resources Officer

Leonard V. Phillips, CPAVice President, Administration and Secretary

Jack BradleyVice President, Supply Chain, Inventory Control and Logistics

Derek CruickshankVice President and Chief Information Officer

Peter Rayner, CPADirector, Finance

OPERATIONS

Construction Equipment

Randy MaceRegional Vice President, Chadwick-BaRoss

Oliver NachevskiRegional Vice President, Case

Steve Di LoretoRegional Vice President, Alberta

Robert BillRegional Vice President, Ontario

Yannick MontaganoRegional Vice President, Quebec

Stephen GeorgeRegional Vice President, Atlantic Canada

Cranes and Material Handling

William J. OstranderVice President, Crane

Rick ZieglerRegional Vice President, Alberta

1. Member of Audit Committee

2. Member of Corporate Governance, Nominating, Compensation and Pension Committee

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strongco.com


Strongco Corporation1640 Enterprise RoadMississauga, OntarioCanada L4W 4L4Telephone: 905 670-5100Fax: 905 565-1907

strongco.com

Documents

STRONGCO CORPORATION 2015 ANNUAL REPORT · STRONGCO CORPORATION 2015 ANNUAL REPORT 4 Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada