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STRONGCO CORPORATION 2016 ANNUAL REPORT 1

STRONGCO CORPORATION ANNUAL REPORT

2016


Strongco Corporation is a major multiline mobile equipment dealer with operations

across Canada. 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 515 employees serving

customers from 27 branches in Canada. Strongco represents leading equipment

manufacturers with globally recognized brands, including Volvo Construction

Equipment, Case Construction, Manitowoc Crane, including National and Grove,

Terex Cedarapids, Terex Trucks, Fassi, Sennebogen, Konecranes and SDLG.

Strongco is listed on the Toronto Stock Exchange under the symbol SQP.

MANAGEMENT’S DISCUSSION AND ANALYSIS

4 Financial Highlights

5 Summary of Operating Results

6 Outlook

7 Company Overview

8 Financial Results – Annual

19 Financial Results – Fourth Quarter

25 Summary of Quarterly Data

25 Contractual Obligations

26 Shareholder Capital

26 Non-IFRS Measures

26 Critical Accounting Estimates

28 Risks and Uncertainties

30 Disclosure Controls and Internal Controls Over Financial Reporting

30 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 2016 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

2016 was a difficult year for our organization; but it was also transformative,

setting the business in a direction to endure cyclicality and better position

Strongco for the inevitable recovery in key markets.

Our financial performance was a reflection of continuing industry

headwinds, particularly in Western Canada. Lower revenues negatively

impacted cash flow, and put a strain on Strongco‘s financial resources.

Navigating these conditions led to some difficult decisions throughout

2016, where Management was guided by a clear long-term strategy to

position Strongco for greater success going forward. Our focus over the

past 12 months has centred around three key objectives that we presented

on this call one year ago:

#1. Focus on what we do best: • We now have a much younger and more focused inventory, and have

eliminated non-core products to concentrate on the world-class brands

for which Strongco is best known.

• A commitment to fully optimize our allocation of talent and resources

allowed for a 10% reduction in headcount in 2016, and a further

25 positions, primarily head office, have been eliminated since year-end.

#2 Realize profitability without revenue growth: • We are not there yet, but have reduced cost structures significantly, and

streamlined sales and marketing to drive bottom-line improvements.

• Strongco’s year-end equipment inventory was down $52 million

from the end of 2015, and equipment notes payable were reduced by

$55.5 million, resulting in a reduction in interest expense of $1.6 million

in 2016.

#3 Reach financial certainty: • In addition to inventory and debt level improvements, in the third quarter

of 2016, Strongco completed the sale of our U.S. subsidiary, Chadwick-

BaRoss, to our largest shareholder, for proceeds of US$12.4 million,

which resulted in a small gain on sale, and provided some additional

liquidity to allow us to improve working capital. We continue to evaluate

other de-risking initiatives to achieve the financial stability—and

credibility—necessary to grow the business over the long term.

This rebuilding process has been lengthy and painful at times.

Nevertheless, we believe the actions taken will pave the way for profitability

in the months and years ahead.

With operations now exclusively in Canada, Strongco is focused on its

traditional markets and core brands, we have a stronger balance sheet

and more sustainable cost structure, and we have established a

streamlined workforce that continues to deliver exceptional customer

service to our loyal and diverse client base.

Looking ahead at Strongco’s key markets, Alberta’s economic conditions

remain depressed, despite relative improvements in the price of oil.

Rebuilding activity has begun in the Fort McMurray area, but otherwise

construction activity and demand for heavy construction equipment and

cranes in the province are expected to remain weak in 2017.

While small-scale construction activity has increased in Ontario, fewer

larger scale projects are underway or planned for the near term, delaying

purchase decisions and demand for new heavy equipment. While

Ontario’s manufacturing sector should benefit from low oil prices

and the weak dollar, significant government infrastructure spending has

yet to be announced.

In Quebec, demand for heavy equipment increased slightly in 2016, with

modest improvement anticipated over the course of 2017. In the near-

term however, markets remain soft, with no new government infrastructure

or mining-related spending beyond the reconstruction of the Turcot

Interchange and the construction of the Champlain Bridge in Montreal.

With this economic backdrop, the overall market for heavy equipment

across Canada is expected to be flat to down while competition

remains strong.

Despite these persistent market conditions, we are encouraged by

Strongco’s accomplishments at the operational level, and the

improvements so far in terms of cash management, cost control, and

extending our market share in core brands.


In 2016, we made changes to the sales management structure,

including centralized leadership of our Construction Equipment business,

and realigned sales territories to achieve better, on-the-ground

coverage. These changes are providing more customer interaction, more

quoting opportunities, and will allow us to accelerate new products to

market, and provide more value-added service and follow-up

support. We are seeing a more empowered, engaged sales force, which,

in part, demonstrates that the necessary changes are being well

understood and embraced.

In the first months of 2017, we’ve seen a few key account wins and other

signs of renewed optimism, including large-unit deals in both Alberta and

Ontario, and increased participation rates in our dedicated excavator

program in Quebec. At the recent CONEXPO conference in Las Vegas,

the Volvo CE booth received more traffic than any other OEM in attendance,

with more than 30,000 visitors on day one.

While our financial performance is not yet where we would like it to be,

it is clear that our company has turned a corner and is on the path to a

better, stronger, more sustainable Strongco for all stakeholders. Regardless

of the prevailing market conditions for heavy equipment, there continue

to be opportunities to build on the measures taken to reduce costs,

improve our levels of sales execution, further enhance the customer

experience and lever our existing capabilities to create a foundation for

future profitability.

Robert J. Beutel

Executive Chairman

J. David Wood, CPA

Vice President and Chief Financial Officer

March 23, 2017


MANAGEMENT’SDISCUSSION & ANALYSIS


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Strongco Corporation Managementʼs Discussion and Analysis The following managementʼs 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, 2016. 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, 2016. For additional information and details, readers are referred to the Companyʼs quarterly unaudited consolidated financial statements and quarterly MD&A for fiscal 2016 and fiscal 2015 as well as the Companyʼs Annual Information Form (“AIF”) dated March 23, 2017, 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, 2017. FINANCIAL HIGHLIGHTS 2016 was a challenging year but also a period of transition for Strongco. While market conditions across Canada were difficult, particularly in Alberta, management took action to refocus, simplify and streamline the business to better position the Company to generate sustainable performance going forward. Headcounts and other cash expenses were reduced and equipment inventories and the associated equipment notes payable decreased substantially. While these actions resulted in large restructuring cost provisions for severance and other termination costs and reduced margins from the sale of aged equipment and non-core products, many through auction, they significantly reduced the Companyʼs cost structure and improved the balance sheet going forward. In addition, during the year, a large impairment charge was recorded against the value of the Companyʼs new SAP computer system and a valuation allowance was booked against deferred tax assets. While these accounting adjustments impacted the Companyʼs overall net asset value, they were both non-cash in nature and further streamlined the balance sheet. In order to generate cash and bring additional stability to continuing operation and the balance sheet, the Company sold its U.S. subsidiary, Chadwick-BaRoss, during the year for a small gain. With ongoing, weak market conditions expected to continue to impact cash flow in the near term, management believes the actions taken in the year will help to deliver better value over the long term. Restructuring Activities in 2016 The Company completed the sale of its U.S. subsidiary, Chadwick-BaRoss Inc., for gross proceeds of $US12.4 million

resulting in a small gain on sale of $0.5 million before tax. A portion of the proceeds is being held in escrow for a period of eighteen months to satisfy any claims under the standard reps and warranties. Net cash, after the escrow amount and repayment intercompany debt, was $8.8 million.

Restructuring cost provisions of $3.6 million for severance and other termination costs of certain employees, terminated during the year in response to ongoing weak economic conditions. Headcount in Canada declined from 591 to 532 during the year and a further 25 positions were eliminated subsequent to year end in the first two months of 2017.

Non-cash impairment charge of $16.5 million recorded against intangible asset related to SAP computer system. Non-cash provision of $4.7 million recorded against deferred tax assets. Operating Results Revenue of $361.3 million, down from $385.0 million in 2015. Lower revenues in Alberta offset partially by strong sales of

cranes and other heavy equipment in Quebec. Gross profit of $57.0 million (15.8% of sales) compared to $65.2 million (16.9% of sales) in the prior year. Operating loss, before restructuring costs, of $7.7 million, compared to an operating loss of $4.8 million in 2015. EBITDA of $5.8 million compared to $16.2 million in the prior year. Interest expense for the year of $5.8 million, down from $7.4 million a year ago. Pretax loss, before impairment of intangible asset and restructuring costs, of $13.5 million compared to pretax loss of $12.2

million in 2015. Net loss from continuing operations of $38.3 million compared to net loss from continuing operations of $8.9 million in the

prior year. Loss per share from continuing operations of $2.90 compared to loss of $0.68 per share in 2015. Balance Sheet Improvement Equipment inventory of continuing operations of $129.2 million, down from $181.3 million at December 31, 2015. Equipment notes payable of continuing operations of $101.2 million, down from $156.7 million at December 31, 2015.


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($ millions, except per share amounts)Income Statement Highlights 2016 2015 2014

Revenue 361.3$ 385.0$ 427.3$

Operating income (loss) before restructuring costs and intangible impairment (7.7) (4.8) 10.6

Restructuring costs 3.6 - -

Intangible impairment 16.5 - 1.8

Pre-tax income (loss) (33.6) (12.2) (1.4) Net income (loss) from continuing operations (38.3)$ (8.9)$ 0.1$

Basic and diluted earnings (loss) per share from continuing operations (2.90)$ (0.68)$ -$ EBITDA (note 1) 5.8$ 16.2$ 36.2$

Balance Sheet HighlightsEquipment inventory in stock 90.0$ 146.5$ 179.1$ Equipment inventory on rental contracts with purchase options 14.7 24.8 28.6 Equipment inventory on short-term rental contracts 24.4 27.7 18.6 Total equipment inventory 129.1$ 199.0$ 226.3$ Total assets 219.9$ 373.4$ 393.8$

Debt (bank debt and other notes payable) 32.0$ 54.8$ 43.7$ Equipment notes payable 101.2 180.3 197.8

Total liabilities 190.7$ 301.8$ 321.7$

Year Ended December 31

Note 1 – “EBITDA” refers to earnings from continuing operations before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet, and impairment and amortization of intangible assets. 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as measures of the Companyʼs liquidity and cash flows. SUMMARY OF OPERATING RESULTS Following approval by the independent directors, on September 30, 2016, the Company completed the sale of its U.S. subsidiary, Chadwick-BaRoss Inc., to an affiliate of the Companyʼs largest shareholder, for cash proceeds of US$12.4 million which resulted in a small gain of $0.5 million on sale. As a consequence of this divestment, the results of Chadwick-BaRoss are no longer consolidated with Strongco and the net earnings of Chadwick-BaRoss for the nine months ended September 30, 2016, are now shown on a single line in the Companyʼs income statement, as net earnings from discontinued operations. The prior year comparative figures for the full year and fourth quarter have also been restated to remove Chadwick-BaRoss from the consolidated results. The comments throughout the following management discussion and analysis reflect the results from Strongco Corporation, excluding Chadwick-BaRoss. Strongcoʼs revenues for 2016 were $361.3 million, down from $385.0 million in 2015. The decrease was due mainly to lower revenues in Alberta and slightly lower revenues in Ontario, while revenues were higher in Eastern Canada due to strong sales of cranes and other heavy equipment in Quebec. Equipment sales, rentals and product support (parts and service) were down year over year due mainly to the weakness in Alberta. Alberta continued to be the biggest challenge for Strongco with overall revenues down $23.7 million or 25% in 2016 due to ongoing weak economic conditions caused by the low price of oil which has resulted in weaker demand for heavy construction equipment and cranes in the province. Gross profit in 2016 was $57.0 million, or 15.8% of revenue, down from $65.1 million or 16.9% in 2015. Gross profit was lower due primarily to the lower revenues in 2016. In addition, gross margins were lower on three revenue categories which also contributed to the decrease in gross profits. Margins on equipment sales were low in 2016 at 5.1% as the Company aggressively focused on selling off aged equipment and non-core brands to improve the balance sheet and reduce debt. The sales of these aged and non-core units, many at auction, were at very low, and in some cases, negative margins, which significantly reduced the Companyʼs overall equipment margin. However, these sales generated significant cash and reduced equipment finance debt. Margins on rentals were lower in 2016 due to the proportion of rentals with options to purchase compared to those without purchase options as well as competitive pressures on rental rates, particularly in Alberta. Margins on product support remained strong but were down slightly from the prior year due primarily to the mix between parts and service. Operating expenses, before restructuring cost provisions, were $66.0 million compared to $68.1 million in 2015. The Company has made significant progress in reducing expenses in 2016, in response to the challenging market conditions, especially in Alberta. In particular, the Company continued to reduce headcounts which were brought down in Canada by an additional 59


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people or 10% during the year. Partially offsetting the savings from the reduction in headcount were higher ongoing support costs of the new SAP computer system which went live in 2015, and reduced service cost recoveries, particularly in Alberta. While the Canadian dollar has remained weak in 2016, movements in the currency and changes in US dollar denominated working capital resulted in a foreign exchange gain of approximately $1.4 million in the year which compared to a foreign exchange loss of $1.8 million in 2015. The net result of the lower revenues and gross profit, offset by lower expenses and a foreign exchange gain, was an operating loss before restructuring costs of $7.7 million in 2016 which compared to an operating loss of $4.8 million in 2015. As noted above, headcount was reduced by 59 employees or 10% during the year. This was in response to ongoing weak economic conditions, particularly in Alberta. As a consequence, the Company recorded a restructuring provision of $3.6 million for severance and other termination costs related to the employees who were terminated. A further 25 positions were eliminated in the first two months of 2017 which brought the total headcount reduction since the beginning of 2015 to 129 or close to 20% of the workforce, with an estimated annualized savings of close to $10 million. In the third quarter, the Company recorded a non-cash impairment charge of $16.5 million against the value of the intangible asset related to its new SAP computer system. With the total value of the Companyʼs shares trading below the book value of its assets and recent history of operating losses, as potential indicators of impairment, management performed an impairment analysis of its assets in accordance with IFRS and determined the value if its computer system was fully impaired and recorded the non-cash impairment charge. Irrespective of this accounting adjustment, the Company continues to operate and benefit from the utilization of its SAP computer system, which was developed over the last three years and went live in 2015. As noted above, Strongco continued to make progress in reducing aged and non-core equipment inventories and the associated equipment finance debt in 2016. At December 31, 2016 equipment inventory was $129.2 million, which was down $52.1 million from the end of 2015. At the same time equipment notes payable were reduced to $101.2 million from $156.7 million a year ago. As a result, interest expense was down $1.6 million from a year ago to $5.8 million in 2016. As a result of the large intangible impairment and restructuring costs, Strongcoʼs loss before income tax was $33.6 million. Before the unusual impairment charge and restructuring costs, the pre-tax loss was $13.5 million which compared to a pre-tax loss of $12.2 million in 2015. Given the Companyʼs history of losses, no recovery of taxes was recorded against the loss in the year. In addition, management reassessed the recoverability of deferred tax assets recorded against losses in prior periods and determined a provision of $4.9 million was warranted to reflect the uncertainty of recoverability. After this tax provision the net loss for the year from continuing operations was of $38.3 million which compared to net loss from continuing operations in 2015 of $8.9 million. Net income in 2016 from the Companyʼs US subsidiary, Chadwick-BaRoss Inc., up to September 30, 2016, when the subsidiary was sold, amounted to $0.5 million, including a small gain on disposition of $0.5 million, which compared to net income for the full year in 2015 of $1.6 million. As a result, the total net loss for the year was $37.3 million compared to a total net loss of $7.4 million in 2015. EBITDA for the year was $5.8 million, down from $16.2 million in 2015. With the sale of Chadwick-BaRoss on September 30th, the Company renegotiated its bank credit facility to exclude Chadwick-BaRoss and provide adequate credit facilities to support Strongcoʼs Canadian operations. On September 29th, the bank provided an amendment to the existing credit facility to reduce the operating line from $35 million to $30 million and amend the financial covenants to reflect the exclusion of Chadwick-BaRoss. A new amended and restated bank credit facility agreement was executed on November 2, 2016, reflecting these changes and the Company was in compliance with these financial covenants at December 31, 2016 (see discussion under Cash Flow, Financial Resources and Liquidity). OUTLOOK In the current economic environment, management anticipates the challenging market conditions experienced in 2016 will continue into 2017. While oil prices have recently experienced a slight uptick to around $50 per barrel, it has done little to stimulate activity in Northern Alberta. With no significant recovery in the price of oil anticipated in the near term, economic activity across the entire province is expected to remain depressed which has created significant uncertainty in the construction sector. After the wild fires in the second quarter of 2016, rebuilding activity has begun in the Fort McMurray area, but otherwise, construction activity in Northern Alberta also remains weak. As a consequence, demand for heavy equipment and cranes is expected to remain weak in 2017. In response to the current market conditions and weak outlook, management has made adjustments to the cost structure with layoffs and other expense reductions and is focusing on continuously improving operating efficiency and our level of sales execution.


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In Quebec, overall demand for heavy equipment experienced a small uptick in 2016 and while further modest improvement is expected in 2017, markets for equipment and cranes are expected to remain soft. With no new government infrastructure spending planned beyond the reconstruction of the Turcot Interchange in Montreal and the new Champlain Bridge, construction activity in Quebec is expected to remain weak in the near term. In addition, commodity prices are expected to remain at low levels and as a result mining activity and demand for associated heavy equipment is expected to remain low in northern regions of the province. Construction activity in 2016 was more buoyant In Ontario, but most activity was of a smaller scale and there are few large projects underway or in the planning stages and no significant government infrastructure spending has been announced for the future. As a result, construction activity and demand for heavy equipment are expected to remain soft in the near term. There remains an overall air of caution which is affecting the purchase decisions for heavy equipment. In this environment, customers are utilizing their existing fleets or renting to meet their equipment needs. The current low oil prices and weak Canadian dollar should be of benefit to Ontarioʼs manufacturing sector which could lead to improved confidence and new investment and increased demand for heavy equipment in the longer term. However, as larger scale construction activity is expected to remain low in the near term, demand for new heavy equipment, especially GPE, is not expected to increase significantly in 2017. Rental activity and sales of equipment to rental houses is expected to remain stable in the future. 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 low oil prices, and continue to impact sales and margins. With this economic backdrop, the overall markets for heavy equipment across Canada are expected to continue to be soft and as a result, competition is expected to remain strong. In response to the weak market conditions in Canada, particularly in Alberta, actions were taken in 2015 and 2016 to reduce headcount and other cash costs. In addition, throughout 2016 significant progress was made to reduce inventory and the associated equipment debt. While this resulted in sales at low and even negative margins, it generated significant cash and reduced future cash cost of carrying this inventory. With a significantly reduced, more focused and younger inventory, equipment margins are expected to improve.These actions have resulted in a reduced cost structure and streamlined balance sheet and better positioned the Company to generate improved performance going forward. Throughout 2016, the lower revenues and reduced profitability negatively impacted cash flow and put a strain on the Companyʼs financial resources. Great strides have been made in reducing cash expenses and headcount and divesting of aged equipment inventories and non-core products to free up cash and reduce the cash cost of carrying this older inventory. In addition, the sale of the Companyʼs U.S. subsidiary, Chadwick-BaRoss in 2016, provided some additional liquidity. While cash flow is beginning to improve, ongoing weak market conditions are expected to continue to strain the Companyʼs financial resources. Managementʼs focus will remain on cash management, reducing cash expenses and improving service cost recoveries. COMPANY OVERVIEW Strongco is one of the largest multiline mobile equipment distributors in Canada. 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;

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, Fassi, Allied Construction, Konecranes, ESCO, Dressta, Sennebogen and Jekko. 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) 2016 2015 2014 $ Change % Change $ Change % ChangeRevenue 361,301$ 385,002$ 427,257$ (23,701)$ -6% (42,255)$ -10%Cost of sales 304,338 319,845 354,787 (15,507) -5% (34,942) -10%Gross margin 56,963 65,157 72,470 (8,194) -13% (7,313) -10%Administrative, distribution and selling expenses 66,007 68,115 69,652 (2,108) -3% (1,537) -2%Other (income) expense (1,339) 1,819 (7,761) (3,158) -174% 9,580 -123%Operating income (expense) (7,705) (4,777) 10,579 (2,928) 61% (15,356) -145%Restructuring costs 3,605 - - 3,605 - Impairment of intangible asset 16,499 - 1,800 16,499 (1,800) -100%Interest expense 5,795 7,403 10,131 (1,608) -22% (2,728) -27%Earnings before income taxes (33,604) (12,180) (1,352) (21,424) 176% (10,828) -801%Provision for (recovery of) income taxes 4,745 (3,236) (1,414) 7,981 -247% (1,822) 129%Net income (loss) from continuing operations (38,349) (8,944) 62 (29,405) 329% (9,006) -14526%Net income (loss) from discontinued operations 1,036 1,576 868 (540) -34% 708 82%Net income (loss) (37,313)$ (7,368)$ 930$ (29,945)$ 406% (8,298)$ -892%

Basic and diluted earnings (loss) per share- continuing operations (2.90)$ (0.68)$ 0.00$ (2.22)$ 329% (0.68)$ -14464%- net income (loss) (2.82) (0.56) 0.07 (2.26) 406% (0.63) -890%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 15.8% 16.9% 17.0%Administrative, distribution and selling expenses as a percentage of revenues 18.3% 17.7% 16.3%Operating income (loss) as a percentage of revenues -2.1% -1.2% 2.5%EBITDA (note 1) 5,770$ 16,217$ 36,187$ (10,447)$ -64% (19,970)$ -55%

2016/2015Year Ended December 31 2015/2014

Note 1 – “EBITDA” refers to earnings from continuing operations before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, amortization of rental fleet, and impairment and amortization of intangible asset. 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as a measure of the Companyʼs 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. However, rental activity has remained strong even when markets are robust as many customers are choosing to rent or rent with an option to purchase to meet their equipment needs. Market conditions varied from region to region in Canada, but overall 2016 was a challenging year in the heavy equipment sector. With commodity prices, in particular oil, continuing at low levels, mining activity across the country remained weak. In addition, prices and demand for softwood lumber remained soft which led to reduced activity in the forestry sector and governments have been reluctant or slow to commit to meaningful infrastructure spending. On a regional basis, weak economic conditions continued in Alberta as a result of ongoing impact of low oil prices. While the recent recovery in oil prices to around $50 per barrel was a positive indication, it has done little at this point to stimulate activity in northern Alberta and economic activity in the entire province remains weak. Unemployment levels across the province remain high as companies have cut back and laid off employees and spending for capital projects and maintenance has been severely curtailed. Construction activity across the province has declined significantly and demand for heavy equipment remains soft, particularly in northern Alberta. Overall, the market for heavy equipment in Alberta was estimated to be down approximately 30% in 2016 with the GPE market off close to 32% year over year. Large amounts of used equipment have been put to auction


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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 are parked and sitting idle which has 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. Infrastructure spending was minimal and limited to smaller scale projects. While the provincial government has been talking about the need for infrastructure spending, little funding has been committed to large scale projects. As a result, an air of caution remained, particularly with respect to the purchase of larger equipment, while demand for used equipment remained strong. The lack of large scale construction projects in many regions of the province has impacted demand for GPE equipment in 2016 as many customers have taken a wait and see approach and deferred purchases pending clarity on infrastructure-related spending levels. Demand for GPE equipment in Ontario was estimated to be down by over 17% in 2016. Rental activity in Ontario remained strong in 2016 as, with the current uncertainty, many end use customers have chosen to rent to meet their equipment needs. In addition, demand for parts and service remained strong in the Ontario as customers repaired and maintained their fleets. Construction and infrastructure markets in Quebec have experienced a modest uptick in the 2016 but activity generally remained low as a result of ongoing weak commodity prices and lack of government spending. Mining activity in northern Quebec remained slow and while the reconstruction of the Champlain Bridge and rebuilding of the Turcot interchange generated some demand for heavy equipment and cranes, equipment markets generally remained soft. The market for heavy equipment was up across most GPE product categories with the largest increase in excavators. In Atlantic Canada, heavy equipment markets generally remained soft with little government infrastructure spending and flat housing markets. The decline in oil prices has also resulted in reduced activity and demand for equipment in Newfoundland. Heavy equipment markets overall in the region were down an estimated 14% in 2016 with declines across most product categories. The market for GPE where Strongco operates was estimated to be down by 17% year over year. Revenue In this challenging economic environment, heavy equipment markets suffered which negatively affected Strongco sales performance, particularly in Alberta. A breakdown of revenue for the years ended December 31, 2016, 2015 and 2014 is as follows:

2016/2015 2015/2014($ millions) 2016 2015 2014 % Chg % Chg

Eastern Canada (Atlantic and Quebec)Equipment Sales 87.4$ 82.2$ 60.8$ 6% 35%Equipment Rentals 6.4 5.6 6.4 14% -13%Product Support 43.5 41.2 41.7 6% -1%Total Eastern Canada 137.3$ 129.0$ 108.9$ 6% 18%

Central Canada (Ontario)Equipment Sales 103.2$ 108.4$ 112.1$ -5% -3%Equipment Rentals 6.0 7.2 7.8 -17% -8%Product Support 42.2 44.1 41.3 -4% 7%Total Central Canada 151.4$ 159.7$ 161.2$ -5% -1%

Western Canada (Manitoba to British Columbia)Equipment Sales 48.9$ 62.0$ 109.2$ -21% -43%Equipment Rentals 3.0 6.0 10.7 -50% -44%Product Support 20.7 28.3 37.3 -27% -24%Total Western Canada 72.6$ 96.3$ 157.2$ -25% -39%

Total RevenueEquipment Sales 239.5$ 252.6$ 282.1$ -5% -10%Equipment Rentals 15.4 18.8 24.9 -18% -24%Product Support 106.4 113.6 120.3 -6% -6%Total 361.3$ 385.0$ 427.3$ -6% -10%

Years Ended December 31


7

Strongcoʼs overall revenues were down 6% from 2015. Most of the decline occurred in Alberta due to the weak economic conditions in the province. This was partially offset by higher revenues in Quebec led by strong crane sales in the first half of the year.

Equipment Sales

Strongcoʼs equipment sales decreased by $13.1 million, or 5%, in 2016 to $239.5 million. The decline is due almost entirely to adrop in sales in Alberta where markets have experienced a severe decline due to the weakness in oil prices. Sales were stronger in eastern Canada due primarily to strong sales of cranes in Quebec.

On a regional basis, equipment sales in Western Canada were $48.9 million, which was down $13.1 million, or 21% over 2015. As a result of the decline in oil prices, market conditions across the province have been very weak in 2016, 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 close to 30% in 2016 on top of the 40% reduction experienced in 2015. The market for cranes in Alberta also remains very weak and was estimated to be down by more than 60% compared to 2015.

Strongcoʼs equipment sales in Central Canada were $103.2 million, which was down $5.3 million, or 5%, from 2015 due to lower sales of construction equipment offset partially by stronger cranes sales. The market for construction equipment in Ontario was estimated to be down close to 8% in 2016 with GPE down more than 17%. While Strongcoʼs sales of construction equipment were down, they were down less than the market overall as the Company gained market share in both GPE and compact equipment categories. In addition, sales of construction equipment were lower in 2016 as a large multi-unit sale of loaders to the Department of National Defense and strong sales of articulated trucks to certain rental companies in 2015 were not repeated in 2016. Crane sales in Ontario in 2016 were higher due to increased sales to crane rental companies and a large sale of a used crane in the first quarter of the year.

Equipment sales in Eastern Canada (Quebec and Atlantic regions) totalled $87.4 million, which was up $5.2 million, or 6%, from$82.2 million in 2015. The increase in 2016 was due to primarily to sales of a few large cranes in Quebec in the first half of the year and stronger sales of construction equipment in Quebec, especially sales of excavators and loaders. Construction and infrastructure markets generally remained weak in Quebec as a result of the continued lack of government spending on infrastructure and the lagging effect of the investigation of corruption in the construction industry by the Charbonneau Commission which was only completed late in 2015. In addition, 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 activity. However, in certain regions of Quebec in and around Val DʼOr and southern parts of the province, construction activity has increased and demand for equipment has improved, especially for excavators and loaders.The market for GPE in the province was estimated to be up 10% in 2016 led by excavators and loaders. Strongco outperformed the market in these two categories resulting in improved GPE market share. In the Atlantic region, lack of government spending on infrastructure and the impact of weaker oil prices on activity in Newfoundland resulted in continued weak demand for heavy equipment. In addition, in the first quarter the lack of snow this winter compared to the prior year resulted in weaker demand for loaders. The overall market for GPE in Atlantic Canada where Strongco operates was estimated to be down 17% year over year.

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 customersʼ 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

$- $10 $20 $30 $40 $50 $60 $70 $80 $90

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

Mill

ions

of D

olla

rs

Equipment Sales By Quarter - Fiscal 2014 to Fiscal 2016

Fiscal 2016Fiscal 2015Fiscal 2014


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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, over the past several years rental activity has continued robust in stronger construction markets as more and more customers preferred to rent to meet their equipment needs. In addition, for larger pieces of equipment, more customers are choosing RPOs prior to making the decision to purchase. Rental activity is expected to remain strong in the future. Strongcoʼs rental revenue in 2016 was $15.4 million, which was down 18% from $18.8 million in 2015. Rental revenue in Canada was lower in 2016 due primarily to reduced rental activity in Western Canada due to continuing weak market conditions in Alberta. Rental activity remained strong in Central Canada but Strongcoʼs rental revenue in the region was down slightly as rentals to certain large projects in 2015 were not repeated in 2016. In Eastern Canada, rental revenue was up slightly over the prior year with stronger rental activity in Quebec as customers chose to rent as economic conditions began to recover in the province. 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. Product support activities are normally strong in the first quarter due to increased use of equipment for snow removal in the winter and during the third quarter in the height of the construction season as equipment is being utilized in the field. Strongcoʼs product support revenues in 2016 totalled $106.4 million, which was down 6% to $113.6 million in 2015. The decline in product support was most pronounced in Alberta where construction activity remained weak and large amounts of equipment continued to sit idle. Product support revenues were also down slightly in Central Canada due in part to reduced snow removal activity in the first quarter of the year, but were up slightly in Eastern Canada as construction activity improved in Quebec. Gross Profit ($ millions)

Gross Profit GM% GM% GM% $ Change % Chg $ Change % ChgEquipment Sales 12.3$ 5.1% 15.1$ 5.9% 18.7$ 6.6% (2.8)$ -19% (3.6)$ -19%Equipment Rentals 2.3 14.9% 3.4 18.1% 4.0 16.1% (1.1) -32% (0.6) -15%Product Support 42.4 39.8% 46.7 41.1% 49.8 41.4% (4.3) -9% (3.1) -6%Total Gross Profit 57.0$ 15.8% 65.2$ 16.9% 72.5$ 17.0% (8.2)$ -13% (7.3)$ -10%

2016/2015 2015/20142016 2015 2014Year Ended December 31

Strongcoʼs overall gross profit was $57.0 million or 15.8% of revenue for 2016, compared to $65.2 million or 16.9% of revenue in 2015. Gross profit was lower due primarily to lower revenues in 2016. In addition, gross margins were lower on all three revenue categories which also contributed to the decrease in gross profits. Margins on equipment sales were low in 2016 at 5.1% as the Company continued to sell off aged equipment and non-core brands to improve the balance sheet and reduce debt. The sales of these aged and non-core units, many at auction, were at very low, and in some cases, negative margins, which significantly reduced the Companyʼs overall equipment margin but generated significant cash and reduced the cash burden of carrying this inventory. In addition, increased competition, particularly in Alberta, has put additional pressure on equipment margins. Margin on rentals were also lower in the quarter due to competitive pressure on rental rates and a higher proportion of rentals under RPO contracts. Margins in product support remained strong but were down slightly to a higher mix of parts sales. Administrative, Distribution and Selling Expense Administrative, distribution and selling expense in 2016 were $66.0 million or 18.3% of revenue, down from $68.1 million or 17.7% of revenue in 2015. The Company has made significant progress in reducing expenses in 2016, in response to the challenging market conditions, especially in Alberta. Headcount in particular, was reduced by 59 employees or 10%. This was on top of the headcount reduction of 45 in 2015. Partially offsetting the savings from the reduction in headcount were higher ongoing support costs of the new SAP computer system which went live in 2015, and reduced service cost recoveries, particularly in Alberta. While an impairment charge was recorded against the new SAP system in the third quarter (see


9

discussion under Impairment of Intangible Asset below), the Company continues to utitlize and benefit from the operation of this new computer system. Cost of operating and maintaining the SAP system have been greatly reduced. 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. Strongco typically carries US dollar liabilities related to the purchase of equipment inventory and parts denominated in US dollars. With the significant volatility that has occurred from one period to the next in the value of the Canadian dollar relative to the US dollar, foreign exchange gains and losses have arisen on the translation of US dollar liabilities. Other income and expense in 2016 was net income of $1.4 million, composed primarily of foreign exchange gains that arose on the translation of US dollar liabilities. This compared to other expense, mainly foreign exchange losses, of $1.8 million in 2015. Operating Loss As a result of lower gross profit, which was only partially offset by reduced expenses and foreign exchange gains, the company incurred an operating loss, before restructuring costs, of $7.7 million in 2016 compared to an operating loss of $4.8 million in 2015. Restructuring Costs As noted above, headcount was reduced by 59 employees or 10% during the year. This was in response to ongoing weak economic conditions, particularly in Alberta. As a consequence, the Company recorded a restructuring provision of $3.6 million for severance and other termination costs related to the employees who were terminated. Impairment of Intangible Asset During the third quarter of 2016, the Company recorded a non-cash impairment charge of $16.5 million against the value of the intangible asset related to its new SAP computer system. Under IFRS, where there are indicators of impairment, an entity must test its assets for impairment. With the total value of the Companyʼs shares currently trading below the book value of its assets and recent history of operating losses, as potential indicators of impairment, management performed an impairment analysis of its assets and determined the value if its computer system was fully impaired and recorded the non-cash impairment charge. While for accounting purposes the book value of the computer system has been written down to zero, the Company continues to operate and benefit from the utilization of its SAP computer system, which was developed over the last three years. Interest Expense Strongcoʼs interest-bearing debt comprises interest-bearing equipment notes and an operating line with the Companyʼs bank. Strongco typically finances equipment inventory under lines of credit available from various finance companies, many of which are the captive finance affiliate of the OEM supplier. 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. The rate of interest on the Companyʼs bank operating lines and interest-bearing equipment notes payable vary with bank prime rates and Bankersʼ Acceptance rates (“BA rates”). (See discussion under “Cash Flow, Financial Resources and Liquidity.”) Prime rates and BA rates have remained fairly stable throughout 2014, 2015 and 2016. Interest expense was $5.8 million in 2016, compared to $7.4 million in 2015. During the fourth quarter of 2015, an adjustment was recorded to capitalize a portion of the interest incurred during to the year to the cost of the SAP system. Before that adjustment, interest expense in 2015 was $8.2 million. The substantial reduction in interest expense in 2016 was the direct result of the marked reduction in equipment inventory and the related equipment notes payable. At December 31, 2016 equipment inventory was $129.2 million, down from $181.3 million at the end of 2015 and equipment notes were $101.2 compared to $156.7 million a year ago. Earnings Before Income Taxes Before the unusual non-cash impairment charge and restructuring costs, the loss before tax was $13.5 million which compared to a pre-tax loss of $12.2 million in 2015. After the intangible impairment charge and restructuring costs, the pre-tax loss was $33.6 million in 2016. Provision for Income Taxes Given the Companyʼs history of losses, there was uncertainty whether the tax loss incurred during 2016 would be recovered in the future. As a result, no recovery of income taxes has been recorded against the loss in the year. In addition, management reassessed the recoverability of deferred tax assets recorded against losses in prior periods and determined a provision was


10

warranted to reflect the uncertainty of recoverability resulting a net income tax expense of $4.7 million. By comparison, an income tax recovery of $3.2 million was recorded in 2015. Net Income (Loss) Strongcoʼs net loss in 2016 was $37.3 million ($2.82 per share) compared to a net loss of $7.4 million ($0.56 per share) in 2015. EBITDA EBITDA (see note 1 below) in 2016 was $5.8 million (1.6% of revenue) which compared to $16.2 million (4.2% of revenue) in 2015 and $36.2 million (8.5% of revenue) in 2014. EBITDA was calculated as follows:

EBITDA ($ millions) 2016 2015 2014 2016/2015 2015/2014Net earnings from continuing operations (38.3)$ (8.9)$ 0.1$ (29.4)$ (9.0)$ Add back:

Interest 5.8 7.4 10.1 (1.6) (2.7) Income taxes 4.7 (3.2) (1.4) 7.9 (1.8) Impairment of intangible asset 16.5 - 1.8 16.5 (1.8) Depreciation of capital assets 3.9 5.6 5.2 (1.7) 0.4 Depreciation of equipment inventory on rent 11.8 13.6 19.0 (1.8) (5.4) Depreciation of rental fleet 0.5 1.3 1.4 (0.8) (0.1) Amortization of computer system 0.9 0.4 - 0.5 0.4

EBITDA (note 1) 5.8$ 16.2$ 36.2$ (10.4)$ (20.0)$

Year Ended December 31 Change

Note 1 – “EBITDA” refers to earnings from continuing operations before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, amortization of rental fleet, and impairment and amortization of computer system (intangible asset). 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as a measure of the Companyʼs liquidity and cash flows.


11

Cash Flow, Financial Resources and Liquidity Cash Flow Provided By (Used In) Operating Activities from Continuing Operations: In 2016, cash of $7.8 million was provided by operating activities from continuing operations before changes in working capital. By comparison, in 2015, operating activities from continuing operations provided $18.9 million of cash before changes in working capital. The components of the cash used in operating activities from continuing operations were as follows:

($ millions) 2016 2015Net income (loss) for the period (37.3) (7.4) Net income from discontinued operations (1.0) (1.5) Net income from continuing operations $ (38.3) $ (8.9)Non-cash items:

Depreciation – equipment inventory on rent 11.8 13.6Depreciation – capital assets 3.9 5.6Depreciation – rental fleet 0.5 1.3 Amortization of computer system 0.9 0.5 Impairment of computer system 16.5 - Share-based payment expense 0.1 0.1 Interest expense 5.8 7.4 Income tax expense 4.7 (3.2) Employee future benefit expense 1.9 2.5

7.8 18.9Changes in non-cash working capital balances (4.4) (4.6)Purchase of rental fleet - (5.5)Proceeds from sale of rental fleet - 2.9Employee future benefit funding (2.0) (2.5) Interest paid (6.3) (7.9) Cash provided by (used in) operating activities- continuing operations (4.9) 1.3 - discontinued operations 2.0 6.0 Cash provided by (used in) operating activities $ (2.9) $ 7.3


Non-cash items include depreciation of equipment inventory on rent of $11.8 million, which compared to $13.6 million in 2015. During 2016, there was a net increase in non-cash working capital from continuing operations of $4.4 million resulting primarily from a decrease in equipment notes and deferred revenue and customer deposits partially offset by a decrease in inventories and trade receivables. By comparison, during 2015, there was a net increase in non-cash working capital from continuing operations of $4.6 million. Components of cash flow from the net change in non-cash working capital from continuing operations for 2016 and 2015 were as follows:

Trade and other receivables related to continuing operations at December 31, 2015 were $37.0 million which was down from $46.3 million at December 31, 2015. The average age of receivables at December 31, 2016 has decreased compared to the end of 2015. During 2016, management continued to focus on reducing equipment inventory, especially aged equipment and non-core brands. Equipment inventory at the end of December was $129.2 million, which was down $52.1 million from $181.3 million at the beginning of the year.

($ millions)(Increase) Decrease 2016 2015Trade and other receivables $ 9.3 $ 6.9Income taxes receivable (1.5) - Inventories 40.5 15.5Prepaids and other assets 0.6 0.7

$ 48.9 $ 23.1Increase (Decrease)Trade and other payables 7.4 (10.6)Deferred revenue and customer deposits (5.2) 2.7Equipment notes payable (55.5) (19.8)

$ (53.3) $ (27.7)Net increase in non-cash working capital from continuing operations $ (4.4) $ (4.6)



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A breakdown of equipment inventory at December 31, 2016 compared to prior quarters is as follows: ($ millions)

Equipment in-stock $ 90.0 $ 107.3 $ 112.8 $ 122.7 $ 128.8 Equipment on RPO 14.8 31.1 25.3 21.7 24.8 Equipment on a short-term rental contract 24.4 7.9 8.0 14.9 27.7 Equipment inventory - continuing operations $ 129.2 $ 146.3 $ 146.1 $ 159.3 $ 181.3 Equipment inventory - discontinued operations - - 25.5 17.4 17.7 Equipment inventory - total $ 129.2 $ 146.3 $ 171.6 $ 176.7 $ 199.0

June 30,2016

March 31,2016

December 31,2016

December 31,2015

September 30,2016

With the reduction in equipment inventory, equipment notes were also reduced during 2016. Equipment notes opened the year at $156.7 million and declined to $101.2 million at December 31, 2016. In particular, interest-bearing notes have been reduced from $97.5 million at the beginning of the year to $74.5 million at December 31, 2016, which had a positive impact on reducing interest expense during the year. A breakdown of equipment notes payable at December 31, 2016 and the change throughout the year is as follows: ($ millions)

Non-interest-bearing $ 26.7 $ 41.4 $ 46.8 $ 33.3 $ 59.2 Interest-bearing 74.5 86.4 81.4 102.2 97.5 Equipment notes - continuing operations $ 101.2 $ 127.8 $ 128.2 $ 135.5 $ 156.7 Equipment notes - discontinued operations - - 29.9 18.5 23.6 Equipment notes - total $ 101.2 $ 127.8 $ 158.1 $ 154.0 $ 180.3

June 30,2016

March 31,2016

December 31,2016

December 31,2015

September 30,2016

Trade and other payables from continuing operations at December 31, 2016 were $46.4 million up slightly from $44.3 million at December 31, 2015, primarily as a result of the timing of receipts of equipment and parts inventory and timing in payment of amounts owing to suppliers. Cash Provided By (Used In) Investing Activities of Continuing Operations: Net cash provided by investing activities of continuing operations amounted to $8.7 million in 2016, most of which related to related to the proceeds from the sale of the Companyʼs U.S. subsidiary, Chadwick-BaRoss Inc. By comparison, in 2015 cash of $5.7 million was used for capital expenditures primarily related to the implementation of the SAP computer system. The components of cash provided by investing activities from continuing operations were as follows:

($ millions) 2016 2015Proceeds from sale of Chadwick-BaRoss Inc. $ 15.7 $ - Repayment of amounts owing to related party (5.3) - Deposited to escrow (1.6) - Net proceeds from sale of Chadwick-BaRoss Inc. 8.8 - Purchase of capital assets (0.1) (5.7)Cash provided by (used in) investing activities- continuing operations 8.7 (5.7)- discontinued operations (0.1) (0.3)Cash provided by (used in) investing activities 8.6$ (6.0)$


Cash Provided By (Used in) Financing Activities in Continuing Operations: For the twelve months ended December 31, 2016, $3.7 million of cash was used in financing activities in continuing operations primarily to reduce bank indebtedness and long-term equipment notes, and repay finance leases. During the 2015, cash of $4.4 million was provided from financing activities mainly from increased bank borrowing.


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The components of cash used in financing activities from continuing operations are summarized as follows:

($ millions) 2016 2015Increase (decrease) in bank indebtedness $ (2.1) $ 11.6 Repayment of finance lease obligations (3.0) (4.2) Repayment of notes payable (0.5) (4.3) Advances from disposed operations 0.7 1.4 Loans repaid to disposed operations (0.4) (0.6) Trade activities with disposed operations 1.0 (0.2) Dividends from disposed operations 0.6 0.7 Cash provided by (used in) financing activities- continuing operations (3.7) 4.4 - discontinued operations (2.5) (5.2) Cash provided by (used in) financing activities (6.2) (0.8)


Bank Credit Facilities The Company has credit facilities with a bank in Canada. With the sale of the Companyʼs U.S. subsidiary, Chadwick-BaRoss Inc. in September, the credit facility was renegotiated and amended to provide the credit facilities as described below. Operating Lines With the sale of Chadwick-BaRoss, the operating line in Canada was changed from a 3-year committed line to a revolving demand facility and was reduced from $35 million to $30 million. Borrowings under the operating line of credit 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 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 2.00% and bank prime rate plus 4.0% or between the one-month Canadian BA rate plus 3.00% and the one-month Canadian BA rate plus 5.0%, depending on the Companyʼs ratio of debt 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 Companyʼs operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongcoʼs performance on the sale of equipment to the customer. At December 31, 2016, 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, 2016, the Company had outstanding foreign exchange forward contracts under this facility totalling US$3.6 million at an average exchange rate of $1.3321 Canadian for each US$1.00 and €0.8 million at an average exchange rate of $1.4408 Canadian for each €$1.00 with settlement dates between January 2017 and March 2017. Bank 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, 2016 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 $20 million, Maximum ratio of debt to tangible net worth (“Debt to TNW Ratio covenant”) of 7.25:1, and Minimum ratio of EBITDA to total interest (“Interest Coverage Ratio covenant”) of 1.75:1.

In addition to these financial covenants, the Companyʼs bank credit facility requires the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). The Company was in compliance with the financial covenants under its bank credit facilities at December 31, 2016.


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Equipment Notes In addition to its bank credit facilities, the Company has lines of credit available totalling approximately $190 million from various non-bank equipment lenders in Canada that are used to finance equipment inventory and rental fleet. At December 31, 2016, there was approximately $100 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 Bankersʼ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing companyʼs margin. As at December 31, 2016, the rates ranged from 4.45% to 6.95% with a weighted average effective rate of 5.67%. 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 Companyʼs equipment notes facilities are renewable annually. 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 $35.0 million of its interest-bearing equipment notes at approximately 5.97% until June 2017. (See discussion under “Interest Rate Swaps” below.) Equipment Notes Financial Covenants Similar to the bank credit facility, two of the Companyʼs equipment finance credit agreements contain restrictive financial covenants that require the Company to remain in compliance with certain 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 noted above, with the sale of the Companyʼs U.S. subsidiary, the Companyʼs bank credit facility was renegotiated and amended, including amendment of the financial covenants. Under one of the equipment finance agreements, the financial covenants were amended identically to the amended covenants under the Companyʼs bank agreement. The Company was in compliance with the financial covenants under this equipment finance agreement at December 31, 2016. For the other equipment finance agreement, the equipment lender provided an amendment to the financial covenants similar to the bank as at September 30, 2016 but retained the existing covenants beyond the third quarter. In December, the lender provided a waiver of the covenants at December 31, 2016 curing the impending covenant violation and provided a similar waiver to cure the impending covenant violation at March 31, 2017. 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 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 $35.0 million of its interest-bearing equipment notes at approximately 5.97%.

Summary of Outstanding Debt The balance outstanding under Strongcoʼs debt facilities at December 31, 2016 and 2015 consisted of the following: Debt Facilities As at December 31($ millions) 2016 2015Bank indebtedness (including outstanding cheques) $ 30.7 $ 32.8Equipment notes payable – non-interest-bearing 26.7 59.2Equipment notes payable – interest-bearing 74.5 97.5Rental fleet equipment notes payable 1.2 1.7Debt facilities - continuing operations $ 133.1 $ 191.2Debt facilities - discontinued operations - 44.0Debt facilities - total 133.1 235.2


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Total borrowing under the Companyʼs debt facilities in continuing operations was $133.1 million at December 31, 2016 compared to $191.2 million a year ago. The decrease of $58.1 million was primarily due to the reduction of equipment notes payable. As at December 31, 2016, there was $3 million of unused credit available under the Companyʼs 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 $1 million and $8 million. The Company also had approximately $60 million available under its equipment finance facilities at December 31, 2016. Availability under the bank lines fluctuates daily depending on the amount of cash received and cheques and other disbursements clearing the bank. With reduced revenues and slower collections of receivables in 2016, the Company has responded by slowing payments to suppliers and borrowing more on its bank operating lines. The net proceeds from the sale of Chadwick-BaRoss provided additional liquidity of $8.8 million but at the same time the bank line was reduced by $5 million. Additional cash was provided by the sale of aged equipment and other non-core products and the reduction of headcounts and other cash expenses. Payments to suppliers are beginning to be brought more current, but the Company is continuing to utilize the majority of its bank lines.


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FINANCIAL HIGHLIGHTS – FOURTH QUARTER Operating Results Revenue of $81.2 million, down from $101.4 million in the fourth quarter of 2015, which included the sale of a few large

cranes in Quebec. Gross profit of $11.9 million (14.7% of sales) compared to $13.5 million (13.4% of sales) in the fourth quarter last year. Operating loss, before restructuring costs, of $4.4 million, improved from an operating loss of $6.5 million in fourth quarter of

2015. EBITDA loss of $0.2 million compared to loss of $0.4 million in fourth quarter of 2015. Pretax loss, before restructuring costs, of $5.8 million compared to pretax loss of $7.4 million in the fourth quarter of 2015. Restructuring costs of $0.4 million for severance and other termination costs of certain employees, terminated during the

quarter in response to continuing weak market conditions. Net loss from continuing operations of $6.1 million, or $0.46 per share, compared to net loss from continuing operations of

$5.5 million, or $0.41 per share in the fourth quarter last year. Balance Sheet Improvement Equipment inventory of continuing operations of $129.2 million, down $17.1 million in the quarter. Equipment notes payable of continuing operations of $101.2 million, down $26.6 in the quarter. FINANCIAL RESULTS – FOURTH QUARTER Consolidated Results of Operations for the Three Months Ended December 31

($ thousands, except per share amounts) 2016 2015 $ Change % Change

Revenue 81,206$ 101,417$ (20,211)$ -20%Cost of sales 69,305 87,855 (18,550) -21%Gross margin 11,901 13,562 (1,661) -12%Administrative, distribution and selling expenses 16,830 20,029 (3,199) -16%Other income (572) 6 (578) n/aOperating income (loss) (4,357) (6,473) 2,116 -33%Restructuring costs 418 - 418 n/aInterest expense 1,401 950 451 47%Loss before income taxes (6,176) (7,423) 1,247 -17%Recovery of income taxes (126) (1,958) 1,832 -94%Net income (loss) from continuing operations (6,050) (5,465) (585) 10%Net income (loss) from discontinued operations (214) 163 (377) n/aNet loss (6,264)$ (5,302)$ (962)$ 18%

Basic and diluted earnings (loss) per share- continuing operations (0.46)$ (0.41)$ (0.04)$ 0,011%- net loss (0.47)$ (0.40)$ (0.07)$ 0,018%

Weighted average number of shares - Basic and diluted 13,221,719 13,221,719 Key financial measuresGross margin as a percentage of revenues 14.7% 13.4%Administrative, distribution and selling expenses as a percentage of revenues 20.7% 19.7%Operating income as a percentage of revenues -5.4% -6.4%EBITDA (note1) (203)$ (429)$ 226$ -53%

Three Months EndedDecember 31 2016/2015

Note 1 – “EBITDA” refers to earnings from continuing operations before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, amortization of rental fleet and amortization of intangible asset,. 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as measures of the Companyʼs liquidity and cash flows.


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Revenues Strongcoʼs revenues for the quarter ended December 31, 2016 were $81.2 million, which was comparable to 101.4 million in the fourth quarter of 2015. Overall revenues decreased from the fourth quarter of 2015 with equipment sales down $17.9 million due primarily to the sale of a few large cranes in Quebec in the prior year. A breakdown of revenue for the three months ended December 31, 2016 and 2015 is as follows:

2016/15($ millions) 2016 2015 % ChgEastern Canada (Atlantic and Quebec)Equipment Sales 13.3$ 28.4$ -53%Equipment Rentals 2.1 1.5 36%Product Support 10.6 10.3 3%Total Eastern Canada 26.0$ 40.2$ -35%

Central Canada (Ontario)Equipment Sales 23.8$ 27.7$ -14%Equipment Rentals 1.7 2.2 -23%Product Support 10.0 11.3 -11%Total Central Canada 35.5$ 41.2$ -14%

Western Canada (Manitoba to British Columbia)Equipment Sales 13.9$ 12.8$ 8%Equipment Rentals 0.8 1.3 -37%Product Support 5.0 5.9 -15%Total Western Canada 19.7$ 20.0$ -1%

Total Equipment DistributionEquipment Sales 51.0$ 68.9$ -26%Equipment Rentals 4.6 5.0 -9%Product Support 25.6 27.4 -7%Total Equipment Distribution 81.2$ 101.4$ -20%

Three Months Ended December 31

Equipment Sales Strongcoʼs equipment sales in the fourth quarter of 2016 totalled $51.0 million, down $17.9 million, or 26%, from $68.9 million in the fourth quarter of 2015, due primarily to the sale of some large cranes in Quebec in the prior year. On a regional basis, equipment sales in Eastern Canada (Quebec and Atlantic regions) were $13.3 million in the fourth quarter, down $15.1 million from a year ago, due primarily to the sales of a few large cranes in Quebec in the fourth quarter 2015. Sales of other construction equipment in Quebec were also higher in the fourth quarter of 2016 as construction markets in the province continued to improve. The market for GPE in Quebec was 8% higher in the fourth quarter compared to the same period in 2015 and Strongco outperformed the market resulting in increased market share in the province. By comparison, heavy equipment markets in the Atlantic region were estimated to be down by close to 30% compared to the fourth quarter of 2015 which resulted in lower equipment sales in the region. Strongcoʼs equipment sales in the fourth quarter in Central Canada were down $3.9 million, or 14%, compared to the same period in 2015 due to lower sales of heavy equipment and cranes. The market for GPE in Ontario was estimated to be down close to 30% year over year in the fourth quarter with the largest drop in the market for wheel loaders. While Strongcoʼs sales were lower in 2016, they were down less than the market overall resulting in a gain in market share. Strongcoʼs crane sales in Ontario were lower as there were a few sales of large cranes in the fourth quarter of 2015 were not repeated in 2016. Equipment sales in Western Canada increased $1.1 million in the fourth quarter to $13.9 million, up 8% from a year ago. The increase was due to the sale at auction of a few truck mounted cranes as part of the Companyʼs efforts to reduce inventories. Excluding these auction sales in Western Canada were down year over year in the fourth quarter due to continuing weak market conditions in Alberta. The market for GPE in Alberta was estimated to be down 15% compared to the same quarter in 2015. Equipment Rentals Strongcoʼs rental revenue in the fourth quarter of 2016 was $4.6 million, down from $5.0 million in the fourth quarter of 2015. Rental activity improved in Eastern Canada but weak market conditions in Alberta resulted in lower rental revenue in Western


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Canada. Rental revenue was also down slightly in Ontario as certain large rental contracts in the fourth quarter of 2015 were not repeated in 2016. Product Support Strongcoʼs product support revenues in the fourth quarter of 2016 totalled $25.6 million, compared to $27.4 million in the fourth quarter of 2015. Reduced construction activity in Alberta resulted in lower sales of parts and service in Western Canada. Product support revenue was also lower in Ontario compared to the fourth quarter of 2015. Gross Margin ($ millions)

Gross Margin GM% GM% $ Change % ChangeEquipment Sales 2.0$ 3.9% 1.5$ 2.2% 0.5$ 33%Equipment Rentals 0.6 13.0% 1.0 20.0% (0.4) -40%Product Support 9.3 36.3% 11.1 40.4% (1.8) -16%Total Gross Margin 11.9$ 14.7% 13.6$ 13.4% (1.7)$ -13%

2016/20152016 2015 Three Months Ended December 31

Strongcoʼs overall gross profit was $11.9 million or 14.7% of revenue in the fourth quarter of 2016, compared to $13.6 million or 13.4% of revenue a year ago. The decline in gross profit resulted mainly from lower revenues in the fourth quarter of 2016 but lower margins on product support and rentals also reduced gross profit in 2016. Margins were also impacted by additional reserves for aged equipment inventory recorded in the fourth quarters of 2016 and 2015 of $2.2 million and $4.5 million, respectively. In response to the weak and challenging market conditions facing the Company, management 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. Before these large reserves, gross profit was $14.1 million or 17.3% of revenue in the fourth quarter 2016 compared to $18.1 million or 17.9% of revenue a year ago. Equipment margins were 3.9% compared to 2.2% in the fourth quarter of 2015. As noted above, margins in the fourth quarter were impacted by reserves for aged equipment of $2.2 million and $4.5 million in 2016 and 2015, respectively. Before these reserves, equipment margins were 8.2% and 8.7% in the fourth quarter of 2016 and 2015, respectively. With the weakness in the Canadian dollar the dealer cost in Canada of new equipment has remained high 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. A 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, particularly in Alberta. In addition, the margin on rentals was lower due to the mix of rentals between RPO and other rentals and competitive pressures on rental rates. Lower sales of parts and service revenues in Alberta and Ontario resulted in lower gross profits from product support. In addition the margins on product support were lower due to a higher mix of parts sales combined with slightly lower margins on parts. Administrative, Distribution and Selling Expense Administrative, distribution and selling expense in the fourth quarter of 2016 were $16.8 million, or 20.7% of revenue, compared to $20.0 million, or 19.7% of revenue in the fourth quarter of 2015. The Company has made significant progress in reducing expenses in 2016 in response to the challenging market conditions, especially in Alberta. In particular, headcount and other people related costs were down significantly year over year. As a consequence of the impairment charge taken against the SAP computer system in the third quarter, no further amortization of this intangible asset was recorded in the fourth quarter of 2016, while expenses in the fourth quarter of 2015 includes amortization of the new SAP computer systems of $0.4 million. 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 2016 was $0.6 million comprised mainly of foreign exchange gains, compared to $nil in the fourth quarter of 2015.


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Operating Loss While gross profit was lower, reduced operating expenses the small foreign exchange gain, resulted in a reduced operating loss, before restructuring costs, of $4.4 million which was improved from an operating loss of $6.5 million in the fourth quarter of 2015. Restructuring Costs As noted above, headcount was reduced during the year in response to ongoing weak economic conditions, particularly in Alberta. As a consequence, the Company recorded an additional restructuring cost provision of $0.4 million for severance and other termination costs related to the employees who were terminated. Interest Expense Strongcoʼs interest expense was $1.4 million in the fourth quarter of 2016, compared to $1.0 million in the fourth quarter of 2015. During the fourth quarter of 2015, an adjustment was recorded to capitalize a portion of the interest incurred during the year to the cost of the SAP system. Before that adjustment, interest expense in the fourth quarter of 2015 was $1.8 million. Total interest costs decreased in 2016 as the result of reduced level of interest-bearing debt primarily related to the financing of the equipment inventory. Management was successful in selling off aged equipment and other non-core products and reducing the level of associated interest-bearing equipment notes in 2016 which resulted in the lower interest in the quarter. Loss Before Income Taxes After restructuring costs and interest, the pre-tax loss was $6.2 million in the fourth quarter of 2016 compared to an operating loss of $7.4 million in the same period in 2015. Provision for Income Tax The provision for income tax recovery in the fourth quarter of 2016 was $0.2 million adjusting the deferred tax asset to the expected net recoverable amount. By comparison, the provision for income tax recovery in the fourth quarter of 2015 was $2.0 million. Net Income (Loss) Strongcoʼs net loss in the fourth quarter of 2016 was $6.3 million ($0.47 per share), which compared to net loss of $5.3 million ($0.40 per share) in the same quarter of the prior year. EBITDA EBITDA in the fourth quarter of 2016 was a loss of $0.2 million (0.2% of revenues), compared to a loss of $0.4 million (0.4% of revenue) in the fourth quarter of 2015. EBITDA is calculated as follows:

ChangeEBITDA ($ millions) 2016 2015 2016/2015Net earnings from continuing operations (6.1)$ (5.4)$ (0.7)$ Add back:

Interest 1.4 0.9 0.5 Income taxes (0.1) (1.9) 1.8 Depreciation of capital assets 1.0 1.7 (0.7) Depreciation of equipment inventory on rent 3.5 3.3 0.2 Depreciation of rental fleet 0.1 0.6 (0.5) Amortization of intangible asset - 0.4 (0.4)

EBITDA (note 1) (0.2)$ (0.4)$ 0.2$


Note 1 – “EBITDA” refers to earnings from continuing operations before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, amortization of rental fleet and amortization of intangible asset,. 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as a measure of the Companyʼs liquidity and cash flows.


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Cash Flow, Financial Resources and Liquidity Cash Flow Provided By (Used In) Operating Activities from Continuing Operations: During the fourth quarter of 2016, Strongco provided $0.4 million of cash from operating activities from continuing operations before changes in working capital, which compared to $0.1 million in the same quarter last year. A decrease in non-cash working capital provided $2.8 million of cash in the quarter. After funding future employee benefits of $0.5 million and paying interest of $1.5 million, the remaining cash provided by operating activities of continuing operations was $1.1 million. By comparison, in the fourth quarter of 2015, the decrease in non-cash working capital provided $16.3 million of cash, $5.1 million of cash was used to purchase rental fleet assets, $0.6 million was used to fund future employee benefits and $1.7 million to pay interest, resulting in net cash provided by operating activities from continuing operations of $9.0 million. The components of the cash used in operating activities from continuing operations were as follows:

($ millions) 2016 2015Net loss for the period (6.2) (5.3) Net (income) loss from discontinued operations 0.2 (0.1) Net loss from continuing operations $ (6.0) $ (5.4)Non-cash items:

Depreciation – equipment inventory on rent 1.0 1.7Depreciation – capital assets 3.5 3.3Depreciation – rental fleet 0.1 0.5 Amortization of computer system - 0.5 Interest expense 1.4 0.9 Income tax expense (0.1) (1.9) Employee future benefit expense 0.5 0.5

0.4 0.1Changes in non-cash working capital balances 2.7 16.3Purchase of rental fleet - (5.1)Employee future benefit funding (0.5) (0.6) Interest paid (1.5) (1.7) Cash provided by (used in) operating activities- continuing operations 1.1 9.0 - discontinued operations 0.1 4.5 Cash provided by (used in) operating activities $ 1.2 $ 13.5


Non-cash items in the quarter include depreciation of equipment inventory on rent of $3.5 million, compared to $3.3 million in the fourth quarter of 2015. During the fourth quarter of 2016, non-cash working capital from continuing operations decreased by $2.7 million due primarily to decreases in trade receivables and inventories offset partially by a reduction in equipment notes, as shown in the table below. By comparison, during 2015, net working capital decreased by $16.3 million due to a large reduction in inventories offset partially by decreases in trade payables and repayments of equipment notes payable. Components of cash flow from the net change in non-cash working capital from continuing operations for 2016 and 2015 are as follows: ($ millions)(Increase) Decrease 2016 2015Trade and other receivables $ 12.8 $ 0.1Income tax receivable (1.5) - Inventories 15.2 39.1Prepaids and other assets 0.6 0.1

$ 27.1 $ 39.3Increase (Decrease)Trade and other payables 2.2 (13.5)Deferred revenue and customer deposits 0.1 5.9Equipment notes payable (26.7) (15.4)

$ (24.4) $ (23.0)Net decrease in non-cash working capital from continuing operations $ 2.7 $ 16.3



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As noted above, equipment inventory and floor plan debt decreased in the last quarter of 2016. Equipment inventory at the end of the fourth quarter was $129.2 million, declining from $146.3 million at September 30, 2016, and compared to $181.3 million at the previous year end. Consistent with the reduction in equipment inventory, equipment notes declined from $127.8 million at September 30, 2016 to $101.2 million at December 31, 2016, and compared to $156.7 million at December 31, 2015. Cash Provided By (Used In) Investing Activities from Continuing Operations: Cash used in investing activities from continuing operations in the fourth quarter of 2016 totalled $0.1 million relating to transactions costs for the sale of Chadwick-BaRoss Inc. This compared to $0.5 million cash used in investing activities in the fourth quarter of 2015 for the purchase of miscellaneous shop equipment. The components of the cash used in investing activities from continuing operations are as follows:

($ millions) 2016 2015Proceeds from sale of Chadwick-BaRoss Inc. $ (0.1) $ - Purchase of capital assets - (0.5)Cash used in investing activities- continuing operations (0.1) (0.5)- discontinued operations (0.1) - Cash used in investing activities (0.2)$ (0.5)$


Cash Provided By (Used In) Financing Activities in Continuing Operations: In the fourth quarter of 2016, net cash of $1.0 million was used in financing activities in continuing operations, which compared to net cash of $8.5 million used in financing activities in continuing operations in the fourth quarter of 2015. During the quarter, the Company repaid its bank operating line by $0.2 million, repaid long-term equipment notes by $0.2 million, and $0.6 million was used to pay finance leases. The components of cash provided by financing activities in continuing operations in the fourth quarter are summarized as follows:

($ millions) 2016 2015Increase (decrease) in bank indebtedness $ (0.2) $ (4.7) Repayment of finance lease obligations (0.6) (1.1) Repayment of notes payable (0.2) (2.2) Advances from disposed operations - 0.1 Loan repayment to disposed operations - (0.6) Trade activity with disposed operations - (0.2) Dividends income from related party - 0.2 Cash provided by (used in) financing activities- continuing operations (1.0) (8.5) - discontinued operations - - Cash provided by (used in) financing activities (1.0) (8.5)



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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: 2016($ millions, except per share amounts) Q4 Q3 Q2 Q1

Revenue $ 81.2 $ 86.7 $ 102.2 $ 91.2Loss before income taxes from continuing operations (6.2) (19.1) (7.3) (1.1)Net loss from continuing operations (6.1) (26.1) (5.3) (0.9)Net loss (6.3) (23.1) (4.8) (0.7)

Basic and diluted earnings (loss) per share- loss from continuing operations $ (0.46) $ (1.97) $ (0.40) $ (0.07)- net loss $ (0.47) $ (1.75) $ (0.37) $ (0.05)

2015($ millions, except per share amounts) Q4 Q3 Q2 Q1

Revenue $ 101.4 $ 87.3 $ 102.1 $ 94.1Income (loss) before income taxes from continuing operations (7.4) (3.4) 0.3 (1.7)Net income (loss) from continuing operations (5.5) (2.5) 0.3 (1.3)Net income (loss) (5.3) (2.1) 0.9 (0.8)

Basic and diluted earnings per share- income (loss) from continuing operations $ (0.41) $ (0.19) $ 0.02 $ (0.09)- net income (loss) $ (0.40) $ (0.16) $ 0.06 $ (0.06)

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

Revenue $ 108.4 $ 109.1 $ 118.2 $ 91.6Income (loss) before income taxes from continuing operations (4.2) 5.2 1.9 (4.3)Net income (loss) from continuing operations (3.4) 5.2 1.4 (3.1)Net income (loss) (3.4) 5.5 1.7 (2.9)

Basic and diluted earnings per share- income (loss) from continuing operations $ (0.25) $ 0.39 $ 0.11 $ (0.25)- net income (loss) $ (0.25) $ 0.42 $ 0.13 $ (0.23) A discussion of the Companyʼs previous quarterly results can be found in the quarterly Managementʼs Discussion and Analysis reports available on SEDAR at www.sedar.com. CONTRACTUAL OBLIGATIONS The Company has contractual obligations for operating lease commitments totalling $65.7 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 Companyʼs 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, 2016, outstanding buy-back contracts totalled $5.6 million, which compared to $9.7 million at December 31, 2015. A reserve of $0.1


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million has been accrued in the Companyʼs accounts as at December 31, 2016 with respect to these commitments, compared to a reserve of $0.1 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 $65.9 $10.3 $14.8 $12.9 $27.9

Payment due by period

Less than 1 to 3 4 to 5 After 5($ millions) Total 1 Year years years yearsBuy-back contracts $5.6 $2.1 $2.2 $0.8 $0.5

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 2016. Common Shares Issued and Outstanding Shares

Common shares outstanding as at December 31, 2015 13,221,719 Common shares purchased for RSU obligation (23,785) Common shares issued for RSU settlement 23,785 Common shares outstanding as at December 31, 2016 13,221,719 The Company did not grant any options during 2016. 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 Companyʼs management believes that EBITDA is an important supplemental measure in evaluating the Companyʼs 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 Companyʼs performance or to cash flows from operating, investing and financing activities as measures of the Companyʼs 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 Companyʼs 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, 2016 with changes from December 31, 2015 is as follows:


24

Provision for Inventory Obsolescence ($ millions)Provision for inventory obsolescence as at December 31, 2015 $ 10.5Disposal of business (2.0)Provision related to inventory disposed of during the year (9.3)Additional provisions made during the year 5.4Provision for inventory obsolescence as at December 31, 2016 $ 4.6 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, 2016 with changes from December 31, 2015 is as follows: Allowance for Doubtful Accounts ($ millions)Allowance for doubtful accounts as at December 31, 2015 $ 2.0Disposal of business (0.7)Accounts written off during the year (1.0)Amounts unused and reversed - Additional provisions made during the year 0.1Allowance for doubtful accounts as at December 31, 2016 $ 0.4 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 Strongcoʼs 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. Managementʼs 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 Strongcoʼs employee future benefits and the future yearsʼ 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 Companyʼs 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 managementʼs best estimate of the Companyʼs future income tax accounts.


25

RISKS AND UNCERTAINTIES Strongcoʼs 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 Companyʼs shares could be adversely affected. BUSINESS AND ECONOMIC CYCLES Strongco operates in a capital intensive environment. Strongcoʼs 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. Strongcoʼs 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 Companyʼs 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 Companyʼs 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 directly 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 the majority of the geographic areas in which Strongco operates, its main competitors are dealers who distribute or rent products manufactured by Caterpillar, John Deere, Komatsu, Hitachi, and other smaller brands. MANUFACTURER RISK Most of Strongcoʼs equipment distribution business consists of selling and servicing mobile equipment products manufactured by others. As such, Strongcoʼs 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 Strongcoʼs 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 manufacturerʼs 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 Strongcoʼs 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.


26

The ability of Strongco to maintain and expand its customer base is dependent upon the ability of Strongcoʼs 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 Strongcoʼs control and there can be no assurance that Strongcoʼs suppliers will be successful in improving and sustaining the quality of their products. The failure of Strongcoʼs 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 continues to strive for increased market share for their products which management believes has minimized the 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 Companyʼs 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 Companyʼs 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 Strongcoʼs management with respect to certain business matters and may, in certain circumstances, restrict the Companyʼs 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 Companyʼs 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


27

indebtedness under the existing credit facilities were to be accelerated, the Companyʼs assets would be sufficient to repay in full that indebtedness. 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 managementʼs evaluation of the design and effectiveness of the Companyʼs disclosure controls and procedures, the Companyʼs Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2016 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 managementʼs design and testing of the effectiveness of the Companyʼs internal controls over financial reporting, the Companyʼs Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are designed and operating effectively as of December 31, 2016 to provide reasonable assurance that the financial information being reported is materially accurate. During the year ended December 31, 2016, there have been no changes in the design of the Companyʼs 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 Managementʼs 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 managementʼs current expectations and assumptions which are based on information currently available to the Companyʼs 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 2017. 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 Strongcoʼs 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 Companyʼs Annual Information Form, may be found on SEDAR at www.sedar.com.


CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016


Managementʼs 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 Companyʼs 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 Companyʼs 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, 2017 March 23, 2017


INDEPENDENT AUDITORSʼ 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, 2016 and 2015, and the consolidated statements of loss, comprehensive loss, changes in shareholdersʼ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Managementʼs 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. Auditorsʼ 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 auditorsʼ 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 entityʼs 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 entityʼs 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, 2016 and 2015, 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, 2017 Chartered Professional Accountants Licensed Public Accountants

Strongco CorporationConsolidated Statements of Financial PositionAs at December 31

(in thousands of Canadian dollars, unless otherwise indicated)

Approved by the Board of Directors

Director Director

2016 2015Assets

Current assetsCash $ - $ 644Trade and other receivables [note 5] 37,024 56,951Income taxes receivable 1,508 -Inventories [note 6] 164,664 240,815Prepaid expenses and other deposits 1,586 2,315

204,782 300,725Non-current assetsProperty and equipment [note 7] 11,119 18,202Rental fleet [note 7] 630 30,338Deferred income tax asset [note 8] - 4,868Intangible asset [note 9] - 17,368Other assets 3,321 1,867

15,070 72,643Total assets $ 219,852 $ 373,368

Liabilities and shareholders' equity

Current liabilitiesBank indebtedness [note 10 (a)] $ 30,701 $ 33,155Trade and other payables [note 11] 46,423 44,288Deferred revenue and customer deposits 770 6,239Equipment notes payable

- non-interest-bearing [note 13] 26,722 63,864- interest-bearing [note 13] 74,487 116,407

Current portion of finance lease obligations [note 10 (b)] 3,494 3,772Current portion of notes payable [note 10 (c)] 1,254 21,681Current portion of provisions for other liabilities [note 12] 28 62

183,879 289,468Non-current liabilitiesDeferred income tax liability [note 8] - 4,963Finance lease obligations [note 10 (b)] 2,722 3,762Long-term portion of provisions for other liabilities [note 12] 42 71Employee future benefit obligations [note 14] 4,026 3,499

6,790 12,295Total liabilities $ 190,669 $ 301,763Contingencies, commitments and guarantees [note 22]Shareholders' equityShareholders' capital [note 15] 65,497 65,417Accumulated other comprehensive income 1,147 5,747Contributed surplus 983 1,073Deficit (38,444) (632)Total shareholders' equity 29,183 71,605Total liabilities and shareholders' equity $ 219,852 $ 373,368

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

2016 2015

Revenue (note 16) $ 361,301 $ 385,002Cost of sales [notes 6 and 18] 304,338 319,845Gross profit 56,963 65,157

ExpensesSelling and administrative expenses [notes 5, 14 and 18] 66,007 68,115Other (income) expense [note 17] (1,339) 1,819Operating loss (7,705) (4,777)

Restructuring costs [note 11] 3,605 -Impairment of intangible asset [note 9] 16,499 -Interest expense [note 19] 5,795 7,403Loss before income taxes (33,604) (12,180)

Provision for (recovery of) income taxes [note 8] 4,745 (3,236)

Net loss from continuing operations (38,349) (8,944)Net income from discontinued operations [note 4] 1,036 1,576

Net loss attributable to shareholders for the year $ (37,313) $ (7,368)

Loss per share - Basic and diluted [note 20]Continuing operations $ (2.90) $ (0.68)Net loss attributable to shareholders $ (2.82) $ (0.56)

Weighted average number of shares [note 20]Basic and diluted 13,221,719 13,221,719



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

2016 2015

Net loss attributable to shareholders for the year $ (37,313) $ (7,368)

Other comprehensive income (loss)

Items that will not be reclassified subsequently to net income:Actuarial (loss) gain on post-employment benefit obligations (499) 3,486 (net of tax - 2016 - $183; 2015 – ($1,282))Adjustment to employee benefit obligation due to Ontario tax rate change - 2Decognition of deferred tax asset - employee benefit obligation 1,032 -

Items that may be reclassified subsequently to net income:Currency translation adjustment - 3,401Total other comprehensive income (loss) 533 6,889

Comprehensive loss attributable to shareholders for the year $ (36,780) $ (479)



Strongco CorporationNotes to Consolidated Financial StatementsDecember 31, 2016 and 2015

(in thousands of Canadian dollars, unless otherwise indicated)

2

NUMBER OF SHARES

RETAINED EARNINGS

(DEFICIT) 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

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 - 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

NUMBER OF SHARES TOTAL

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

Net loss for the year - - - (37,313) (37,313)

Other comprehensive income (loss)

Post-employment benefit obligations (net of tax) - - - (499) (499)

Derecognition of deferred taxasset - employee benefit obligation - 1,032 - - 1,032

Release of currrency translationadjustment on disposal of business - (5,632) - - (5,632)

Total other comprehensive income (loss) - (4,600) - (499) (5,099)

Purchase of common shares for RSU obligation (23,785) (50) - - - (50)

Settlement of RSU obligation:- in common shares 23,785 130 - (130) - -- in cash - - (20) - (20)

Share-based compensation expense - - 60 - 60

Balance – December 31, 2016 13,221,719 $ 65,497 $ 1,147 $ 983 $ (38,444) $ 29,183


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)

2016 2015

Cash flows from operating activitiesNet loss for the year $ (37,313) $ (7,368)Net income from discontinued operations [note 4] (1,036) (1,576)Adjustments for

Depreciation – property and equipment 3,904 5,623Depreciation – equipment inventory on rent 11,790 13,596Depreciation – rental fleet 515 1,321Amortization - intangible asset 869 454Impairment of intangible asset 16,499 -Share-based payment expense 60 81Interest expense 5,795 7,403Income tax expense / (recovery) 4,745 (3,236)Employee future benefit expense 1,921 2,532

Changes in non-cash working capital [note 27] (4,371) (4,570)Purchases of rental fleet - (5,471)Proceeds from sale of rental fleet - 2,919Funding of employee future benefit obligations (2,069) (2,487)Interest paid (6,287) (7,934)Cash provided by discontinued operations 2,045 6,049Net cash provided by (used in) operating activities $ (2,933) $ 7,336Cash flows from investing activitiesPurchases of property and equipment (103) (5,651)Proceeds from sale of business [note 4] 15,723 -Repayment of balances owing to disposed operations [note 4] (5,283) -Deposited to escrow [note 4] (1,626) -Cash used in discontinued operations (159) (322)Net cash provided by (used in) investing activities $ 8,552 $ (5,973)Cash flows from financing activitiesIncrease (decrease) in bank indebtedness (2,097) 11,639Increase (decrease) in long-term debt (466) (4,290)Advances from disposed operations 661 1,471Loans repaid to disposed operations (364) (639)Trade activities with disposed operations 1,053 (246)Dividend income from disposed operations 570 694Repayment of finance lease obligations (3,040) (4,222)Purchase of common shares for equity-settled RSU obligation (50) (43)Cash provided by (used in) discontinued operations (2,494) (5,198)Net cash used in financing activities $ (6,227) $ (834)Foreign exchange on cash balances (36) 55Change in cash and cash

equivalents during year $ (644) $ 584Cash and cash equivalents – Beginning of year

- continuing operations - -- discontinued operations 644 60

Cash and cash equivalents – End of year $ - $ 644

Cash and cash equivalents – End of year- continuing operations $ - $ -- discontinued operations $ - $ 644



Strongco Corporation Notes to Consolidated Financial Statements December 31, 2016 and 2015 (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, 2017.

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, as follows:

Subsidiary December 31, 2016 December 31, 2015

Strongco Limited Partnership 100 % 100 %

Chadwick-BaRoss Inc and Strongco USA Inc. - 100%

The company deconsolidated the results of Chadwick-BaRoss Inc on September 30, 2016 and restated its operating results as a discontinued operation when it sold all of the outstanding shares of Strongco USA Inc. (note 4).



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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 Companyʼs voting rights in an investee are sufficient to give it power. These facts and circumstances include: the size of the Companyʼs 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.

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 Companyʼs 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.

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 Executive Chairman 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 Companyʼs 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 Companyʼs 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.



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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.

Foreign currency translation

a) Functional and presentational currency

The Companyʼs consolidated financial statements are presented in Canadian dollars, which is also the Companyʼs 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 operationʼs 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



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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 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 trancheʼs vesting period, based on the number of awards expected to vest, by increasing contributed surplus, a component within shareholdersʼ 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 shareholdersʼ capital, together with the related amounts previously added to contributed surplus.



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Shareholdersʼ capital

Shareholdersʼ 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. Effective January 1, 2016, the Company prospectively adopted the accounting policy of amortizing equipment inventory on rent to its estimated residual value using a units of production method, as required by amendments to IAS 16 effective for 2016. In prior years, equipment inventory on rent, but primarily held for sale, was amortized based on expected usage during the rental period, which was generally at a rate of between 60% and 80% of rental revenue, which approximated the usage.

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 assetʼs 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 assetsʼ 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 assetʼs carrying amount is immediately written down to its recoverable amount if the assetʼs 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.



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Rental fleet

The Companyʼs 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. Effective January 1, 2016, the Company prospectively adopted amendments to IAS 16 and depreciated rental fleet on a straight-line basis over the estimated useful life of the asset. In prior years, rental fleet was depreciated on a percentage of rent basis, which was generally at a rate of between 60% and 80% of rental revenue, which approximated 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 managementʼs estimate of its expected useful life. During the third quarter 2016, the Company determined that there were indicators of long-term asset impairment and performed a long-term asset impairment assessment which resulted in the full impairment of the carrying value of the intangible asset.

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



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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.

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 Companyʼs 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, rental fleet and intangible asset are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 assetʼs fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset



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or CGU). An impairment loss is recognized for the amount by which the assetʼs carrying amount exceeds its recoverable amount.

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

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



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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.

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 Companyʼs 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 assetʼs carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred, discounted at the financial assetʼs 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 customerʼs 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.



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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. Strongcoʼs potentially dilutive common shares comprise options granted to employees.

New accounting standards adopted during the year The following amendments have been adopted by the Company effective January 1, 2016: IAS 1 Presentation of Financial Statements In December 2014, the IASB amended IAS 1 to apply materiality and managementʼs judgement regarding the content and the order of notes to the financial statements. The adoption of this standard had no impact on the financial performance or disclosures of the Company. 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. Prior to 2016, the Company depreciated rental fleet and rental equipment inventory as a percentage of rent, generally at a rate of between 60% and 80% of rental revenue. Effective January 1, 2016, the Company prospectively adopted the accounting policy of depreciating rental fleet assets and rental equipment inventory to their residual value using a units of production method. The adoption of this standard did not have a significant impact on the Companyʼs consolidated financial statements.

Future changes in accounting standards The following amendments to accounting standards will be effective for the Company subsequent to 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 estimates. The standard is effective January 1, 2018 and may be applied using a full retrospective or modified retrospective approach.



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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. Disclosure Initiative Amendments to IAS 7 Statement of Cash Flows In 2016, the ISAB issued amendments to IAS 7 Statement of Cash Flows (“IAS 7”). The amendments are intended to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments will require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. The adoption of IAS 7 amendments are effective for annual periods beginning on or after January 1, 2017. Amendments to IFRS 2 Share-based Payment In 2016, the IASB issued the final amendments to IFRS 2 Share-based Payment (“IFRS 2”) in relation to the classification and measurement of share-based payment transactions. The amendments are intended to eliminate diversity in practice in three main areas: the effects of vesting conditions on the measurement of cash-settled share-based payments; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The amendments are to be applied prospectively. However, retrospective application is permitted if elected for all three amendments and other criteria are met. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration In 2016, the IASB issued IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (“IFRIC 22”), which provides requirements about which exchange rate to use when recognizing revenue in circumstances where an entity has received advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. On initial application, entities have the option to apply either retrospectively or prospectively. 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 yearʼs presentation.



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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, 2016 with changes from January 1, 2016 is disclosed in note 5.

Inventory valuation

The value of the Companyʼs 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 6 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.

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, 2016 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 Companyʼs Board of Directors.

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



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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 managementʼs best estimate of the Companyʼs 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-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.



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The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 20.

4 Sale of Chadwick-BaRoss Inc.

Following approval by the independent directors, on September 30, 2016, the Company completed the sale of its wholly-owned subsidiary, Chadwick-BaRoss Inc., for cash proceeds of US$12.4 million to an affiliate of ISH Capital Inc., a shareholder of the Company and a related party. The transaction was effected by way of the Company selling all of the outstanding shares of Strongco USA Inc., the parent holding company of Chadwick BaRoss Inc. This resulted in an accounting gain of approximately $0.5 million.

The following tables present the net income from discontinued operations:

2016 2015

Revenue $ 62,976 $ 89,283 Cost of sales 50,184 71,725 Selling and administrative expenses 11,124 14,441 Other (income) expense (120) (163) Interest expense 1,058 1,174 Income before income tax 730 2,106 Income tax expense 199 530 Income from discontinued operations, net of tax 531 1,576 Gain on sale of Chadwick-BaRoss Inc. 505 - Net income from discontinued operations $ 1,036 $ 1,576

Year endedDecember 31

Nine months endedSeptember 30

The sale price was paid in full in cash on closing. The proceeds were distributed as follows: $9,322 to Strongco, $5,283 for settlement of outstanding intercompany amounts owing to Chadwick-BaRoss Inc. and $1,626 (US$ - 1,242) deposited into escrow for a period of 18 months which has been classified as other assets. Certain comparative figures have been restated to exclude the impact of discontinued operations.



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5 Trade and other receivables

As at December 31

Trade receivables $ 26,832 $ 47,065 Less: Provision for impairment of trade receivables 355 1,989 Trade receivables, net $ 26,477 $ 45,076

Other receivables, net 10,547 11,875 Total trade and other receivables $ 37,024 $ 56,951

2016 2015

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, 2016, trade receivables of $11,095 (December 31, 2015 – $24,071) 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 2016 2015

Up to 3 months $ 7,562 $ 19,242 3 to 6 months 977 1,713 Over 6 months 2,556 3,116

$ 11,095 $ 24,071 Movements in the Companyʼs provision for impairment of trade receivables are as follows:

2016 2015

As at January 1 $ 1,989 $ 2,143 Discontinued operations (639) 290 Provisions for impairment - 114 Amounts written off as uncollectible (995) (352) Amounts unused and reversed - (206) As at December 31 $ 355 $ 1,989 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.



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Other receivables within trade and other receivables represent amounts receivable from equipment manufacturers and warranty providers which are recorded net of an allowance for doubtful accounts of $2,200 (2015 - $1,261).

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.

6 Inventories

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

As at December 31

Equipment in-stock $ 89,977 $ 128,784 Equipment on rental contract with a purchase option 14,779 24,788 Equipment on a short-term rental contract 24,423 27,695 Equipment in-stock - discontinued operations - 17,767 Equipment $ 129,179 $ 199,034

Parts 29,109 29,118 Work-in-process 6,376 6,610 Parts - discontinued operations - 6,053 Total inventories $ 164,664 $ 240,815

2016 2015

The value of the Companyʼs 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, 2016, the Companyʼs continuing operations recorded $5,366 of equipment write-downs (December 31, 2015 – $4,834) and reversals of equipment write-downs for units sold during the year of $nil (December 31, 2015 – $294), which are recorded in cost of sales.



17

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, 2016 are as follows:

2016 2015

Inventory obsolescence as at January 1 $ 10,510 $ 5,097 Discontinued operations (2,016) 863 Inventory disposed of during the year (9,278) (284) Additional provision made during the year 5,366 4,834 Inventory obsolescence as at December 31 $ 4,582 $ 10,510 Inventory costs recognized as an expense and reflected in cost of sales in the consolidated statements of loss amounted to $276,145 (December 31, 2015 – $288,227). Cost of sales also includes depreciation of equipment inventory on rent of $11,790 (December 31, 2015 – $13,596). The carrying value of equipment inventory on rent as at December 31, 2016 was $39,202 (December 31, 2015 – $52,483)

7 Property and equipment and rental fleet

Year endedDecember 31, 2015

Opening net book value $ 423 $ 4,936 19,082 7,519 $ 31,960 $ 30,687 $ 62,647 Discontinued operations - 706 94 (37) 763 4,834 5,597 Additions - 34 5,630 2,533 8,197 6,591 14,788 Disposals - - (5) - (5) (2,700) (2,705)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 - (853) (1,000) (3,769) (5,622) (1,321) (6,943)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 Year ended

December 31, 2016Opening net book value 524 5,453 5,979 6,246 18,202 30,338 48,540 Discontinued operations (423) (4,481) (561) (145) (5,610) (29,193) (34,803)Additions - 142 111 2,325 2,578 2 2,580 Disposals - - (154) - (154) - (154)Depreciation - (40) (728) (3,129) (3,897) (517) (4,414)Closing net book value 101 1,074 4,647 5,297 11,119 630 11,749 As at December 31, 2016Cost 101 5,033 18,640 15,674 39,448 2,724 42,172 Accumulated depreciation - (3,959) (13,993) (10,377) (28,329) (2,094) (30,423)Net book value $ 101 $ 1,074 $ 4,647 $ 5,297 $ 11,119 $ 630 $ 11,749

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



18

All trade accounts receivable related to the rental fleet at December 31, 2016 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 five years.

8 Income taxes

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

As at December 31 2016 2015 Components of current income tax expense:Relating to current year income taxes $ - $ -Relating to prior year income taxes (1,338) (3)Total current income tax expense (recovery) (1,338) (3)

Components of deferred income tax expense:Origination and reversal of temporary differences (7,457) (3,233)Derecognition of deferred tax asset 13,540 -Total deferred income tax recovery 6,083 (3,233)

Total income tax expense (recovery) $ 4,745 $ (3,236) 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:

For the year ended December 31 2016 2015Loss before income taxes $ (33,604) $ (12,180)Statutory tax rate 26.86% 26.62%

Provision for income taxes at statutory tax rate $ (9,026) $ (3,242)Adjustments thereon for the effect of:Derecognition of deferred tax asset 13,540 -Permanent and other 231 6Total income tax expense (recovery) $ 4,745 $ (3,236)



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

Deferred income tax assets and liabilitiesAs at December 31 2016 2015

Eligible capital expenditures and other reserves $ 1,741 $ 2,675Pension 653 514Capital and other assets 124 (2,887)Loss carryforward 10,232 4,566Discontinued operations - (4,963)Deferred income tax assets 12,750 (95)Derecognition of deferred tax asset (12,750) -Net deferred income tax asset (liability) $ - $ (95) Derecognition of deferred tax asset ($12,750) includes $13,540 charged to the consolidated statements of income, net of $1,032 recognized in the consolidated statements of comprehensive income. As of December 31, 2016, the Company has $37,130 of non-capital losses that begin to expire in 2036 and $1,807 of capital losses that can be carried forward indefinitely. The above is presented on the consolidated statements of financial position as follows:


Deferred income tax asset $ - $ 4,868Deferred income tax liability $ - $ (4,963)

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:

2016 2015As at January 1 $ (95) $ (797)Discontinued operations 5,205 (1,253)Income statement charge (deferred tax) 7,457 3,236Tax charges relating to components of other

comprehensive income 183 (1,281)Derecognition of deferred tax asset (12,750) -As at December 31 $ - $ (95)



20

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 TotalAs at December 31, 2015 $ (11,209) $ (11,209)Discontinued operations 8,322 8,322Charged to income statement 3,011 3,011Derecognition of deferred tax asset (124) (124)As at December 31, 2016 $ - $ -

Deferred income tax assets

Eligible capital

expenditures and other

reserves Employee

Benefits Unused tax

losses Total As at December 31, 2015 $ 4,716 $ 514 $ 5,884 $ 11,114Discontinued operations (2,042) - (1,075) (3,117)Charged to income statement (941) (36) 5,423 4,446Charged to other comprehensive income 8 175 - 183

Derecognition of deferred tax asset (1,741) (653) (10,232) (12,626)As at December 31, 2016 $ - $ - $ - $ -

Deferred income tax liabilities

Property and equipment and other

assets TotalAs at December 31, 2014 $ (6,595) $ (6,595)Discontinued operations (1,765) (1,765)Charged to income statement (2,849) (2,849)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 $ 5,798Discontinued operations 777 - (264) 513Charged to income statement 728 71 5,286 6,085Charged to other comprehensive income (116) (1,165) - (1,281)

Other (1) - - (1)As at December 31, 2015 $ 4,716 $ 514 $ 5,884 $ 11,114



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9 Intangible asset

Year ended December 31, 2015Opening net book value $ - Additions 17,822 Amortization (454)Closing net book value 17,368 As at December 31, 2015Cost 17,822 Accumulated amortization (454)Net book value 17,368 Year ended December 31, 2016Opening net book value 17,368 Impairment (16,499)Amortization (869)Closing net book value - As at December 31, 2016Cost 17,822 Accumulated amortization and impairment (17,822)Net book value $ -

Definite life intangible asset

Impairment of intangible asset

An impairment exists when the carrying value of an asset or Cash Generating Unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell (“FVLCS”) and its value in use. During the third quarter, the Company determined that there were indicators of impairment triggered by a history of operating losses due to the continued downturn in the market, a decline in net cash flows, the carrying amount of the Companyʼs net assets exceeding its market capitalization and the sale of Chadwick-BaRoss Inc. 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 one year 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 forecasts prepared by the Companyʼs management. Forward multiples which are based on public market data including information from analysts covering the

Company as well as competitive data.

For all CGUs, the carrying amount of individual assets did not exceed their recoverable amounts, except for the intangible asset. In the third quarter, an impairment charge for $16.5 million, representing the carrying value of the intangible asset, was recorded in the statements of loss.



22

10 Debt

As at December 31

Current Bank indebtedness (a) $ 30,701 $ 33,155 Finance lease obligations (b) 3,494 3,772 Notes payable (c) 1,254 21,681

$ 35,449 $ 58,608

Non-current Finance lease obligations (b) $ 2,722 $ 3,762 Total Debt $ 38,171 $ 62,370

2016 2015

a. Bank indebtedness

The Company has credit facilities with a bank in Canada that provides an operating line of credit. With the sale of Chadwick-BaRoss Inc. in the third quarter 2016, the operating line in Canada was reduced from $35 million to $30 million and was changed from a 3-year committed line to a revolving demand facility.

Borrowings under the operating line of credit are limited by standard borrowing base calculations based on accounts receivable and inventories, 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 note lenders), capital assets (subordinated to collateral provided by lessors), real estate and intangible and other assets. The Canadian bank operating line bears interest at rates that vary with bank prime rates or Bankersʼ 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. At December 31, 2016 and 2015, the effective interest rate of the operating lines was 7.00% in Canada (December 31, 2015 – 7.00%).

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 Companyʼs availability under its operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongcoʼs performance on the sale of equipment to the customer. As at December 31, 2016 and 2015, there were outstanding letters of credit of $10.

The bank credit facilities contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. As at December 31, 2016, the Company was in compliance with all of the banking covenants.



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b. Finance lease obligations

As at December 31, 2016, the Company had vehicles and computer equipment under finance leases. The weighted average effective interest rate is 7.1% (December 31, 2015 – 6.5%). The future minimum annual payments, interest and balance of obligations are as follows: As at December 31

No later than 1 year $ 3,494 $ 3,772 Later than 1 year but no later than 5 years 3,281 4,337 Later than 5 years - - Total minimum lease payments $ 6,775 $ 8,109

Future finance charges on finance leases (559) (575) Present value of finance lease liabilities $ 6,216 $ 7,534

2016 2015

The present value of financial lease liabilities is as follows:

As at December 31

No later than 1 year $ 3,494 $ 3,772 Later than 1 year but no later than 5 years 2,722 3,762 Later than 5 years - -

$ 6,216 $ 7,534

2016 2015

c. Notes payable

Notes payable are comprised of the following: As at December 31 2016 2015Equipment notes payable – rental fleet $ 1,254 $ 16,391Term note – Chadwick-BaRoss Inc. - 5,290

$ 1,254 $ 21,681Current portion 1,254 21,681Long-term portion $ - $ -

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 4.54% to 5.64% with various maturity dates.



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

Carrying amountAs at December 31

Bank indebtedness $ 30,701 $ 33,155Notes payable 1,254 21,681Finance lease obligations 6,216 7,534

$ 38,171 $ 62,370

Fair ValueAs at December 31

Bank indebtedness $ 30,701 $ 33,155Notes payable 1,254 21,263Finance lease obligations 6,216 7,534

$ 38,171 $ 61,952

2016 2015

2016 2015

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.

11 Trade and other payables

As at December 31

Trade payables $ 20,182 $ 24,630 Accrued liabilities 26,241 19,658

$ 46,423 $ 44,288

2016 2015

During the second quarter 2016, the Company sold certain pieces of equipment to Oakwest Corporation Limited (Oakwest), a large shareholder and related party, for proceeds of $2.8 million. The sale agreement with Oakwest provided that the equipment may be returned by Oakwest at its option at any time within twelve months following the sale, provided the equipment has not been used, with a full refund of proceeds plus interest at 7.5%. Consequently, the sale transaction was not recorded through the consolidated statements of loss. During the fourth quarter, Oakwest returned the equipment and as at December 31, 2016, $2.8 million and accrued interest of $53 are owing to Oakwest have been classified as accrued liabilities. The amount is unsecured, due on demand and bears interest at a rate of 7.5% per annum. During the year ended December 31, 2016, the Company recorded a restructuring provision of $3.6 million for severance and other termination costs of senior executives and other employees, in response to ongoing weak economic conditions. As at December 31, 2016, an accrual for restructuring costs of $1.6 million is included in accrued liabilities.



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12 Provision for other liabilities

Equipment buy-back obligation

At as January 1, 2016 $ 133Charged (credited) to the income statement

Additional provision -Unused amounts reversed (3)Used during the year (60)

As at December 31, 2016 $ 70Current portion 28Long-term portion $ 42

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

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, 2016, the total obligation under these contracts was $5,588 (December 31, 2015 – $9,740). The Companyʼs 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 $69 (December 31, 2015 – $133) has been accrued in the Companyʼs accounts with respect to these commitments. The long-term portion of the reserve related to these contracts of $42 (December 31, 2015 – $71) is classified as long-term liabilities.

13 Equipment notes payable

The Company has lines of credit available totalling approximately $182 million from various non-bank equipment lenders in Canada and the United States, which are used to finance equipment inventory (December 31, 2015 – $259 million). As at December 31, 2016, there was approximately $101 million borrowed on these equipment finance lines (December 31, 2015 – $180 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 Bankersʼ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing companyʼs margin. As at December 31, 2016, the rates ranged from 4.54% to 6.95% with an effective weighted average rate of 5.67% (2015 – 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



26

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 Companyʼs equipment note facilities are renewable annually.

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: As at December 31

Equipment notes payable – non-interest-bearing $ 26,722 $ 59,233 Equipment notes payable – interest-bearing 74,487 97,456 Discontinued operations – non-interest-bearing - 4,631 Discontinued operations – interest-bearing - 18,951

$ 101,209 $ 180,271

2016 2015

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. Certain of the Companyʼs 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”). Two of the Companyʼs equipment finance agreements contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. As at December 31, 2016, the Company was in compliance with all of the covenants under one of the agreements and received a waiver from the lender for an impending violation of the covenants under the other agreement.

14 Employee benefit obligations

Obligations in the consolidated statements of financial position for:

Pension benefits $ 2,362 $ 1,907Dental, health and other post-employment benefits 1,664 1,592

$ 4,026 $ 3,499Charges to the consolidated statements of income for:

Pension benefits $ 2,944 $ 3,678Dental, health and other post-employment benefits 48 73

$ 2,992 $ 3,751

2016 2015 As at December 31



27

Total cash payments for employee future benefits for 2016, 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 $3,023 (2015 – $3,751). The history and experience adjustments in respect of post-employment benefit obligations are as follows:

Present value of benefit obligations $ 50,241 $ 47,715 Fair value of plan assets 46,215 44,216

Deficit in the plan 4,026 3,499

Experience adjustments in plan liabilities – gains (losses)Plan experience $ (5) $ 4,012 Changes in demographic assumptions - - Changes in financial assumptions (1,151) 19

Experience adjustments in plan assets – gains $ 490 $ 735

2016 2015 As at December 31

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 27% of the workforce (2015 – 22%)). In 2016, the Companyʼs contributions were $390 (2015 – $380). The Company also maintains a group retirement savings plan (RSP/LIRA) available only to certain employees (approximately 17% of the workforce (2015 – 17%)) under the terms of a collective bargaining agreement. In 2016, the Companyʼs contributions were $380 (2015 – $444).

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, 2016 was $223 (2015 – $220).

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, 2016 was $79 (2015 - $74).

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.



28

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

As at December 31

Fair value of plan assets $ 45,030 $ 1,185 $ 43,003 $ 1,213Present value of funded obligations 46,931 1,646 44,363 1,760

Accrued benefit liability $ 1,901 $ 461 $ 1,360 $ 547

2016 2015Employee

planExecutive

planEmployee

planExecutive

plan

The movement in the defined benefit obligation over the year is as follows: Year ended December 31

Accrued benefit obligation as at January 1 $ 44,363 $ 1,760 $ 46,078 $ 1,842Current service cost 2,250 - 2,725 -Interest cost 1,342 44 1,912 58Benefits paid (2,136) (171) (2,745) (170)Actuarial (gain) loss

Plan experience - - (3,607) 36Changes in demographic assumptions - - - -Changes in financial assumptions 1,112 13 - (6)

Accrued benefit obligation as at December 31 $ 46,931 $ 1,646 $ 44,363 $ 1,760

2015Employee

planExecutive

plan

2016Employee

planExecutive

plan

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

Year ended December 31

Fair value of plan assets as at January 1 $ 43,003 $ 1,213 $ 40,553 $ 1,232Actual return on plan assets 1,881 62 2,364 47Employer contributions 1,757 124 2,314 134Employee contributions 642 - 867 -Benefits paid (2,136) (171) (2,745) (170)Administration costs (117) (43) (350) (30)Fair value of plan assets as at December 31 $ 45,030 $ 1,185 $ 43,003 $ 1,213

2015Employee

planExecutive

plan

2016Employee

planExecutive

plan



29

Plan assets consist of:

As at December 31

Asset category % % % %Canadian equity 9.6 11.2 15.2 17.8Non-domestic equity 24.5 29.2 28.6 33.5Bonds 46.5 34.8 42.1 33.7REITs/infrastructure/utilities 9.6 11.4 7.2 8.6Mortgages 8.3 9.6 5.5 6.4Cash and money market 1.5 3.8 1.4 -

100.0 100.0 100.0 100.0

2016 2015Employee

planExecutive

planEmployee

planExecutive

plan

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

Consolidated statements of income (loss)

Year ended December 31

Employer current service costs $ (1,608) $ - $ (1,858) $ -Interest on net defined benefit asset (liability) (92) (13) (275) (19)Administration costs (117) (43) (350) (30)Sub-total $ (1,817) $ (56) $ (2,483) $ (49)

Consolidated statements of comprehensive income (loss)

Gain (loss) for the year on obligations $ (1,112) $ (13) $ 3,607 $ (30)Gain for the year on assets 457 46 726 8Sub-total (655) 33 4,333 (22)

Total $ (2,472) $ (23) $ 1,850 $ (71)

2016 2015Employee

planExecutive

planEmployee

planExecutive

plan

Expected employer contributions to the defined benefit employee pension plan for the year ending December 31, 2017 are $1,466 (2016 – $2,266).

Expected employer contributions to the defined benefit executive pension plan for the year ending December 31, 2017 are $134 (2016 – $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 valuation is required to be performed as at March 31, 2017.



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For the executive pension plan, the most recent actuarial valuation for funding purposes was performed as at June 30, 2015 and the next required valuation is due no later than as at June 30, 2018.

The principal actuarial assumptions used are as follows:

As at December 31

Discount rate 3.90% 3.30% 4.00% 3.30%

Average life expectancy> Male aged 45 40.3 N/A 40.2 N/A> Female aged 45 43.6 N/A 43.5 N/A> Male aged 65 21.6 21.6 21.5 21.5> Female aged 65 24.0 24.0 24.0 24.0

Duration of plan in years 15.4 7.2 15.4 7.2

2016 2015Employee

planExecutive

planEmployee

planExecutive

plan

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

Valuation 1% Change Change in overallassumption liability

Employee planDiscount rate 3.90% (6,264)Salary growth rate 3.00% 61

Executive planDiscount rate 3.30% (107)

4.90%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 Present value of obligation $ 1,664 $ 1,592Accrued benefit obligation in the consolidated statements of financial position $ 1,664 $ 1,592

2016 2015



31

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

As at December 31 Accrued benefit obligations as at January 1 $ 1,592 $ 2,020Current service cost - -Interest cost 142 74Benefits paid (70) (47)Actuarial (gain) loss - Plan experience 5 (442) - Changes in demographic assumptions - - - Changes in financial assumptions (5) (13)Accrued benefit obligations as at December 31 $ 1,664 $ 1,592

2016 2015

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 2016:

Increase DecreaseAccrued benefit obligations as at December 31, 2016 (at 3.7%) $ 198 $ (241)

15 Shareholdersʼ equity

Authorized: Unlimited number of shares Issued:

As at December 31, 2016, a total of 13,221,719 shares (December 31, 2015 – 13,221,719 shares) with a stated value of $65,497 (December 31, 2015 – $65,417) were issued and outstanding.



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16 Segment information

Management has determined that the Company has one reportable segment, Equipment Distribution based on reports reviewed by the Executive Chairman, 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:

Year ended December 31 2016 2015Analysis of revenue by category:Equipment sales $ 239,504 $ 252,641Equipment rental 15,179 18,813Product support 106,618 113,548Total revenue $ 361,301 $ 385,002 Geographic information for the year ended and as at is as follows:

December 31, 2016

Revenue $ 361,301Property and equipment 11,119Rental fleet 630Intangible asset -Other non-current assets other than deferred income tax assets $ 3,321

December 31, 2015

Revenue $ 385,002 $ - $ 385,002Property 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

Canada

Canada US Total

17 Other (income) expense

Other income for the year ended December 31, 2016 of $1,339 (December 31, 2015 – expense of $1,819) 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.



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18 Expenses by nature

Year ended December 31 2016 2015

Changes in inventories of equipment, parts and work-in-process $ 287,240 $ 300,572Raw materials and consumables used 1,311 1,226Depreciation 1,944 2,690Utilities 1,248 1,472Operating lease expenses 11,438 11,403Transportation expenses 2,793 2,563Advertising expenses 402 686Salaries, wages and commissions 55,048 60,723Telephone, fax and office supplies 2,067 2,332Other 6,854 4,292Total cost of sales, administration and selling expenses $ 370,345 $ 387,959

Salaries, wages and commission expense comprises the following:


Salaries and wages $ 51,925 $ 57,093Commissions 1,202 1,098Employee future benefits 1,921 2,532

$ 55,048 $ 60,723

19 Interest expense


Bank indebtedness $ 1,141 $ 1,172Equipment notes payable – interest-bearing 4,557 6,109Notes payable 86 109Finance lease obligations 11 13

$ 5,795 $ 7,403



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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.


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

- -

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, 2016, dilutive options totalled nil shares (December 31, 2015 – nil shares) and anti-dilutive options totalled 209,141 shares (December 31, 2015 – 439,141 shares).

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: As at December 31 2016 2015

Number of options

Weighted average exercise

price Number of

options


price

Options outstanding – beginning of year 439,141 $ 4.69 469,141 $ 4.63Granted - - - -Exercised - - - -Forfeited (230,000) 4.50 (30,000) - 3.67Options outstanding – end of year 209,141 $ 4.90 439,141 $ 4.69Options vested and exercisable – end of year 100,732 $ 5.56 250,092 $ 4.64



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The following table summarizes the exercise prices of outstanding stock options: As at December 31, 2016 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 52.7 months $ 3.67 - $ -$4.50 – $5.00 83,863 39.1 months 4.92 50,739 4.92$6.00 – $6.50 60,278 26.7 months 6.20 49,993 6.20$3.50 – $6.50 209,141 39.8 months $ 4.90 100,732 $ 5.56

The Company uses the Black-Scholes option pricing model to estimate the fair value of the options at their grant date. No options were granted during 2016 or 2015.

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. No RSUs were granted during 2016 or 2015. The following table summarizes outstanding RSUs:


Number of RSUs

Number of RSUs

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

Weighted average unit

value

Weighted average unit

value

Stock-based compensation expense resulting from the stock options and RSUs is $60 (2015 – $81).



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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 Queenʼs 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 Companyʼs insurer has provided conditional coverage for this claim.

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:

As at December 31 2016 2015No later than 1 year $ 10,269 $ 10,891Later than 1 year but no later than 5 years 27,606 28,327Later than 5 years 27,988 33,475

$ 65,863 $ 72,693

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 Companyʼs financial instruments are classified into the following categories:

As at December 31

Derivatives held at fair value through profit or loss $ (109) $ (468)Loans and receivables (1) 37,024 56,951Other financial liabilities (2) $ 185,803 $ 286,930

2016 2015

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

payable (excludes Provision)



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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

This fair value measurement hierarchy applies to the Companyʼs 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.



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The fair value of the Companyʼs equipment notes payable, finance lease obligations, notes payable, foreign exchange forward contracts and interest rate swap contracts as at December 31, 2016 and 2015 are as follows:

Liabilities for which fairvalues are disclosed

Equipment notes payable $ 101,209 $ - $ 101,209 $ -Finance lease obligations 6,216 - 6,216 -Notes payable (excludes Provision) 1,254 - 1,254 -Liabilities measured

at fair valueForeign exchange

forward contracts 16 - 16 -Interest rate swap contracts (125) - (125) -

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) -

December 31,2016

Level 1 Level 2 Level 3

December 31,2015

Level 1 Level 2 Level 3

24 Financial risk management

The Companyʼs activities expose it to a variety of financial risks: market risk (including foreign exchange and interest rate risk), credit risk and liquidity risk. The Companyʼs overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Companyʼs 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 Companyʼs 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.



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Market risk

a. Foreign exchange risk

The Company operates in Canada. 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 Companyʼs 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. A substantial portion of the Companyʼs equipment inventory and parts purchases are denominated in US dollars and translated into Canadian dollars at the date of receipt.

As at December 31, 2016, the Company carried $7,814 in US dollar denominated liabilities net of US dollar denominated trade receivables (December 31, 2015 – $7,068). A $0.10 change in the exchange rate between the Canadian and US currencies would have an effect of approximately $781 on net income for the year ended December 31, 2016 (December 31, 2015 – $707). 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, 2016, the Company had outstanding foreign exchange forward contracts under this facility totalling US$3.4 million at an average exchange rate of $1.3321 Canadian for each US$1.00 and €0.8 million at an average exchange rate of $1.4408 Canadian for each €1.00 with settlement dates between January 2017 and the April 2017 (December 31, 2015 – US$4.4 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, 2016, the unrealized gain associated with foreign currency forward contracts is $16 (December 31, 2015 – unrealized gain of $107).



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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 Companyʼs debt for a five-year fixed swap rate of interest. The value relating to outstanding interest rate swaps at December 31, 2016 totalled $35.0 million. Their interest rates range from 1.58% to 1.78%, with maturity from May 2017 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, 2016, the unrealized loss associated with the swap is $125 (December 31, 2015 – loss of $575).

b) Interest rate risk

Strongcoʼs 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, 2016, a portion of the Companyʼs 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, 2016, the Company had $71,443 in interest-bearing floating rate debt (December 31, 2015 – $115,953). A 1.0% change in interest rates would have an effect of approximately $714 on net income for the year ended December 31, 2016 (December 31, 2015 – $1,160).

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 Companyʼs management continuously 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. 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, 2016, the Company held customer deposits of $256 (December 31, 2015 – $254).



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Liquidity risk

Liquidity risk arises through an excess of financial obligations over available financial assets due at any point in time. The Companyʼs 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, 2016, the Company had undrawn lines of credit available to it of $3.0 million (December 31, 2015 – $6.0 million). The maturity of the carrying value of the Companyʼs non-derivative debt and contractual obligations relating to outstanding derivative instruments as at December 31, 2016 is as follows:

Non-derivativesBank indebtedness $ 30,701 $ $ 30,701Equipment notes 101,209 101,209Notes payable 1,254 1,254

DerivativesForeign exchange forward contracts $ 5,627 $ $ 5,627Interest rate swap contracts 35,000 35,000

Less than 1 year

Between 1 and 5 years

Total

25 Management of capital

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

The Companyʼs 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 Companyʼs 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 shareholdersʼ equity does not exceed a specific threshold. As a result of non-cash charges during 2016 from the impairment of the intangible asset and the valuation allowance recorded against deferred income tax assets, the Company revised the target ratio to not exceed 5.0 (2015 - 4.0).



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As at December 31, 2016 and 2015, the above capital management criteria can be illustrated as follows:

As at December 31

Interest-bearing debt $ 30,701 $ 33,155Equipment notes payable 101,209 180,271Other debt 1,254 21,681Total managed debt instruments $ 133,164 $ 235,107Shareholders' equity $ 29,183 $ 71,605Ratio of total managed debt instruments to shareholders' equity 4.6 3.3

2016 2015

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

The Companyʼs 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 $20 million, a maximum ratio of total debt to tangible net worth (“Debt to TNW Ratio”) covenant of 7.25:1 and a minimum ratio of earnings before interest, taxes, depreciation and amortization to total interest (“Interest Coverage Ratio”) covenant of 1.75:1. 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 at December 31, 2016, the Company was in compliance its bank and equipment note lenders. 26 Key management compensation

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

Year ended December 31 2016 2015Salaries and short-term benefits $ 2,402 $ 2,820Employee future benefits 170 177Share-based payments 53 79

$ 2,625 $ 3,076



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27 Changes in non-cash working capital

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

Year ended December 31 2016 2015Changes in non-cash working capitalAssets (increase) decrease:

Trade and other receivables $ 9,311 $ 6,929Inventories 40,540 15,455Income tax recoverable (1,508) -Prepaid expenses and other deposits 424 596Other assets 172 107

Liabilities increase (decrease):Trade and other payables 7,402 (10,537)Provision for other liabilities (35) (102)Deferred revenue and customer deposits (5,196) 2,736Equipment notes payable (55,481) (19,754)

$ (4,371) $ (4,570)

28 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. and The Manitowoc Company Inc. The distribution and servicing of Volvo and Manitowoc products account for a substantial portion of the Companyʼs operations. The Company has had an ongoing relationship with Volvo since 1991 and with the Manitowoc group of companies since 1965 representing approximately 70% of revenues.

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 A. Anhang1

Corporate Director

John K. Bell1

Corporate Director

Robert J. BeutelExecutive Chairman

Anne Brace1, 2

Corporate Director

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

Corporate Director

Yedidia S. Koschitzky2

Corporate Director

1. Member of Audit Committee

2. Member of Corporate Governance, Nominating,

Compensation and Pension Committee

DIRECTORS

Robert J. BeutelExecutive Chairman

J. David Wood, CPAVice President and Chief Financial Officer

Christopher D. ForbesVice President, Chief Human Resources Officer and Secretary

Jack BradleyVice President, Supply Chain, Inventory Control and Logistics

Peter Rayner, CPADirector, Finance

OPERATIONS

Construction Equipment

Oliver NachevskiVice President, Construction Equipment

Steve Di LoretoRegional Vice President, Alberta

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

OFFICERS AND SENIOR MANAGEMENT


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

strongco.com

2016 - strongco · results of operations of strongco corporation, strongco gp inc. and strongco...

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