strongco corporation third quarter report · strongco corporation third quarter report nine months...

Strongco corporation tHirD QUartEr rEport

ninE MontHS EnDED SEptEMBEr 30, 2011

Strongco corPorAtIon 2011 THIRD QUARTER REpoRT 1

Strongco corPorAtIon 2011 THIRD QUARTER REpoRT 1

To Our Shareholders During the third quarter of 2011, Strongco achieved major gains in revenue, EBITDA, net earnings and EPS over last year. The across-the-board improvement reflects the execution of Strongco’s growth strategy, which is to combine the expansion of our position in existing markets with strategic acquisitions while improving internal productivity. Our results for both the third quarter and the first nine months of 2011 demonstrate the success of that strategy. Acting in our favor were improved end use markets, powered by a generally recovering economy and rising commodity prices. Regionally, there was increased activity in Alberta’s oil patch, heavy government infrastructure spending in Quebec and rising general construction in Ontario. The combination strengthened overall demand for heavy equipment, and our expanded market share indicates we also benefited from better sales execution in existing markets plus new contributions from Chadwick-BaRoss, the New England operation we acquired earlier this year. It is worth noting that markets we serve for heavy construction equipment other than cranes were 35% higher in the third quarter over last year. Strongco outperformed the market, with a total unit volume increase of more than 50% over 2010 and more than 60% year to date. Average selling prices increased this year owing to higher sales of more expensive machinery. As a result, Strongco’s third quarter revenues moved up by 36% over 2010. Even excluding Chadwick-BaRoss, our top line advanced by 20%. That increase was driven by substantial improvements in each of our three business areas. Equipment sales paced the overall average with a 36% increase, while product support revenues gained 37% and rentals moved up by 31%. Our productivity enhancements were reflected in gross margin, which increased by 45% to $21.5 million. That equated to 19.9% of revenues, up from 18.6% last year. It also helped to fuel an 85% increase in EBITDA, one measure of operating profitability, to a new high of $13.3 million. As a percentage of revenue, EBITDA improved to 12.2% from 9.3% last year. Strongco ended the third quarter with net earnings of $3.6 million or 28 cents per share, of which Chadwick-BaRoss contributed $306,000. That was up from a loss of $294,000 or three cents per share in 2010. In addition, it was the fifth consecutive quarter of improved net earnings, which we see as a validation of the Company’s business model and growth strategy. As we enter the fourth quarter, the outlook is favorable. Economic growth is forecasted to continue, albeit at a slower pace, during the balance of 2011 and into 2012. In particular, business fixed investment is expected to grow solidly. That bodes well for heavy construction, and ongoing strength in oil and gas prices is expected to continue supporting the oil patch in Alberta.

2 Strongco corPorAtIon 2011 THIRD QUARTER REpoRT Strongco corPorAtIon 2011 THIRD QUARTER REpoRT 3

Strongco is improving customer service capacity in Alberta by building a new Volvo outlet in Edmonton and dedicating the existing building to our crane business. In addition, we have arranged financing for a similar facility in Fort McMurray, where we are currently looking for an appropriate location and plan for construction to begin in 2012. During the third quarter we completed construction of a new outlet in Orillia to improve service to the quarry and aggregates industry in central Ontario. The combination of solid product, strong demand, efficient operations and resilient end use markets positions Strongco well for continued growth. Robert H.R. Dryburgh President and Chief Executive Officer


Strongco Corporation Management’s Discussion and Analysis The following management discussion and analysis (“MD&A”) provides a review of the consolidated financial condition and results of operations of Strongco Corporation, formerly Strongco Income Fund (“the Fund”), Strongco GP Inc. and Strongco Limited Partnership collectively referred to as “Strongco” or “the Company”, as at and for the three months and nine months ended September 30, 2011. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements as at and for the three months and nine months ended September 30, 2011. For additional information and details, readers are referred to the Company’s audited consolidated financial statements and accompanying MD&A as at and for the year ended December 31, 2010 contained in the Company’s annual report for the year ended December 31, 2010, the Company’s unaudited consolidated financial statements and accompanying MD&A as at and for the three month periods ended March 31, 2011 and June 30, 2011, the Company’s Notice of Annual and Special Meeting of Shareholders and Management Information Circular (“MIC”) dated April 20, 2011, and the Company’s Annual Information Form (“AIF”) dated March 30, 2011, all of which are published separately and are available on SEDAR at www.sedar.com. The information in this MD&A is current to November 7, 2011. FINANCIAL HIGHLIGHTS Income Statement Highlights Nine months ended September 30($ millions, except per unit amounts) 2011 2010 2011 2010Revenues $ 108.4 $ 79.6 $ 309.9 $ 202.9 Net income (loss) $ 3.6 $ (0.3) $ 7.9 $ (2.7)

Basic and diluted earnings (loss) per share $ 0.28 $ (0.03) $ 0.60 $ (0.24) EBITDA (note 1) $ 13.3 $ 7.2 $ 30.6 $ 13.8

Balance Sheet Highlights($ millions, except per unit amounts)Equipment inventory $ 188.2 $ 152.5 Total assets 302.0 224.3 Debt (bank debt and other notes payable) 28.4 13.4 Equipment notes payable 160.4 125.5 Total liabilities $ 240.6 $ 181.1

Three months ended September 30

Note 1 – EBITDA is a non-IFRS measure. See explanation under the heading “Non-IFRS Measures” below. COMPANY OVERVIEW Strongco is one of the largest multi-line mobile equipment distributors in Canada. In February 2011, Strongco acquired 100% of the shares of Chadwick-BaRoss, Inc., a multi-line distributor of mobile construction equipment in the New England region of the United States, (see discussion below under the heading “Acquisition of Chadwick-BaRoss, Inc.”). Strongco sells and rents new and used equipment and provides after-sale product support (parts and service) to customers that operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets. This business distributes numerous equipment lines in various geographic territories. The primary lines distributed include those manufactured by:

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

ii. Case Corporation ("Case"), for which Strongco has a distribution agreement for a substantial portion of Ontario; and

iii. Manitowoc Crane Group ("Manitowoc"), for which Strongco has distribution agreements for the Manitowoc, Grove and National brands, covering much of Canada, excluding Nova Scotia, New Brunswick and Prince Edward Island.

The distribution agreements with Volvo and Case provide 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 ancillary or complementary equipment lines and attachments.


CONVERSION TO A CORPORATION The Fund was an unincorporated, open-ended, limited purpose trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated March 21, 2005 as amended and restated on April 28, 2005 and September 1, 2006. Pursuant to a plan of arrangement approved by the unitholders at the Fund’s Annual and Special Meeting on May 14, 2010, the Fund was converted to a corporation effective July 1, 2010. The conversion involved the incorporation of Strongco Corporation, which issued shares to the unitholders in exchange for the units of the Fund on a one for one basis so that the unitholders became shareholders in Strongco Corporation, after which the Fund was wound up into Strongco Corporation. Following the conversion on July 1, 2010, Strongco Corporation has carried on the business of the Fund unchanged except that Strongco Corporation is subject to taxation as a corporation. The results of operations, balance sheet and cash flow figures presented in the following MD&A for comparative periods prior to July 1, 2010 reflect those of the Fund. References in this MD&A to shares and shareholders of the Company are comparable to units and unitholders previously under the Fund. Details of the conversion are outlined in the Fund’s Management Information Circular dated April 6, 2010, which contains the Plan of Arrangement, available on SEDAR at www.sedar.com. FINANCIAL RESULTS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 Consolidated Results of Operations

($ millions, except per share amounts) 2011 2010 2011 2010Revenues $ 108,395 $ 79,588 $ 309,940 $ 202,859 Cost of sales 86,864 64,781 250,187 162,540 Gross Margin 21,531 14,807 59,753 40,319 Administration, distribution and selling expenses 16,255 13,745 47,763 39,987 Other expense (income) (60) 122 (513) (467) Total Expenses 16,195 13,867 47,250 39,520 Operating income 5,336 940 12,503 799 Interest expense 1,495 1,234 4,249 3,462 Earnings (loss) from operations before income taxes 3,841 (294) 8,254 (2,663) Provision for income taxes 213 - 396 -

Net income (loss) $ 3,628 $ (294) $ 7,858 $ (2,663) Basic and diluted earnings (loss) per share $ 0.28 $ (0.03) $ 0.60 $ (0.24)Weighted average number of shares - Basic 13,128,629 10,508,719 13,022,214 11,053,532 - Diluted 13,167,927 10,508,719 13,061,512 11,053,532 Key financial measures:Gross margin as a percentage of revenues 19.9% 18.6% 19.3% 19.9%Administration, distribution and selling expenses as percentage of revenues 15.0% 17.3% 15.4% 19.7%Operating income as a percentage of revenues 4.9% 1.2% 4.0% 0.4%EBITDA (note 1) $ 13,286 $ 7,161 $ 30,562 $ 13,794

Nine months ended September 30Three months ended September 30

Note 1 – EBITDA is a non-IFRS measure. See explanation under the heading “Non-IFRS Measures” below. Acquisition of Chadwick-BaRoss, Inc. On February 17, 2011, the Company completed the acquisition of 100% of the shares of Chadwick-BaRoss, Inc. (“Chadwick-BaRoss”) for net proceeds of US$11.1 million. The transaction value was satisfied with net cash proceeds of US$9.2 million and notes issued to the major shareholders of Chadwick-BaRoss totalling US$1.9 million. Chadwick-BaRoss is a heavy equipment dealer headquartered in Westbrook, Maine, with three branches in Maine and one in each of New Hampshire and Massachusetts. The acquisition was effective as of February 1,


2011 and the results of Chadwick-BaRoss have been included in the consolidated results of Strongco from that date. Market Overview Strongco participates in 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. As construction markets recover following a recession, demand for heavy equipment normally improves as construction activity and confidence in construction markets build. In addition, as the financial resources of customers strengthen, they have historically replenished and upgraded their equipment fleets after a period of restrained capital expenditures. Demand in oil and gas and mining markets are affected by the economy but also tend to be driven by the global demand and pricing of the relevant commodities Recovery 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 stronger following a recession until confidence is restored and financial resources of customers improve. While the economic recession that persisted throughout most of 2009 was officially over in Canada in 2010, construction markets remained weak in the first quarter of 2010. With the onset of warmer spring weather and spurred by government stimulus spending for infrastructure projects, construction activity began to show signs of improvement in the third quarter of 2010. This improvement continued in the fourth quarters of 2010 as confidence in the economy increased. Correspondingly, demand for new heavy equipment was soft in the first quarter of 2010 but started to improve late in the second quarter and continued to strengthen in the third and fourth quarters of 2010. While construction markets and demand for heavy equipment were improving, many customers remained reluctant or lacked the financial resources following the recession to commit to purchase new construction equipment and instead rented to meet their equipment needs in the first half of 2010. That trend continued in the second half of 2010, but with confidence in the economy continuing to rise, construction activity increasing, and activity in the oil patch in Alberta increasing, customers were more willing to purchase equipment and exercise purchase options under rental contracts (“RPO”) in the fourth quarter of 2010. Recovery was first evident in the markets for compact and lower priced equipment while demand for larger higher priced equipment was slower to recover. In particular, the market for cranes remained weak in the first and second quarters of 2010 but started to show improvement in the latter half of the year. Strongco’s sales backlogs for all categories of equipment, including cranes, improved steadily throughout the first and second quarters of 2010 and remained strong throughout the balance of the year and into 2011. With continuing strength in the Canadian economy, the improving trend in end use markets and increased demand for heavy equipment evident in the latter half of 2010 continued into 2011. Significant infrastructure projects for hydro-electric facilities, road construction and bridge repair and other infrastructure improvements initiated in 2011 also increased demand for heavy equipment. In addition, with continued strength in oil prices, activity in and around Alberta’s oil sands has been robust, resulting in increased demand for heavy equipment. While customers have been more confident and willing to purchase equipment in 2011, rental activity, especially under RPO contracts, also remained strong in the first nine months of the year. With the increasing demand for heavy equipment, sales backlogs in Canada have continued to show strength in 2011. While the economy and demand for equipment have been improving in Canada, there has been little recovery in heavy equipment markets in the United States due to continued weak economic conditions. Residential construction has been a big driver of the US economy and heavy equipment markets in the past. However, current housing activity in most states remains depressed which continues to negatively affect demand for heavy equipment. Certain market segments, waste management and scrap handling in particular, have experienced continued activity and generated some demand for heavy equipment in the northeastern US. In addition, while sales of new equipment have not shown significant growth, parts and service activity in New England has remained fairly strong as customers repaired rather than replaced their fleets. In response to the weak global economic conditions and the recession in the United States in particular, original equipment manufacturers (“OEM’s”) scaled back production capacity. As demand in Canada and certain other countries around the world has been increasing, OEM’s have been challenged to bring production back on line at the same pace. This has resulted in longer delivery lead times and reduced availability of equipment in 2011. OEM production levels are improving, but delivery lead times for new equipment have remained stretched in 2011. This has benefitted dealers carrying higher levels of older equipment inventories. In addition, the scheduled


transition from tier 3 engines to the new lower-emission tier 4 technology has affected supply and increased demand for equipment with tier 3 engines. The tsunami and nuclear disaster in Japan earlier in 2011 has affected production and supply of certain brands and types of equipment manufactured in Japan. In addition, supply of certain parts from Japan for equipment manufactured in other parts of the world has also been affected by the crisis. To date, Strongco has not been impacted by this disaster as the vast majority of the equipment it distributes is manufactured outside of Japan. However, parts shortages from Japan have impacted production schedules and could affect equipment availability in the future. Revenues A breakdown of revenue for the quarter and nine months ended September 30, 2011 and 2010 is as follows:

[$ millions] 2011 2010 2011 2010Eastern Canada (Atlantic and Quebec)Equipment Sales $ 20.6 $ 20.1 $ 67.7 $ 47.8 Equipment Rentals 4.2 2.8 7.7 5.6 Product Support 11.4 9.6 32.3 27.9 Total Eastern Canada $ 36.2 $ 32.5 $ 107.7 $ 81.3

Central Canada (Ontario)Equipment Sales $ 18.2 $ 17.1 $ 62.3 $ 47.1 Equipment Rentals 1.4 1.5 3.6 4.3 Product Support 9.0 8.1 25.9 23.5 Total Central Canada $ 28.6 $ 26.7 $ 91.8 $ 74.9

Western Canada (Manitoba to BC)Equipment Sales $ 22.2 $ 13.0 $ 54.4 $ 26.6 Equipment Rentals 2.4 2.6 7.1 5.0 Product Support 6.1 4.8 18.1 15.1 Total Western Canada $ 30.7 $ 20.4 $ 79.6 $ 46.7

Northeastern United StatesEquipment Sales $ 7.2 16.8 Equipment Rentals 1.2 2.3 Product Support 4.5 11.7 Total Northeastern United States $ 12.9 $ 30.8

TOTAL RevenuesEquipment Sales $ 68.2 $ 50.2 $ 201.2 $ 121.5 Equipment Rentals 9.2 6.9 20.7 14.9 Product Support 31.0 22.5 88.0 66.5 TOTAL $ 108.4 $ 79.6 $ 309.9 $ 202.9

Three Months Ended September 30 Nine Months Ended September 30

Equipment Sales Strongco’s equipment sales in the three months ended September 30, 2011 were $68.2 million which was up $18.0 million or 36% from $50.2 million in the third quarter of 2010. For the nine months ended September 30, 2011, sales were $201.2 million compared to $121.5 million in the first three quarters of 2010. The recent acquisition of Chadwick-BaRoss in February 2011 accounted for $7.2 million of the sales increase in the quarter and $16.8 million of the increase year to date. Sales in Canada increased by $10.8 million or 22% in the quarter and $62.9 million or 52% in the first nine months of the year. Sales were up in all regions of Canada, with the largest increase in Alberta. The markets for new heavy equipment in Canada in which Strongco operates were stronger in all regions of the country. However, demand varied significantly from region to region and between product categories. Demand was strongest in Alberta, where activity in and around the oil sands has been robust, and in Quebec, as a result of extensive infrastructure improvements and hydro electric projects in the northern part of the


province. Markets for cranes were also up in all regions of Canada as many customers who curtailed spending during the recession began to replenish their fleets. Crane sales were strongest in Central and Eastern Canada in the first half of the year but increased significantly in Western Canada in the third quarter due in part to conversion of a few large cranes that had been on RPO contracts. The improving economic conditions, continued recovery in construction markets, higher infrastructure spending and increased activity in oil and gas and mining sectors in Canada resulted in stronger demand for heavy equipment. The markets for heavy equipment, other than cranes, that Strongco serves in Canada were estimated to be up an average of 35% in the third quarter and nine months of 2011. Accurate market data for cranes is not available but the market in Canada has improved in 2011 as many end users and large crane rental companies that curtailed purchases during the recession replenished and replaced aging fleets. The largest increase in demand for heavy equipment was in Alberta followed by Quebec and Ontario. In most regions of Canada, Strongco continued to outperform the market with the percentage increase in total unit volumes greater than the total market growth and as a result, Strongco’s market share increased. Average selling prices vary from period to period, depending on sales mix between product categories, model mix within product categories and features and attachments included in equipment being sold. Strongco’s average selling prices in the third quarter and first nine months of the year were higher than in 2010, due primarily to a higher proportion of sales of larger, more expensive equipment. Average selling prices in most product categories increased slightly compared to the first three quarters of 2010. While the ongoing strength of the Canadian dollar and price competition continued to put pressure on selling prices, increased demand, combined with product availability and delivery issues, helped support stronger selling prices in 2011. On a regional basis, equipment sales in Eastern Canada (Quebec and Atlantic regions) totalled $20.6 million in the third quarter, compared to $20.1 million in the third quarter of 2010. For the nine months, equipment sales in Eastern Canada totalled $67.7 million, which was $19.9 million or 42% above the same period in 2010. The bulk of the increase was in Quebec where construction markets continued to benefit from the high level of spending on infrastructure projects and large hydroelectric projects in the northern region of the province. The markets for heavy equipment in which Strongco participates in Eastern Canada were estimated to increase more than 25% in the quarter and 20% for the nine months compared to same periods in 2010. Strongco outperformed the market and captured a larger market share, with total unit volume growth of better than 35% in the quarter and 30% year to date. Most of the sales increase has been in cranes, loaders and articulated trucks. In addition, sales of rock crushing equipment in Quebec have been strong in the first three quarters of the year. The crane market in Eastern Canada, which generally remained weak in 2010 following the recession, showed continued improvement throughout 2011 as certain large crane rental customers in Quebec upgraded and increased their fleets and sales of a few large cranes that had been on RPO contracts. The Company’s sales of cranes in Eastern Canada were up 66% in the first nine months of 2011. Strongco’s equipment sales in the third quarter in Central Canada were $18.2 million, which was up from $17.1 million in the third quarter of 2010. For the nine months to September, the total was $62.3 million, $15.2 million or 32% higher than the same period in 2010. Sales of both general purpose equipment (“GPE”) and compact equipment increased in the quarter. After a slow start to the year as a result of the cold, snowy winter and very wet spring weather conditions that delayed many construction and infrastructure projects, activity in Ontario picked up in the second and third quarters, which increased demand and spending for heavy equipment. In the markets that Strongco serves in Central Canada, unit sales of heavy equipment in the third quarter were approximately 15% higher than a year ago and up over 20% year to date. Strongco outperformed the market, almost doubling its unit volume in the quarter and increasing volumes almost 80% year to date, capturing a larger share of the growing market. Price competition in Ontario in both GPE and compact equipment remained aggressive in the third quarter, especially from certain dealers attempting to capture market share in particular product categories and markets. Crane sales in Ontario in the first three quarters of 2011 were up more than 80% from a year ago as certain crane rental customers, who refrained from purchasing new cranes during the recession, replenished their fleets. Equipment sales in Western Canada during the third quarter were $22.2 million, which was up $9.2 million or 71% over third quarter of 2010. For the nine months to September, the total was $54.4 million, more than double a year earlier. Strongco’s product lines in Alberta serve the oil sector, primarily in the site preparation phase, as well as natural gas production, both of which were significantly impacted by weakness in the energy sector during 2009. In addition, the construction and infrastructure segments that Strongco serves in the region, were also severely impacted by the recession. With the upward trend and sustainability in oil prices through 2010 and into 2011, economic conditions in Alberta have improved. Construction activity and demand for heavy equipment began to show signs of recovery in 2010, particularly in Northern Alberta in the latter half of the year and that improvement


continued in the first three quarters of 2011. Total units sold in the markets served by Strongco in Alberta, excluding cranes, were estimated to be up approximately 84% relative to the first nine months of 2010. Strongco outperformed the market with total unit volume growth of almost 100% in the first three quarters of the year and captured a larger share of the recovering market. Most of the increase was in sales of GPE and larger equipment where growth of better than 150% was achieved. While this was a substantial increase over the first nine months of 2010, sales in Northern Alberta were hampered by longer delivery lead times and product availability issues on certain products. The market for cranes in Alberta has been recovering since the recession but more slowly that other heavy equipment. Demand for cranes in Western Canada, particularly in Northern Alberta, has improved significantly in 2011. Strongco’s crane sales in Alberta were somewhat constrained in the first half of the year due to delivery delays from the manufacturer. Benefitting from continued recovery in the market and a catch up on OEM deliveries, Strongco’s crane sales in Western Canada in the third quarter grew by 171% over the third quarter of 2010 and 82% year to date. Sales backlog of cranes in Alberta remains strong and RPO activity has increased, which are positive signs of continued recovery in the crane markets in Western Canada. Strongco’s equipment sales in the northeastern United States were $7.2 million in the third quarter and $16.8 million for the eight months from February 1, 2011, the effective date of the acquisition of Chadwick-BaRoss (see “Acquisition of Chadwick-BaRoss, Inc.”), to September 30, 2011. The markets for heavy equipment in New England remain soft and are down approximately 40% from pre-recession levels. The traditional heavy equipment markets for residential construction, forestry and infrastructure have remained depressed but other markets for scrap handling and waste management have strengthened in the New England area. Strongco’s market share for GPE in this reduced market increased during the quarter and sales were slightly ahead of the same period of the prior year but still down from pre-recession levels. However, Strongco’s market share for compact equipment in the region has declined slightly in 2011 due primarily to product shortages and delivery delays from the manufacturer. 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 the customers’ needs for specific projects. 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. Under an RPO, a portion of the rental revenue is applied toward the purchase price of the equipment, should the customer exercise the purchase option. This provides flexibility to the customer and results in a more affordable purchase price after the rental period, and normally the majority of RPO’s are converted to sales within a six month period. This market practice has proven to be an effective method of building sales and increasing the field population of equipment. Strongco’s rental revenue in the third quarter was $9.2 million, which was up $2.3 million, or 33%, over the third quarter of 2010. For the nine months, rental revenues totalled $20.7 million, which were $5.8 million or 39% ahead of the same period in 2010. Rental revenue from the acquisition of Chadwick-BaRoss in February 2011 contributed $1.2 million of the increase in the quarter and $2.3 million of the increase year to date. Rental revenue in Canada was up $1.1 million, or 16%, in the quarter and $3.5 million, or 23%, in the first nine months of 2011. Strongco’s rental activity in Canada was slow at the beginning of 2010 but grew steadily throughout the year, reflecting the preference of many customers to rent equipment as construction markets recovered following the recession. This was very evident with RPO activity, which was particularly strong in the last quarter of 2010. Rental activity, including RPOs, remained strong in the first three quarters of 2011. Most of the increase in rental revenue in the third quarter was in Eastern Canada due to several RPO contracts for articulated trucks and loaders. Rental activity has also been strong in Alberta in 2011, demonstrating further evidence of recovery in that province following the significant decline in rental activity during the recession. Strongco’s crane business, which has traditionally not had a significant rental element, also experienced an increase in rental activity in 2011 in all regions of Canada as customers showed a preference to rent following the recession as the demand and market for cranes recovered. Product Support Sales of new equipment usually carry a 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 differ from manufacturer to manufacturer and also vary depending 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 rising product support activities over time. Product support activities are normally strongest in Canada in the first quarter due to increased wintertime use of equipment for snow removal and during the third quarter, which is the height of the construction season. Product support activity declined during the recession because in the difficult economic environment, customers made only critical repairs to equipment and only when they had work requiring its use. However, product support declined less than sales of equipment and represented a larger proportion of total revenue as many customers chose to repair and extend the life of their existing machines, rather than purchase new. Product support activity began to improve in the latter half of 2010 and into 2011 as construction markets recovered from the recession. Strongco’s product support revenues in the third quarter of 2011 totalled $31.0 million, including $4.5 million from the newly acquired Chadwick-BaRoss and compares to $22.5 million in the third quarter of 2010. For the first nine months of 2011, product support revenues totalled $88.0 million, including $11.7 million from Chadwick-BaRoss, up from $66.5 million in the same period of 2010. Product support activities increased in all regions of Canada. Parts and service revenues benefited from higher amounts of snow and increased use of snow removal equipment in the first quarter of 2011, particularly in Western and Eastern Canada. Product support sales remained strong in the second and third quarters of 2011 as construction activity increased. Gross Margin

Gross Margin $ millions GM% $ millions GM% $ millions GM% $ millions GM%Equipment Sales $ 7.0 10.2% $ 4.6 9.2% $ 20.1 10.0% $ 11.3 9.3%Equipment Rentals 1.8 19.6% 1.0 14.1% 4.0 19.3% 2.3 15.3%Product Support 12.7 41.0% 9.2 41.1% 35.7 40.6% 26.7 40.2%Total Gross Margin $ 21.5 19.9% $ 14.8 18.6% $ 59.8 19.3% $ 40.3 19.9%

Three Months Ended September 302011 2010

Nine Months Ended September 302011 2010

As a result of higher revenues in the third quarter of 2011, Strongco’s gross margin increased by $6.7 million to $21.5 million from $14.8 million in the third quarter of 2010. For the nine months ended September 30, 2011, gross margin increased to $59.8 million from $40.3 million in the first three quarters of 2010. As a percentage of revenue, gross margin was 19.9% in the third quarter compared to 18.6% in the same quarter last year. Equipment sales typically generate a lower gross margin percentage than rental revenues and product support activities and as a result, the mix of revenue between sales, rentals and product support has a significant impact in the overall gross margin percentage. The mix of revenue in the third quarter of 2011 was consistent with the third quarter of 2010. Equipment sales accounted for approximately 63% of total revenues in the third quarter of 2011, unchanged from a year ago, while product support and rental revenues represented 29% and 8% of total revenues, respectively, in the third quarter of 2011 compared to 28% and 9% of total revenue, respectively, in the third quarter of 2010. For the first three quarters the gross margin percentage was 19.3%, down slightly from 19.9% in the first nine months of 2010. During this period, equipment sales represented 65% of total revenues in 2011, while product support and rentals represented 28% and 7% of total revenues, respectively. This compared to 60%, 33% and 7% of total revenue for equipment sales, product support and rentals, respectively, in the first three quarters of 2010. Gross margins have been maintained despite the impact of the steadily increasing strength of the Canadian dollar during the first nine months of 2011. Administrative, Distribution and Selling Expense Administrative, distribution and selling expenses in the third quarter of 2011 were $16.3 million or 15.0% of revenue, which compared to $13.7 million or 17.3% of revenues in the third quarter of 2010. For the nine months ended September 30, 2011, these expenses were $47.8 million or 15.4% of revenue, which compared to $40.0 million or 19.7% of revenues in the first three quarters of 2010. Most of the increase from 2010 relates to administration, distribution and selling expenses of the newly acquired Chadwick-BaRoss which amounted to $2.4 million in the quarter and $5.9 million for the eight months from the date of acquisition to September 30, 2011. Expenses year to date also include the one-time costs for the acquisition of Chadwick-BaRoss of $0.4 million incurred in the first quarter. In addition, given the strong results year to date, Strongco is on target to reach its annual incentive plan targets and employee bonuses of $0.9 million and $2.2 million were accrued in the third quarter and first nine months of the year, respectively. No bonus accrual was made in 2010. In addition, the significant increase in sales and service activity in 2011 resulted in larger amounts of overtime labour. While labour


utilization and recovery improved in 2011, overtime premiums could not be fully passed on, resulting in incremental expenses of approximately $0.5 million in the third quarter and $0.8 million for the first nine months of the year. Other Income / (Expense) Other income and expense 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 into 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 third quarter of 2011 was $0.1 million, compared to a net other expense of $0.1 million in the third quarter of 2010. For the first nine months of 2011, other income was $0.5 million unchanged from the first three quarters of 2010. Interest Expense Strongco’s interest expense in the third quarter and first nine months of 2011 was $1.5 million and $4.2 million, respectively, compared to $1.2 million and $3.5 million, respectively, in the same periods in 2010. The year over year increase was due to slightly higher interest rates charged on the Company’s bank debt and equipment notes and a higher average level of interest bearing debt. Strongco’s interest bearing debt comprises bank indebtedness, interest bearing equipment notes and notes payable. Strongco typically finances equipment inventory under floor plan lines of credit available from various non-bank finance companies. Most equipment financing has interest-free periods for up to eight months from the date of financing, after which the equipment notes become interest bearing. The rate of interest on the Company’s bank debt and interest bearing equipment notes varies with the Canadian chartered bank prime rate (“prime rate”) and Canadian Bankers Acceptances Rates (“BA rates”). Prime lending rates and BA rates have increased from the low levels that existed at the beginning of 2010. With the increase in prime rates and BA rates, the interest charged on the Company’s bank debt and equipment finance notes was higher in the first nine months of 2011 compared to the same period in 2010. In addition, the average amount of interest-bearing floor plan debt was higher in the first three quarters of 2011 compared to the prior year. During the recession, Strongco successfully reduced inventory and the related floor plan financing. As a result, interest-bearing equipment notes were lower in the first nine months of 2010. During 2010 and into 2011, Strongco has been increasing equipment inventories to support the increasing demand for heavy equipment as construction markets recovered. This resulted in a higher average level of interest-bearing equipment notes in the first nine months of 2011 compared to the same period of 2010 (see discussion under “Financial Condition and Liquidity”). In addition, the Company obtained a $5 million term loan from its bank in April 2011 to assist with the in the acquisition of CBR and issued and interest bearing notes totalling $US1.9 million to the previous shareholders of CBR which also contributed to a higher amount of interest bearing debt in 2011. Earnings before Income Taxes Strongco’s earnings before income taxes in the third quarter were $3.8 million, compared to a loss before income taxes of $0.3 million in the third quarter of 2010. For the first nine months of 2011, earnings before income taxes were $8.3 million, a significant improvement from a loss before income taxes of $2.7 million in the same period of 2010. The increase was due to the strong revenue performance in 2011 and the incremental pretax earnings from the acquisition of Chadwick-BaRoss of $0.5 million and $1.0 million in the third quarter and first three quarters of 2011, respectively. Provision for Income Tax Following conversion to a corporation on July 1, 2010, Strongco is now subject to income tax at corporate tax rates. As a consequence, Strongco is now able to utilize tax losses, including those previously unrecognized from the Fund. In addition, on the adoption of IFRS, temporary or timing differences between the tax and accounting values arose resulting in a net deferred tax asset. However, given the Company’s history of losses, there was no certainty of realization of the benefit of either the temporary differences or the losses from the Fund previously unrecognized and a valuation allowance was recorded for the full amount of the deferred tax asset. While Strongco has generated taxable income in Canada in 2011, no provision for income tax has been made in the first nine months of the year in Canada as the valuation allowance was drawn down by $1.7 million to recognize the benefit of the tax loss carry forwards and other temporary differences. The balance of the valuation allowance at September 30,


2011 was $0.2 million, As a result, Strongco expects to record a tax provision in Canada in the fourth quarter of 2011. The tax provision of $0.2 million in the third quarter and $0.4 million in the first nine months of the year related to Chadwick-BaRoss in the U.S. Net Income (Loss) Strongco’s net income in the third quarter of 2011 was $3.6 million ($0.28 per share) and for the first nine months of the year was $7.9 million ($0.60 per share). This was significantly improved from a loss of 0.3 million (loss of $0.03 per share) in the third quarter of 2010 and a net loss of $2.7 million (loss of $0.24 per unit) in the first nine months of 2010. EBITDA EBITDA in the third quarter of 2011 was $13.3 million, up from $8.0 million in 2010. For the nine months to date, EBITDA increased to $30.6 million from $14.6 million in the same period of 2010. EBITDA was calculated as follows:

($ millions) 2011 2010 2011 2010Net earnings (loss) $ 3.6 $ (0.3) $ 7.9 $ (2.7)Add Back:

Interest 1.5 1.2 4.2 3.5 Income taxes 0.2 - 0.4 - Amortization of capital assets 0.7 0.2 1.9 0.8 Amortization of equipment inventory on rent 6.5 6.1 14.6 12.2 Amortization of rental fleet 0.8 - 1.6 -

EBITDA (note 1) $ 13.3 $ 7.2 $ 30.6 $ 13.8

Nine Months Ended September 30Three Months Ended September 30

Note 1 – EBITDA is a non-IFRS measure. See explanation under the heading “Non-IFRS Measures” below. Cash Flow, Financial Resources and Liquidity Cash Flow Provided By (Used In) Operating Activities: During the third quarter of 2011, Strongco provided $13.8 million of cash from operating activities before changes in working capital. However, $3.6 million of cash was used to increase net working capital, $1.2 million to fund future employee benefits, $1.4 million to pay interest and $0.2 million to pay taxes, resulting in a net source of cash from operations in the quarter of $7.4 million. By comparison, in the third quarter of 2010, $7.5 million of cash was provided by operating activities before changes in working capital, $2.3 million was used to increase working capital and $1.2 million to pay interest, resulting in a net source of cash from operating activities of $4.0 million. For the nine months ended September 30, 2011, Strongco provided $30.8 million of cash from operating activities before changes in working capital. However, $19.0 million of cash was used to increase net working capital, $1.7 million to fund future employee benefits, $4.2 million to pay interest and $0.1 million to pay income taxes, resulting in a net source of cash from operations of $5.8 million. By comparison, in the first three quarters of 2010, $14.3 million of cash was provided by operating activities before changes in working capital, $11.5 million was used to increase working capital and $3.4 million to pay interest, resulting in a net use of cash of $0.6 million. The components of the cash used in and provided by operating activities were as follows:


($ millions) 2011 2010 2011 2010Net earnings (loss) $ 3.6 $ (0.3) $ 7.9 $ (2.7)Non-cash items:

Amortization of equipment inventory on rent 6.5 6.0 14.5 12.3Amortization of capital assets 0.6 0.2 1.9 0.9Amortization of rental fleet 0.8 - 1.6 - Gain on sale of rental equipment (0.2) - (0.3) - Share-based payment expense - 0.3 0.1 0.3 Interest expense 1.5 1.3 4.2 3.5 Income tax expense / (recovery) 0.2 - 0.4 - Deferred income tax liability - - (0.3) - Employee future benefit expense 0.7 - 0.7 - Other 0.1 - 0.1 -

13.8 7.5 30.8 14.3Changes in non-cash working capital balances (3.6) (2.3) (19.0) (11.5)Employee future benefit funding (1.2) - (1.7) - Interest paid (1.4) (1.2) (4.2) (3.4) Income taxes paid (0.2) - (0.1) - Cash provided by (used in) operating activities $ 7.4 $ 4.0 $ 5.8 $ (0.6)

Three Months Ended September 30, Nine Months Ended September 30,

Non-cash items include amortization of equipment inventory on rent of $6.5 million and $14.5 million in the three and nine months ended September 30, 2011, respectively, which compares to $6.0 million and $12.3 million in the third quarter and first nine months of 2010. Higher volumes of equipment rentals in 2011 resulted in the higher amortization of equipment inventory on rent. Components of cash flow from the net change in non-cash working capital for the three month and nine month periods ending September 30, 2011 and 2010 were as follows:

($ millions) (Increase) / Decrease 2011 2010 2011 2010Accounts receivable $ 11.0 $ 0.5 $ (2.8) $ (5.4)Inventories (22.5) (14.5) (56.9) (39.7)Prepaids 0.1 0.3 (0.1) (0.9)

$ (11.4) $ (13.7) $ (59.8) $ (46.0)

Accounts payable and accrued liabilities 1.1 1.5 7.6 13.5Deferred revenue & customer deposits 0.1 (0.6) (0.5) 0.4Income taxes payable - - (0.1) - Equipment notes payable 6.6 10.5 33.8 20.6

$ 7.8 $ 11.4 $ 40.8 $ 34.5Net increase in non-cash working capital $ (3.6) $ (2.3) $ (19.0) $ (11.5)

Three months ended September 30 Nine months ended September 30

Accounts receivable decreased in the third quarter by $11.0 million due to strong collections, particularly in the month of September. By comparison, accounts receivable in the third quarter of 2010 decreased by $0.5 million. The average age of receivables outstanding at the end of the September 2011 was approximately 35 days, which compared to 32 days at December 2010 and 37 days a year ago. Inventory levels were increased during the third quarter and first nine months of the year by $22.5 million and $56.9 million, respectively, to support the stronger sales and increase in demand in 2011. By comparison, Strongco’s accumulation of inventories in the third quarter and first nine months of 2010 totalled $14.5 million and $39.7 million, respectively. Accounts payable and accrued liabilities increased by $1.1 million and $7.6 million in the third quarter and first nine months of the 2011, respectively, due primarily to a higher level of parts purchased during 2011 to support the increase in product support activity. To finance the increase in equipment inventory, equipment notes were increased by $6.6 million in the third quarter and $33.8 million in the first nine months of the year. By comparison, equipment notes increased by $10.5 million and $20.6 million in the third quarter and first nine months of 2010, respectively.


Cash Provided By (Used In) Investing Activities Net cash used in investing activities amounted to $4.4 million in the third quarter of 2011. Chadwick-BaRoss sold rental fleet assets for proceeds of $1.9 million and added new equipment to its rental fleet at a cost of $4.6 million. Capital expenditures totaled $1.7 million in the quarter and related to the construction of the new Edmonton, Alberta branch, as well as facilities upgrades and miscellaneous shop equipment purchases. By comparison, cash of $0.2 million was used for miscellaneous shop equipment purchases in the third quarter of 2010. For the nine months ended September 30, 2011, Strongco used net cash of $19.8 million in investing activities primarily related to the acquisition of Chadwick-BaRoss for $11.1 million. Capital expenditures in the first nine months of 2011 were $5.0 million which included the purchase of land in Edmonton and construction costs for the new branch as well as miscellaneous facilities upgrades and purchases of shop equipment. Chadwick-BaRoss sold its rental fleet for proceeds of $5.4 million and purchased a new rental fleet totaling $9.1 million from February 1, 2011, the date of acquisition, to September 30, 2011. Investing activities in the first nine months of 2010 amounted to $0.4 million and related mainly to facilities upgrades and miscellaneous shop equipment. The components of the cash used in investing activities were as follows:

[$ millions] 2011 2010 2011 2010Acquisiton of Chadwick-BaRoss, Inc. $ - $ - $ (11.1) $ - Purchase of rental fleet equipment (4.6) - (9.1) - Proceeds on the sale of rental fleet equipment 1.9 - 5.4 - Purchase of capital assets (1.7) (0.2) (5.0) (0.5) Other - - - 0.1 Cash used in investing activities $ (4.4) $ (0.2) $ (19.8) $ (0.4)


Cash Provided By (Used In) Financing Activities In the third quarter of 2011, net cash of $3.0 million was used in financing activities compared to net cash of $3.8 million used in the same quarter of 2010. For the nine months ended September 30, 2011, net cash of $14.0 million was provided by financing activities compared to $1.0 million provided in the same period of 2010. The significant sources and uses of cash from financing activities in 2011 were as follows: • The issue of shares under the rights offering completed in the first quarter of 2011 provided $7.8 million (see

discussion under “Shareholder Capital”).

• To help finance the purchase of Chadwick-BaRoss, the Company secured a $5.0 million term loan from its bank in April (see discussion under “Bank Credit Facilities” below). Repayments of this term loan amounted to $0.2 million in the third quarter and $0.4 million year to date.

• The Company issued promissory notes to the previous shareholders of Chadwick-BaRoss on the acquisition of

their company in the first quarter totaling $1.9 million (see discussion under “Acquisition of Chadwick-BaRoss” above). Payments against these vendor take-back notes were $0.2 million in the third quarter and $0.4 million year to date.

• To support the construction of its new Edmonton branch, the Company secured a construction loan from its

bank (see discussion under “Bank Credit Facilities” below). Borrowing under this construction loan amounted to $1.1 million in the quarter and $2.9 million year to date.

• To finance the increase in rental fleet assets in the U.S., the Company increased borrowing under its equipment note lines of credit by $0.5 million in the third quarter and $1.2 million year to date.

• Cash of $3.7 million was used to reduce bank indebtedness in the third quarter. In the first nine months of the

year, cash of $1.6 million was used to reduce bank indebtedness.


• Repayments under finance leases (primarily service vehicles and computer equipment) amounted to $0.5

million in the third quarter and $1.1 million year to date.

• In March of 2011, Strongco made the final scheduled repayment of $1.2 million of the note issued to Volvo Construction Equipment on the acquisition of Champion Road Machinery in 2008.

The components of cash provided in financing activities are summarized as follows:

[$ millions] 2011 2010 2011 2010Proceeds from rights offering $ - $ - $ 7.8 $ - Term loan - acquisition

of Chadwick-BaRoss Inc. - - 5.0 - Repayment of term loan - acquisition

of Chadwick-BaRoss Inc. (0.2) - (0.4) - Vendor take back note - acquisition

of Chadwick-BaRoss Inc. - - 1.9 - Repayment of vendor take back note (0.2) - (0.4) - Construction loan - new Edmonton branch 1.1 - 2.9 - Increase in long-term equipment notes 0.5 - 1.2 - Increase (decrease) in bank indebtedness (3.7) (3.7) (1.6) 2.2 Repayment of finance lease obligations (0.5) (0.1) (1.2) (0.1) Repayment of Champion note - - (1.2) (1.1) Cash provided by (used in)

financing activities $ (3.0) $ (3.8) $ 14.0 $ 1.0


Bank Credit Facilities The Company has credit facilities with banks in Canada and United States that provide 364-day committed operating lines of credit totaling approximately $22.5 million that are renewable annually on or about May 31 of each year. Borrowings under the lines 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 $50 million debenture and 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 on intangible and other assets. The operating lines bear interest at rates that range between bank prime rate plus 0.50% and bank prime rate plus 3.00% and between the one month Canadian Bankers’ Acceptance Rates (“BA rates”) plus 1.50% and BA rates plus 4.00% in Canada and at LIBOR plus 2.60% in the United States. Under its bank credit facilities, the Company is able to issue letters of credit up to a maximum of $5 million. Outstanding letters of credit reduce the Company’s availability under its operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongco’s performance on the sale of equipment to the customer. As at September 30, 2011, there were outstanding letters of credit of $0.1 million and $7.6 million drawn on the Company’s bank operating lines of credit. In addition to its operating lines of credit, Strongco has a $15 million line 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 $15 million. As at September 30, 2011, the Company had outstanding foreign exchange forward contracts under this facility totaling US$0.3 million at an average exchange rate of $0.9699 Canadian for each US$1.00 with settlement dates between October 1, 2011 and October 28, 2011. The Company’s bank credit facilities also include term loans secured by real estate in the United States. At September 30, 2011 the outstanding balance on these term loans was US$3.7 million. The term loans bear interest at LIBOR plus 3.05% and require monthly principal payments of US$13.3 thousand plus accrued interest. The Company has interest rate swap agreements in place that have converted the variable rate on the term loans to a fixed rate of 5.17%. The term loan and swap agreements expire in September 2012 at which point a balloon payment from the balance of the loans is due.


In connection with the acquisition of Chadwick-BaRoss, in April 2011, Strongco secured an additional $5 million demand non-revolving term loan from its bank secured against certain real estate assets in Canada (“Term Loan – Canadian Real Estate”). This loan is for a term of 60 months to April 2016 and bears interest at the bank’s prime rate plus 2.0%. The Acquisition Loan is subject to monthly principal payments of $83.3 thousand plus accrued interest. As at September 30, 2011, there was $4.6 million owing on the Term Loan – Canadian Real Estate. In April 2011, Strongco secured an additional construction loan facility with its bank (“Construction Loan #1”) to finance the construction of the Company’s new Edmonton, Alberta branch. Under Construction Loan #1, the Company is able to borrow 70% of the cost of the land and building construction costs to a maximum of $6.6 million. Construction of the new branch commenced in June 2011 and is scheduled to be completed before the end of 2011. Upon completion, Construction Loan #1 will be converted to a demand, non-revolving term loan (“Mortgage Loan #1”). Mortgage Loan #1 will be for an amount of $7.1 million and a term of 60 months. Construction Loan #1 (and Mortgage Loan #1) bears interest at the bank’s prime lending rate plus 2.0%. As at September 30, 2011, there was $2.9 million drawn on Construction Loan #1. In addition, in September 2011, Strongco secured an additional construction loan facility with its bank (“Construction Loan #2”) to finance the construction of a planned new Ft. McMurray, Alberta branch. Under Construction Loan #2, the Company is able to borrow 70% of the cost of the land and building construction costs to a maximum of $7.9 million. The Company anticipates construction of the new Ft McMurray branch will commence in the first quarter of 2012 and will be completed before the end of 2012. Upon completion, Construction Loan #2 will be converted to a demand, non-revolving term loan (“Mortgage Loan #2”). Mortgage Loan #2 will be for an amount of $8.4 million and a term of 60 months. Construction Loan #2 (and Mortgage Loan #2) bears interest at the bank’s prime rate plus 2.0%. As at September 30, 2011, there was nothing drawn on Construction Loan #2. Strongco’s bank credit facilities contain financial covenants typical of such credit facilities that require the Company to maintain certain financial ratios and meet certain financial thresholds. In particular, the credit facilities in Canada contain covenants that require the Company to maintain a minimum ratio of total current assets to current liabilities (“Current Ratio covenant”) of 1.1:1, a minimum tangible net worth (“TNW covenant”) of $50 million, a maximum ratio of total debt to tangible net worth (“Debt to TNW Ratio covenant”) of 4.0:1 and a minimum ratio of EBITDA minus capital expenditures to total interest (“Debt Service Coverage Ratio covenant”) of 1.3:1. For the purposes of calculating covenants under the credit facility, debt is defined as total liabilities less future income tax amounts and subordinated debt. The Debt Service 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. The Company was in compliance with all covenants under its bank credit facilities as at September 30, 2011. Equipment Notes In addition to its bank credit facilities, the Company has lines of credit available totaling approximately $220 million from various non-bank equipment lenders in Canada and the United States that are used to finance equipment inventory and rental fleet. At September 30, 2011, there was approximately $165 million borrowed on these equipment finance lines. Typically, these equipment notes are interest free for periods up to 12 months from the date of financing, after which they bear interest at rates ranging from 4.25% to 5.85% over the one-month BA rate and 3.25% to 4.9% over the prime rate of a Canadian chartered bank in Canada, and from 2.5% to 5.5% over the one-month LIBOR rate and between the U.S. bank prime rate and prime rate plus 3% in the United States. At September 30, 2011, approximately $81 million of these equipment notes were interest free and $84 million were interest bearing. As collateral for these equipment notes, the Company has provided liens on the specific inventories financed and any related accounts receivable. For the majority of the equipment notes, monthly principal repayments equal to 3% 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 is normally refinanced with the lender over an additional period of up to 24 months. All of the Company’s equipment note facilities are renewable annually. As indicated above, the interest bearing equipment notes bear interest at floating rates (BA rates or prime rates) plus a fixed component. In September, Strongco put interest rate swaps in place that have effectively fixed the floating rate component on $15 million of its interest bearing equipment notes at 1.615% for five years to September 2016. (See discussion under “Interest Rate Swaps” below).


Certain of the Company’s equipment finance credit agreements contain restrictive financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). The Company was in compliance with all covenants under its equipment finance credit facilities as at September 30, 2011. Interest Rate Swaps Currently, BA rates and prime rates are at very low levels but there is an expectation that interest rates will rise in the future. In September, Strongco secured a Swap Facility with its bank that allows the Company to swap the floating interest rate component (BA rate) on up to $25 million of its floating interest rate debt to a five-year fixed swap rate of interest. On September 8, 2011, the Company entered into an interest rate swap agreement under this facility to fix the floating BA rate on $15 million of interest rate debt at a fixed interest rate equal to 1.615% for a period of five years to September 8, 2016. The company has put these swaps in place to effectively fix the interest rate on $15 million of its interest-bearing equipment notes. Summary of Outstanding Debt The balance outstanding under Strongco’s debt facilities at September 30, 2011 and 2010 consisted of the following: Debt Facilities As at September 30[$ millions] 2011 2010

Bank indebtedness (including outstanding cheques) $ 10.7 $ 12.2Equipment notes payable - non interest bearing 80.8 45.3Equipment notes payable - interest bearing 84.4 80.2Vendor take back note payable - acquisition of Chadwick-BaRoss 1.5 - Contruction loan #1 2.9 - Term loan - Canadian real estate 4.6Term loans - US real estate 3.8 - Other notes payable 0.1 1.2

$ 188.8 $ 138.9 As at September 30, 2011 there was $9.5 million of unused credit available under the Company’s bank credit lines. While availability under the bank lines fluctuates daily depending on the amount of cash received and cheques and other disbursements clearing the bank, availability generally ranges between $5 million and $15 million. Borrowing under the Company’s bank lines is typically highest in the first quarter when cash flows from operations are at the lowest point of the year, and reduces through to the end of the year as cash flows increase. The Company also had approximately $52 million available under its equipment finance facilities at September 30, 2011. Borrowing on the Company’s equipment finance lines typically increases in the first five months of the year as equipment inventory is purchased for the season and declines through to the end of the year as equipment sales increase, particularly in the fourth quarter. With the level of funds available under the Company’s bank credit lines, the current availability under the equipment finance facilities and anticipated improvement in cash flows from operations, management believes the Company will have adequate financial resources to fund its operations and make the necessary investment in equipment inventory and fixed assets to support its operations in the future. SUMMARY OF QUARTERLY DATA In general, the heavy-equipment market follows a weather-related pattern of seasonality. Typically, the first quarter is the weakest as winter weather constrains construction and infrastructure activity. This is followed by a strong gain in the second quarter as construction and other work gets under way and contractors prepare for the main summer season. The third quarter tends to be slightly slower from an equipment sales standpoint, but is partially offset by continued strength in equipment rentals and customer support business. Fourth quarter revenues generally strengthen as customers make year-end capital spending decisions and exercise purchase options on equipment under RPO’s. In addition, purchases of snow removal equipment are typically made in the fourth quarter.

Certain of the Company’s equipment finance credit agreements contain restrictive financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). The Company was in compliance with all covenants under its equipment finance credit facilities as at September 30, 2011. Interest Rate Swaps Currently, BA rates and prime rates are at very low levels but there is an expectation that interest rates will rise in the future. In September, Strongco secured a Swap Facility with its bank that allows the Company to swap the floating interest rate component (BA rate) on up to $25 million of its floating interest rate debt to a five-year fixed swap rate of interest. On September 8, 2011, the Company entered into an interest rate swap agreement under this facility to fix the floating BA rate on $15 million of interest rate debt at a fixed interest rate equal to 1.615% for a period of five years to September 8, 2016. The company has put these swaps in place to effectively fix the interest rate on $15 million of its interest-bearing equipment notes. Summary of Outstanding Debt The balance outstanding under Strongco’s debt facilities at September 30, 2011 and 2010 consisted of the following: Debt Facilities As at September 30[$ millions] 2011 2010

Bank indebtedness (including outstanding cheques) $ 10.7 $ 12.2Equipment notes payable - non interest bearing 80.8 45.3Equipment notes payable - interest bearing 84.4 80.2Vendor take back note payable - acquisition of Chadwick-BaRoss 1.5 - Contruction loan #1 2.9 - Term loan - Canadian real estate 4.6Term loans - US real estate 3.8 - Other notes payable 0.1 1.2

$ 188.8 $ 138.9 As at September 30, 2011 there was $9.5 million of unused credit available under the Company’s bank credit lines. While availability under the bank lines fluctuates daily depending on the amount of cash received and cheques and other disbursements clearing the bank, availability generally ranges between $5 million and $15 million. Borrowing under the Company’s bank lines is typically highest in the first quarter when cash flows from operations are at the lowest point of the year, and reduces through to the end of the year as cash flows increase. The Company also had approximately $52 million available under its equipment finance facilities at September 30, 2011. Borrowing on the Company’s equipment finance lines typically increases in the first five months of the year as equipment inventory is purchased for the season and declines through to the end of the year as equipment sales increase, particularly in the fourth quarter. With the level of funds available under the Company’s bank credit lines, the current availability under the equipment finance facilities and anticipated improvement in cash flows from operations, management believes the Company will have adequate financial resources to fund its operations and make the necessary investment in equipment inventory and fixed assets to support its operations in the future. SUMMARY OF QUARTERLY DATA In general, the heavy-equipment market follows a weather-related pattern of seasonality. Typically, the first quarter is the weakest as winter weather constrains construction and infrastructure activity. This is followed by a strong gain in the second quarter as construction and other work gets under way and contractors prepare for the main summer season. The third quarter tends to be slightly slower from an equipment sales standpoint, but is partially offset by continued strength in equipment rentals and customer support business. Fourth quarter revenues generally strengthen as customers make year-end capital spending decisions and exercise purchase options on equipment under RPO’s. 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:

2011($ millions, except per share/unit amounts) Q4 Q3 Q2 Q1

Revenue $ 108.4 $ 114.1 $ 87.5Earnings before income taxes 3.8 3.8 0.7Net income 3.6 3.6 0.6

Basic and diluted earnings per share $ 0.28 $ 0.28 $ 0.05

2010($ millions, except per share/unit amounts) Q4 Q3 Q2 Q1

Revenue $ 91.8 $ 79.6 $ 69.6 $ 53.7Earnings (loss) from continuing operations before income taxes 1.8 (0.3) (0.3) (2.1)Net income (loss) 1.8 (0.3) (0.3) (2.1)

Basic and diluted earnings (loss) per share/unit $ 0.16 $ (0.03) $ (0.03) $ (0.19)

2009(note 1)

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

Revenue $ 67.5 $ 74.6 $ 76.7 $ 73.0Earnings (loss) from continuing operations before income taxes (1.8) 0.1 2.0 1.2Net income (loss) (2.1) (0.5) 1.4 1.2

Basic and diluted earnings (loss) per unit $ (0.20) $ (0.05) $ 0.14 $ 0.11(Note 1 - 2009 figures do not reflect accounting necessary to comply with IFRS) A discussion of the Company’s previous quarterly results can be found in the Company’s quarterly Management’s Discussion and Analysis reports available on SEDAR at www.sedar.com. CONTRACTUAL OBLIGATIONS Strongco has contractual obligations for operating lease commitments totaling $19.8 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 three to 10 years. The Company’s maximum potential losses pursuant to the majority of these buy back contracts are limited, under an agreement with the original equipment manufacturer, to 10% of the original sale amounts. In addition, this agreement provides a financing arrangement in order to facilitate the buyback of equipment. As at September 30, 2011, buy back contracts outstanding totalled $13.6 million. A reserve of $1.0 million has been accrued in the Company’s accounts as at September 30, 2011 with respect to these commitments. The Company has provided a guarantee of lease payments under the assignment of a property lease that expires January 31, 2014. Total lease payments from January 1, 2011 to January 31, 2014 are $0.5 million. 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 $19.5 $0.2 $12.7 $4.5 $2.1

Less Than 1 to 3 4 to 5 After 5($ millions) Total 1 Year years years yearsBuy back contracts $13.6 $2.4 $5.1 $6.1 $0.0

Payment due by period

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. Effective July 1, 2010 Strongco converted from a trust to a corporation and all outstanding trust units of the Fund were exchanged for shares of Strongco Corporation on a one for one basis after which the Fund was wound up into Strongco Corporation (see discussion under heading “Conversion to a Corporation”). On January 17, 2011, the Company completed a rights offering, under which 2.62 million additional shares were issued pursuant to the rights issued to existing shareholders for gross proceeds of $7.8 million (refer to the Company’s Rights Offering Circular filed on SEDAR for details). The total shares outstanding following completion of the rights offering was 13,128,719.

Number ofCommon Shares Issued and Outstanding Shares Shares

Common shares outstanding as at December 31, 2010 10,508,719 Common shares issued under rights offering 2,620,000 Common shares outstanding as at September 30, 2011 13,128,719 OUTLOOK The improving trend in heavy equipment markets evident since mid-2010 shows no signs of abating. Strongco’s backlogs have continued at a robust level in 2011, which indicates that demand for heavy equipment continues to improve. In addition, RPO activity has remained high, which bodes well for strong sales in the fourth quarter. The ongoing strength of oil prices during 2011 has powered a robust economic recovery in Alberta, which is one of Strongco’s key markets. In particular, accelerating activity in the oil sands has led to increased spending for heavy equipment in northern Alberta. In addition, the generally improving economy has fueled an increase in construction and infrastructure activity throughout the province. Strongco’s sales in Alberta have demonstrated consistent growth in the first three quarters of 2011 and backlogs have increased. Management is optimistic that heavy equipment markets in the province will remain strong in the fourth quarter of the year. Markets in Quebec and Ontario are also expected to continue contributing to both sales and profitability. In New England, the acquisition of Chadwick-BaRoss in February 2011 has contributed positively to Strongco’s overall results in the first three quarters of 2011 and is anticipated to contribute to improved sales levels and profitability in the balance of the year. Demand for cranes, which started to show improvement toward the end of 2010, has continued to increase in 2011 in concert with recovering construction markets, the increase in infrastructure spending and rising activity in Alberta’s oil patch. Strongco’s sales backlog for cranes has grown in 2011, and remains at a high level in the fourth quarter. Since the onset of the recovery, equipment manufacturers have struggled to increase production capacity. While there has been some improvement, lead times and availability of new machines remain an issue. In addition, the transition to the new lower emission tier 4 engine technology that commenced in 2011 is a complication that is impacting lead times and supply of equipment.


Strongco has achieved increased market share in most of its markets and aims to sustain the improving operational effectiveness demonstrated in the first nine months of 2011 through the fourth quarter of the year and into 2012. NON-IFRS MEASURES “EBITDA” refers to earnings before interest, income taxes, amortization of capital assets, amortization of intangible assets, amortization of equipment inventory on rent, and goodwill impairment. EBITDA is a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not an earnings measure recognized by GAAP, does not have standardized meanings prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. The Company’s management believes that EBITDA is an important supplemental measure in evaluating the Company’s performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as indicators of the Company’s performance or to cash flows from operating, investing and financing activities as measures of the Company’s liquidity and cash flows. The Company’s method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the financial statements. The Company bases its estimates and assumptions on past experience and various other assumptions that are believed to be reasonable in the circumstances. This involves varying degrees of judgment and uncertainty which may result in a difference in actual results from these estimates. The more significant estimates are as follows: Inventory Valuation The value of the Company’s new and used equipment is evaluated by management throughout each year. Where appropriate, a provision is recorded against the book value of specific pieces of equipment to ensure that inventory values reflect the lower of cost and estimated net realizable value. The Company identifies slow moving or obsolete parts inventory and estimates appropriate obsolescence provisions by aging the inventory. The Company takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods. The inventory provision as at September 30, 2011 with changes from June 30, 2011 is as follows: Provision for Inventory Obsolescence [$ millions]Provision for inventory obsolescence as at June 30, 2011 $ 4.8Provision related to inventory disposed of during the quarter - Additional provisions made during the quarter 0.7Provision for inventory obsolescence as at September 30, 2011 $ 5.5 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 September 30, 2011 with changes from June 30, 2011 is as follows: Allowance for Doubtful Accounts [$ millions]Allowance for doubtful accounts as at June 30, 2011 $ 1.8Accounts written off during the quarter (0.1)Additional provisions made during the quarter 0.2Allowance for doubtful accounts as at September 30, 2011 $ 1.9

Post Retirement Obligations Strongco performs a valuation at least every three years to determine the actuarial present value of the accrued pension and other non-pension post retirement obligations. Pension costs are accounted for and disclosed in the notes to the financial statements on an accrual basis. Strongco records employee future benefit costs other than pensions on an accrual basis. The accrual costs are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management's best estimates. The


assumptions were determined by management recognizing the recommendations of Strongco’s actuaries. These key assumptions include the rate used to discount obligations, the expected rate of return on plan assets, the rate of compensation increase and the growth rate of per capita health care costs. The discount rate is used to determine the present value of future cash flows that we expect will be required to pay employee benefit obligations. Management’s assumptions of the discount rate are based on current interest rates on long-term debt of high quality corporate issuers. The assumed return on pension plan assets of 6.5% per annum is based on expectations of long-term rates of return at the beginning of the fiscal year and reflects a pension asset mix consistent with the Company’s investment policy. The costs of employee future benefits other than pension are determined at the beginning of the year and are based on assumptions for expected claims experience and future health care cost inflation. Changes in assumptions will affect the accrued benefit obligation of Strongco’s employee future benefits and the future years’ amounts that will be charged to results of operations. Future Income Taxes At each quarter end the Company evaluates the value and timing of the Company’s temporary differences. Future income tax assets and liabilities, measured at substantively enacted tax rates, are recognized for all temporary differences caused when the tax bases of assets and liabilities differ from those reported in the consolidated financial statements. Changes or differences in these estimates or assumptions may result in changes to the current or future tax balances on the consolidated balance sheet, a charge or credit to income tax expense in the consolidated statements of earnings and may result in cash payments or receipts. Where appropriate, the provision for future income taxes and future income taxes payable are adjusted to reflect management’s best estimate of the Company’s future income tax accounts FORWARD-LOOKING STATEMENTS This Management’s Discussion and Analysis contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. These statements relate to future events or future performance and reflect management’s current expectations and assumptions which are based on information currently available to Strongco’s management. The forward-looking statements include but are not limited to: (i) the ability of the Company to meet contractual obligations through cash flow generated from operations, (ii) the expectation that customer support revenues will grow following the warranty period on new machine sales and (iii) the outlook for 2011. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for Strongco’s products and services. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward looking statements. The inclusion of this information should not be regarded as a representation of the Company or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. These forward-looking statements are made as of the date of this MD&A or as otherwise stated and the Company does not assume any obligation to update or revise them to reflect new events or circumstances. Additional information, including the Company’s Annual Information Form, may be found on SEDAR at www.sedar.com


Strongco Corporation Unaudited Interim Consolidated Financial Statements September 30, 2011 and 2010


Notice required under National Instrument 51-102, “Continuous Disclosure Obligations,” Part 4.3 (3) (a). The accompanying unaudited consolidated interim financial statements for Strongco Corporation as at and for the three and nine-month periods ended September 30, 2011, together with the accompanying notes have not been reviewed by the Company’s auditors.


Strongco Corporation Unaudited Consolidated Balance Sheet (in thousands of Canadian dollars, unless otherwise indicated)

January 1, As at 2010AssetsCurrent assetsTrade and other receivables $ 43,260 $ 35,884 $ 27,088 Inventories [note 6] 213,111 159,988 144,461 Prepaid expenses and other deposits 1,708 1,452 1,255

258,079 197,324 172,804 Non-current assetsProperty and equipment 26,052 15,849 15,949 Rental fleet 14,688 - - Deferred income tax asset [note 13] 1,166 - - Intangible assets 1,800 1,800 1,800 Other assets 188 188 243

43,894 17,837 17,992 Total assets $ 301,973 $ 215,161 $ 190,796 Liabilities and shareholders' equityCurrent liabilitiesBank indebtedness [note 7] $ 10,737 $ 12,370 $ 10,014 Trade and other payables 39,444 28,829 19,648 Provisions 1,715 1,436 1,366 Deferred revenue and customer deposits 788 1,321 515 Equipment notes payable -

- non-interest bearing [note 8] 78,889 40,097 28,671 Equipment notes payable

- interest bearing [note 8] 81,536 78,063 76,172 Current portion of finance lease obligations 1,681 959 954 Current portion of notes payable [note 9] 5,631 1,233 1,094

220,421 164,308 138,434 Non-current liabilitiesDeferred income tax liabilities [note 13] 2,910 - - Notes payable [note 9] 12,014 - 1,218 Finance lease obligations 2,040 1,502 1,154 Employee future benefit obligations [note 5(ii)(a)] 3,230 4,374 4,455

20,194 5,876 6,827 Total liabilities 240,615 170,184 145,261 Shareholders' equityShareholders' capital [note 11] 64,898 57,089 57,089 Accumulated other comprehensive income 668 52 - Deferred compensation 413 315 - Deficit (4,621) (12,479) (11,554) Total shareholders' equity 61,358 44,977 45,535 Total liabilities and shareholders' equity $ 301,973 $ 215,161 $ 190,796

Contingencies [note 14]

2011 2010September 30 December 31,


Strongco Corporation Unaudited Consolidated Statement of Income (Loss) (in thousands of Canadian dollars, unless otherwise indicated, except per Share amounts)

Three-month period ended Nine-month period endedSeptember 30 September 30

2011 2010 2011 2010Revenue [note 15] $ 108,395 $ 79,588 $ 309,940 $ 202,859 Cost of sales 86,864 64,781 250,187 162,540 Gross profit 21,531 14,807 59,753 40,319

ExpensesAdministration 7,768 6,773 22,815 19,777 Distribution 5,187 4,391 14,775 12,914 Selling 3,300 2,581 10,173 7,296 Other (income) expense (60) 122 (513) (467) Expenses 16,195 13,867 47,250 39,520

Operating income 5,336 940 12,503 799

Interest expense 1,495 1,234 4,249 3,462 Income (loss) before income taxes 3,841 (294) 8,254 (2,663)

Provision for income taxes [note 13] 213 - 396 - Net income (loss) attributable to

shareholders for the period $ 3,628 $ (294) $ 7,858 $ (2,663)

Earnings (loss) per shareBasic and dilutive $ 0.28 $ (0.03) $ 0.60 $ (0.24)

Weighted average numberof shares [note 12]- basic- diluted

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

11,053,532 11,053,532

13,128,629 13,167,927

10,508,719 10,508,719

13,022,214 13,061,512


Strongco Corporation Unaudited Consolidated Statement of Changes in Comprehensive Income (Loss) (in thousands of Canadian dollars, unless otherwise indicated, except per share amounts)

Three-month period ended Nine-month period endedSeptember 30 September 30

2011 2010 2011 2010Net income (loss) attributable to

shareholders for the period $ 3,628 $ (294) $ 7,858 $ (2,663)

Other comprehensive income (loss)Actuarial gain (loss) on post-employment

benefit obligations 144 - 144 - Currency translation adjustment 915 - 472 - Comprehensive income (loss)

attributable to shareholdersfor the period $ 4,687 $ (294) $ 8,474 $ (2,663)

The accompanying notes are an integral part of these consolidated financial statements. Strongco Corporation of Changes in Shareholders’ Equity Unaudited Consolidated Statement

(in thousands of Canadian dollars, unless otherwise indicated, except per share amounts)

Number of units

Unitholders' capital Deficit Total

Balance - January 1, 2010 10,508,719 $ 57,089 $ - $ - $ (11,554) $ 45,535

Net loss for the period - - - (2,663) (2,663)

Stock compensation - - - 281 - 281

Balance - Sept 30, 2010 10,508,719 $ 57,089 $ - $ 281 $ (14,217) $ 43,153

Number of shares Deficit Total

Balance - December 31, 2010 10,508,719 $ 57,089 $ 52 $ 315 $ (12,479) $ 44,977

Net income for the period - - - 7,858 7,858

Other comprehensive incomePost-employment benefitobligations (net of tax) - 144 - - 144

Currency translation adjustment - 472 - - 472

Issuance of shares 2,620,000 7,809 - - - 7,809

Stock compensation - - - 98 - 98

Balance - Sept 30, 2011 13,128,719 $ 64,898 $ 668 $ 413 $ (4,621) $ 61,358 The accompanying notes are an integral part of these consolidated financial statements.

Deferred compensation

Accumulated other

comprehensive loss

Accumulated other

comprehensive income

Deferred compensation

Shareholders' capital


Strongco Corporation Unaudited Consolidated Statement of Cash Flows (in thousands of dollars, unless otherwise indicated)

For the nine-month period ended September 2011 2010Cash flows from operating activitiesNet income (loss) for the year $ 7,858 $ (2,663) Adjustments for

Depreciation - property and equipment 1,924 777 Depreciation - equipment inventory on rent 14,548 12,313 Depreciation - rental fleet 1,589 - (Gain) loss on disposal of property and equipment (26) 13 Gain on sale of rental equipment (277) - Deferred compensation 98 281 Interest expense 4,249 3,530 Income tax expense 396 - Deferred income taxes (258) - Employee future benefit expense 673 23 Unrealized foreign exchange gains/losses 68 -

Changes in working capital [note 16] (19,020) (11,446) Employee future benefit funding (1,673) - Interest paid (4,175) (3,395) Income taxes paid (138) - Net cash provided by (used in) operating activities $ 5,836 $ (567) Cash flows from investing activitiesBusiness acquisition net of cash acquired [note 4] (11,115) - Purchase of rental equipment (9,061) - Proceeds from sale of rental equipment 5,361 - Purchase of property, plant and equipment (5,022) (495) Proceeds from sale of property, plant and equipment 24 74 Net cash used in investing activities $ (19,813) $ (421)

Cash flows from financing activitiesIncrease (decrease) in bank indebtedness (1,633) 2,189 Increase in long term debt 9,139 - Repayment of long term debt (1,751) (1,163) Repayment of finance lease obligations (1,040) (38) Issue of shareholders' capital [note 11] 7,809 - Increase in notes payable [note 9] 1,867 - Repayment of notes payable (404) - Net cash provided by financing activities $ 13,987 $ 988 Foreign exchange on cash balances held in a foreign currency (10) - Increase (decrease) in cash and cash equivalents

during the period $ - $ - Cash and cash equivalents - Beginning of period - - Cash and cash equivalents - End of period $ - $ -

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


Strongco Corporation Notes to Unaudited Consolidated Financial Statements September 30, 2011 (in thousands of dollars, unless otherwise indicated)

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 that operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets in Canada and the United States.

Prior to July 1, 2010, Strongco was an unincorporated, open-ended, limited purpose trust operating under the name Strongco Income Fund (“the Fund”), domiciled and established under the laws of the Province of Ontario pursuant to a declaration of trust dated March 21, 2005, as amended and restated on April 28, 2005 and September 1, 2006.

On July 1, 2010, the Fund completed the conversion from an income trust to a corporation (“the Conversion”) through the incorporation of Strongco. Pursuant to a plan of arrangement under the Business Corporations Act (Ontario), the Company issued shares to the unitholders of the Fund in exchange for units of the Fund on a one-for-one basis. The Company's Board of Directors and management team are the former Board of Trustees and management team of the Fund. Immediately subsequent to the Conversion, the Fund was wound up into the Company. The Company has carried on the business of the Fund unchanged except that the Company is subject to tax as a corporation. References to the Company in these consolidated financial statements for periods prior to September 30, 2010, refer to the Fund and for periods on or after July 1, 2010, refer to the Company. Additionally, references to shares and shareholders of the Company are comparable to units and unitholders previously under the Fund.

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

2 Basis of presentation and adoption of International Financial Reporting Standards

The Company prepares its interim consolidated financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”), and to require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company is reporting on this basis in these interim consolidated financial statements. In these interim consolidated financial statements, the term Canadian GAAP refers to Canadian GAAP before adoption of IFRS.

These interim consolidated financial statements have been prepared in accordance with IFRS applicable to interim financial statements, including IAS 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of IFRS. The accounting policies followed in these interim consolidated financial statements are the same as those applied in the Company’s interim consolidated financial statements for the periods ended March 31, 2011 and June 30, 2011. The Company has consistently applied the same accounting policies throughout all periods presented as if these policies had always been in effect. Note 5 discloses the impact of the transition to IFRS on the Company’s reported equity as at September 30, 2010 and comprehensive income for the three and nine months ended September 30,



2010, including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year-ended December 31, 2010.

The policies applied in these interim consolidated financial statements are based on IFRS issued as of November 7, 2011, the date the Directors approved the interim consolidated financial statements. Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these interim consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.

These interim consolidated financial statements should be read in conjunction with the Company’s Canadian GAAP annual consolidated financial statements for the year ended December 31, 2010 and the Company’s unaudited interim consolidated financial statements for the three-month period ended March 31, 2011 and the six-month period ended June 30, 2011 prepared in accordance with IFRS applicable to interim financial statements.

3 Critical Accounting Estimates and Judgments

The preparation of interim consolidated 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 interim 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. Changes or differences in these estimates or assumptions may result in changes to the trade and other receivables balance on the consolidated balance sheet and a charge or credit to administration expense in the consolidated statement of income (loss).

Inventory valuation

The value of the Company's new and used equipment is evaluated by management throughout each period. Where appropriate, a provision is recorded against the book value of specific pieces of equipment to ensure that inventory values reflect the lower of cost and estimated net realizable value. The Company identifies slow-moving or obsolete parts inventory and estimates appropriate obsolescence provisions by aging the inventory. The Company takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods. Changes or differences in these estimates or assumptions may result in changes to the inventory balance on the consolidated balance sheet and a charge or credit to administration expense in the consolidated statement of income (loss).



Deferred income taxes

At each period-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 interim consolidated financial statements.

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

Judgment is also required in determining whether deferred tax assets are recognized on the consolidated balance sheet. Deferred 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 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 tax assets recorded at the reporting date could be impacted.

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. Any changes in these assumptions will impact the carrying amount of the employee future benefit obligations.

4 Acquisition of Chadwick-BaRoss, Inc.

On February 17, 2011, Strongco, through its wholly owned subsidiary Strongco USA Inc., completed the acquisition of 100% of the issued and outstanding shares of Chadwick-BaRoss, Inc. (“CBR”).

CBR is a multiline heavy equipment dealer with 90 employees headquartered in Westbrook, Maine, with three branches in Maine and one in each of New Hampshire and Massachusetts. CBR sells, rents and services heavy equipment used in sectors such as construction, infrastructure, utilities, municipalities, waste management and forestry.



The acquisition of all of the issued and outstanding shares of CBR was completed for a purchase price of US$11,091, net of cash acquired. The purchase price was satisfied with cash of US$9,228 and three promissory notes totalling US$1,863. The three promissory notes mature on February 17, 2013 and bear interest at the US Prime rate. Principal payments of US$195 will be made quarterly commencing May 17, 2011. Costs of $416 related to the acquisition were expensed as period costs within operating expenses in the consolidated statement of income (loss) for the nine month period ended September 30, 2011.

The acquisition date fair value for each major class of asset acquired and liabilities assumed:

[in thousands of Canadian dollars]

Trade and other receivables $ 4,388 Inventories 9,960 Property, plant and equipment 5,058 Rental fleet 11,722 Deferred income tax asset 1,125 Other assets 95 Total assets $ 32,348

Trade and other payables $ 3,077 Deferred income tax liabilities 2,807 Equipment notes payable 11,135 Finance lease obligations 419 Notes payable 3,795 Total liabilities $ 21,233 Net assets acquired $ 11,115

The purchase price allocation is not final and is subject to post-closing adjustments.

The results of operations of CBR have been consolidated into the Company’s results for the nine month period ended September 30, 2011, effective February 1, 2011. Revenues of $30,853 and net income from operations of $651 for CBR for the nine-month period ended September 30, 2011 and revenues of $12,900 and net income from operations of $306 for CBR for the three-month period ended September 30, 2011 have been included in the Company’s consolidated statement of income and comprehensive income for the nine month period ended September 30, 2011.

Had the results of CBR been incorporated into the Company’s consolidated statement of comprehensive income (loss) as though the acquisition had been completed on January 1, 2011, the revenue and net income of the combined entity for the nine-month period ended September 30, 2011 would have been $312,979 and $7,853, respectively.



5 Transition to IFRS

The date of transition to IFRS for the Company was January 1, 2010. IFRS 1 sets forth guidance for the initial adoption of IFRS. IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the transition date, except that IFRS 1 also provides for certain optional exemptions and certain mandatory exceptions to the general requirements of retrospective application. The effect of the Company’s transition to IFRS, described in note 2, at January 1, 2010 and for the year ended December 31, 2010 is outlined in the notes to the interim consolidated financial statements for the three-month period ended March 31, 2011 and the six-month period ended June 30, 2011. The reconciliation of shareholders’ equity at December 31, 2010 and comprehensive income (loss) for the year ended December 31, 2010 has been amended to reflect the change in classification for the recognition of actuarial losses and changes in the IFRIC 14 liability during the year. These changes resulted in a decrease of $2,152 to net income and an increase to other comprehensive income for the year ended December 31, 2010. In addition, these changes resulted in a decrease of $2,152 to deficit and an increase in accumulated other comprehensive income at December 31, 2010. There was no net impact to comprehensive income or shareholders’ equity as a result of this reclassification. Summarized below is the reconciliation of shareholders’ equity at January 1, 2010, September 30, 2010 and December 31, 2010 and comprehensive income (loss) for the three and nine month period ended September 30, 2010 and the year ended December 31, 2010 as previously reported under Canadian GAAP to IFRS.



i) Reconciliation of shareholders’ equity as previously reported under Canadian GAAP to IFRS

[in thousands of Canadian dollars] As at December 31, 2010

Note AssetsCurrent assetsTrade and other receivables $ 35,884 $ - $ 35,884 Inventories 159,988 - 159,988 Prepaid expenses and other deposits 1,452 - 1,452

197,324 - 197,324 Non-current assetsProperty and equipment 13,768 2,081 f) 15,849 Intangible assets 1,800 - 1,800 Accrued benefit asset 6,275 (6,275) a) - Other assets 188 - 188

22,031 (4,194) 17,837 Total assets $ 219,355 $ (4,194) $ 215,161

Liabilities and shareholders' equityCurrent liabilitiesBank indebtedness $ 12,370 $ - $ 12,370 Trade and other payables 30,265 (1,436) b) 28,829 Provisions - 1,436 b) 1,436 Deferred revenue and customer deposits 1,321 - 1,321 Equipment notes payable 118,160 - 118,160 Current portion of finance lease obligations 173 786 f) 959 Current portion of notes payable 1,233 - 1,233

163,522 786 164,308 Non-current liabilitiesDeferred income tax liabilities 389 (389) d) - Finance lease obligations 114 1,388 f) 1,502 Employee future benefit obligations 819 3,555 a) 4,374

1,322 4,554 5,876 Total liabilities 164,844 5,340 170,184

Shareholders' equityShareholders' capital 57,089 - 57,089 Accumulated other

comprehensive income - 52 a) 52 Deferred compensation 360 (45) c) 315 Deficit (2,938) (9,541) a), c), d), f) (12,479) Total shareholders' equity 54,511 (9,534) 44,977

Total liabilities and shareholders' equity $ 219,355 $ (4,194) $ 215,161

CanadianGAAP Adjustment IFRS



[in thousands of Canadian dollars] As at September 30, 2010

Note AssetsCurrent assetsTrade and other receivables $ 32,505 $ - $ 32,505 Inventories 171,827 - 171,827 Prepaid expenses and other deposits 2,144 - 2,144

206,476 - 206,476 Non-current assetsProperty and equipment 13,886 1,850 f) 15,736 Intangible assets 1,800 - 1,800 Accrued benefit asset 6,304 (6,304) a) - Other assets 242 - 242

22,232 (4,454) 17,778 Total assets $ 228,708 $ (4,454) $ 224,254

Liabilities and shareholders' equityCurrent liabilitiesBank indebtedness $ 12,203 $ - $ 12,203 Trade and other payables 34,607 (1,367) b) 33,240 Provisions - 1,367 b) 1,367 Deferred revenue and customer deposits 893 - 893 Equipment notes payable 125,477 - 125,477 Current portion of finance lease obligations 88 801 f) 889 Current portion of notes payable 1,217 - 1,217

174,485 801 175,286 Non-current liabilitiesDeferred income tax liabilities 109 (109) d) - Finance lease obligations 193 1,144 f) 1,337 Employee future benefit obligations 832 3,646 a) 4,478



comprehensive income - - - Deferred compensation 423 (142) c) 281 Deficit (4,423) (9,794) a), c), d), f) (14,217) Total shareholders' equity 53,089 (9,936) 43,153


CanadianGAAP Adjustment IFRS



[in thousands of Canadian dollars] As at January 1, 2010 Note

AssetsCurrent assetsTrade and other receivables $ 27,088 $ - $ 27,088 Inventories 144,461 - 144,461 Prepaid expenses and other deposits 1,255 - 1,255 Non-current assets 172,804 - 172,804 Property and equipment 14,133 1,816 f) 15,949 Intangible assets 1,800 - 1,800 Accrued benefit 6,607 (6,607) a) - Other assets 243 - 243

22,783 (4,791) 17,992 Total assets $ 195,587 $ (4,791) $ 190,796

Liabilities and shareholders' equityCurrent liabilitiesBank indebtedness $ 10,014 $ - $ 10,014 Trade and other payables 20,866 (1,218) b) 19,648 Provisions 1,366 b) 1,366 Deferred revenue and customer deposits 515 - 515 Equipment notes payable 104,843 - 104,843 Current portion of finance lease obligations 92 862 f) 954 Current portion of notes payable 1,094 - 1,094

137,424 1,010 138,434 Non-current liabilitiesDeferred income tax liabilities 1,424 (1,424) d) - Notes payable 1,218 - 1,218 Finance lease obligations 104 1,050 f) 1,154 Post-employment benefit obligations 769 3,686 a) 4,455



comprehensive income - - - Deferred compensation 80 (80) c) - Deficit (2,521) (9,033) a), c), d), f) (11,554) Total shareholders' equity 54,648 (9,113) 45,535


Canadian GAAP Adjustment IFRS



ii) Reconciliation of comprehensive income (loss) as previously reported under Canadian GAAP to IFRS

[in thousands of Canadian dollars] Three-month period ended September 30, 2010 Nine-month period ended September 30, 2010

Note Note

Revenue $ 79,588 $ - $ 79,588 $ 202,859 $ - $ 202,859 Cost of sales 64,781 - 64,781 162,540 - 162,540 Gross Margin 14,807 - 14,807 40,319 - 40,319

ExpensesAdministration 7,082 (309) a), c), g) 6,773 20,333 (556) a), c), g) 19,777 Distribution 4,391 - g) 4,391 12,914 - g) 12,914 Selling 2,581 - g) 2,581 7,296 - g) 7,296 Other income 122 - 122 (467) - (467) Expenses 14,176 (309) 13,867 40,076 (556) 39,520

Operating income (loss) $ 631 $ 309 $ 940 $ 243 $ 556 $ 799

Interest expense $ 1,234 $ - $ 1,234 $ 3,462 $ - $ 3,462

Income (loss) before taxes (603) 309 (294) (3,219) 556 (2,663)

Income tax (recovery) expense (1,307) 1,307 d) - (1,317) 1,317 d) -

Net income (loss) andcomprehensive income (loss)attributable to shareholders $ 704 $ (998) $ (294) $ (1,902) $ (761) $ (2,663)

Adjust-ment IFRS

Canadian GAAP

Adjust-ment IFRS

Canadian GAAP



[in thousands of Canadian dollars] Year ended December 31, 2010

Note

Revenue $ 294,657 $ - $ 294,657 Cost of sales 237,971 - 237,971 Gross Margin 56,686 - 56,686

ExpensesAdministration 17,873 (531) a), c), g) 17,342 Distribution 26,307 - g) 26,307 Selling 9,887 - g) 9,887 Other income (740) - (740) Expenses 53,327 (531) 52,796

Operating income (loss) $ 3,359 $ 531 $ 3,890

Interest expense $ 4,816 $ - $ 4,816

Income (loss) before taxes (1,457) 531 (926)

Income tax (recovery) expense (1,040) 1,040 d) -

Net income (loss) attributable to shareholders (417) (509) (926)

Other comprehensive lossPost- employment

benefit obligations - 52 d) 52

Comprehensive income (loss) attributable to shareholders $ (417) $ (457) $ (874)

Canadian GAAP

Adjust-ment IFRS

Explanatory notes a) Employee future benefits

In accordance with the IFRS transitional provisions, the Company has chosen to recognize unamortized actuarial gains and losses arising from the re-measurement of employee future benefit obligations as an adjustment to retained earnings as at January 1, 2010. Under Canadian GAAP, the Company applied the corridor method of accounting for such gains and losses. Under this method, gains and losses are recognized only if they exceed specified thresholds and are amortized over the expected average remaining service life of active employees. The carrying value of the net asset for employee future benefit obligations at January 1, 2010 is lower by $8,791 ($4,712 after tax), September 30, 2010 is lower by $8,447 ($6,283 after tax) and at December 31, 2010 is lower by $9,733 ($7,239 after tax) under IFRS as a result of the Company’s decision to recognize unamortized net actuarial losses as at January 1, 2010.

Under IFRS, the Company recognizes actuarial gains and losses arising from the re-measurement of employee future benefit obligations in other comprehensive income as they arise. Under Canadian GAAP, the Company applied the corridor method of accounting for such gains and losses. As a result, the Company has reflected a decrease in expense associated with its defined benefit employee benefit plans under IFRS of $121 ($90 after tax) for the three-month period ended September 30, 2010, $344 ($255 after tax) for the nine-month period ended September 30, 2010 and 411 ($306 after tax) for the year-ended December 31, 2010.



In addition, on January 1, 2010, the Company completed the calculation with respect to the limitation of the defined benefit asset under IFRIC 14, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, (IFRIC 14) and recorded a liability of $1,503 ($1,118 after tax) at January 1, 2010 which remains at September 30, 2010. At December 31, 2010 the liability decreased to $97 ($72 after tax).

In addition, the company recognized actuarial losses of $1,354 and the reduction in the IFRIC 14 liability of $1,406 through other comprehensive income (loss) for the year ended December 31, 2010 in accordance with the Company’s policy decision under IFRS.

b) Provisions

The Company reclassified liabilities related to equipment buybacks, legal matters and certain other items totalling $1,218 at January 1, 2010, $1,367 at September 30, 2010 and $1,436 at December 31, 2010 from trade and other payables to provisions.

c) Stock-based compensation

Under IFRS, the Company recognizes the cost of employee share options over the vesting period using the graded method of amortization rather than the straight-line method, which was the Company’s policy under Canadian GAAP. In addition, under IFRS the recognition of compensation expense can occur prior to the grant date when services have commenced whereas under Canadian GAAP, compensation expense is not recognized prior to the grant date. Further, the Company adjusted for forfeitures under Canadian GAAP as they occurred where IFRS requires an estimate of the forfeitures on initial recognition.

These changes increased provisions and reduced retained earnings at January 1, 2010 by $68. In addition, these changes decreased share-based compensation expense and contributed surplus by $185 for the three -month period ended September 30, 2010, $210 for the nine-month period ended September 30, 2010 and $114 for the year-ended December 31, 2010.

Pursuant to the guidance under IAS 32, Financial Instruments: Preparation, the Fund units, which were outstanding in the comparative period from January 1, 2010 to June 30, 2010 while the Company operated as an income trust, are only allowed to be classified as equity for the purpose of assessing the classification under this standard. Consequently, the share options issued under the Company’s equity incentive plan are not accounted for in accordance with IFRS 2, Share-based Payments and as a result, the Company has reclassified compensation expense of $80 at January 1, 2010 from contributed surplus to provisions.

d) Deferred income taxes

Deferred income tax liabilities have been adjusted as follows:

(i) As at January 1, 2010 and for the six-month period ended June 30, 2010, Strongco operated as an income trust that qualified for special tax treatment permitting a tax deduction by the trust for distributions paid to the trust’s unitholders. The change in tax legislation in 2007 effectively imposed an income tax for income trusts for taxation years beginning in 2011. As a



result, Strongco has recorded future income taxes under Canadian GAAP during this period using the enacted (or substantively enacted) income tax rates that, at the consolidated balance sheet date, are expected to apply when the temporary differences reverse in years 2011 and beyond.

Although IFRS recognizes that in some jurisdictions income taxes may be payable at a higher or lower rate or be refundable or payable if part, or all, of the net profit or retained earnings is paid out as a dividend to shareholders of the entity, there is a general requirement that income taxes be measured at the tax rate applicable to undistributed profits. As a result, deferred income taxes were re-measured at the tax rate of approximately 46.4% applicable to undistributed profits, which resulted in an increase to the Company’s deferred tax liability of $1,247 at January 1, 2010. The deferred taxes were subsequently re-measured at the applicable corporate rates effective July 1, 2010, the date the Company converted to a corporation. This resulted in an adjustment to the deferred tax balance with a corresponding adjustment to deferred tax expense and to other comprehensive income for the impact on the deferred tax asset relating to the IFRIC 14 adjustment.

(ii) In addition, following the adjustments made to the opening balance at January 1, 2010 on the adoption of IFRS the Company assessed the recoverability of its deferred tax asset and determined that it did not meet the recognition criteria under International Accounting Standards (“IAS”) 12, Income Taxes. As a result, the Company recorded an adjustment to reduce the deferred income tax assets to $nil on September 30, 2010 and December 31, 2010.

The above adjustments increased income tax expense recognized in the consolidated statement of income (loss) by $1,307 for the three-month period ended September 30, 2010, $1,317 for the nine-month period ended September 30, 2010, and $1,040 for the year-ended December 31, 2010.

e) In accordance with the IFRS transitional provisions, the Company elected not to apply IFRS 3, Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. As such, Canadian GAAP balances relating to business combinations entered into before the date of transition have been carried forward without adjustment

f) Pursuant to the guidance under IAS 17, Leases, it was determined that certain vehicle and equipment leases that were accounted for as operating leases under Canadian GAAP met the criteria of a finance lease under IFRS. This resulted in an increase of $1,816 to property and equipment and $1,912 to finance lease obligations at January 1, 2010, $1,850 to property and equipment and $1,945 to finance lease obligations at September 30, 2010 and $2,081 to property and equipment and $2,175 to finance lease obligations at December 31, 2010. This also resulted in a reclassification of lease costs from rent expense to depreciation expense and interest expense. The net impact on the consolidated statement of income (loss) was not significant.

g) Pursuant to the guidance under IAS 1, Presentation of Financial Statements, the Company has presented expenses by function and accordingly has reclassified administration, distribution and selling expenses under Canadian GAAP to its respective function under IFRS.



iii) Adjustments to the consolidated statement of cash flows The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated by the Company, except that cash flows related to interest are classified as financing activities. Under Canadian GAAP, cash flows relating to interest payments were classified as operating activities. 6 Inventories

Inventory components, net of write-downs and provisions are as follows:

As at September 30, 2011 December 31, 2010Equipment $ 188,234 $ 142,080 Parts 19,843 15,401 Work in process 5,034 2,507

$ 213,111 $ 159,988 7 Bank Indebtedness

The Company has credit facilities with banks in Canada and United States which provide 364-Day committed operating lines of credit totalling approximately $22.5 million which are renewable annually. Borrowings under the lines of credit are limited by standard borrowing base calculations based on trade receivables and inventories, which is typical of such lines of credit. As collateral, the Company has provided a $50 million debenture and a security interest in trade receivables, inventories (subordinated to the collateral provided to the equipment inventory lenders), property, plant and equipment (subordinated to collateral provided to lessors), real estate and on intangible and other assets. The operating lines bear Interest at rates that range between bank prime rate plus 0.50% and bank prime rate plus 3.00% and between the one month Canadian Bankers’ Acceptance Rates (“BA rates”) plus 1.50% and BA rates plus 4.00% in Canada and at LIBOR plus 2.60% in the United States. Under its bank credit facilities, the Company is able to issue letters of credit up to a maximum of $5 million. Outstanding letters of credit reduce the Company’s availability under its operating lines of credit. For certain customers, Strongco issues letters of credit as a guarantee of Strongco’s performance on the sale of equipment to the customer. As at September 30, 2011, there were outstanding letters of credit of $0.1 million. The Company’s bank credit facilities also include term loans secured by real estate in both Canada and the United States (see note 9). The Company’s bank credit facilities contain financial covenants typical of such credit facilities that require the Company to maintain certain financial ratios and meet certain financial thresholds. The Company was in compliance with all financial covenants at September 30, 2011. 8 Equipment Notes Payable

In addition to its bank credit facilities, the Company has lines of credit available totalling approximately $221 million from various non-bank equipment lenders in Canada and the United States, which are used to finance equipment inventory. At September 30, 2011, there was approximately $160 million borrowed on these equipment finance lines.



Typically, these equipment notes are interest free for periods up to 12 months from the date of financing, after which they bear interest at rates ranging from 4.25% to 5.85% over the one month BA rate and 3.25% to 4.9% over the prime rate of a Canadian chartered bank in Canada, and from 2.5% to 5.5% over one month Libor rate and between prime and prime plus 3% in the United States. As collateral for these equipment notes, the Company has provided liens on the specific inventories financed and any related accounts receivable. Monthly principal repayments equal to 3% of the original principal balance of the note commence 12 months from the date of financing and the remaining balance is due in full at the earlier of 24 months after financing or when the financed equipment is sold. While financed equipment is out on rent, monthly curtailments are required equal to the greater of 70% of the rental revenue and 2.5% of the original value of the note. Any remaining balance after 24 months, which is due in full, is normally refinanced with the lender over an additional period of up to 24 months. All of the Company’s equipment notes facilities are renewable annually. Certain of the Company’s equipment finance credit agreements contain restrictive financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). The Company’s equipment finance lenders have agreed to amend covenants for the accounting changes under IFRS. 9 Notes Payable

Notes payable is comprised of the following:

September 30, 2011 December 31, 2010Champion acquisition note (i) $ - $ 1,233 Promissory notes (ii) 1,531 - Equipment plan notes payable - rental fleet (iii) 4,758 - Term note - United States (iv) 3,823 - Term note - Canada (v) 4,583 - Construction facility (vi) 2,937 - Other 13 -

17,645 1,233 Current portion 5,631 1,233 Long-term portion $ 12,014 $ -

(i) On March 20, 2008, the Company purchased substantially all of the assets (excluding real property) of the Champion Road Machinery division of Volvo Group Canada Inc. (“Champion”) for a total consideration of $24,984 including deal-related costs of $190. The consideration included a non-interest bearing note payable in favour of Volvo Group Canada Inc. of $2,500 with instalment payments of $1,250 due in March 2010 and March 2011. The note was secured with certain assets of Champion. The note had been discounted at 6.0% using the effective interest rate method, resulting in a discount of $346 that was amortized to interest expense over the three-year period to March 2011. During the nine month period ended September 30, 2011, the final principal payment on the non-interest bearing note was made.

(ii) As part of the acquisition of CBR, the Company issued, through a wholly owned subsidiary, three promissory notes totalling US$1,863. The three promissory notes mature on February 17, 2013 and bear interest at the US Prime rate. Quarterly principal payments of US$195 commenced in May 2011.



(iii) In addition to equipment notes payable as described in note 8, CBR utilizes floor plan notes payable to finance its rental fleet. Payment is required at the earlier of the sale of items or per contractual schedule ranging from 12 to 24 months. Effective interest rates range from 2.01% to 5.80% with various maturity dates.

(iv) The Company’s bank credit facilities in the United Sates include a term note secured by real estate and cross-collateralized with the Company’s revolving line of credit in the United States. The term note matures in September 2012 and bears interest at a rate of LIBOR plus 3.05%. Monthly payments of principal of US$13 plus accrued interest are required under the terms of the note. The Company has interest rate swap agreements in place related to the term note which have converted the variable rate on the term loans to a fixed rate of 5.17%. The term loans and swap agreements expire in September 2012 at which point a balloon payment for the balance of the loans is due.

(v) In April 2011, the Company’s bank credit facilities were amended to add a $5,000 demand, non-revolving term loan (“Term note – Canada”). The Term note – Canada is for a term of 60 months and bears interest at the bank’s prime lending rate plus 2.0%. Monthly principal payments of $83 plus accrued interest commenced in May 2011.

(vi) In May 2011, the bank credit facilities were further amended to add a construction loan facility (“Construction Loan”) to finance the construction of the Company’s new Edmonton, Alberta branch. Under the Construction Loan, the Company is able to borrow 70% of the cost of the land and building construction costs to a maximum of $7,100. The Company purchased the property in March 2011 and commenced construction in June 2011. The construction is scheduled to be completed before the end of 2011. As at September 30, 2011, the Company has drawn $2,937 against the construction loan facility. Upon completion, the Construction Loan will be converted to a demand, non-revolving term loan (“Mortgage Loan”). The Mortgage Loan will be for a term of 60 months. The Construction Loan and Mortgage Loan bear interest at the bank’s prime lending rate plus 2%.

10 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 risks and rewards of ownership.

Financial assets and liabilities are offset and the net amount reported in the balance sheet 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.

The Company has a $15 million line for foreign exchange forward contracts (“FX Line”) 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 $15 million with terms not to expire beyond the remaining term of the operating line of credit. As at September 30, 2011, the Company had outstanding foreign exchange forward contracts under this facility totalling US$0.3 million at an average exchange rate of $0.9699 Canadian for each US $1.00 with settlement dates between October 1, 2011 and October 28, 2011. Foreign currency contracts are classified as a derivative financial instrument and are recorded at fair value using an observable market. The fair value of foreign exchange 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 contracts and, accordingly the



change in the fair value of the contracts is recorded in Other Expense (Income). As at September 30, 2011 and December 31, 2010, the unrealized gain (loss) associated with foreign currency contracts is $21 and ($239), respectively. In September 2011, the Company secured a Swap Facility with its bank which allows the Company to swap the floating interest rate component (Bankers Acceptance or BA rates) on up to $25 million of the Company’s debt for a 5 year fixed swap rate of interest. On September 8, 2011, the Company entered into an interest rate swap to fix the floating rate of interest on $15 million of interest rate debt at a fixed interest rate equal to 1.615% for a period of five years to September 8, 2016. The interest rate swap is classified as a derivative financial instrument and is recorded at fair value using an observable market. 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 September 30, 2011, the unrealized loss associated with the swap is $89. The Company has interest rate swap agreements in place related to the term loans secured by real estate in the United States which have converted the variable rate on the term loans to a fixed rate of 5.17%. The term loans and swap agreements expire in September 2012 at which point a balloon payment for the balance of the loans is due. The interest rate swaps are not treated as a hedge for accounting purposes and, accordingly, the change in fair value of the swaps is recorded in trade and other payables in the consolidated balance sheet.

11 Shareholders’ Capital

On January 17, 2011, the Company completed a rights offering for aggregate proceeds of $7,809, net of transaction costs of $51. The offering was virtually fully subscribed, with a total of 9,941,964 rights being exercised for 2,485,491 common shares and 134,509 common shares being issued pursuant to the additional subscription privilege. Under the offering, each registered holder of the Corporation's Common Shares as of December 17, 2010 received one Right for each Common Share held. Four Rights plus the sum of $3.00 were required to subscribe for one Common Share. Each common share was issued at a price of $3.00.

Authorized: Unlimited number of shares Issued: As at September 30, 2011, a total of 13,128,719 shares [December 31, 2010 – 10,508,719] with a stated valued of $64,898 [December 31, 2010 - $57,089] were issued and outstanding.



12 Earnings (Loss) Per Share

Three-month period ended Nine-month period endedSeptember 30, September 30,

2011 2010 2011 2010

basic earnings per share calculation 13,128,629 10,508,719 13,022,214 11,053,532 Effect of dilutive options outstanding 39,298 - 39,298 -

diluted earnings per share calculation 13,167,927 10,508,719 13,061,512 11,053,532

Weighted average number of shares for

Weighted average number of shares for

On January 17, 2011, the Company completed a rights offering for a total of 9,941,964 rights being exercised for 2,485,491 common shares and 134,419 common shares being issued pursuant to the additional subscription privilege. The rights were issued at a discount to the market price at the date of issue, resulting in a bonus element related to this discount. The calculation of the weighted average number of shares for basic earnings per share has been adjusted for a factor related to the bonus element, impacting the calculation for the three and nine-month periods ended September 30, 2011 and the nine-month period ended September 30, 2010. The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of the shares during the period. A total of 445,000 options were excluded due to their anti-dilution effect for the three-month and nine-month periods ended September 30, 2010. 13 Income Taxes Significant components of the provision for income taxes are as follows:

For the nine-month period ended September 30 2011 2010 Current tax $ 396 $ - Deferred tax - -

Total income tax expense $ 396 $ - The provision for income taxes differs from that which would be obtained by applying the statutory tax rate as a result of the following: As at September 30 2011 2010Earnings (loss) before taxes $ 8,254 $ (2,663) Statutory tax rate 27.93% 30.12%

Provision for income taxes at statutory tax rate $ 2,305 $ (802) Adjustments thereon for the effect of:Permanent and other differences 101 201 Benefit of temporary and other differences unrecognized (1,973) 576 Effect of Rate Change (62) - Other 25 25 Total income tax expense $ 396 $ (0)



The future income tax assets and liabilities are represented by the following: Deferred income tax assets and liabilities - CanadaAs at September 30 2011 2010Deferred income tax assets previously unrecognized:Eligible capital expenditures and other reserves $ 1,203 $ 196 Pension 543 100 Loss carryforward - 117 Deferred income tax assets 1,746 413 Capital and other assets (391) (413) Partnership income taxes payable in 2012 (1,355) - Deferred income tax liabilities $ (1,746) $ (413) On adoption of IFRS, temporary and other timing differences between tax and accounting values arose resulting in an unrecognized net deferred tax asset of which the Company utilized $1,746 during the nine-month period ended September 30, 2011 to offset the deferred tax liabilities in full. The remaining unrecognized deferred tax asset as at September 30, 2011 is $170. Deferred income tax assets and liabilities - United StatesAs at September 30 2011Eligible capital expenditures and other reserves $ 1,166 Deferred income tax assets 1,166 Capital and other assets (2,910) Deferred income tax liabilities $ (2,910) Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated annual rate used for the three-month period ended September 30, 2011 was 27.93% (September 30, 2010 – 30.12%).



14 Contingencies and Guarantees

a) The Company has agreed to buy back equipment from certain customers at the option of the customer for a specified price at future dates ("buy back contracts"). These contracts are subject to certain conditions being met by the customer and range in term from three to ten years. At September 31, 2011, the total obligation under these contracts was $13,292 (December 31, 2010 - $10,279). The Company's maximum potential losses pursuant to the majority of these buy back contracts are limited, under an agreement with a third party, to 10% of the original sale amounts. A reserve of $1,122 (December 31, 2010 - $860) has been accrued in the Company's accounts with respect to these commitments.

b) In the ordinary course of business activities, 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 Superior Court of Quebec. 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 $5.9 million. Although the Company cannot predict the outcome at this time, based on the opinion of external legal counsel, management believes that the Company has a strong defence against the claim and that it is without merit. The Company’s insurer has provided conditional coverage for this claim.

A statement of claim has been filed naming a former division of the Company as one of several defendants in proceedings under the Court of Queen’s Bench of Manitoba. The action claims errors and omissions in the contractual execution of work entrusted to the defendants and names the Company as jointly and severally liable for damages of approximately $4,800. Although the outcome is indeterminable at this early stage of the proceedings, the Company believes that they have a strong defence against this claim and that it is without merit. The Company’s insurer has provided conditional coverage for this claim.

c) The Company has provided a guarantee of lease payments under the assignment of a property lease, which expires January 31, 2014. Total lease payments from October 1, 2011 to January 31, 2014 are $349 (December 31, 2010 - $461).

15 Segment Information

Management has determined the operating segments based on reports reviewed by the chief operating decision maker. The Company has one reportable segment, Equipment Distribution. This business sells and rents new and used equipment and provides after-sale product support (parts and service) to customers that 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:

Three-months ended Nine-months ended September 30 September 30

2011 2010 2011 2010Equipment sales $ 68,161 $ 50,168 $ 201,236 $ 121,475 Equipment rentals 9,204 6,913 20,746 14,909 Product support 31,030 22,507 87,958 66,475 Total Equipment Distribution $ 108,395 $ 79,588 $ 309,940 $ 202,859

Geographical information: As at

Canada US Total Canada US Total

Total assets $ 257,661 $ 44,312 $ 301,973 $ 215,161 $ - $ 215,161

September 30, 2011 December 31, 2010

16 Changes in Non-Cash Working Capital

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

For the nine-month period ended September 30 2011 2010Changes in working capital

Trade and other receivables $ (2,800) $ (5,416) Inventories (56,864) (39,678) Prepaid expense and other deposits (146) (889) Trade and other payables 7,310 13,525 Provisions 280 - Deferred revenue and customer deposits (548) 378 Income taxes recoverable/payable (55) - Equipment notes payable 33,803 20,634

$ (19,020) $ (11,446) 17 Seasonality

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


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

Three-months ended Nine-months ended September 30 September 30

2011 2010 2011 2010Equipment sales $ 68,161 $ 50,168 $ 201,236 $ 121,475 Equipment rentals 9,204 6,913 20,746 14,909 Product support 31,030 22,507 87,958 66,475 Total Equipment Distribution $ 108,395 $ 79,588 $ 309,940 $ 202,859

Geographical information: As at

Canada US Total Canada US Total

Total assets $ 257,661 $ 44,312 $ 301,973 $ 215,161 $ - $ 215,161

September 30, 2011 December 31, 2010

16 Changes in Non-Cash Working Capital

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

For the nine-month period ended September 30 2011 2010Changes in working capital

Trade and other receivables $ (2,800) $ (5,416) Inventories (56,864) (39,678) Prepaid expense and other deposits (146) (889) Trade and other payables 7,310 13,525 Provisions 280 - Deferred revenue and customer deposits (548) 378 Income taxes recoverable/payable (55) - Equipment notes payable 33,803 20,634

$ (19,020) $ (11,446) 17 Seasonality

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



18 Economic Relationship

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


Directors

John K. Bell 1

Chairman, BSM Wireless Incorporated

Robert J. Beutel 1, 2

President, Oakwest Corporation Limited

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

Corporate Director

Robert H.R. DryburghPresident and Chief Executive OfficerStrongco Corporation

Colin Osborne, P.Eng. 2

President and Chief Executive OfficerVicwest Inc.

Ian Sutherland 1

Chairman of the BoardMCAn Mortgage Corporation

1. Member of Audit Committee2. Member of Corporate Governance, nominating,

Compensation and Pension Committee

Officers and Senior Management

Robert J. BeutelChairman of the Board

Robert H.R. DryburghPresident and Chief Executive Officer

Christopher D. ForbesVice President, Human Resources

William J. OstranderVice President, Crane

Thomas J. PerksVice President, Corporate Development

Leonard V. Phillips, C.A.Vice President, Administration and Secretary

Anna C. SgroVice President, Multiline

J. David Wood, C.A.Vice President and Chief Financial Officer

Stuart WelchPresident, Chadwick-BaRoss, Inc.

Michel G. RhéaumeGeneral Manager, Case

Peter DuperrouzelManager, Information Services

corporatE anD SHarEHolDEr inforMation

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

Investor RelationsJ. David Wood, C.A.Vice President and Chief Financial OfficerTelephone: 905 565-3808E-mail: [email protected]

AuditorsErnst & Young LLPToronto, Ontario

Transfer Agent and RegistrarInquiries regarding change of address,registered shareholdings, share transfers,lost certificates and duplicate mailingsshould be directed to the transfer agent:Computershare Investor Services Inc.100 University AvenueToronto, Ontario M5J 2Y1Telephone: 1-800-564-6253Fax: 1-800-453-0330E-mail: [email protected]

Stock Exchange ListingToronto Stock ExchangeStock symbol: SQP

Shares Outstanding13,128,719 at September 30, 2011

50 Strongco corPorAtIon 2011 THIRD QUARTER REpoRT

Strong People Strong Brands Strong Commitments

The Unmistakable Power of Strongco

strongco corporation third quarter report · strongco corporation third quarter report nine months...

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