Strongco Inc.

Strongco Inc.

February 24, 2005 13:10 ET

Strongco Reports Fourth Quarter Profit of $0.23 per Share and Considers Conversion to an Income Trust


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: STRONGCO INC.

TSX SYMBOL: SQP

FEBRUARY 24, 2005 - 13:10 ET

Strongco Reports Fourth Quarter Profit of $0.23 per
Share and Considers Conversion to an Income Trust

MISSISSAUGA, ONTARIO--(CCNMatthews - Feb. 24, 2005) - Strongco Inc.
(TSX:SQP) today released its results for the fourth quarter of 2004.

For the three months ended December 31st, 2004 Strongco generated net
income after tax of $2.2 million, ($0.23 per share), vs. $1.8 million,
($0.19 per share), for the comparable quarter 2003. On a diluted basis
the net income per share was $0.22 vs. $0.19 last year. Revenues for
Q4/04 were $95.2 million versus $81.8 million for Q4/03. The increase in
revenue is largely a result of increased equipment sales.

For the fiscal year ended December 31st, 2004 net income after tax was
$7.7 million, ($0.81 per share), vs. $5.0 million, ($0.53 per share),
for the comparable period of 2003. On a diluted basis the net income per
share was $0.80 vs. $0.53 last year.

During the fourth quarter, the Company completed the sale of its
Equipment operations in Manitoba and its Rental operations in
Saskatchewan for proceeds of $9.1 million and a loss on disposition of
$0.5 million. These operations generated combined revenue of $17.3
million and pre tax income of $0.2 million in 2004 prior to disposition.

Strongco also announced that it has engaged BMO Nesbitt Burns as its
financial advisor in connection with the review of a proposal (the
"Proposal") to transform Strongco into a new publicly traded income fund
("Strongco Income Fund") that will carry on the existing Strongco
business.

If the Proposal contemplated is approved by Strongco shareholders, each
Strongco shareholder will receive units of Strongco Income Fund in
exchange for his or her shares of Strongco. The Proposal is subject to
regulatory, board and shareholder approvals.

Mr. Larry Pirnak, President, commented, "We are pleased with the results
and anticipate continued improvement for the 2005 year."

Strongco will host a conference call at 3:00 p.m. on Thursday February
24th, 2005 to further discuss its fourth quarter. To participate in the
conference call, dial 800.387.2195 or 416.641.6706, reservation number
is 21231017. A taped version of the call will be available until March
10th, 2005. Dial 800.558.5253 and enter the reservation number.

Strongco is a full-line equipment sales and service company. Its shares
are listed on the Toronto Stock Exchange and its website can be accessed
at www.strongco.com.



Strongco Inc.

CONSOLIDATED BALANCE SHEETS

As at December 31
(unaudited - in thousands of dollars) $ 2004 $ 2003
---------------------------------------------------------------------

ASSETS
Current
Accounts receivable 27,447 31,040
Inventories 91,659 87,295
Prepaid expenses and deposits 1,090 1,797
---------------------------------------------------------------------
Total current assets 120,196 120,132
Rental equipment, net (note 2) 5,975 17,425
Capital assets, net (note 3) 16,779 17,548
Capital assets held for sale, net (note 4) - 3,980
Accrued benefit asset (note 12) 4,297 3,314
---------------------------------------------------------------------
147,247 162,399
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (note 5) 1,025 21,465
Accounts payable and accrued liabilities 27,241 25,312
Equipment notes payable-non-interest
bearing (note 6) 29,828 17,774
Equipment notes payable-interest
bearing (note 6) 26,642 39,766
Current portion of long-term debt (note 7) 1,183 4,663
Income and other taxes payable 110 424
---------------------------------------------------------------------
Total current liabilities 86,029 109,404
Long-term debt (note 7) 0 1,720
Future income taxes (note 10) 3,301 229
Accrued benefit liability (note 12) 1,199 1,295
---------------------------------------------------------------------
Total liabilities 90,529 112,648
---------------------------------------------------------------------
Commitments and contingencies (notes 11 and 13)

Shareholders' equity
Share capital (note 8) 52,342 52,131
Contributed surplus (note 8) 27 -
Retained earnings (deficit) 4,349 (2,380)
---------------------------------------------------------------------
Total shareholders' equity 56,718 49,751
---------------------------------------------------------------------
147,247 162,399
---------------------------------------------------------------------

See accompanying notes


Strongco Inc.

CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS (DEFICIT)

Three months Twelve months
(unaudited - in thousands ended December 31 ended December 31
of dollars, except per
share amounts) $ 2004 $ 2003 $ 2004 $ 2003
---------------------------------------------------------------------

Revenue 95,337 81,746 343,827 320,162
Cost of sales 78,827 66,058 279,941 258,464
---------------------------------------------------------------------
Gross margin 16,510 15,688 63,886 61,698

Expenses
Administration, distribution
and selling 12,578 13,234 52,074 54,504
Other income 89 (686) (1,175) (2,865)

---------------------------------------------------------------------
Income before the following 3,843 3,140 12,987 10,059
Interest (note 7(d)) 545 1,056 2,788 4,802

---------------------------------------------------------------------
Income before income taxes 3,298 2,084 10,199 5,257
Provision for income taxes
(note 10) 1,134 258 2,526 236

---------------------------------------------------------------------
Net income 2,164 1,826 7,673 5,021
---------------------------------------------------------------------

Retained earnings (deficit),
beginning of period 2,658 (4,206) (2,380) (7,401)
Common share dividends 473 - 944 -
---------------------------------------------------------------------
Retained earnings (deficit),
end of period 4,349 (2,380) 4,349 (2,380)
---------------------------------------------------------------------

Basic earnings per share
Earnings per share $ 0.23 $ 0.19 $ 0.81 $ 0.53
Weighted average number
of shares 9,456,543 9,402,168 9,426,405 9,390,546

Diluted earnings per share
Earnings per share $ 0.22 $ 0.19 $ 0.80 $ 0.53
Weighted average number
of shares 9,714,942 9,524,089 9,598,900 9,436,205

See accompanying notes


Strongco Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months Twelve months
(unaudited - in thousands ended December 31 ended December 31
of dollars) $ 2004 $ 2003 $ 2004 $ 2003
---------------------------------------------------------------------

OPERATING ACTIVITIES
Net Income 2,164 1,826 7,673 5,021
Add (deduct) items not
involving a current outlay
(inflow) of cash
Amortization of rental
equipment 672 825 3,328 4,343
Amortization of capital assets 247 280 987 1,183
Writedown of rental equipment 264 203 264 203
Writedown of capital assets
held for sale - 216 - 216
Loss on disposal of assets
held for sale - - 14 -
(Gain) / loss on disposal of
capital assets and rental
equipment 537 38 610 (516)
Stock based compensation 6 - 27 -
Future income taxes 1,143 227 3,072 108
Other 248 (55) (1,079) (513)
---------------------------------------------------------------------
5,281 3,560 14,896 10,045

Net change in non-cash working
capital balances related to
operations 1,753 3,643 481 4,353
---------------------------------------------------------------------
Cash provided by operating
activities 7,034 7,203 15,377 14,398

INVESTING ACTIVITIES
Purchase of rental equipment (8) (14) (51) (147)
Purchase of capital assets (350) (106) (616) (247)
Proceeds on disposal of assets
held for sale - - 3,966 -
Proceeds on disposal of capital
assets and rental equipment 5,621 567 7,697 5,240
---------------------------------------------------------------------
Cash provided by investing
activities 5,263 447 10,996 4,846

FINANCING ACTIVITIES
Decrease in bank indebtedness (9,915) (4,934) (20,440) (6,820)
Repayment of long-term debt (7) (1,898) (386) (6,743)
Decrease in rental equipment
financing (2,094) (842) (4,814) (5,712)
Dividends (473) - (944) -
Issuance of share capital 192 24 211 31
---------------------------------------------------------------------
Cash used in financing
activities (12,297) (7,650) (26,373) (19,244)

Net change in cash and cash
equivalents during the period - - - -
Cash and cash equivalents,
beginning of period - - - -
Cash and cash equivalents,
end of period - - - -

Supplemental cash flow information
Interest paid 551 1,083 2,862 4,909
Income taxes paid / (received) (35) 53 (236) (317)


Strongco Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars, except per share amounts)

December 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Strongco Inc. (the "Company")
have been prepared by management in accordance with Canadian generally
accepted accounting principles within the framework of the significant
accounting policies summarized below:

Basis of consolidation

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary companies. Effective January 1,
2004, the Company amalgamated with it's wholly-owned subsidiary Strongco
Engineered Systems Inc. and continued operations as Strongco Inc.

Use of estimates

The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ
from those estimates. The more significant estimates relate to accounts
receivable and inventory valuation, revenue recognition and warranty
obligations.

Revenue recognition

Revenue from the sale or distribution of products is recognized at the
time goods are shipped to customers and the substantial risks and
rewards of ownership have been transferred. Revenue from the rental and
servicing of products is recognized as these services are provided.
Revenues for construction jobs within the Engineered Systems segment are
recognized on a percentage of completion basis as milestones specified
within the contract or purchase order are achieved. Provisions are made
for expected returns, collection losses and warranty costs based on the
Company's past experience.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the exchange rate prevailing at the
consolidated balance sheet date. Revenue and expenses are effectively
recorded at the rate of exchange in effect on the transaction dates.
Exchange gain or losses are included in the determination of earnings
for the year.

Financial instruments

The fair market values of the Company's current financial assets and
liabilities approximate carrying values due to their short-term nature.
The fair market values of long-term debt instruments bearing interest at
rates which float with prime are also considered to approximate their
carrying values. The fair market values of other long-term debt
instruments are estimated by discounting estimated future cash flows at
current market rates and approximate their carrying values.

Pension plans

The Company accrues its obligations under employee benefit plans and the
related costs, net of plan assets. The Company has adopted the following
policies:

The actuarial determination of the accrued benefit obligations for
pensions and other retirement benefits uses the projected benefit method
prorated on service (which incorporates management's best estimate of
future salary levels, other cost escalation, retirement ages of
employees and other actuarial factors).

For the purpose of calculating the expected return on plan assets, those
assets are valued at fair value.

Actuarial gains (losses) arise from the difference between actual
long-term rate of return on plan assets for a period and the expected
long-term rate of return on plan assets for that period and from changes
in actuarial assumptions used to determine the accrued benefit
obligation. The excess of the net accumulated actuarial gain (loss) over
10% of the greater of the benefit obligation and the fair value of plan
assets is amortized over the average remaining service period of active
employees. The average remaining service period of the active employees
covered by the employee pension plan is 16 years for 2004 and 2003. For
the executive pension plan, the period used to amortize gains and losses
is based on the average expected remaining lifetime of the retirees (16
years for 2004 and 2003).

Past service costs arising from plan amendments are deferred and
amortized on a straight-line basis over the average remaining service
period of the employees active at the date of the amendment.

On January 1, 2000, the Company adopted the new accounting standard on
employee future benefits using the prospective application method. The
Company is amortizing the transitional obligation on a straight-line
basis over 16 years, which was the average remaining service period of
employees expected to receive benefits as of January 1, 2000.

When the restructuring of a benefit plan gives rise to both a
curtailment and a settlement of obligations, the curtailment is
accounted for prior to the settlement.

Stock-based compensation plan

The Company accounts for stock options using the fair value method.
Under the fair value method, compensation expense for options is
measured at the grant date using an option pricing model and recognized
in income on a straight-line basis over the vesting period.

Earnings per share

The Company follows the treasury stock method for the presentation and
disclosure of basic and diluted earnings per share.

Cash and cash equivalents

Cash and cash equivalents consist of all bank balances and short-term
investments with remaining maturities of less than 90 days at the date
of acquisition.

Inventories

Inventories are recorded at the lower of cost and net realizable value.
The cost of equipment inventories is determined on a specific item
basis. The cost of repair and distribution parts is determined on a
weighted average cost basis.

Rental equipment

Amortization of rental equipment is provided on a straight-line basis
over periods ranging from four to 10 years.

Capital assets

Capital assets are initially recorded at cost. Amortization is provided
on a declining balance basis using the following annual rates:



Buildings 3% to 5%
Machinery and equipment 10% to 30%
Vehicles 30%


Leasehold improvements are amortized on a straight-line basis over the
remaining term of the lease.

Income taxes

The Company follows the liability method of tax allocation to account
for income taxes. Under this method of tax allocation, future tax assets
and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the substantively enacted tax rates and laws that will be
in effect when differences are expected to reverse.

2. RENTAL EQUIPMENT

The Company maintains certain equipment which is allocated for rental
purposes. Rental equipment consists of the following:



2004 2003
$ $
---------------------------------------------------------------------

Cost 16,298 35,844
Less accumulated amortization 10,323 18,419
---------------------------------------------------------------------
5,975 17,425
---------------------------------------------------------------------
---------------------------------------------------------------------


During the year the Company recorded a $264 (2003 - $203) write-down of
rental equipment within its Equipment Rentals segment to its fair market
value. Fair market value was determined based on prices for similar
assets.


3. CAPITAL ASSETS



Capital assets consist of the following:

2004
----------------------------
Net
Accumulated book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land 3,058 - 3,058
Buildings and leasehold improvements 13,785 4,111 9,674
Machinery, equipment and vehicles 14,438 10,391 4,047
---------------------------------------------------------------------
31,281 14,502 16,779
---------------------------------------------------------------------
---------------------------------------------------------------------


2003
----------------------------
Net
Accumulated book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land 3,058 - 3,058
Buildings and leasehold improvements 14,041 3,875 10,166
Machinery, equipment and vehicles 15,462 11,138 4,324
---------------------------------------------------------------------
32,561 15,013 17,548
---------------------------------------------------------------------
---------------------------------------------------------------------


4. CAPITAL ASSETS HELD FOR SALE

Capital assets held for sale consist of the following:

2004
----------------------------
Net
Accumulated book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land - - -
Buildings and leasehold improvements - - -
---------------------------------------------------------------------
- - -
---------------------------------------------------------------------
---------------------------------------------------------------------


2003
----------------------------
Net
Accumulated book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land 758 - 758
Buildings and leasehold improvements 4,265 1,043 3,222
---------------------------------------------------------------------
5,023 1,043 3,980
---------------------------------------------------------------------
---------------------------------------------------------------------


In the second quarter of 2004, the Company completed the disposition of
properties in Edmonton and Calgary which comprised the capital assets
held for sale. A loss on disposition of $14 was recorded at this time.

5. BANK INDEBTEDNESS

Bank indebtedness consists of an operating line of credit to a maximum
of $25,000 (2003 - $37,861), renewable annually. As at December 31,
2004, the Company had utilized $1,025 (2003 - $21,465) of this operating
line of credit. As at December 31, 2004, the bank indebtedness bears
interest at the bank's prime lending rate plus 0.50% (2003 - 0.75%),
which represents an effective interest rate of 4.75% (2003 - 5.25%). As
collateral, the Company has provided an assignment of book debts, a
charge on inventories subordinated to the collateral provided to the
equipment inventory lenders (note 6), a charge on capital assets
subordinated to collateral provided to lessors, a charge on real estate,
a charge on intangible and other assets, and a $50,000 debenture.

6. EQUIPMENT NOTES PAYABLE

Various non-bank lenders provide secured wholesale financing on
equipment inventory ("equipment notes payable"), some of which is
interest free for periods up to twelve months from the date of
financing. Thereafter, the equipment notes payable bear interest at
rates ranging from 0.50% to 1.60% over the prime rate of Canadian
chartered banks. As collateral, the Company has provided liens on
specific inventories and accounts receivable with an approximate book
value of $66,000. The effective interest rates on these notes payable as
at December 31, 2004 ranged from 4.75% to 5.85% (2003 - 5.00% to 6.50%).
Principal repayments commence over the period from the date of financing
to twelve months thereafter and are due in full when the related
equipment is sold.

7. LONG-TERM DEBT



Long-term debt consists of the following:

2004 2003
$ $
---------------------------------------------------------------------

Notes payable related to rental
equipment (a) 1,183 5,997
Obligations under capital leases and
finance contracts (b) - 185
Mortgage payable (c) - 201
---------------------------------------------------------------------
1,183 6,383
Less current portion 1,183 4,663
---------------------------------------------------------------------
- 1,720
---------------------------------------------------------------------
---------------------------------------------------------------------

(a) The notes payable related to rental equipment bear interest at
rates ranging from 0.50% to 1.25% over the prime rate of Canadian
chartered banks. As collateral, the Company has provided liens on
specific rental assets and accounts receivable. The effective
interest rates as at December 31, 2004 ranged from 4.75% to 5.50%
(2003 - 5.00% to 6.00%). The notes payable mature at different
dates throughout 2005.

(b) The capital leases were fully repaid at December 31, 2004.

(C) The mortgage was fully repaid at December 31, 2004.

(d) During the year, interest on long-term debt of $375 (2003 - $849)
was charged to income.


8. SHARE CAPITAL

(a) Authorized

Unlimited common shares

(b) Issued

Details of issued share capital are as follows:

2004 2003
---------------------------------------------------------------------
Shares Amount Shares Amount
# $ # $
---------------------------------------------------------------------

Common shares,
beginning of period 9,408,635 52,131 9,386,135 52,100
Shares issued
pursuant to exercise
of stock options 61,250 211 22,500 31
---------------------------------------------------------------------
---------------------------------------------------------------------
Common shares, end
of period 9,469,885 52,342 9,408,635 52,131
---------------------------------------------------------------------
---------------------------------------------------------------------
Contributed surplus 27 -
---------------------------------------------------------------------
---------------------------------------------------------------------

Contributed surplus is comprised of stock based compensation.

(c) Stock-based compensation plan

The Company has a stock-based compensation plan in place to grant
options to employees, officers and directors to purchase common
shares of the Company. The options are exercisable at a price not
less than the average of the daily average trading prices of the
common shares on the Toronto Stock Exchange for the five trading
days immediately preceding the date the options are granted.
Options issued prior to January 1, 2003 expire after 10 years and
options issued subsequent to January 1, 2003 expire after 6
years. Unless otherwise determined by the Board of Directors, 25%
of the options issued vest at the end of each of the first four
years following the date on which the options were granted.

A summary of the status of the Company's stock option plan as at
December 31, 2004 and 2003 and the changes during the years then
ended are as follows:

2004 2003
---------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
# $ # $
---------------------------------------------------------------------

Options outstanding,
beginning of year 630,800 3.47 673,300 3.93
Granted 20,000 6.29 105,000 3.50
Exercised (61,250) 3.44 (22,500) 1.37
Expired/forfeited (8,750) 1.37 (125,000) 6.36
---------------------------------------------------------------------
Options outstanding, end
of year 580,800 3.60 630,800 3.47
---------------------------------------------------------------------
---------------------------------------------------------------------


As at December 31, 2004, the maximum number of common shares reserved
for issuance pursuant to the stock option plan is 1,250,000 shares,
subject to a restriction that the total options granted cannot exceed
10% of the number of issued common shares.

As at December 31, 2004, the stock options outstanding were as follows:



Number of Exercise
common shares Vested price Expiry
under option options $ date
---------------------------------------------------------------------

195,000 195,000 5.000 December 12, 2005
10,000 10,000 6.190 July 23, 2006
10,000 10,000 13.250 July 22, 2008
10,000 10,000 4.580 July 29, 2009
25,000 25,000 4.000 September 7, 2009
105,000 25,000 3.500 November 3, 2009
20,000 - 6.292 October 28, 2010
205,800 149,975 1.367 January 2, 2011
---------------------------------------------------------------------
580,800 424,975
---------------------------------------------------------------------
---------------------------------------------------------------------


The fair value of each employee stock option is estimated on the date of
grant using the Black-Scholes pricing model. The following assumptions
were used for employee stock options granted during the year ended
December 31, 2004: expected dividend yield of 2.50%, (2003 - Nil)
expected volatility of 35% (2003 - 20% ), risk-free interest rate of
4.25% (2003 - 4.5% ) and expected life of 4 years (2003 - 4 years).

The fair value of the stock options granted during 2004 was $2.12 per
option (2003 - $ 0.84). The resulting compensation expense was $27 for
2004. The stock based compensation for 2003 was not material, and had no
material impact on basic and diluted earnings per share.

9. EARNINGS PER SHARE



Basic and diluted earnings per share are calculated as follows:

2004
---------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------------------------------------------------------

Net income for the year 7,673

Basic earnings per share
Income available to
common shareholders 7,673 9,426 $0.81
Effect of stock options - 173
Diluted earnings per share
Adjusted income available to
common shareholders 7,673 9,599 $0.80


2003
---------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------------------------------------------------------

Net income for the year 5,021

Basic earnings per share
Income available to
common shareholders 5,021 9,391 $0.53
Effect of stock options - 45
Diluted earnings per share
Adjusted income available to
common shareholders 5,021 9,436 $0.53

10. INCOME TAXES

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

2004 2003
$ $
---------------------------------------------------------------------

Current income tax expense (recovery) (546) 128
Future income tax expense 3,072 108
---------------------------------------------------------------------
2,526 236
---------------------------------------------------------------------
---------------------------------------------------------------------

The provision for income taxes differs from that which would be
obtained by applying the statutory tax rate as a result of the
following:

2004 2003
$ $
---------------------------------------------------------------------

Income before income taxes 10,199 5,257
Statutory tax rate 34.7% 35.9%
---------------------------------------------------------------------
---------------------------------------------------------------------

Provision for income taxes at statutory tax rate 3,539 1,887
Adjustments thereon for the effect of:
Large Corporations Tax 168 316
Permanent and other differences (852) (542)
Use of previously unrecognized tax losses - (1,425)
Prior year recoveries (329) -
---------------------------------------------------------------------
2,526 236
---------------------------------------------------------------------
---------------------------------------------------------------------


The net future income tax liability is represented by the following:

2004 2003
$ $
---------------------------------------------------------------------

Liabilities deductible for tax when paid 1,027 1,291
Non-capital losses carried forward 129 5,647
Other 30 6
---------------------------------------------------------------------
Future income tax assets 1,186 6,944
---------------------------------------------------------------------

Rental fleet 2,079 4,431
Capital assets 616 564
Prepaid pension payments 1,496 1,176
Holdbacks 16 14
Other 280 988
---------------------------------------------------------------------
Future income tax liabilities 4,487 7,173
---------------------------------------------------------------------
Net future income tax liability (3,301) (229)
---------------------------------------------------------------------
---------------------------------------------------------------------


The Company has non-capital loss carryforwards of approximately $369
(2003 - $16,200) that expire in 2009.

11. LEASE COMMITMENTS

The Company has entered into various operating leases for its premises,
vehicles, furniture and fixtures and equipment. Approximate future
minimum annual payments under these operating leases are as follows:



$
---------------------------------------------------------------------

2005 4,396
2006 3,461
2007 2,722
2008 1,859
2009 1,143
Thereafter 1,779
---------------------------------------------------------------------
---------------------------------------------------------------------


12. POST RETIREMENT OBLIGATIONS

The Company has a number of funded and unfunded benefit plans that
provide pension, as well as other retirement benefits to some of its
employees. One of its defined benefit plans is based on years of service
and final average salary, while another one is a career average plan.
The Company also has other post retirement benefit obligations which
include an unfunded retiring allowance plan and a non-contributory
dental and health care plan. Under these plans, the cost of benefits is
determined using the projected benefit method prorated on services.

Information about the Company's defined benefit pension plan for
employees is as follows:



2004 2003
$ $
---------------------------------------------------------------------

Accrued benefit obligation, beginning of year 17,358 17,018
Current service cost 1,395 996
Interest cost 1,082 1,168
Benefits paid (1,584) (1,439)
Actuarial loss 83 1,473
Corporate restructuring giving rise to:
- Settlements - (1,858)
---------------------------------------------------------------------
Accrued benefit obligation, end of year 18,334 17,358
---------------------------------------------------------------------

Fair value of plan assets, beginning of year 15,931 13,660
Actual return on plan assets 1,812 2,466
Employer contributions 1,668 2,448
Employee contributions 645 654
Benefits paid (1,584) (1,439)
Corporate restructuring giving rise to:
- Settlements - (1,858)
---------------------------------------------------------------------
Fair value of plan assets, end of year 18,472 15,931
---------------------------------------------------------------------
---------------------------------------------------------------------

Plan assets consist of:
% %
---------------------------------------------------------------------
Asset Category
Equity securities 67.1 67.5
Debt securities 30.3 29.8
Other 2.6 2.7
---------------------------------------------------------------------
Total 100.0 100.0
---------------------------------------------------------------------
---------------------------------------------------------------------


Equity securities include the Company's common shares in the amounts of
$Nil (0.0% of total plan assets) and $645 (4.1% of total plan assets) at
December 31, 2004 and 2003 respectively.



Fair value of plan assets 18,472 15,931
Accrued benefit obligation 18,334 17,358
---------------------------------------------------------------------
Funded status of plan - surplus (deficit) 138 (1,427)
Unamortized net actuarial loss 3,773 4,467
Unamortized transitional obligation 189 206
---------------------------------------------------------------------
Accrued benefit asset 4,100 3,246
---------------------------------------------------------------------
---------------------------------------------------------------------

Elements of defined benefit costs recognized in the year:

2004 2003
$ $
---------------------------------------------------------------------

Current service cost, net of employee contributions 693 342
Interest on accrued benefits 1,082 1,168
Actual return on pension fund assets (1,812) (2,466)
Actuarial losses 83 1,473
Settlement losses - 309
---------------------------------------------------------------------
Elements of defined benefit costs before adjustments
recognized: 46 826
Adjustments to recognize the long term nature of
benefit costs:
- return on assets (expected vs actual in year) 664 1,450
- actuarial (gains) losses (recognized vs actual
in year) 87 (1,268)
- transitional obligation (amortization) 17 17
---------------------------------------------------------------------
Defined benefit costs recognized 814 1,025
---------------------------------------------------------------------
---------------------------------------------------------------------


The Company measures its accrued benefit obligations and the fair value
of plan assets for accounting purposes as of December 31 of each year.
For this pension plan, the most recent actuarial valuation for funding
purposes was performed as of September 30, 2003 and the next required
valuation will be as of September 30, 2006.

Information about the Company's defined benefit pension plan for
executives is as follows:



2004 2003
$ $
---------------------------------------------------------------------

Accrued benefit obligation, beginning of year 1,858 1,826
Current service cost 67 70
Interest cost 111 114
Benefits paid (135) (408)
Actuarial loss - 256
---------------------------------------------------------------------
Accrued benefit obligation, end of year 1,901 1,858
---------------------------------------------------------------------

Fair value of plan assets, beginning of year 1,214 1,292
Actual return on plan assets 105 150
Employer contributions 253 180
Benefits paid (135) (408)
---------------------------------------------------------------------
Fair value of plan assets, end of year 1,437 1,214
---------------------------------------------------------------------
---------------------------------------------------------------------

Plan assets consist of:
% %
---------------------------------------------------------------------
Asset Category
Equity securities 67.1 67.5
Debt securities 30.3 29.8
Other 2.6 2.7
---------------------------------------------------------------------
Total 100.0 100.0
---------------------------------------------------------------------
---------------------------------------------------------------------

Fair value of plan assets 1,437 1,214
Accrued benefit obligation 1,901 1,858
---------------------------------------------------------------------
Funded status of plan - deficit (464) (644)
Unamortized net actuarial loss 629 676
Unamortized transitional obligation 32 36
---------------------------------------------------------------------
Accrued benefit asset 197 68
---------------------------------------------------------------------
---------------------------------------------------------------------

Elements of defined benefit costs recognized in the year:

2004 2003
$ $
---------------------------------------------------------------------

Current service cost, net of employee contributions 67 70
Interest on accrued benefits 111 114
Actual return on pension fund assets (105) (150)
Actuarial losses - 256
---------------------------------------------------------------------
Elements of defined benefit costs before adjustments
recognized: 73 290
Adjustments to recognize the long term nature of
benefit costs:
- return on assets (expected vs actual in year) 16 68
- actuarial (gains) losses (recognized vs actual
in year) 31 (236)
- transitional obligation (amortization) 3 3
---------------------------------------------------------------------
Defined benefit costs recognized 123 125
---------------------------------------------------------------------
---------------------------------------------------------------------


The Company measures its accrued benefit obligations and the fair value
of plan assets for accounting purposes as of December 31 of each year.
For this pension plan, the most recent funding valuation was performed
as of June 30, 2003 and the next required valuation will be as of June
30, 2006.



Accrued benefit asset is comprised as follows:

2004 2003
$ $
---------------------------------------------------------------------

Employee Plan 4,100 3,246
Executive Plan 197 68
---------------------------------------------------------------------
4,297 3,314
---------------------------------------------------------------------
---------------------------------------------------------------------

Information about the Company's other post retirement benefit
obligations, in aggregate, is as follows:

2004 2003
$ $
---------------------------------------------------------------------

Accrued benefit obligation, beginning of year 2,594 1,277
Current service cost 482 603
Interest cost 110 125
Benefits paid (652) (67)
Actuarial loss / (gain) (588) 656
Settlement (186) -
---------------------------------------------------------------------
Accrued benefit obligation, end of year 1,760 2,594
---------------------------------------------------------------------

Fair value of plan assets - -
Accrued benefit obligation 1,760 2,594
---------------------------------------------------------------------
Funded status of plan - deficit (1,760) (2,594)
Unamortized net actuarial (gain) / loss (119) 524
Unamortized past service cost 366 432
Unamortized transitional obligation 314 343
---------------------------------------------------------------------
Accrued benefit liability (1,199) (1,295)
---------------------------------------------------------------------
---------------------------------------------------------------------


Elements of defined benefit costs recognized in the year:

2004 2003
$ $
---------------------------------------------------------------------

Current service cost, net of employee
contributions 482 603
Interest on accrued benefits 110 125
Actuarial loss / (gain) (588) 656
Settlement gain (97) -
Other 399 -
---------------------------------------------------------------------
Elements of defined benefit costs before adjustments
recognized: 306 1,384
Adjustments to recognize the long term nature of
benefit costs:
- actuarial loss / (gain) (recognized vs actual
in year) 183 (660)
- past service costs (amortized vs actual
in year) 67 67
- transitional obligation (amortization) 29 29
---------------------------------------------------------------------
Defined benefit costs recognized 585 820
---------------------------------------------------------------------
---------------------------------------------------------------------


The significant actuarial assumptions adopted in measuring the
Company's accrued benefitobligations are as follows:

2004 2003
Accrued benefit obligation as of the end of the
period % %
---------------------------------------------------------------------

Discount rate 6.00 6.00
Rate of compensation increase 2.00 2.00
---------------------------------------------------------------------
---------------------------------------------------------------------


2004 2003
Benefit cost for the period % %
---------------------------------------------------------------------

Discount rate 6.00 6.75
Expected long-term rate of return on plan assets 7.00 7.00
Rate of compensation increase 2.00 3.00
---------------------------------------------------------------------
---------------------------------------------------------------------


The assumed health care cost rate is 10.5% in 2005, declining by 1% per
annum to 4.5% per annum in 2011 and thereafter. The assumed dental cost
rate is 4.5% per annum.

Assumed health and dental care cost trend rates have a significant
effect on the amounts reported for the health and dental care plans. A
one percentage point change in assumed health and dental care cost trend
rates would have the following effects for 2004:



Increase Decrease
---------------------------------------------------------------------

Total of service and interest cost 5 (4)
Accrued benefit obligation as of December 31, 2004 93 (76)
---------------------------------------------------------------------
---------------------------------------------------------------------


In addition, the Company maintains a defined contribution plan available
only to certain employees (approximately 7% of the workforce) who were
existing members of the plan following a previous acquisition. In 2004,
the Company's contributions were $104 (2003 - $101).

Total cash payments for employee future benefits for 2004 consisting of
cash contributed by the Company to its funded pension plans, cash
payments directly to beneficiaries for its unfunded other benefit plans
and cash contributed to its defined contribution plan was $2,594 (2003 -
$2,893).

13. CONTINGENCIES



(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 December 31, 2004, the total
obligation under these contracts was $4,957 (2003 - $5,276). The
Company's maximum potential losses pursuant to these buy back
contracts are limited, under an agreement with a third party, to
10% of the original sale amounts. A reserve of $280 (2003 - $140)
has been accrued in the Company's accounts with respect to these
commitments.

The Company has provided a guarantee of lease payments under the
assignment of property leases which expire between January 1,
2005 and January 31, 2014. Total lease payments from January 1,
2005 to January 31, 2014 are $1,625 (2003 - $1,440).

(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 judgements 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 issue. 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.


14. SEGMENTED INFORMATION

The Company has three reportable segments: Equipment Distribution,
Equipment Rentals and Engineered Systems. The Company's continuing
operations are all in Canada. The Equipment Distribution segment sells,
rents and services mobile industrial equipment and sells related parts.
The Equipment Rentals segment rents primarily aerial and material
handling equipment from a fixed rental fleet. The Engineered Systems
segment designs, manufactures, sells, installs and services bulk
material handling equipment.

The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on profit and loss from operations before income
taxes. The Company accounts for intersegment sales and transfers at
cost. Except for the Equipment Rentals segment, the Company's reportable
segments are strategic business units which are reported as segments
because each business unit was managed separately. Although the Company
no longer views the Equipment Rentals segment as a strategic business
unit, the loss in this segment represents more than 10% of combined
losses in all other segments.



2004
---------------------------------------------------------------------
Equipment Equipment Engineered Segment Reconciling Company
Distribution Rentals Systems totals items total
$ $ $ $ $ $
---------------------------------------------------------------------

Gross sales 311,429 8,347 24,284 344,060 344,060
Intersegment 10 4 219 233 233
---------------------------------------------------------------------
Net sales 311,419 8,343 24,065 343,827 343,827
---------------------------------------------------------------------
---------------------------------------------------------------------

Interest
expense (2,116) (485) (187) (2,788) (2,788)
Income before
income taxes 17,161 (2,364) (288) 14,509 (4,310)(a) 10,199
Amortization
of capital
assets and
rental
equipment 1,043 2,948 308 4,299 16 4,315
Write-down
of rental
equipment - 264 - 264 264
Write-down
of capital
assets held
for sale - - - - -
Segment total
assets 125,030 6,160 11,259 142,449 4,798(b) 147,247
Segment
capital and
rental
assets 14,697 5,289 2,744 22,730 24 22,754
Segment
capital
assets held
for sale - - - - -
Capital and
rental asset
expenditures 172 48 445 665 2 667
---------------------------------------------------------------------
---------------------------------------------------------------------


2003
---------------------------------------------------------------------
Equipment Equipment Engineered Segment Reconciling Company
Distribution Rentals Systems totals items total
$ $ $ $ $ $
---------------------------------------------------------------------

Gross sales 287,411 9,288 23,965 320,664 320,664
Intersegment 235 14 253 502 502
---------------------------------------------------------------------
Net sales 287,176 9,274 23,712 320,162 320,162
---------------------------------------------------------------------
---------------------------------------------------------------------

Interest
expense (3,852) (656) (294) (4,802) (4,802)
Income before
income taxes 12,379 (2,557) (73) 9,749 (4,492)(a) 5,257
Amortization
of capital
assets and
rental
equipment 1,714 3,471 318 5,503 23 5,526
Write-down
of rental
equipment - 203 - 203 203
Write-down
of capital
assets held
for sale 216 - - 216 216
Segment
total
assets 130,616 18,222 9,354 158,192 4,207(b) 162,399
Segment
capital and
rental
assets 16,550 15,693 2,693 34,936 37 34,973
Segment
capital
assets held
for sale 3,980 - - 3,980 3,980
Capital and
rental asset
expenditures 259 59 76 394 394
---------------------------------------------------------------------
---------------------------------------------------------------------

(a) The reconciling items to adjust segment profit (loss) represent
common corporate costs not allocated to the segments and
corporate head office costs incurred during the year.

(b) The reconciling items represent prepaid expenses and accrued
benefit assets carried on the corporate head office ledger,
offset by the elimination of the intercompany receivables at the
corporate head office.


15. ECONOMIC RELATIONSHIP

The Company, through its Equipment Distribution segment, sells 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 the Equipment Distribution segments operations.
The Company has had a strong, ongoing relationship with Volvo since 1991.

16. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified
from statements previously presented to conform to the presentation of
the 2004 consolidated financial statements.


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Strongco Inc.
    Len Phillips
    Vice President Administration and Corporate Secretary
    (905) 565-3840
    lphillips@strongco.com