TSE Symbol:  SQP                                        For Immediate Release

Strongco Releases Fourth Quarter and Year-End Earnings Report

Mississauga, Ontario: February 28, 2002 – Strongco Inc. today released its financial results for the fourth quarter and year ended December 31, 2001.  For the fourth quarter, Strongco lost $1.9 million after tax, or $0.20 per share, on revenue of $95.8 million.  For the year, the company lost $6.9 million after tax, or $0.74 per share on revenue of $383.1 million.  Included in the year’s results were an after-tax gain of approximately $2.5 million which arose primarily from the sale of Strongco’s former U.S. operations, and $4.9 million of non-recurring expenses (pre-tax) related to the successful completion of several strategic initiatives designed to enhance the company’s operations. 

The following important strategic objectives were completed during the year:

·     the sale in the first quarter of the company’s former U.S. – based equipment business, which eliminated operating losses, reduced leverage, generated cash and resulted in a gain on sale;

·     the appointment in the second quarter by Volvo Construction Equipment North America Inc. as the exclusive distributor of its products in Alberta and Manitoba, which has further enhanced Strongco’s long-standing relationship with Volvo and positively impacted the earnings of its business in western Canada;

·     the reduction of overhead costs through the first quarter closure of three of the company’s five equipment division branches in the Atlantic division, and,

·     the closure in the third quarter of the Engineered Systems manufacturing plant in Winnipeg and the subsequent transfer of production to a more efficient, lower cost facility in Calgary.

Although the combined cost of these achievements exceeded their benefits in 2001, Strongco will realize their full benefits in 2002 and beyond.
 

Financial Summary

2001 marked the third consecutive year of declining North American unit sales of the principal construction equipment products sold by Strongco.  This situation has increased the level of competition within an already competitive industry, resulting in increased negative pressure on Strongco’s revenues and gross profit margins.  The deteriorating economic climate which prevailed in Canada during the fourth quarter added to this already challenging business environment.

Strongco’s fourth quarter revenues, at $95.8 million compared to $110.6 million in the same period last year, reflected these industry conditions.  Furthermore, gross profit margins in the current year’s fourth quarter declined to 18.0% from 21.7% last year.  The combined effect of lower revenues and lower margin percentages resulted in a $6.8 million reduction in gross profit dollars, more than offsetting the benefits of a $3.6 million year over year improvement in Strongco’s quarterly operating and interest expenses.

For the full year, Strongco’s revenues, at $383.1 million, were down 13.2% from last year’s level of $441.4 million.  The disposition of non-core operations in 2000 caused $15.6 million of the current year’s difference.  The balance of the shortfall was primarily attributable to lower sales and rentals of equipment in central and eastern Canada and weakness in the company’s Engineered Systems division, which experienced a 21.3% decline in revenue during the year as a result of a general softness in the manufacturing and resource-based industries it serves.   Strongco’s gross profit margins were 20.1% for the year, down from last year’s 21.5%, again reflecting competitive issues throughout the industry.  Excluding $4.9 million of non-recurring expenses incurred in achieving the strategic benefits set out above, Strongco’s operating expenses declined by $2.5 million to $72.4 million from $74.9 million last year.  In addition, Strongco’s lower leverage, combined with the impact of declining rates, resulted in a $3.6 million reduction in interest expense for the year.  However, these total cost reductions of $6.1 million were not enough to offset the year’s lower gross profits. 

Strongco realized cash flow of $7.4 million from operations and investing activities during the year.  This was a marked improvement over last year’s $2.9 million from these sources and was largely the result of reductions in the company’s investment in working capital and rental fleet assets.  Discontinued operations generated an additional $12.3 million of cash, primarily from the sale of the U.S. business.  Total cash of $19.7 million from these sources was utilized to reduce debt.

The company also announced that it has decided to dispose of its western Canadian Supplies divisions and has engaged financial advisors to assist it in these dispositions.

Mr. Larry Pirnak, Chairman of Strongco, commented, “This has been a difficult year for Strongco and the North American construction equipment industry as a whole.  Following six consecutive years of increasing industry-wide unit sales of the main types of equipment sold by Strongco, 2001 was the third year in a row in which the industry experienced lower unit sales.  This had an obvious impact on Strongco’s operating results for the year.  Nevertheless, we are very pleased with what we were able to achieve during the year in spite of the difficult industry conditions we faced.  Specifically, we believe that by narrowing Strongco’s focus to the Canadian market, reducing its leverage, eliminating significant costs in our Atlantic Equipment and Engineered Systems divisions and establishing expanded and stronger relationships with key suppliers, Strongco is much better positioned for the future.  All of the costs associated with these achievements have been included in the 2001 financial statements.  Therefore, the full benefits will be realized in 2002 and beyond.”  

Strongco is one of Canada’s largest full line equipment sales, rental and service companies.  Its shares are listed on the Toronto Stock Exchange and its web site can be accessed at www.strongco.com.   Strongco will host a conference call at 10:00 A.M. on Friday, March 1, 2002 to discuss its operating and financial results further.  Details of the call can be obtained from the company by calling 905-565-3811.   The call will also be web-cast at www.ir-live.com.

For further information, contact:

Randy Henderson
President
phone:  905-565-3802
e-mail:   rhenderson@strongco.com

Refer to Q4/01 and 2001 financial statements attached.   

Strongco Inc.
CONSOLIDATED BALANCE SHEETS
 

Strongco Inc.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS
 

Strongco Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS