Strongco Releases Fourth Quarter and Year-End Results


Mississauga, Ontario – February 28, 2003:  Strongco Inc. today released its financial results for the fourth quarter and year-ended December 31, 2002.

Strongco initiated an asset reduction program during the fourth quarter designed to further reduce the Company’s investment in inventory and rental fleet assets.  Related to this program, the Company incurred a pre-tax expense of $7.2 million to account for asset disposition losses.  This expense has been included in the fourth quarter results.  In addition, the Engineered Systems and Equipment Rentals businesses were both downsized during the quarter at a combined pre-tax cost of $0.8 million.  Including these $8.0 million of additional expenses, Strongco’s fourth quarter loss from continuing operations totaled $6.6 million before taxes and $5.8 million, or $0.62 per share, after taxes on revenue of $98.4 million.  Excluding these items, Strongco earned $1.4 million before taxes during the fourth quarter.


For the 2002 year, Strongco’s after-tax loss from continuing operations totaled $10.1 million, or $1.08 per share, compared to $11.5 million, or $1.22 per share, in 2001.  Including discontinued operations - businesses which were sold during 2002 and 2001 – the after-tax losses were $11.4 million ($1.22 per share) in 2002 and $6.9 million ($0.74) in 2001.  On a positive note, Strongco generated net cash of $46.6 million in 2002 from operations, asset disposals and the sale of its former Supplies Division, all of which went to reduce funded debt.


In light of prevailing industry pressures, Strongco set a strategic direction two years ago with the objective of creating a financially sound company with a clear focus on its core business.  Since then, this objective has been advanced through the execution of several important initiatives, including:
 

These initiatives, which have resulted in additional pre-tax expenses of approximately $12.9 million over the 2001/2 time period ($8.0 million in 2002; $4.9 million in 2001), have reduced/eliminated divisional losses, reduced overhead and interest expenses, enhanced the Company’s operational focus and strengthened its balance sheet through a significant reduction in funded debt.


Financial Summary

Consolidated revenue from continuing operations in the fourth quarter totaled $98.4 million compared to $78.9 million in the fourth quarter of 2001.  The increase came entirely from the Equipment Distribution operations, particularly in the Quebec and Atlantic regions where activity has been relatively strong throughout the year.  Gross margins on equipment sales continued to come under pressure during the quarter.  In addition to challenging industry conditions, margins were also reduced in the fourth quarter by the $7.2 million of additional expense noted above pertaining to the Company’s asset reduction program.  Including this expense, gross margins for the quarter were $8.3 million (8.4%) compared to $11.9 million (15.1%) in Q4/01.  Before this additional expense, gross margins were $15.5 million (15.7%).  The Company’s administrative, distribution and selling expenses declined slightly during the quarter to $13.4 million from $13.6 million last year as a result of various cost cutting measures taken during the year.  Interest costs of $1.5 million for the quarter were also down compared to $1.9 million in the fourth quarter of 2001 as a result of Strongco’s year over year reduction in debt.


For the full year, consolidated revenue from continuing operations rose by 9.9% to $346.2 million from $314.9 million in 2001 as a result of increased activity in the Equipment Distribution segment across the country.  Gross margins were under pressure throughout the year however, falling to $46.2 million (13.3%) in 2002 from $55.6 million (17.7%) in 2001.  Before the additional expense related to the asset disposition program, the Company’s gross margin was $53.4 million (15.4%).  Administrative, distribution and selling expense for the year declined in 2002 to $52.5 million from $60.6 million, largely as a result of the impact of the strategic initiatives undertaken during the year and in 2001.  Interest expense declined to $6.6 million in 2002 from $11.9 million in 2001 as a result of the combined effect of lower average interest rates throughout most of 2002 and Strongco’s lower debt levels.


Pre-tax losses in the Equipment Distribution business, which include $6.7 million of the $7.2 million pre-tax expense related to the asset disposition program, were reduced to $0.7 million in 2002 from $5.5 million in 2001.  The largest components of Strongco’s loss for the year came from the Company’s Equipment Rentals and Engineered Systems businesses, which lost $4.6 million and $3.1 million, respectively, before tax and corporate costs.  In response to the difficult industry conditions faced by each of these business segments, combined annual operating costs have been significantly reduced through downsizings and, in the case of Equipment Rentals, asset dispositions.


In addition to streamlining the business and reducing costs, Strongco generated significant levels of cash in 2002 which were applied against its funded debt.  Strict balance sheet management, particularly in the area of inventory controls, resulted in the Company generating net cash from operations of $8.7 million during the fourth quarter.  Asset dispositions, primarily from the rental fleet, resulted in additional cash of $1.0 million.  For the full year, Strongco generated net cash of $18.0 million from operations, again primarily from balance sheet reductions, and $4.6 million from investing activities, largely from the sale of rental fleet assets.  In addition, total net cash of $24.0 million was generated from the Company’s discontinued operations, most of which arose from the sale of the Supplies divisions in the third quarter.  Total cash of $10.1 million in the fourth quarter (which includes $0.4 million from discontinued operations) and $46.6 million for the year was utilized in the reduction of the Company’s funded debt.


Mr. Larry Pirnak, Chairman and CEO of Strongco, commented, “Strongco faced a number of challenges in 2002.  For the fourth year in a row, industry-wide unit sales of core construction equipment products declined throughout North America, resulting in continued pressure on gross margins.  Rental rates and fleet utilization factors remained depressed during the year and the cycle has not yet turned in the capital intensive Engineered Systems business.  In light of these factors we have undertaken several important strategic initiatives over the past two years designed to streamline the company and make it a stronger, more focused entity going forward.  While these initiatives have been costly, they enabled Strongco to increase revenues and reduce costs during 2002.  We firmly believe that the steps we have taken are necessary and right for the company, and that they have created a firmer foundation for the future.”



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 Tuesday, March 4, 2003 to discuss its operating and financial results further.  Strongco’s Annual General Meeting will be held at 11:00 A.M. on May 13, 2003 at the Meridien Royal York Hotel, Toronto.  Details of both can be obtained from Strongco by calling 905-565-3875.
 

For further information, contact: 

Randy Henderson
President
905-565-3802

rhenderson@strongco.com