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STRONGCO CORPORATION 2017 SECOND QUARTER REPORT 1

SET

STRONGCO CORPORATION 2017 SECOND QUARTER REPORTTHREE AND SIX MONTHS ENDED JUNE 30, 2017

Q2


1 LETTER TO OUR SHAREHOLDERS

3 MANAGEMENT’S DISCUSSION AND ANALYSIS

4 Financial and Operating Highlights

5 Summary of Operating Results

6 Outlook

7 Company Overview

8 Financial Results – Three and six months ended June 30, 2017 and 2016

19 Summary of Quarterly Data

20 Contractual Obligations

20 Shareholder Capital

20 Non-IFRS Measures

21 Critical Accounting Estimates

22 Forward-Looking Statements

23 FINANCIAL STATEMENTS

25 Unaudited Interim Consolidated Statement of Financial Position

26 Unaudited Interim Consolidated Statement of Income (Loss)

27 Unaudited Interim Consolidated Statement of Comprehensive Income (Loss)

28 Unaudited Interim Consolidated Statement of Changes in Shareholders’ Equity

29 Unaudited Interim Consolidated Statement of Cash Flows

30 Notes to Unaudited Interim Condensed Consolidated Financial Statements

Strongco Corporation is a major multiline mobile equipment dealer with operations

across Canada. Strongco sells, rents and services equipment used in diverse sectors

such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste

management and forestry. The Company has approximately 500 employees serving

customers from 26 branches in Canada. Strongco represents leading equipment

manufacturers with globally recognized brands, including Volvo Construction

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

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

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

WE ARE STRONGCO


To Our Shareholders

During the second quarter, Strongco began to see small signs of

market momentum, most notably in Alberta and Quebec. This,

combined with actions initiated in 2016 to simplify and streamline the

business, resulted in improved operating performance in the quarter

and in the first half of 2017.

While revenues were down from a year ago, primarily due to a few

large and non-recurring crane sales in Quebec in 2016, we are pleased

to report that, excluding these exceptional sales, revenues were up

7% for the three months and 6% for the six-month period, bolstered

by increased equipment and product support sales.

Operating expenses and interest were lower in the first half of the year,

due to the actions that have been ongoing over the past 18 months.

We have reduced headcounts, trimmed cash expenses, and

decreased equipment inventories and the associated financing costs.

In addition, Strongco’s Orillia, Ontario branch closed in April, further

lowering expenses in the second quarter.

Looking ahead in Strongco’s key markets, while some regions

experienced small year-over-year improvement during the first half

of 2017, conditions across Canada continue to pose challenges.

Although markets in Alberta experienced an uptick in the second

quarter, the economic situation in the province remains depressed,

with no meaningful recovery anticipated in the near term and the

expectation of continued, weak activity for the remainder of 2017.

In Ontario, smaller scale construction activity remains relatively strong;

however, the lack of government infrastructure spending and fewer

large-scale projects underway or planned for the near-term, has

contributed to a lower demand for heavy equipment, particularly

general-purpose equipment, or GPE.

In Quebec, construction activity continues to show small signs of

improvement and the longer-term outlooks remains positive; however,

overall demand for heavy equipment and cranes is expected to remain

weak in the near term, and any large-scale infrastructure or mining-

related projects have yet to be announced.

In Atlantic Canada, despite some smaller-scale activity in the first half

of 2017, heavy equipment markets continue to be soft with little

government infrastructure spending and a flat housing market in the

forecast. continue to be soft with little government infrastructure

spending and a flat housing market in the forecast.

Against the current economic backdrop, the expectation of relatively

flat market conditions, and an ever-present, competitive landscape,

Management remains encouraged by the performance to-date, and

the outlook for the balance of the year.

We continue to benefit from the strategic, streamlining initiatives that

began last year, and the associated improvements in our financial

stability, progress in managing costs, inventory controls, and a

heightened focus on our recognized brands.

We would particularly like to thank the many dedicated Strongco

employees for their hard work, support and ability to deliver stronger

results through challenging times. Together, we are all looking forward

to a continued trend of greater profitability and sustainability for the

business, both near and long-term.

Robert J. Beutel

Executive Chairman

J. David Wood, CPA

Vice President and Chief Financial Officer

August 2, 2017

STRONGCO 2013 THIRD QUARTER REPORT 1

To Our Shareholders

In the third quarter, Strongco extended its record of solid revenue growth through market share gains in construction equipment despite declines in several of our key markets, as well as through strong growth in crane sales. Our improved sales performance is a result of the recent upgrades made to the branch infrastructure and to enhancing our sales organization. Overall, demand in heavy equipment markets has been adversely affected by substantially less demand in Quebec, the Atlantic provinces and New England. Despite this market softness, I believe the Company will continue to benefi t from the organizational investments that we have made to realize higher revenues and market share gains across the country in the future.

We are also keenly focused on reducing fl oor plan debt through equipment inventory reductions. In the third quarter, equipment notes declines by $8 million as inventory decreased by approximately $8 million from the second quarter and is running $10 million lower than at the same time last year. Inventory committed to rental contracts with purchase options (RPOs) did increase slightly with the delay of some conversions into the fourth quarter. However, with our anticipated level of sales combined with the RPO conversions expected in the fourth quarter, we look forward to a substantial reduction in inventory by the end of the year. Revenues for the quarter increased by 10.5% over last year to $131.7 million, with equipment sales up 16% from 2012, rentals down by 19%and product support revenues up 8% from the prior year. Gross margin increased by $1.7 million to $24.2 million. As a percentage of revenue, gross margin declined slightly to 18.3% from 18.9% last year, due primarily to a lower margin percentage on equipment sales and a slightly higher proportion of equipment sales.

EBITDA for the quarter decreased to $13.8 million, down from $15.1 million last year.

Strongco fi nished the third quarter with net income of $2.0 million or $0.15 per share, compared to $2.4 million or $0.18 per share in the same period of 2012.

Looking ahead to the fourth quarter, demand for equipment remains fl at to slightly down from last year for Canada overall and economic forecasts continue to project modest growth across the country overall. Construction activity is expected to stay fl at for the balance of the year except in Quebec.

In Alberta, a price rebound for Alberta-produced oil has lifted some of the uncertainty in the province, activity in the oil sands has resumed but at a more controlled pace and the outlook for the fourth quarter and long term is positive. Construction markets in Ontario are continuing to recover slowly following the recession, but a general lack of optimism and uncertainty over the economy still exists. In Quebec, construction activity declined signifi cantly in 2013. Demand for heavy equipment in the region was substantially lower in the fi rst nine months of the year and is expected to remain depressed in the fourth quarter.

In the United States, while there were positive signs of economic recovery, the improvement has been less noticeable in New England and has not translated into any signifi cant upturn in construction markets in the area. Heavy equipment markets in the region remain depressed. No meaningful recovery is expected in New England in 2013, which will continue to dampen heavy equipment markets and hamper Strongco’s sales in the region.

Going forward, we continue to make further strategic investments in our branch network to heighten visibility in our markets, better serve customers and drive regional business growth. Our new branch near Quebec City will be completed in November and, as part of our northern Alberta initiative, our new Fort McMurray branch, currently under construction, will open for business in the fi rst quarter of 2014.

Strongco’s sales backlogs and level of rental contracts with purchase options (RPOs) are strong. This suggests a continuing demand for heavy equipment and we are, therefore, cautiously optimistic about our performance for the balance of the year.

Robert H.R. DryburghPresident and Chief Executive Offi cer

October 31, 2013


MANAGEMENT’SDISCUSSION & ANALYSIS


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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, Strongco GP Inc. and Strongco Limited Partnership, collectively referred to as “Strongco” or “the Company”, as at and for the three and six months ended June 30, 2017. This discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as at and for the three and six months ended June 30, 2017. 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, 2016 contained in the Company’s annual report for the year ended December 31, 2016, the Company’s unaudited interim condensed consolidated financial statements and accompanying MD&A as at and for the periods ended March 31, 2016, June 30, 2016 and September 30, 2016, the Company’s Notice of Annual Meeting of Shareholders and Management Information Circular (“MIC”) dated March 23, 2017, and the Company’s Annual Information Form (“AIF”) dated March 30, 2017, all of which are published separately and are available on SEDAR at www.sedar.com. Unless otherwise indicated, all financial information within this discussion and analysis is in millions of Canadian dollars except per share amounts. The information in this MD&A is current to August 2, 2017. FINANCIAL AND OPERATING HIGHLIGHTS Market conditions across Canada continued to show small signs of improvement in the second quarter of 2017. As a result of the improving market conditions and the actions taken in 2016 to refocus, simplify and streamline the business, Strongco’s operating performance in the first half of 2017 improved. While revenues in the first and second quarters of 2017 were lower than a year ago, this was primarily due to a few large and non-recurring sales of cranes in Quebec that occurred in the first half of 2016. Excluding these non-recurring crane sales, revenues in the first half of 2017 were up 6% over the prior year led by stronger equipment and product support sales. In addition, operating expenses and interest were lower than in the first half of the prior year as a result of the actions taken in 2016 to reduce headcounts and other cash expenses, and decrease aged equipment inventories. Additional headcount reductions were taken in the first quarter of 2017, and the Company’s branch in Orillia, Ontario was closed in April, which further reduced expenses in the second quarter. These actions and the restructuring initiatives in 2016 and first half of 2017, have significantly reduced the Company’s cost structure, improved the balance sheet and better positioned the Company to generate sustainable performance going forward. Operating Results Revenue of $95.9 million, compared to $102.2 million in the second quarter of 2016. Excluding large non-

recurring crane sales in Quebec in the second quarter of 2016, revenues were higher than the prior year by 7% with higher revenues in Alberta and Quebec. Excluding large non-recurring crane sales in Quebec, revenues for the six months to the end of June were up 6% overall with higher revenues in Alberta and Quebec and a 6% increase in product support revenues overall from the prior year.

Gross profit of $15.0 million (15.7% of revenue) up from $12.5 million (12.2% of revenue) in the second quarter of 2016. For the six months, gross profit was $30.6 million (17.1% of revenue) compared to $29.6 million (15.3% of revenue) in the first half of 2016.

Operating income, before restructuring costs, of $0.7 million compared to a loss of 4.5 million in the second quarter of 2016. For the six months, operating income before restructuring costs of $1.5 million compared to an operating loss of $2.5 million in the first half of 2016.

EBITDA of $3.4 million compared to a loss of $2.4 million in the second quarter of 2016. For the six months, EBITDA of $7.8 million compared to $2.9 million in the first half of 2016.

Interest expense for the quarter of $1.1 million, down from $1.5 million in the second quarter of 2016. For the six months, interest expense of $2.4 million compared to $3.0 million in the first half of 2016.

Pretax loss for the quarter of $0.5 million, compared to a loss of $7.3 million in the second quarter of 2016. Year to date the pretax loss was $1.6 million compared to a loss of $8.4 million in the first half of 2016.

Net loss from continuing operations of $0.5 million (loss of $0.04 per share) compared to net loss from continuing operations of $5.4 million (loss of $0.41 per share) in the second quarter of 2016. Year to date the net loss was 1.6 million (loss of $0.12 per share) compared to a net loss from continuing operations of $6.2 million (loss of $0.47 per share).


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Balance Sheet Improvement Equipment inventory of continuing operations of $130.8 million, up slightly from $129.2 million at December 31,

2016 and down from $145.9 million at June 30, 2016. Equipment notes payable of continuing operations of $119.5 million, compared to $101.2 million at December

31, 2016 and $128.3 million at June 30, 2016.

Income Statement Highlights - Continuing Operations($ millions, except per share amounts) 2017 2016 2017 2016 Revenues 95.9$ 102.2$ 179.1$ 193.4$ Operating income before restructuring costs 0.7 (4.5) 1.5 (2.5) Pretax loss (0.5) (7.3) (1.6) (8.4) Net loss from continuing operations (0.5)$ (5.4)$ (1.6)$ (6.2)$ Basic and diluted loss per share from continuing operations (0.04)$ (0.41)$ (0.12)$ (0.47)$ EBITDA (see "Non-IFRS Measures") 3.4 (2.4) 7.8 2.9

Balance Sheet Highlights - Continuing OperationsTotal equipment inventory 130.8 145.9 Total assets 225.8 282.7 Equipment notes payable 119.5$ 128.3$ Debt (bank debt and other notes payable) 28.1$ 37.8$ Total liabilities 198.2$ 232.7$

Three months ended June 30 Six months ended June 30

SUMMARY OF OPERATING RESULTS As noted in the Management Discussion and Analysis for the year ended December 31, 2016, on September 30, 2016, the Company completed the sale of its U.S. subsidiary, Chadwick-BaRoss Inc. As a consequence of this divestment, the results of Chadwick-BaRoss are no longer consolidated with Strongco in the comparative year figures for the three and six months ended June 30, 2016, and are shown on a single line in the Company’s income statement, as net earnings from discontinued operations. The comments throughout the following management discussion and analysis reflect the results from Strongco Corporation, excluding Chadwick-BaRoss. Strongco’s revenues for the quarter were $95.9 million, compared to $102.2 million in the same quarter of 2016. As noted above, the decline was due primarily to a few large non-recurring sales of cranes in Quebec in the second quarter of 2016. Excluding these non-recurring sales, revenues were up by $6.3 million or 7% from the second quarter of 2016. Revenues were up in Western and Eastern Canada (excluding the large non-recurring crane sales noted above) but were down in Central Canada. By revenue category, excluding the large non-recurring crane sales noted above, equipment sales were up 11% in the quarter. At the same time rental revenues and product support were essentially unchanged from the prior year. Despite the lower revenues, gross profits were up by $2.5 million from a year ago to $15.0 million. As a percent of revenue, gross margin was 15.7%, compared to 12.2% in the second quarter of 2016. The gross margin was lower in the second quarter of 2016 due to lower margins and losses on certain pieces of equipment sold at auction. Operating expenses in the quarter were $14.9 million, down from $16.4 million in the second quarter of 2016 as a direct result of management’s actions in 2016 to reduce headcounts and other expenses. As a result, operating income, before restructuring costs, foreign exchange gains/losses and interest, was $0.1 million compared to a loss of $3.9 million in the second quarter of 2016. The Canadian dollar strengthened toward the end of the second quarter resulting in a foreign exchange gain in the quarter of $0.5 million. This compared to a foreign exchange loss of $0.6 million in the second quarter of 2016. After restructuring costs and foreign exchange gains, operating income was $0.7 million compared to a loss of $5.7 million in the second quarter of 2016.


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Interest expenses in the quarter were down by $0.4 million from last year to $1.1 million as a result of reduced equipment inventory and the associated debt. This resulted in pre-tax loss of $0.5 million compared to a pretax loss of $7.3 million in the second quarter of 2016. After tax, there was a net loss of $0.5 million compared to a net loss from continuing operations of $5.4 million in the second quarter of 2016. During 2016, Strongco achieved a significant reduction in equipment inventories and the associated equipment finance debt. The Company has continued to manage inventory and debt levels closely. At June 30, 2017 equipment inventory in continuing operations was $130.8 million, which was up only slightly from $129.2 million at December 31, 2016 and down from $145.9 million at the same time last year. Similarly equipment notes payable of continuing operations were reduced to $119.5 million from $128.3 million a year ago. OUTLOOK While certain markets experienced modest year over year improvement in the first half of 2017, market conditions across Canada generally remain challenging. In Alberta in particular, heavy equipment markets remain weak, however, a sense of optimism is emerging in the province that the worst is over and recovery may be on the horizon. As anticipated, with warmer spring weather, construction activity experienced a seasonal uptick in the second quarter which led to increased demand for heavy equipment. While this was a positive sign, management expects market conditions in Canada will remain challenging throughout the balance of 2017. In Alberta, with recovery in the price of oil to close to $50 per barrel, a sense of optimism seems to be emerging. However, economic activity across the province is expected to remain low. With the price of oil at close to $50 per barrel, no meaningful new development in the oil sands region of northern Alberta is expected in the near term, and activity in the northern region is expected to remain low in 2017. While heavy equipment markets experienced an uptick in the second quarter, demand for heavy equipment and cranes is expected to remain weak throughout 2017. In response to the current market conditions and weak outlook, in 2016 management made adjustments to the cost structure with layoffs and other expense reductions, and reduced inventory levels, especially aged machines. While these actions will help improve profitability, continuing weak market conditions and soft demand for heavy equipment will result in another challenging year in Alberta. In Quebec, overall, demand for heavy equipment and cranes is expected to remain soft in the near term. Following a slight recovery in 2016, construction activity in the province experienced a further modest uptick in the second quarter and the longer term outlook is for continued improvement. However, with no plans for significant new government infrastructure spending, construction activity in Quebec is expected to remain weak in the near term. Commodity prices are expected to remain at low levels and as a result mining activity and demand for associated heavy equipment is expected to remain low in northern regions. In Ontario, while construction activity remains somewhat buoyant, most activity is of a smaller scale and there remains an overall air of caution which is affecting the purchase decisions for heavy equipment. With no new infrastructure spending announced in the recent Ontario government budget and few large projects underway or planned for the near term, larger scale construction activity is expected to remain low and demand for heavy equipment, especially GPE, is not expected to increase significantly in 2017. As the majority of heavy equipment is priced in US dollars, the weaker Canadian dollar has resulted in rising costs for new equipment to Canadian dealers and in the current weak construction markets, it has become more difficult for dealers to pass on these higher costs, which has resulted in lower sales and margins. The recent strengthening of the Canadian dollar will begin to lower the Canadian dollar cost of new equipment but make it more difficult to sell higher cost inventory purchased when the dollar was weaker. Competition is expected to remain strong especially from dealers carrying lower cost tier 3 product, which will continue to impact sales and margins. With this economic backdrop, the overall markets for heavy equipment across Canada are expected to be up modestly overall in 2017, and competition is expected to remain strong. While encouraged by the Company’s results in the first half, with weak market conditions expected to continue, management remains cautiously optimistic regarding the outlook for 2017. While not expecting meaningful recovery in heavy equipment markets in the near-term, the strategic actions initiated in 2016 and 2017 to simplify and streamline the business, reduce expenses and increase operational


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efficiencies have resulted in an improved cost structure and balance sheet and positioned Strongco to generate improved profitability in the future. COMPANY OVERVIEW Strongco is one of the largest multiline mobile equipment distributors in Canada. Strongco sells and rents new and used equipment and provides after-sale product support (parts and service) to customers who operate in infrastructure, construction, mining, oil and gas exploration, forestry and industrial markets. This business distributes numerous equipment lines in various geographic territories. The primary lines distributed include those manufactured by:

i. Volvo Construction Equipment North America Inc. (“Volvo”), for which Strongco has distribution agreements in each of Alberta, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland;

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

iii. Manitowoc Crane Group (“Manitowoc”), for which Strongco has distribution agreements for the Manitowoc, Grove and National brands, covering much of Canada.

The distribution agreements with Volvo and Case provide Strongco exclusive rights to distribute the products manufactured by these manufacturers in specific regions and/or provinces. In addition to the above noted primary lines, Strongco also distributes several other equipment lines and attachments which are complementary to its primary lines, including Allied Construction, Dressta, ESCO, Fassi, Jekko, Konecranes, Sennebogen, SDLG, Terex Trucks and Terex Cedarapids. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.


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FINANCIAL RESULTS – THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 Consolidated Results of Operations

($ thousands, except per share amounts) 2017 2016 2017 2016Revenues 95,899$ 102,176$ 179,102$ 193,425$ Cost of sales 80,855 89,687 148,464 163,787 Gross Profit 15,044 12,489 30,638 29,638 Selling and administrative expenses 14,929 16,408 29,695 32,627 Restructuring costs - 1,205 678 2,905 Other (income) expense (539) 613 (593) (535) Operating income 654 (5,737) 858 (5,359) Interest expense 1,128 1,530 2,433 3,020 Loss before income taxes (474) (7,267) (1,575) (8,379) Recovery of income taxes - (1,911) - (2,154) Net loss from continuing operations (474) (5,356) (1,575) (6,225) Net income from discontinued operations - 529 - 684 Net loss (474)$ (4,827)$ (1,575)$ (5,541)$ Basic and diluted loss per share

- continuing operations (0.04) (0.41) (0.12) (0.47) - net loss (0.04) (0.37) (0.12) (0.42)

Weighted average number of shares - Basic and diluted 13,221,719 13,221,719 13,221,719 13,221,719 Key financial measures:Gross margin as a percentage of revenues 15.7% 12.2% 17.1% 15.3%Selling and administration expenses as a percentage of revenues 15.6% 16.1% 16.6% 16.9%Operating income as a percentage of revenues 0.7% -5.6% 0.5% -2.8%EBITDA (see "Non-IFRS Measures") 3,441$ (2,386)$ 7,789$ 2,907$


Market Overview Strongco participates in a number of geographic regions and in a wide range of end-use markets that utilize heavy equipment and which may have differing economic cycles. Construction markets generally follow the cycles of the broader economy, but typically lag by periods ranging up to 12 months. When construction markets are robust, demand for heavy equipment is normally strongest. In addition, as the financial resources of heavy equipment customers strengthen, they have historically replenished and upgraded their fleets after a period of restrained capital expenditures. Demand in oil and gas and mining markets is affected by the economy but also tends to be driven by the global demand and pricing of the relevant commodities. Activity in equipment markets is normally first evident in equipment used in earth moving applications and followed by cranes, which are typically utilized in later phases of construction. Cranes are also extensively utilized in the oil and gas sector. Rental of heavy equipment is typically greater following periods of recession until confidence is restored and financial resources of customers improve. However, over the last several years rental activity has remained strong even when markets were robust as more customers are choosing to rent or rent with an option to purchase to meet their equipment needs. Market conditions in Canada in the first half of 2017 continued to be impacted by the same factors that affected the economy throughout 2016 - ongoing weak oil prices, soft commodity prices and lack of government infrastructure spending – all of which continued to negatively impact construction and mining activity across the country and served to dampen demand for heavy equipment. Given the seasonality of construction activity in Canada, demand for equipment is normally lower in the first part of the year while product support is typically strong to support snow removal activity and as customers prepare their equipment for the upcoming construction season. This proved to be the case in the first half of 2017. With early and more normal levels of snowfall, parts and service activity was stronger in the first quarter of 2017 compared to the prior year, and the onset of warmer spring weather resulted in a pickup in demand for equipment in the second quarter. In this weak environment, competition has intensified, especially from dealers carrying tier 3 product and offering discounted financing and margins continued to be under pressure.


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Weak economic conditions continued in Alberta as a result of ongoing impact of low oil prices. However, with sustained oil prices approaching $50 per barrel, a sense of optimism has emerged in the province which is having a positive effect on demand for heavy equipment and customer willingness to repair and refurbish machines. Demand for equipment experienced an uptick in the first half of the year and product support activity was stronger. Demand for GPE was higher, driven by excavators and loaders and a few large multi-unit deals. Demand for compact equipment was also higher in the quarter. While it cannot yet be called a recovery, the underpinning confidence being demonstrated in the market is a positive sign. In Ontario, while an air of caution remains, demand for heavy equipment improved with the early onset of warmer spring weather. However, the increased demand was mainly with compact construction equipment while GPE demand generally remained soft with the exception of excavators. In this uncertain environment, while customers are still somewhat reluctant to commit to purchase equipment, rentals including those with RPOs, and product support activity remained strong as customers preferred to rent or repair existing equipment fleets. Ongoing weak commodity prices and lack of government spending on infrastructure activity continues to dampen heavy equipment markets in Quebec. However, the market for construction equipment experienced an increase in demand in the first half of 2017 driven largely by excavators and compact equipment. Product support activity was stronger in the first six month of the year as customers repaired and refurbished equipment as the construction season approached. With respect to cranes, while the reconstruction of the Champlain Bridge generated strong demand for large cranes in 2015/2016, demand for cranes in the region overall remains very weak. In Atlantic Canada, heavy equipment markets generally remain soft with little government infrastructure spending on the horizon and an expectation of a flat housing market. The continued low price of oil has also resulted in reduced activity and demand for equipment in Newfoundland. While demand for excavators picked up in the second quarter, the market for GPE in the Atlantic region was down in the first six months compared to the same period in 2016. Rentals and product support remained active in the first half of the year to support snow removal activity and as customers prepared equipment for the construction season.


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Revenues A breakdown of revenue for the three and six months ended June 30, 2017 and 2016 is as follows:

[$ millions] 2017 2016 2017 2016

Eastern Canada (Atlantic and Quebec)Equipment Sales $ 22.1 $ 26.5 $ 31.5 $ 55.8 Equipment Rentals 0.6 1.1 2.1 3.0 Product Support 11.7 11.4 23.6 21.5 Total Eastern Canada $ 34.4 $ 39.0 $ 57.2 $ 80.3

Central Canada (Ontario)Equipment Sales $ 28.8 $ 31.8 $ 52.4 $ 50.3 Equipment Rentals 1.0 0.7 3.2 3.1 Product Support 10.1 11.2 20.2 21.5 Total Central Canada $ 39.9 $ 43.7 $ 75.8 $ 74.9

Western Canada (Manitoba to BC)Equipment Sales $ 15.1 $ 13.8 $ 32.1 $ 27.0 Equipment Rentals 0.7 0.4 1.2 1.0 Product Support 5.8 5.3 12.8 10.2 Total Western Canada $ 21.6 $ 19.5 $ 46.1 $ 38.2

Strongco CorporationEquipment Sales $ 66.0 $ 72.1 $ 116.0 $ 133.1 Equipment Rentals 2.3 2.2 6.5 7.1 Product Support 27.6 27.9 56.6 53.2 Total Strongco Corporation $ 95.9 $ 102.2 $ 179.1 $ 193.4


For the three months ended June 30, 2017, total revenues were $95.9 million compared to $102.2 million in the same three months of 2016, down $6.3 million or 6%. For the six months ended June 30, 2017, total revenues were $179.1 million compared to $193.4 million in 2015, down $14.3 million or 7%. Most of the decline was in Quebec due to a few large non-recurring sales of cranes in the second quarter and first six months of 2016. Excluding these non-recurring sales, revenues in the quarter were up by $6.3 million or 7% from the second quarter of 2016 and for the six months to June were up by $10.4 million or 6% from the first half 2016. Equipment Sales Total equipment sales in the three months ended June 30, 2017 were $66.0 million down $6.1 million or 8% from $72.1 million in the same quarter of 2016. Total equipment sales in the six months ended June 30, 2017 were $116.0 million down $17.1 million or 13% from $133.1 million in the same period of 2016. Most of the decline was due to the non-recurring sales of a few large cranes in Quebec in the first half of 2016. Excluding those non-recurring sales equipment sales were up 11% in the quarter and up 7% year to date. On a regional basis, equipment sales in Eastern Canada (Quebec and Atlantic regions) were $22.1 million in the second quarter of 2017, down $4.4 million from the same quarter of 2016. For the six months ended June 30, 2017, equipment revenues were $31.5 million down $24.3 million from the same period in 2016. The large decreases were primarily due to the non-recurring sales of a few large cranes in the first six months of 2016 as noted above. Excluding these non-recurring crane sales, Strongco’s equipment sales were up in the second quarter and essentially flat year over year. The overall market for GPE in Quebec was estimated to be up slightly in the first and


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second quarter of 2017, driven largely by stronger demand for excavators and articulated trucks while demand for loaders declined. Despite the increased demand, Strongco’s sales of excavators were lower compared to the prior year due to aggressive price competition from other dealers carrying less expensive tier 3 product which resulted in a drop in market share. Strongco’s sales of loaders in Quebec were higher in the quarter and first six months resulting in an increase in market share. In the Atlantic region, continuing lack of government spending on infrastructure and the impact of low oil prices on activity in Newfoundland resulted in continued weak demand for heavy equipment. The overall market for GPE in Atlantic Canada was down in the first half of 2017 due mainly to a decline in excavators as a result of two large multi-unit sales in the first quarter of 2016 and reduced demand for loaders in the region for snow removal. However, Strongco’s GPE unit sales were up year over year resulting in an increase in market share in the Atlantic region in the first half of 2017. Strongco’s equipment sales in the second quarter 2017 in Central Canada were $28.8 million down $3.0 million, or 9%, from $31.8 million in the prior year. The decline was due to a large sale of excavators to a rental company in 2016 that was not repeated in 2017. For the six month period ended June 30, 2017 equipment sales were up $2.1 million or 4% from 2016 due to stronger sales of loaders and backhoes. The market for heavy equipment in Ontario was up overall year over year due to higher demand for excavators and compact equipment, while loader demand was down. As a result of the strong sales of loaders, Strongco’s share of the loader market and GPE market overall improved in the first half of the year. Crane sales in Ontario were lower in the first six month of the year due to softer demand as strong sales to crane rental companies in the first quarter of 2016 were not repeated. Equipment sales in Western Canada during the quarter ended June 30, 2017 were up $1.3 million or 10% to $15.1 million from the same quarter of 2016. For the six month period ended June 30, 2017 equipment sales were up $5.1 million or 19% to $32.1 million compared to the same period in 2016. The increase was entirely due to higher sales of cranes in the region which more than offset lower sales of other heavy equipment. Crane sales benefited from the sale of a very large crane in Alberta in the first quarter of 2017 and stronger sales of smaller truck mounted material handling cranes. Sales of other heavy equipment in Alberta were essentially flat year over year in the quarter but were down in the first six months of the year. Sales of excavators and articulated trucks increased in the quarter but were offset by lower sales of loaders. While sales of articulated trucks were stronger in the quarter, weak sales in the first quarter resulted in lower truck sales year to date, which more than offset higher sales of excavators and loaders in the first six months of the year. The market for GPE has been stronger in 2017 due primarily to increased demand for loaders and excavators. Excavator demand was driven by a large quantity of excavators purchased by two major construction companies in Alberta as well as other dealers increasing rental fleets. Despite higher sales of loaders and excavators, Strongco’s share of the excavator and overall GPE market declined as a result of these two large excavator deals and dealer rental fleet purchases. 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 a specific project. In other cases, certain customers prefer to enter into short-term rental contracts with an option to purchase after a period of time or hours of machine usage. This latter type of contract is referred to as a rental purchase option contract (“RPO”). Under an RPO, a portion of the rental revenue is applied toward the purchase price of the equipment should the customer exercise the purchase option. This provides flexibility to the customer and results in a more affordable and financeable purchase price after the rental period. Normally, the significant majority of RPO’s are converted to sales within a six-month period and this market practice is a method of building sales revenues and the field population of equipment. Rental activity tends to be more robust in periods when the economy and construction markets are soft or recovering from recession, as customers generally lack the confidence or financial resources to commit to purchase equipment and prefer instead to rent to meet their equipment needs. Traditionally, when construction markets and demand for heavy equipment are strong, more customers are willing to purchase equipment and rental activity subsides. Rental activity, including RPOs, increased as anticipated since the last recession. However, rental activity has remained strong even after markets recovered and the number of customers choosing RPOs has continued to increase. Rental activity is expected to remain strong in the future. Strongco’s rental revenue in the second quarter of 2017 was $2.3 million essentially unchanged from a year ago. During the six months ended June 30, 2017 rental revenue was $6.5 million, down $0.6 million from the same period a year ago due primarily to lower crane rentals. Rental activity has been stronger in Alberta for construction equipment in 2017 as customers prefer to rent as markets in the province recover. This was particularly the case


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for articulated truck and excavators. However, with low demand for cranes in the province, crane rental activity was softer in 2017. In Ontario, with ongoing uncertainty and lack of government infrastructure activity, more customers have preferred to rent to meet their equipment needs. Strongco’s rental revenue was down slightly in Eastern Canada in 2017, as there have been fewer RPOs in Quebec as construction and infrastructure activity remained at low levels. Product Support Sales of new equipment usually carry the warranty from the manufacturer for a defined term. Product support revenues from the sales of parts and service are therefore not realized until the warranty period expires. Warranty periods vary from manufacturer to manufacturer and 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 increased product support activities over time. Product support activities are normally strong in the first quarter due to increased use of equipment for snow removal in the winter and during the third quarter in the height of the construction season as equipment is being utilized in the field. Strongco’s product support revenues in the second quarter of 2017 were $27.6 million, essentially unchanged from $27.9 million in the same quarter of 2017. For the six month period ended June 30, 2017 product support revenues were up $3.4 million or 6% to $56.6 million compared to the same period in 2016. Product support revenues were particularly strong in Quebec and Alberta as a result of a few large jobs to refurbish customers’ equipment in the first quarter and higher customer fleet utilization. Gross Profit

Gross Profit $ millions GM% $ millions GM% $ millions GM% $ millions GM%Equipment Sales 4.3$ 6.5% 1.4$ 1.9% 7.9$ 6.8% 6.5$ 4.9%Equipment Rentals 0.3 13.0% 0.4 18.2% 0.9 13.8% 1.4 19.7%Product Support 10.4 37.7% 10.7 38.4% 21.8 38.5% 21.7 40.8%Total Gross Profit 15.0$ 15.7% 12.5$ 12.2% 30.6$ 17.1% 29.6$ 15.3%

2017 2016 Three Months Ended June 30

2017 2016 Six Months Ended June 30

Strongco’s overall gross profit was $15.0 million or 15.7% of revenue in the second quarter of 2017, up from $12.5 million or 12.2% in the second quarter last year. For the six months ended June 30, 2017, overall gross profit was up to $30.6 million or 17.1% of revenue, compared to $29.6 million or 15.3% of revenue for the six months in 2016. The improvement in the overall gross margin as a percent of sales was due to stronger margins on equipment sales offset partially by lower margins on rentals and product support. By revenue category, gross profit on equipment sales was higher due to improved gross margins as in 2016, a large quantity of aged and non-core equipment inventory was sold at auction at lower margins and losses as part of the Company’s strategy to reduce aged inventory. Gross profit on rentals was lower due to lower rental volumes and lower margins due to competitive pressures and a higher proportion of RPO which are typically at lower margins than rental contracts without purchase options. The gross profit on product support was similar to last year in the quarter and six months to date but margins were lower due primarily to a higher proportion and lower margins on parts sales. In addition, in the first quarter, lower service margins were accepted on a few large jobs to refurbish customers’ equipment in Alberta and Quebec. Selling and Administrative Expense Selling and administrative expenses in the quarter were $14.9 million or 15.6% of revenue, down from $16.4 million or 16.1% of revenues in the second quarter of 2016. The decrease was primarily the result of the actions taken in 2016 and first quarter of 2017 to reduce headcounts and other cash expenses, as well as lower depreciation related to the SAP computer system, which was fully impaired in the third quarter 2016. Headcount at June 30, 2017 stood at 494, which was down a further 38 employees from the beginning of the year and compared to 559 a year ago. Net warranty recovery was lower in the quarter as a result of a lower level of warranty work and reduced recoveries, which partially offset the overall expense reduction. In addition, bonuses were accrued in the quarter for employees under the Annual Incentive Plan, whereas no bonuses were earned or accrued in 2016.


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Restructuring Costs As noted above, headcount was reduced by an additional 38 people during the first half of 2017. In addition, the Company terminated the lease and closed its branch in Orillia, Ontario. As a result of these decisions, the Company recorded a restructuring provision of $0.7 million in the first quarter for severance and lease termination costs of the Orillia facility. While the Company has exited the Orillia branch, it is still servicing customers in the region through sales and service personnel covering the territory as well as providing service and parts from its Mississauga and Sudbury, Ontario locations. Other Income and 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 retail financing Strongco places with such finance companies. Other income and expense period ended June 30, 2017 was net income of $0.6 million, composed primarily of foreign exchange gains that resulted on the translation of US dollar liabilities from the strengthening Canadian dollar and the sale of rental fleet assets for a gain in the second quarter. This compared to other income of $0.5 million in the same six months of 2016 which was primarily foreign exchange gains. Operating Income Despite lower revenues, improved gross profit and lower selling and administrative expenses resulted in operating income, before restructuring costs and foreign exchange gains and losses, of $0.1 million in the second quarter compared to an operating loss of $3.9 million in the second quarter of 2016. For the six months ended June 30, 2017, higher gross margin and lower selling and administrative expenses resulted in operating income, before restructuring costs and foreign exchange gains and losses, of $0.9 million compared to an operating loss of $3.0 million in the same period of 2016. After restructuring costs and foreign exchange gains and losses, operating income was $0.7 million in the quarter and $0.9 million in the six months, which compared to an operating loss of $5.7 million and $5.4 million, respectively for the same periods in 2016. Interest Expense Strongco’s interest-bearing debt comprises interest-bearing equipment notes and an operating line with the Company’s bank. Strongco typically finances equipment inventory under lines of credit available from various finance companies, many of which are the captive finance affiliate of the OEM supplier. Most equipment financing has interest-free periods of up to 12 months from the date of financing, after which the equipment notes become interest-bearing. The rate of interest on the Company’s bank operating lines and interest-bearing equipment notes payable vary with bank prime rates and Bankers’ Acceptance rates (“BA rates”). (See discussion under “Cash Flow, Financial Resources and Liquidity”). Prime rates and BA rates have remained fairly stable in the first half of 2017 compared to 2016. With the recent 25 bps increase in the Bank of Canada overnight lending rate, prime lending rates charged by the major banks in Canada also increased by 25 bps. This is not expected to have a significant impact on Strongco’s total interest expense in the future. Strongco’s continued to show further reduction in interest expense in the first quarter as a result of the marked reduction in equipment inventory and the related equipment notes payable. Interest expense for the second quarter was $1.1 million, which was down from $1.5 million a year ago. For the six months to June 30, 2017, interest expense was $2.4 million down from $3.0 million for the same period in 2016. Earnings / Loss before Income Taxes The Company realized a loss before income taxes of $0.5 million in the quarter, compared to a loss before income taxes of $7.3 million in 2016. Before the restructuring provision, the Company realized a loss before income taxes of $0.9 million in the six months, compared to a pre-tax loss of $5.5 million in 2016. After restructuring charges, the pre-tax losses were $1.6 million and $8.4 million, respectively.


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Recovery of Income Taxes

As there is uncertainty that the tax loss incurred in the 2017 would be recovered in the future, no recovery of income taxes has been recorded against the loss in the quarter or six months. By comparison, an income tax recovery of $1.9 million and $2.2 million was recorded in the second quarter and first six months of 2016.

Net Income / Loss from continuing operations

Strongcoʼs net loss from continuing operations in the quarter was $0.5 million ($0.04 loss per share), which compared to a net loss from continuing operations of $5.4 million ($0.41 loss per share) in the same quarter of2016. For the six months ended June 30, 2017, the net loss was $1.6 million ($0.12 loss per share), which compared to a net loss from continuing operations of $6.2 million ($0.47 loss per share) in the same period of 2016.

EBITDA

EBITDA in the second quarter of 2017 was $3.4 million (3.6% of revenue), up from a loss of $2.4 million (2.3% of revenue) in 2016. EBITDA in the first six months of 2017 was $7.8 million (4.3% of revenue), up from $2.9 million (1.5% of revenue) in 2016.

EBITDA was calculated as follows:

EBITDA ($ millions) 2017 2016 2017 2016Net loss from continuing operations (0.5)$ (5.3)$ (1.6)$ (6.2)$Add Back:

Interest 1.1 1.5 2.4 3.0Income taxes - (2.0) - (2.2)Amortization of capital assets 0.8 1.0 1.6 2.0Amortization of equipment inventory on rent 2.0 1.9 5.0 5.0Amortization of rental fleet - - 0.3 0.4Amortization of computer system - 0.5 - 0.9

EBITDA (see "Non-IFRS Measures") 3.4$ (2.4)$ 7.7$ 2.9$

Three Months Ended June 30 Six Months Ended June 30

Cash Flow, Financial Resources and Liquidity

Cash Flow Provided By (Used In) Operating Activities:

During the quarter $2.4 million of cash was provided from operating activities which compared to cash used in continuing operations of $10.0 million in the second quarter of 2016. For the six months to June 30, 2017, $5.5 million of cash was provided from operating activities which compared to cash used in continuing operations of $2.5 million in the first half of 2016. Most of the improvement in operating cash was a result of the reduced loss and cash provided from the change in working capital in the second quarter and first six months of 2017.


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The components of cash provided by (used in) operating activities were as follows:

($ millions) 2017 2016 2017 2016Net loss from continuing operations $ (0.5) $ (5.3) $ (1.6) $ (6.2)Non-cash items:

Depreciation - capital assets 0.8 1.1 1.6 2.1Depreciation - equipment inventory on rent 1.9 1.9 4.9 5.0Depreciation - rental fleet - - 0.4 0.4Amortization of computer system - 0.5 0.9Gain on sale of rental fleet (0.2) - (0.2) -Interest expense 1.1 1.5 2.4 3.0Recovery of income taxes - (2.0) - (2.2)Employee future benefit expense 0.5 0.7 0.9 1.0

$ 3.6 $ (1.6) $ 8.4 $ 4.0Changes in non-cash working capital balances 0.1 (6.2) 0.2 (2.2)Purchases of rental fleet (0.1) - (0.1) -Proceeds on sale of rental fleet 0.5 - 0.5 -Employee future benefit funding (0.5) (0.6) (1.0) (1.1)Interest paid (1.2) (1.6) (2.5) (3.2)Cash provided by operating activities- continuing operations 2.4 (10.0) 5.5 (2.5)- discontinued operations - 1.0 - 3.0Cash provided by operating activities $ 2.4 $ (9.0) $ 5.5 $ 0.5

Three Months Ended June 30 Six Months Ended June 30

Non-cash items include amortization of equipment inventory on rent of $1.9 million in the second quarter and $4.9million in the six months ended June 30, 2017, essentially unchanged from the same periods in 2016.

Non-cash working capital decreased by $0.1 million during the quarter ended June 2017 and decreased by $0.2 million during the six month period to date due primarily to an increase in equipment notes payable which was partially offset by increases in inventory and trade and other receivables, as shown in the table below. By comparison, during the quarter ended and six months ended June 2016, net working capital increased by $6.2million and $2.2 million, respectively, primarily due to an increase in trade and other receivables and a decrease in equipment notes which were only partially offset by a decrease in equipment inventory. Components of cash flow from the net change in non-cash working capital for the three and six month periods ended June 30, 2017 and 2016were as follows:

($ millions) - Cash Provided By (Used In)(Increase) / Decrease 2017 2016 2017 2016Trade and other receivables $ (5.7) $ (11.3) $ (8.1) $ (11.1)Inventories (excluding depreciation - equipment inventory on rent) (10.0) 11.4 (4.5) 26.9Prepaids and other assets 0.1 (0.1) (0.4) (0.4)

$ (15.6) $ (0.0) $ (13.0) $ 15.4Increase / (Decrease)Trade and other payables - 1.0 (4.4) 16.5Deferred revenue & customer deposits (0.2) - (0.7) (5.7)Equipment notes payable 15.9 (7.2) 18.3 (28.4)

$ 15.7 $ (6.2) $ 13.2 $ (17.6)Net (increase) decrease in non-cash working capital $ 0.1 $ (6.2) $ 0.2 $ (2.2)


As noted above, excluding the depreciation of equipment inventory while on rent, inventory increased by $10.0million during the quarter ended June 2017 and increased by $4.5 during the first six months of the year.Equipment inventory of continuing operations at the end of June was $130.8 million, which was essentially unchanged from $129.2 million at the beginning of the year and down from $145.9 million from a year earlier.


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A breakdown of equipment inventory at June 30, 2017 compared to December 31, 2016 and June 30, 2016 is as follows:

($millions) Equipment in-stock $ 88.5 $ 90.0 $ 112.6 Equipment on rental contract with a purchase option 29.1 14.8 25.3 Equipment on a short-term rental contract 13.2 24.4 8.0 Equipment Inventory - continuing operations $ 130.8 $ 129.2 $ 145.9 Equipment Inventory - discontinued operations $ - $ - $ 25.5 Equipment Inventory - total $ 130.8 $ 129.2 $ 171.4

December 31, 2016

June 30,2016

June 30,2017

As noted, the Companyʼs equipment notes payable of continuing operations have declined from a year ago year as equipment inventory was reduced. Equipment notes payable in continuing operations at June 30, 2017 was $119.5million which compared to $101.2 million at the end of 2016 and $158.1 million at the same point in 2016.

A breakdown of equipment notes payable at June 30, 2017 compared to December 31, 2016 and June 30, 2016 is as follows:

($millions) Non-interest-bearing $ 54.7 $ 26.7 $ 46.8 Interest-bearing 64.8 74.5 81.5 Equipment Notes Payable - continuing operations $ 119.5 $ 101.2 $ 128.3 Equipment Notes Payable - discontinued operations $ - $ - $ 29.8 Equipment Notes Payable - total $ 119.5 $ 101.2 $ 158.1

December 31,2016

June 30,2016

June 30,2017

Cash Provided By (Used In) Investing Activities:

Net cash used in investing activities amounted to $0.1 million in the first six months of 2017 related to the purchase of capital assets compared to $0.2 million in the same period of 2016. The capital expenditures related to branchupgrades and miscellaneous shop equipment purchases.

Cash Provided By (Used in) Financing Activities:

During the second quarter and the six months ended June 30, 2017, cash of $2.4 million and $5.4 million, respectively, was used in financing activities. Most of the cash was used to reduce borrowing under the Companyʼs operating bank lines and finance lease obligations and to repay long term equipment notes as shown in the table below. This compared to cash generated by financing activities by continuing operations of $10.2 million and $2.7 million during the same periods in 2016.

The components of cash used in financing activities were as follows:

($ millions) 2017 2016 2017 2016Increase (decrease) in bank indebtedness (0.8)$ 9.7$ (2.9)$ 3.6$Decrease in long-term equipment notes (0.7) - (1.0) (0.3)Repayment of finance lease obligations (0.9) (0.8) (1.5) (1.9)Trade activity with discontinued operations - 0.9 - 0.9Dividend income from discontinued operations - 0.4 - 0.4Cash used in financing activities- continuing operations (2.4) 10.2 (5.4) 2.7- discontinued operations - (0.9) - (2.8)Cash used in financing activities (2.4)$ 9.3$ (5.4)$ (0.1)$



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Bank Credit Facilities The Company has a credit facility with a Canadian bank as described below. Operating Lines The Canadian bank credit facility is a revolving demand facility which provides an operating line $30 million. Borrowings under the operating line is limited by standard borrowing base calculations based on accounts receivable and inventory, which are typical of such bank credit facilities. As collateral, the Company has provided a security interest in accounts receivable, inventories (subordinated to the collateral provided to the equipment inventory lenders), capital assets (subordinated to collateral provided to lessors), real estate and intangible and other assets. The bank operating line bears interest at rates that vary with bank prime rates or Bankers Acceptances Rates (“BA rates”). Interest rates range between bank prime rate plus 2.00% and bank prime rate plus 4.00% or between the one-month Canadian BA rate plus 3.00% and the one-month Canadian BA rate plus 5.00%, depending on the Company’s ratio of debt to tangible net worth. Under its bank credit facilities, the Company is able to issue letters of credit up to a maximum of $5 million. Outstanding letters of credit reduce availability under the Company’s 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. At June 30, 2017, there were outstanding letters of credit totaling $0.01 million. In addition to its operating lines of credit, Strongco has a line of approximately US$18.4 million for foreign exchange forward contracts as part of its bank credit facilities (“FX Line”) available to hedge foreign currency exposure. Under this FX Line, the Company can purchase foreign exchange forward contracts up to a maximum of US$18.4 million. As at June 30, 2017, the Company had outstanding foreign exchange forward contracts under this facility totalling US$6.1 million at an average exchange rate of $1.3392 Canadian for each US$1.00 and €0.1 million at an average exchange rate of $1.4394 Canadian for each €1.00 with settlement dates between July 2017 and November 2017. Bank Financial Covenants The bank credit facilities in Canada contain financial covenants typical of such credit facilities that require the Company to maintain certain financial ratios and meet certain financial thresholds. A summary of the financial covenants under the bank credit facilities at June 30, 2017 was as follows:

Minimum ratio of total current assets to current liabilities (“Current Ratio covenant”) of 1.0:1, Minimum tangible net worth (“TNW covenant”) of $20 million, Maximum ratio of debt to tangible net worth (“Debt to TNW Ratio covenant”) of 7.25:1, and Minimum ratio of EBITDA to total interest (“Interest Coverage Ratio covenant”) of 1.75:1.

In addition to these financial covenants, the Company’s bank credit facility requires the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). The Company was in compliance with all financial covenants under its bank credit facilities at June 30, 2017. Equipment Notes In addition to its bank credit facilities, the Company has lines of credit available totalling approximately $175 million from various non-bank equipment lenders in Canada and the United States that are used to finance equipment inventory. At June 30, 2017, there was approximately $120 million borrowed on these equipment finance lines. Typically, these equipment notes are interest-free for periods of up to 12 months from the date of financing, after which they bear interest in Canada at variable rates based upon 30-day and 90-day Bankers’ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing company’s margin. As at June 30, 2017, the rates ranged from 4.84% to 6.95% with a weighted average effective rate of 5.96%. As collateral for these equipment notes, the Company has provided liens on the specific inventory financed and any related accounts receivable. In the normal course of business, these liens cover substantially all of the inventories. Monthly principal repayments equal to 3.00% of the original principal balance of the note commence 12 months from the date of financing and the remaining balance is due in full at the earlier of 24 months


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after financing or when the financed equipment is sold. While financed equipment is out on rent, monthly curtailments are required equal to the greater of 70% of the rental revenue and 2.5% of the original value of the note. Any remaining balance after 24 months, which is due in full, is normally refinanced with the lender over an additional period of up to 24 months. All of the Companyʼs equipment notes facilities are renewable annually.

Equipment Notes Financial Covenants

Similar to the bank credit facility, two of the Companyʼs equipment finance credit agreements contain restrictive financial covenants that require the Company to remain in compliance with certain financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). Under one of the equipment finance agreements, the covenants are identical to those under the Companyʼs bank agreement and the Company was in compliance with those covenants at June 30, 2017. For the other equipment finance agreement, the equipment lender provided a waiver of the covenants at prior to June 30, 2017 curing an impending covenant violation.

Summary of Outstanding Debt

The balance outstanding under Strongcoʼs debt facilities at June 30, 2017, December 31, 2016 and June 30, 2016consisted of the following:

Debt Facilities

($ millions)Bank indebtedness (including outstanding cheques) $ 27.8 $ 30.7 $ 36.4Equipment notes payable - non interest bearing 54.7 26.7 46.8Equipment notes payable - interest bearing 64.8 74.5 81.5Rental fleet equipment notes payable 0.3 1.2 1.4Outstanding debt - continuing operations 147.6 133.1 166.1Outstanding debt - discontinued operations - - 49.2

$ 147.6 $ 133.1 $ 215.3

December 31,2016

June 30,2017

June 30,2016

Total borrowing under the Companyʼs debt facilities was $147.6 million at June 30, 2017 compared to $166.1million a year ago. The decrease of $18.5 million resulted from the reduction of equipment notes by $8.8 million and bank indebtedness by $8.6 million.

As at June 30, 2017, there was approximately $6.8 million of unused credit available under the Companyʼs bank credit lines. While availability under the bank lines fluctuates daily depending on the amount of cash received and cheques and other disbursements clearing the bank, availability normally ranges between $2 million and $8 million. The Company also had approximately $55 million available under its equipment finance facilities at June 30, 2017.


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SUMMARY OF QUARTERLY DATA

In general, business activity follows a weather related pattern of seasonality. Typically, the first quarter is the weakest quarter as construction and infrastructure activity is constrained in the winter months. This is followed by a strong gain in the second quarter as construction and other contracts begin to be tendered and companies prepare for summer activity. The first quarter generally tends to be slightly slower from an equipment sales standpoint, which is partially offset by continued strength in equipment rentals and customer support activities. Fourth quarter activity generally strengthens as customers make year-end capital spending decisions and exercise purchase options on equipment which has previously gone out on RPOʼs. 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:

2017($ millions, except per share amounts) Q2 Q1

Revenue $ 95.9 $ 83.2Loss before income taxes from continuing operations (0.5) (1.1)Net loss from continuing operations (0.5) (1.1)Net loss (0.5) (1.1)

Basic and diluted earnings (loss) per share- loss from continuing operations $ (0.04) $ (0.08)- net loss $ (0.04) $ (0.08)

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

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

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

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

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

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

A discussion of the Companyʼs previous quarterly results can be found in the Companyʼs quarterly Managementʼs Discussion and Analysis reports available on SEDAR at www.sedar.com.


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CONTRACTUAL OBLIGATIONS The Company has contractual obligations for operating lease commitments totalling $62.1 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 terms 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 OEM, 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 June 30, 2017, the total buy back contracts outstanding were $3.8 million. A reserve of $0.1 million has been accrued in the Company’s accounts as at June 30, 2017 with respect to these commitments. 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 $62.1 $8.8 $14.8 $12.9 $25.6

Payment due by period

Less Than 1 to 3 4 to 5 After 5($ millions) Total 1 Year years years yearsBuy back contracts $3.8 $1.2 $1.8 $0.8 -$

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.

Number ofCommon Shares Issued and Outstanding Shares Shares

Common shares outstanding as at December 31, 2016 13,221,719 Common shares issued (redeemed) - Common shares outstanding as at June 30, 2017 13,221,719 NON-IFRS MEASURES “EBITDA” refers to earnings before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, amortization of rental fleet and amortization of intangible assets. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards (“IFRS”) and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The 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 IFRS 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.


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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 the 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 June 30, 2017 with changes from March 31, 2017 is as follows: Provision for Inventory Obsolescence ($ millions)Provision for inventory obsolescence as at March 31, 2017 $ 3.8Provision related to inventory disposed of during the quarter - Amounts unused and reversed during the quarter - Additional provisions made during the quarter 0.2Provision for inventory obsolescence as at June 30, 2017 $ 4.0 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 June 30, 2017 with changes from March 31, 2017 is as follows: Allowance for Doubtful Accounts ($ millions)Allowance for doubtful accounts as at March 31, 2017 $ 0.4Amounts unused and reversed during the quarter - Accounts written off during the quarter - Additional provisions made during the quarter 0.1Allowance for doubtful accounts as at June 30, 2017 $ 0.5 Employee Future Benefit 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 management expects 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. In accordance with IAS 19, rev. 2011, the assumed return on pension plan assets is based on the same discount rate used to determine the present value of future cash flows as described above. The costs of employee future benefits other than pension are determined at the beginning of the year and are based on assumptions for expected claims experience and future health care cost inflation.


19

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 and their corresponding net recovery. 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 the Company’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 2017. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for 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.


UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2017 AND 2016


Notice required under National Instrument 51-102, “Continuous Disclosure Obligations,” Part 4.3 (3) (a). The accompanying unaudited condensed interim financial statements for Strongco Corporation as at and for the six-month and three-month periods ended June 30, 2017, together with the accompanying notes have not been reviewed by the Companyʼs auditors


Strongco Corporation Unaudited Interim Consolidated Statement of Financial Position (in thousands of Canadian dollars, unless otherwise indicated)

2

Assets

Current assetsCash $ - $ - $ 787 Trade and other receivables 45,165 37,024 65,650 Income taxes receivable [note 9] 1,508 1,508 - Inventories [note 3] 164,479 164,664 216,831 Prepaid expenses and other deposits 2,116 1,586 2,885

213,268 204,782 286,153 Non-current assetsProperty and equipment [note 4] 9,352 11,119 16,645 Rental f leet 57 630 26,004 Intangible asset - - 16,499 Deferred income tax asset [note 9] - - 7,021 Other assets 3,156 3,321 1,763

12,565 15,070 67,932 Total assets $ 225,833 $ 219,852 $ 354,085

Liabilities and shareholders' equity

Current liabilitiesBank indebtedness [note 5] $ 27,754 $ 30,701 $ 39,776 Trade and other payables 41,767 46,423 59,408 Deferred revenue and customer deposits 105 770 507 Equipment notes payable

- non-interest bearing [note 6] 54,707 26,722 63,203 - interest bearing [note 6] 64,834 74,487 94,887

Current portion of finance lease obligations 2,403 3,494 3,128 Current portion of notes payable [note 8] 256 1,254 17,379 Current portion of provisions for other liabilities [note 7] 9 28 74

191,835 183,879 278,362 Non-current liabilitiesDeferred income tax liability [note 9] - - 4,521 Finance lease obligations 2,394 2,722 2,915 Notes payable [note 8] 44 - - Long-term portion of provisions for other liabilities [note 7] 47 42 73 Employee future benef it obligations 3,892 4,026 3,367

6,377 6,790 10,876 Total liabilities 198,212 190,669 289,238 Contingencies, commitments and guarantees [note 10]

Shareholders' equityShareholders' capital [note 11] 65,497 65,497 65,417 Accumulated other comprehensive income 1,147 1,147 4,500 Contributed surplus 996 983 1,103 Retained earnings (deficit) (40,019) (38,444) (6,173) Total shareholders' equity 27,621 29,183 64,847 Total liabilities and shareholders' equity $ 225,833 $ 219,852 $ 354,085

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

As at June 30, 2017

As at December 31, 2016

As at June 30, 2016


Strongco Corporation Unaudited Interim Consolidated Statement of Income (Loss) For the three and six month periods ended June 30 (in thousands of Canadian dollars, unless otherwise indicated, except share and per share amounts)

3

Three-month period ended Six-month period endedJune 30 June 30

2017 2016 2017 2016

Revenue [note 13] $ 95,899 $ 102,176 $ 179,102 $ 193,425 Cost of sales 80,855 89,687 148,464 163,787 Gross profit 15,044 12,489 30,638 29,638

Selling and administrative expenses 14,929 16,408 29,695 32,627 Restructuring Costs [note 15] - 1,205 678 2,905 Other (income) expense (539) 613 (593) (535) Operating income 654 (5,737) 858 (5,359)

Interest expense 1,128 1,530 2,433 3,020 Loss before income taxes (474) (7,267) (1,575) (8,379)

Recovery of income taxes [note 9] - (1,911) - (2,154)

Net loss from continuing operations (474) (5,356) (1,575) (6,225) Net income from discontinued operations - 529 - 684

Net loss attributable to shareholders $ (474) $ (4,827) $ (1,575) $ (5,541)

Loss per share - basic and dilutedContinuing operations $ (0.04) $ (0.41) $ (0.12) $ (0.47) Net loss attributable to shareholders $ (0.04) $ (0.37) $ (0.12) $ (0.42)

Weighted average number of shares [note 12]- basic and diluted 13,221,719 13,221,719


13,221,719 13,221,719


Strongco Corporation Unaudited Interim Consolidated Statement of Comprehensive Income (Loss) For the three and six month periods ended June 30 (in thousands of Canadian dollars, unless otherwise indicated)

4

Three-month period ended Six-month period endedJune 30 June 30

2017 2016 2017 2016

Net loss attributable to shareholders $ (474) $ (4,827) $ (1,575) $ (5,541)

Items that may be reclassified subsequentlyto net income:

Currency translation adjustment - 56 - (1,247) Comprehensive income (loss) attributable

to shareholders $ (474) $ (4,771) $ (1,575) $ (6,788)



Strongco Corporation Unaudited Interim Consolidated Statement of Changes in Shareholdersʼ Equity For the six month periods ended June 30 (in thousands of dollars, unless otherwise indicated)

5

Number of shares Total

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

Net loss - - - (5,541) (5,541)

Currency translation adjustment - (1,247) - - (1,247) Total comprehensive income 65,417 4,500 1,073 (6,173) 64,817

Share-based compensation expense - - 30 - 30

Balance- June 30, 2016 13,221,719 $ 65,417 $ 4,500 $ 1,103 $ (6,173) $ 64,847

Number of shares Total

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

Net loss - - - (1,575) (1,575)

Total comprehensive income 65,497 1,147 983 (40,019) 27,608

Share-based compensation expense - - 13 - 13

Balance- June 30, 2017 13,221,719 $ 65,497 $ 1,147 $ 996 $ (40,019) $ 27,621


Retained earnings

Shareholders' capital

Accumulated other

comprehensive income

Contributedsurplus

Accumulated other

comprehensive income

Contributed surplus

Shareholders' capital

Retained earnings


Strongco Corporation Unaudited Interim Consolidated Statement of Cash Flows For the six-month periods ended June 30 (in thousands of Canadian dollars, unless otherwise indicated)

6

2017 2016

Cash flows from operating activitiesNet loss for the period - continuing operations $ (1,575) $ (6,225) Adjustments for

Depreciation - property and equipment 1,609 2,130 Depreciation - equipment inventory on rent 4,931 5,049 Depreciation - rental fleet 391 382 Amortization - intangible asset - 869 Gain on sale of rental fleet (188) - Share-based payment expense 13 30 Interest expense 2,433 3,020 Income tax recovery - (2,154) Employee future benefit expense 841 960

Changes in non-cash working capital [note 14] 244 (2,260) Purchases of rental fleet (80) - Proceeds from sale of rental fleet 450 - Funding of employee future benefit obligations (975) (1,092) Interest paid (2,563) (3,203) Cash provided by discontinued operations - 3,045 Net cash provided by (used in) operating activities $ 5,531 $ 551 Cash flows from investing activitiesPurchases of property and equipment (103) (182) Cash used in discontinued operations - (60) Net cash used in investing activities $ (103) $ (242) Cash flows from financing activitiesIncrease (decrease) in bank indebtedness (2,947) 3,562 Decrease in long-term debt (994) (267) Repayment of finance lease obligations (1,487) (1,896) Trade activities with discontinued operations - 924 Dividends received from discontinued operations - 353 Cash used in discontinued operations - (2,799) Net cash provided by (used in) financing activities $ (5,428) $ (123) Foreign exchange on cash balances - (43) Change in cash and cash

equivalents during the period $ - $ 143 Cash and cash equivalents - Beginning of period -

- continuing operations - - - discontinued operations - 644

Cash and cash equivalents - End of period $ - $ 787 Cash and cash equivalents - End of period

- continuing operations $ - $ - - discontinued operations $ - $ 787



Strongco Corporation Notes to Unaudited Interim Condensed Consolidated Financial Statements For the three and six month periods ended June 30, 2017 and June 30, 2016 (in thousands of dollars, unless otherwise indicated)

7

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. The Company is a public entity, incorporated and domiciled in Canada and listed on the Toronto Stock Exchange. The address of its registered office is 1640 Enterprise Road, Mississauga, Ontario L4W 4L4. 2 Basis of presentation These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). The accounting policies followed in these interim condensed consolidated financial statements are the same as those applied in the Companyʼs consolidated financial statements for the year ended December 31, 2016, except for any new accounting pronouncements which have been adopted, as required, on January 1, 2017. These interim condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Companyʼs annual financial statements for the year ended December 31, 2016, which are available at www.sedar.com and on the Companyʼs website at www.strongco.com. On September 30, 2016, the Company completed the sale of its wholly-owned subsidiary, Chadwick-BaRoss Inc. Effective with this sale, the Company deconsolidated the results of Chadwick-BaRoss Inc. and restated its consolidated statements of income (loss) and consolidated statements of cash flows for the comparative periods to June 2016 to disclose the activities of Chadwick-BaRoss Inc. as discontinued operations. The comparative amounts in the consolidated statement of financial position as at June 30, 2016 includes the respective amounts of Chadwick-BaRoss Inc. The timely preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies, if any, as at the date of the financial statements and the reported amounts of revenue and expenses during the period. By their nature, estimates are subject to measurement uncertainty and changes in such estimates in future years could require a material change in the interim condensed consolidated financial statements. These interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on August 2, 2017.



8

New accounting standards adopted during the period The following amendments have been adopted by the Company effective January 1, 2017: Disclosure Initiative Amendments to IAS 7 Statement of Cash Flows In 2016, the ISAB issued amendments to IAS 7 Statement of Cash Flows (“IAS 7”). The amendments are intended to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments will require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. The adoption of this amendment had no impact on the financial performance or disclosures of the Company. Future changes in accounting standards The standards, amendments, and interpretations issued before 2017 but not yet adopted by the Company have been disclosed in note 2 of the Companyʼs December 31, 2016 annual consolidated financial statements. There are no new standards, amendments, or interpretations issued during 2017 that are applicable to the Company. Comparative amounts Certain comparative amounts have been reclassified to conform to current periodʼs unaudited interim condensed consolidated financial statements presentation. 3 Inventories Inventory components, net of write-downs and provisions are as follows: As at

Equipment in-stock $ 88,534 $ 89,977 $ 112,642 Equipment on rental contract with a purchase option 29,064 14,779 25,275 Equipment on a short-term rental contract 13,174 24,423 7,971 Equipment in-stock - discontinued operations - - 25,517 Equipment 130,772 129,179 171,405

Parts 27,255 29,109 31,654 Work-in-process 6,452 6,376 7,431 Parts - discontinued operations - - 6,174 Total inventory $ 164,479 $ 164,664 $ 216,664

June 30,2017

December 31,2016

June 30,2016

As at June 30, 2017, provisions against inventory totalled $3,960 (December 31, 2016 - $4,582; June 30, 2016 - $9,215). During the six months ended June 30, 2017, the Company recorded additional inventory provisions of $223 (2016 - $2,774).



9

4 Property and equipment During the six months ended June 30, 2017, the Company acquired property and equipment of $426 (six months ended June 30, 2016 - $1,005). 5 Bank indebtedness The Company has credit facilities with a bank in Canada that provides an operating line of credit totalling $30.0 million. The bank credit facility is a one-year revolving demand facility expiring in September 2017. The bank facilities contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. As at June 30, 2017, the Company was in compliance with these covenants. 6 Equipment notes payable In addition to its bank credit facilities, the Company has lines of credit available totalling approximately $175 million from various non-bank equipment lenders in Canada and the United States, which are used to finance equipment inventory. As at June 30, 2017, there was approximately $120 million borrowed on these equipment finance lines (December 31, 2016 – approximately $101 million; June 30, 2016 – approximately $170 million). The equipment notes are payable on demand and therefore have been classified as current liabilities. The carrying amount of equipment notes payable is as follows: As at December 31

Equipment notes payable – non-interest-bearing $ 54,707 $ 26,722 $ 46,790 Equipment notes payable – interest-bearing 64,834 74,487 81,468 Discontinued operations – non-interest-bearing - - 16,413 Discontinued operations – interest-bearing - - 13,419

$ 119,541 $ 101,209 $ 158,090

June 30,2017

June 30,2016

December 31,2016

Typically, these equipment notes are interest-free for periods up to 12 months from the date of financing, after which they bear interest at variable rates based upon 30-day and 90-day Bankersʼ Acceptance rates (“BA”), the prime rate of a Canadian chartered bank, and 30-day and 90-day LIBOR rates plus the financing companyʼs margin. As at June 30, 2017, the rates ranged from 4.84% to 6.95% with an effective weighted average rate of 5.96% (December 31, 2016 – 5.67%; June 30, 2016 – 5.12%). As collateral for these equipment notes, the Company has provided liens on the specific inventory financed and any related accounts receivable. In the normal course of business, these liens cover substantially all of the inventories. Monthly principal repayments equal to 3.00% of the original principal balance of the note commence 12 months from the date of financing and the remaining balance is due in full at the earlier of 24 months after financing or when the financed equipment is sold. While financed equipment is out on rent, monthly curtailments are required equal to the greater of 70% of the rental revenue and 2.5% of the original value of the note. Any remaining balance after 24 months, which is due in full, is normally refinanced with the lender over an additional period of up to 24 months. All of the Companyʼs equipment notes facilities are renewable annually.



10

Certain of the Companyʼs equipment finance credit agreements contain restrictive financial covenants, including requiring the Company to remain in compliance with the financial covenants under all of its other lending agreements (“cross default provisions”). Two of the Companyʼs equipment finance agreements contain financial covenants that require the Company to maintain certain financial ratios and meet certain financial thresholds. As at June 30, 2017, the Company was in compliance with all of the covenants under one of the agreements and received a waiver from the lender for an impending violation of the covenants under the other agreement. 7 Provisions for other liabilities 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 10 years. As at June 30, 2017, the total obligation under these contracts was $3,834 (December 31, 2016 - $5,588; June 30, 2016 - $7,074). 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 provision of $56 (December 31, 2016 - $70; June 30, 2016 - $146) has been accrued in the Company's accounts with respect to these potential losses. The long-term portion of the provision of $47 (December 31, 2016 - $42; June 30, 2016 - $73) is classified as long-term liabilities. 8 Notes payable and other liabilities Notes payable and other liabilities comprise of the following:

Equipment plan notes payable - rental fleet $ 300 $ 1,254 $ 1,422 Rental fleet notes - discontinued operations - - 11,158 Term note - discontinued operations - - 4,799

300 1,254 17,379 Current portion 256 - 17,379 Long-term portion $ 44 $ 1,254 $ -

June 30,2017

December 31,2016

June 30,2016

In addition to equipment notes payable as described in note 6, the Company utilizes floor plan notes payable to finance its rental fleet. Payment is required at the earlier of the sale of the item and per contractual schedule ranging from 12 to 24 months. Effective interest rates range from 5.20% to 6.95% with various maturity dates.



11

9 Income taxes The major components of the income tax expense in the interim consolidated statement of income are:

Three months ended June 30,2017 2016 2017 2016

Current income tax expense (recovery) $ - $ - $ - $ - Deferred tax expense (recovery) related to origination and reversal of deferred taxes - (1,911) - (2,154)

$ - $ (1,911) $ - $ (2,154)

Six months ended June 30,

10 Contingencies, commitments and guarantees 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. As at June 30, 2017, management has determined that there is no pending or actual litigation requiring a provision. 11 Shareholdersʼ capital Authorized:

Unlimited number of shares Issued:

As at June 30, 2017, a total of 13,221,719 shares (December 31, 2016 – 13,221,719; June 30, 2016 – 13,221,719) with a stated valued of $65,497 (December 31, 2016 - $65,497; June 30, 2016 - $65,417) were issued and outstanding.

As at June 30, 2017, stock options totalling 150,240 (December 31, 2016 – 209,141; June 30, 2016 – 439,141) had been granted and were outstanding with a weighted average remaining contractual life of 36.4 months (December 31, 2016 – 39.8; June 30, 2016 – 24.0) and the weighted average exercise price was $4.64 (December 31, 2016 - $4.90; June 30, 2016 - $4.69). A total of 58,901 stock options were cancelled during the period. Stock-based compensation expense resulting from the stock options for the period ended June 30, 2017 is $13 (2016 - $30).



12

12 Earnings per share

Three and six month periods ended June 30,2017 2016

13,221,719 13,221,719 Weighted average number of shares for basic and diluted earnings per share The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of the shares during the period. There were no dilutive options as at June 30, 2017 and 2016. 13 Segment information Management has determined that the Company has one reportable segment, Equipment Distribution, based on reports reviewed by the Executive Chariman. 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:

2017 2016 2017 2016Equipment sales $ 66,067 $ 72,010 $ 115,958 $ 133,150 Equipment rentals 2,244 2,321 6,575 7,106 Product support 27,588 27,845 56,569 53,169 Total Equipment Distribution $ 95,899 $ 102,176 $ 179,102 $ 193,425

Six-months ended June 30,Three month ended June 30,

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

Six months ended June 30,2017 2016

Changes in non-cash working capitalTrade and other receivables $ (8,141) $ (11,150) Inventories (4,513) 26,870 Prepaid expenses and other deposits (530) (456) Other assets 165 104 Trade and other payables (4,429) 16,518 Provision for other liabilities 25 11 Deferred revenue and customer deposits (665) (5,726) Equipment notes payable 18,332 (28,431)

$ 244 $ (2,260)



13

15 Restructuring Costs During the six months ended June 30, 2017, the Company recorded a restructuring provision of $0.7 million (period ended June 30, 2016 - $2.9 million) for severance and other termination costs of employees and branch closure costs, in response to ongoing weak economic conditions. 16 Seasonality The Companyʼs 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. 17 Economic relationship The Company sells and services equipment and related parts. Distribution agreements are maintained with several equipment manufacturers, of which the most significant are with Volvo Construction Equipment North America Inc. and The Manitowoc Company Inc. The distribution and servicing of Volvo and Manitowoc products account for a substantial portion of the Companyʼs operations. The Company has had an ongoing relationship with Volvo since 1991 and with the Manitowoc group of companies since 1965 representing approximately 70% of revenues.

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

INVESTOR RELATIONSJ. David Wood, CPAVice President and Chief Financial OfficerTelephone: 905 670-5100Email: [email protected]

AUDITORSErnst & Young LLPToronto, Ontario

TRANSFER AGENT AND REGISTRARInquiries regarding change of address, registered shareholdings, share transfers, lost certificates and duplicate mailings should be directed to the transfer agent:Computershare Investor Services Inc.100 University AvenueToronto, Ontario M5J 2Y1Telephone: 1 800 564-6253Fax: 1 800 453-0330Email: [email protected]

STOCK EXCHANGE LISTINGToronto Stock ExchangeStock symbol: SQP

CORPORATE AND SHAREHOLDER INFORMATION

John A. Anhang1

Corporate Director

John K. Bell1

Corporate Director

Robert J. BeutelExecutive Chairman

Anne Brace1, 2

Corporate Director

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

Corporate Director

Yedidia S. Koschitzky2

Corporate Director

1. Member of Audit Committee

2. Member of Corporate Governance, Nominating,

Compensation and Pension Committee

DIRECTORS

Robert J. BeutelExecutive Chairman

J. David Wood, CPAVice President and Chief Financial Officer

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

Jack BradleyVice President, Supply Chain, Inventory Control and Logistics

Peter Rayner, CPADirector, Finance

OPERATIONS

Construction Equipment

Oliver NachevskiVice President, Construction Equipment

Steve Di LoretoRegional Vice President, Alberta

Yannick MontaganoRegional Vice President, Quebec

Stephen GeorgeRegional Vice President, Atlantic Canada

Cranes and Material Handling

William J. OstranderVice President, Crane

Rick ZieglerRegional Vice President, Alberta

OFFICERS AND SENIOR MANAGEMENT

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

strongco.com

set - strongco · restructuring initiatives in 2016 and first half of 2017, have significantly...

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