Exchange Income Corporation Reports Financial Results for First Quarter 2011

- Bearskin acquisition and ongoing recovery of manufacturing segment drive record quarterly results -

WINNIPEG, May 13 /CNW/ - Exchange Income Corporation (TSX: EIF) ("Corporation" or "Exchange"), a diversified, acquisition-oriented company focused on the transportation and industrial manufacturing sectors, reported its financial results for the three-month period ended March 31, 2011. All amounts are in Canadian currency.  In accordance with new reporting requirements for Canadian public issuers, Exchange's first quarter results comply with International Financial Reporting Standards (IFRS).

"Our first quarter results reflect the effectiveness of our business model and the investments we made through much of 2010 to prepare us for the substantive growth we are now experiencing," said Mike Pyle, President and CEO of the Corporation.  "Driven by the acquisition of Bearskin Airlines, the addition of our fixed based operations, and the ongoing recovery of our Manufacturing segment, which generated its highest quarterly revenue in more than two years, we increased our revenue by 73% to a record quarterly high of $92.9 million.

"This momentum, combined with the progress we made on the contracts won at the end of 2010 to provide medevac and fuel transportation services to remote communities in Nunavut and northern Manitoba, and the recent close of the WesTower acquisition, effectively position us for a breakout year in 2011."

Q1 2011 Highlights

  • Closed the $32.5 million acquisition of Bearskin Airlines, which facilitated Exchange's expansion into Ontario.
  • Free Cash Flow increased 46% to $10.4 million.
  • Consolidated revenue increased 73% to $92.9 million.
  • Consolidated EBITDA increased 41% to $12.2 million.
  • Net earnings were $2.0 million, down from $2.3 million due to IFRS-related treatment of acquisition costs of $0.8 million after tax.
  • Completed on a bought deal basis a $35 million offering of Series I convertible senior secured debentures with a five-year maturity and a 5.75% per annum interest rate.
  • Increased bank facility to $235 million from $106 million.
  • Reduced senior bank debt from $53.1 million to $24.8 million.

Subsequent to Quarter-end Highlights

  • Closed the acquisition of WesTower, a $79 million transaction which is Exchange's largest acquisition to date. WesTower designs, builds and services wireless communications towers throughout North America.
  • Increased the monthly dividend payout rate by 4% to $0.135 from $0.13.
  • Completed on a bought deal basis a $57.5 million offering of Series J convertible senior secured debentures with a seven-year maturity and 6.25% per annum interest rate.

"We made significant gains to each of our key financial metrics in Q1, including EBITDA growth of 41% and increased Free Cash Flow of more than 46%," said Adam Terwin, Chief Financial Officer of the Corporation. "While our balance sheet and the two performance indicators that we use to measure the health of our business were extremely strong, our net earnings were impacted by the adoption of IFRS, which resulted in the recording a $0.8 million decrease to earnings as a result of acquisition costs now being expensed under IFRS. Moreover, on a per share basis, our earnings were impacted by the increase in shares outstanding by 34% due to the conversion of debentures and exercise of warrants as the Corporation's share price appreciated."

Q1 2011 Results
Selected Financial Highlights

All amounts in thousands except % and share data Q1 2011 Q1 2010 Change
Revenue $92,937 $53,861 +72.5%
EBITDA1 $12,214 $8,648 +41.2%
Net Earnings $2,040 $2,264 -9.9%
Earnings per Share (fully diluted)2 $0.13 $0.19 -31.6%
Dividends/Distributions declared $6,119 $4,450 +37.5%

Consolidated revenue for Q1 2011 was $92.9 million, up 72.5% from $53.9 million for the corresponding period of 2010. The revenue growth was attributable to the addition of Bearskin on January 1, 2011, the addition of the aviation support companies at the end of March 2010, and the strong performance of the manufacturing segment, which generated its highest revenue in more than two years.

Exchange generates revenue from its Aviation and Manufacturing segments, each of which is comprised of subsidiaries operating in niche markets and generating defensible cash flow. On a segmented basis, the Aviation segment generated revenue in Q1 2011 of $76.4 million, up 83.5% from $41.6 million for the corresponding period of last year.  The growth was due to the acquisition of Bearskin Airlines and the launch of the Aviation segment's support group. The aviation support companies, which were primarily established as a fuel supplier to our Aviation segment, added $16.4 million in revenue through sales to third parties. It is important to note that the aviation support companies were established primarily to support the Aviation segment and ensure proper service levels to our subsidiaries. Sales to third parties are done at very low margins and as such generate only limited EBITDA and EBITDA margin.  In Q1 2011, the Aviation segment generated 82% of Exchange's consolidated total. The Manufacturing segment generated revenue of $16.5 million for Q1 2011.  This represents an increase of 35.1% from $12.3 million for Q1 2010.  While the percentage of revenue contributed by the Manufacturing segment declined on a year-over-year basis to 21.6% from 22.8%, it is expected that the ratio will be more balanced beginning with Q2 2011 as a result of the WesTower acquisition announced on April 1, 2011.

Consolidated EBITDA for Q1 2011 was $12.2 million, up 41% from $8.6 million for Q1 2010. The year-over-year gain was due to the acquisition of Bearskin Airlines and the significant improvement of the Corporation's Manufacturing segment.

On a segmented basis, the Corporation's Aviation segment generated EBITDA of $10.9 million for Q1 2011, up from $8.5 million for the same period of last year. EBITDA margin was impacted by the addition of the aviation support companies which added $16.4 million in sales but only $0.5 million in EBITDA. EBITDA margins for Q1 2011 were also impacted by the rise in fuel costs and the delayed implementation of the ATR 72 platform due to regulatory approvals.  Exchange has since implemented fuel surcharges to offset the rise in fuel costs. The Manufacturing segment generated EBITDA of $3.0 million for Q1 2011, up from $1.3 million for Q1 2010. The growth was due to an increased order backlog and a resulting improved performance in Exchange's stainless steel tank and Alberta operations.

Exchange reported net earnings for Q1 2011 of $2.0 million, or $0.13 per share fully diluted. In the corresponding period of 2010, Exchange reported net earnings of $2.3 million or $0.19 per share fully diluted. The decrease in net earnings is attributable to a $0.8 million decrease in earnings as a result of acquisition costs that are expensed under IFRS, whereas previously they would have been accounted for as part of the acquisition. Earnings were also impacted by a higher depreciation expense as a result of the addition of Bearskin, as well as the additional aircraft and hangar assets purchased by the Aviation segment in 2010.

Under IFRS, acquisition costs are expensed, instead of accounted for as part of the acquisition as was the case with Canadian GAAP ("CGAAP"), which the Corporation followed until the start of Q1 2011. As a consequence, Exchange expects that some of its future expenses may fluctuate considerably in concert with strategic developments as they occur, particularly with respect to acquisition activities.

At March 31, 2011, the Corporation had working capital of $19.2 million, including cash and cash equivalents of $8.7 million. This compares to $39.7 million and $1.5 million, respectively, at December 31, 2010. The net working capital at year-end 2010 included $27.6 million of restricted cash, as described further below, and the current ratio excluding the restricted cash would be 1.26 to 1.

Selected Key Performance Indicators

All amounts in thousands except % and share data Q1 2011 Q1 2010 Change
Free Cash Flow3 $10,384 $7,108 +46.1%
Free Cash Flow per share (fully diluted) $0.58 $0.52 +11.5%
Maintenance Capex4 $6,543 $2,055 +218%
Free Cash Flow less Maintenance Capex5 $3,841 $5,053 -24.0%
Dividends/Distributions Declared $6,119 $4,450 +37.5%

Given its operations and commitment to stable dividend payments to shareholders, the Corporation currently uses a number of key performance indicators, most notably Free Cash Flow, to evaluate its progress and assess its ability to sustain its dividend policy. With the adoption of IFRS, Exchange is no longer utilizing Distributable Cash, a metric used as a performance indicator from the time when the Corporation operated as an income trust. Exchange will use Free Cash Flow and Free Cash Flow less Maintenance Capex as performance indicators. Under IFRS, the calculation of Distributable Cash and Free Cash Flow less Maintenance Capex are very similar and presenting both would be a duplication of the same metric. Free Cash Flow less Maintenance Capex has been chosen over the Distributable Cash because this metric can tie directly into Exchange's consolidated financial statements.

Free Cash Flow for Q1 2011 totaled $10.4 million, up 46.1% from $7.1 million for Q1 of 2010. Free Cash Flow on a per share basis in Q1 2011 was $0.67 per share basic and $0.58 per share fully diluted. For the corresponding period of 2010, Free Cash Flow on a per share basis was $0.63 basic and $0.52 fully diluted. The growth in Free Cash Flow was due to the acquisition of Bearskin Airlines and the recovery of the Corporation's Manufacturing segment. Free Cash Flow less Maintenance Capex decreased to $3.8 million in Q1 2011 from $5.1M in Q1 2010. The decrease is a result of the increase in Maintenance Capex by over three times in Q1 2011 compared to Q1 2010. It is important to note that the accounting for capital expenditures has changed significantly under IFRS as compared to CGAAP. The most significant change is that engine overhauls and aircraft heavy checks were previously accrued as an expense and then relieved from the accrued liability when the event occurred. Under IFRS these events are treated as maintenance capital expenditures when the event occurs and there is no expense accrued in advance of the event. The result is that maintenance capital expenditures will now be very lumpy from period to period. The quarterly maintenance capital expenditures for the remainder of 2011 are expected to be significantly lower than Q1 of 2011.

"Since the start of the year, we have completed more than $110 million worth of acquisitions and still have close to $200 million of available capital to deploy," added Mr. Pyle. "We believe that we can put this capital to effective use in the coming periods by identifying targets well suited for our operations and continue following our disciplined approach to acquisitions to drive further growth."

The Corporation's complete financial statements and management's discussion and analysis for the three months ended March 31, 2011 can be found at or at

Conference Call Notice
The Corporation will hold a conference call to discuss its 2011 first quarter financial results on May 16, at 10:00 a.m. ET. Mike Pyle, President and CEO, and Adam Terwin, Chief Financial Officer, will co-chair the call.

All interested parties can join the call by dialing 1-888-231-8191. Please dial in 15 minutes prior to the call to secure a line.

The conference call will be archived for replay until May 23, 2011 at midnight. To access the archived conference call, please dial 1-800-642-1687 or 416-849-0833 and enter the reservation code 62978404.

A live audio webcast of the conference call will be available at and Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 365 days.

Caution concerning forward-looking statements
The statements contained in this news release that are forward-looking are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. These uncertainties and risks include, but are not limited to, the dependence of Exchange Income Corporation on the operations and assets currently owned by it, the degree to which its subsidiaries are leveraged, the fact that cash distributions are not guaranteed and will fluctuate with the Corporation's financial performance, dilution, restrictions on potential future growth, the risk of shareholder liability, competitive pressures (including price competition), changes in market activity, the cyclicality of the industries, seasonality of the businesses, poor weather conditions, and foreign currency fluctuations, legal proceedings, commodity prices and raw material exposure, dependence on key personnel, and environmental, health and safety and other regulatory requirements. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by Exchange Income Corporation with the securities regulatory authorities, available at

About Exchange Income Corporation
The Corporation is a diversified acquisition-oriented company, focused on opportunities in the industrial products and transportation sectors which are ideally suited for public markets except for their size. The strategy of the Corporation is to invest in profitable, well-established companies with strong cash flow operating in niche markets in Canada and/or the United States.

The Corporation is currently operating in two niche business segments: aviation and specialty manufacturing. The aviation segment consists of Perimeter Aviation LP, Keewatin Air LP, Calm Air International LP, and Bearskin Lake Air Service LP, and the specialty manufacturing segment consists of Jasper Tank Ltd., Overlanders Manufacturing LP, Water Blast Manufacturing LP, Stainless Fabrication, and WesTower Communications Inc. For more information on the Corporation, please visit

1 EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, other non-cash expenses, such as unrealized foreign exchange gains or losses and asset impairment, and any unusual non-operating one-time items, such as conversion costs. EBITDA is not a defined performance measure under Canadian generally accepted accounting principles (GAAP). It is used by Management to assess the performance of the Corporation and its operating segments.

2  Exchange had 15,877,081 common shares outstanding at March 31, 2011, up 33.6% from 11,883,157 at March 31, 2010.

3Free Cash Flow is a financial metric used by Management to assess the Corporation's performance and assess its ability to sustain its dividend policy. Free cash Flow for the period is equal to the cash flow from operating activities as defined by Canadian GAAP, adjusted for changes in non-cash working capital and any unusual non-operating one-time items. It is not a recognized measure under Canadian GAAP.

4 Maintenance Capex is not a GAAP measure. Capital expenditures are characterized as either maintenance or growth capital expenditures. Maintenance capital expenditures are those required to maintain the operations of the Company at its current level.

5 Free Cash Flow less Maintenance Capex is not a GAAP measure. It approximates the metric Distributable Cash that the Corporation reported prior to the adoption of IFRS.

SOURCE Exchange Income Corporation

For further information:

Mike Pyle         Joe Racanelli
President and CEO         Investor Relations
Exchange Income Corporation         The Equicom Group Inc.
(204) 982-1850         (416) 815-0700 or 1-800-385-5451 ext. 243



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