Exchange Income Corporation announces 2009 3rd quarter results


WINNIPEG, Nov. 12 /CNW/ - Exchange Income Corporation (TSX:EIF) (the "Corporation" or "Exchange") a diversified, acquisition-oriented company, focused on opportunities in the transportation and industrial products sectors, today reported its financial results for the three and nine months ended September 30, 2009.

Highlights for the Quarter Ended September 30, 2009

    -   Revenue increased 45% to $60.2 million from $41.5 million in the
        third quarter of 2008
    -   EBITDA(3) increased 95% to $11.1 million from the $5.7 million in the
        third quarter of 2008
    -   Distributable Cash increased 116% to $9.0 million compared to
        $4.2 million generated in the third quarter of 2008
    -   Distributable Cash per share was $0.90 basic or $0.77 fully diluted,
        representing an increase of 27% and 20%, respectively, compared to
        the respective amounts generated in the third quarter of 2008
    -   The payout ratio declined to 43% basic and 51% fully diluted from 53%
        and 59% respectively in 2008
    -   Earnings increased 129% to $3.9 million compared to the third quarter
        in 2008
    -   Earnings after adjusting for the one-time cost of conversion to a
        corporation were $6.5 million, up 286% from the third quarter in 2008
    -   Adjusted earnings per share were $0.65 basic and $0.58 fully diluted,
        up 124% and 100% respectively from Q3 2008
    -   Completed the conversion to a corporation from a trust through the
        acquisition of HMY Airways Inc.
    -   Completed a $30 million convertible debenture offering

"We are pleased to report record third quarter results in what has been a weak economic environment and during a year of tremendous change for Exchange. Earlier in the year we completed two separate equity offerings and closed the Calm Air Acquisition. In the third quarter we completed the complex transition from a trust to a corporation and closed a $30 million convertible debenture offering to provide capital for future growth. We are pleased to have accomplished these major initiatives without losing any focus on our operations. We believe these changes and our strong operating results have been a significant factor in the increase in value and liquidity of our shares," stated CEO Mike Pyle. "In spite of the very significant headwinds that the weak economy creates for our Manufacturing segment, we were able to hit record highs in virtually all of our consolidated operating metrics in the third quarter. Looking ahead, we see the current economic weakness continuing and we will closely monitor economic indicators and seasonal fluctuations within our businesses in order to minimize their effects on our results where possible."

Adam Terwin, Exchange's CFO commented: "Our third quarter results demonstrate the power of our disciplined acquisition strategy, in particular, our mandate of acquiring compelling assets at attractive multiples. In a period where our manufacturing group faces significant declines in revenues, our overall results are at record levels. The addition of Calm Air provided growth for our Aviation segment, but the profitability at both Perimeter and Keewatin also improved in the third quarter. We look forward to a stronger economy where our Manufacturing segment returns to historic levels of sales and profitability, however in the short term our diversity has enabled us to have our eighth consecutive quarter where our fully diluted distributable cash has increased over the comparable quarter."

Historically, Distributable Cash was the main performance metric of Exchange Industrial Income Fund (the "Fund") under the income trust structure as it summarized the funds available to unitholders of an income fund and was used by management to evaluate the ongoing performance of the Fund. With the conversion to a corporation, distributable cash is not a metric utilized by other corporations, and therefore other metrics such as earnings, EBITDA(3) and free cash flow will become more important. Exchange will continue to report Distributable Cash for at least the balance of 2009 because it provides a measure of performance that is comparable to preceding periods and one with which existing shareholders have become comfortable.

Results for the Three Months ended September 30, 2009

Exchange Income Corporation's revenue for the three months ended September 30, 2009 ("Q3 2009") increased 45% or $18.7 million to $60.2 million, compared to the same period in 2008. The main driver of the increase in revenues for Q3 2009 is the addition of Calm Air which was acquired at the beginning of the second quarter and added to the Aviation segment. Revenues for the Aviation segment increased 106% to $46.7 million in Q3 2009 compared to the same period in 2008 and revenues for the Manufacturing segment decreased 28% to $13.5 million compared to the same period in 2008.

EBITDA(3) for Q3 2009 increased 95% or $5.4 million to $11.1 million compared to the same period in 2008. Consistent with revenue, the main driver of the increase in EBITDA(3) was the acquisition of Calm Air. EBITDA(3) for the Aviation segment increased 150% to $10.9 million in Q3 2009 compared to the same period in 2008 and EBITDA(3) for the Manufacturing segment decreased 37% to $1.5 million compared to Q3 2008.

Earnings, adjusted for the one-time cost of conversion to a corporation from a trust increased by 286% to $6.5 million. On a per share basis Adjusted Earnings increased by 124% or 100% fully diluted to $0.65 and $0.58 respectively. The increase in earnings was the result of the acquisition of Calm Air and improvements in profitability at Perimeter and Keewatin, offset by a decline in the Manufacturing segment.

The Corporation generated Distributable Cash of $9.0 million in Q3 2009 an increase of 116% over the $4.2 million generated in Q3 2008. On a per share basis, distributable cash was $0.90 or $0.77 fully diluted, an increase of 27% and 20% respectively over Q3 2008.

Results for the Nine Months ended September 30, 2009

For the nine months ended September 30, 2009 ("YTD 2009"), revenue for the Corporation totaled $153.2 million, EBITDA(3) totaled $23.7 million, and net earnings totaled $9.3 million (or $11.9 million adjusted for one time conversion costs), or $1.12 per share ($1.45 adjusted); compared to revenue of $116.9 million, EBITDA(3) of $15.2 million, and net earnings of $6.2 million, or $1.06 per share for the first nine months of 2008. Distributable cash per share of $2.22 ($1.94 fully diluted) YTD 2009 represents a 18% increase (15% fully diluted) compared to $1.88 ($1.68 fully diluted) for the same period in 2008. With dividends declared per share of $1.17 and $1.125 for nine months ended September 30, 2009 and 2008 respectively, this implies payout ratios of 53% and 60% fully diluted for 2009 and 60% and 67% fully diluted for 2008 respectively.

Liquidity & Capital Resources

As at September 30, 2009, the Corporation had working capital of $23.4 million, including cash and cash equivalents of $10.2 million, compared to working capital of $25.9 million, including cash and cash equivalents of $4.0 million as at December 31, 2008. Long-term debt was $37.8 million as at September 30, 2009, compared to $40.9 million as at December 31, 2008.

                                    Three Months Ended    Nine Months Ended
                                       September 30          September 30
    ($000's except per share data)   2009       2008       2009       2008
      Aviation                    $  46,700  $  22,676  $ 108,358  $  62,111
      Manufacturing                  13,475     18,779     44,865     54,759
                                  $  60,175  $  41,455  $ 153,223  $ 116,870

      Direct Operating            $  36,892  $  27,894  $  97,172  $  78,528
      General & Administrative       12,155      7,849     32,359     23,142
                                  $  49,047  $  35,743  $ 129,531  $ 101,670

    EBITDA                        $  11,128  $   5,712  $  23,692  $  15,200
      Interest on bank debt             819        706      2,051      2,231
      Interest on debentures            218         91        649         91
      Interest on convertible
       debentures                       471        293      1,124        869
      Maintenance capital
       expenditures                     638        370      1,432        930
      Cash taxes                         (4)        87         62        166
    Distributable Cash            $   8,986  $   4,165  $  18,374  $  10,913

    Distributable Cash per unit
      Basic(1)                    $    0.90  $    0.71  $    2.22  $    1.88
      Diluted(1)                  $    0.77  $    0.64  $    1.94  $    1.68

     declared per share           $    0.39  $   0.375  $    1.17  $   1.125

    Distributable Cash Payout Ratio
      Basic                             43%        53%        53%        60%
      Diluted                           51%        59%        60%        67%

    Net earnings                  $   3,869  $   1,688  $   9,286  $   6,156
      Basic(1)                    $    0.39  $    0.29  $    1.12  $    1.06
      Diluted(1)                  $    0.36  $    0.29  $    1.08  $    1.05

    Adjusted net earnings(2)      $   6,254  $   1,688  $  11,941  $   6,156
      Basic(1)                    $    0.65  $    0.29  $    1.45  $    1.06
      Diluted(1)                  $    0.58  $    0.29  $    1.34  $    1.05

    (1) As a result of the one-to-one conversion of units of the Fund to
        shares of the Company, there is no impact of the conversion on the
        earnings per share calculations as the units of the Fund are directly
        comparable to the shares of the Company. As a result, the
        calculations for the periods before the conversion are presented as
        earnings per share.

    (2) Net earnings for the 2009 periods include the non-recurring
        conversion costs of $2,655 expensed by the Company in the conversion
        from an income trust to a corporation. Adjusted net earnings adds
        back these costs with a nil tax effect given the trust tax status of
        the Fund for the conversion.

    (3) Non-GAAP measures references to "EBITDA" are to earnings before
        interest, income taxes, foreign exchange gains or losses,
        depreciation, and amortization and to "distributable cash" which is a
        performance measure used to summarize the funds available to
        unitholders of an income fund. Management believes that, in addition
        to net income or loss, EBITDA and distributable cash are useful
        supplemental measures in evaluating its performance. Specifically,
        management believes that EBITDA is the appropriate measure from which
        to make adjustments to determine the Fund's distributable cash.
        EBITDA and distributable cash are not measures recognized by Canadian
        generally accepted accounting principles ("GAAP") and do not have a
        standardized meaning prescribed by GAAP. Management cautions
        investors that EBITDA and distributable cash should not replace net
        income or loss as an indicator of performance, or cash flows from
        operating, investing, and financing activities as a measure of the
        Fund's liquidity and cash flows. The Corporation's method of
        calculating EBITDA and cash distributions may differ from the methods
        used by other issuers.

    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 unitholder 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

    The Toronto Stock Exchange has neither approved nor disapproved the
    contents of this press release.

About Exchange

Exchange is a diversified, acquisition-oriented corporation, 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 flows 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, and Calm Air International LP and the specialty manufacturing segment consists of Jasper Tank Ltd., Overlanders Manufacturing LP, Water Blast Manufacturing LP, and Stainless Fabrication, Inc.

SOURCE Exchange Income Corporation

For further information: For further information: Mike Pyle, President and CEO, Exchange Income Corporation, (204) 982-1850,; Alice Dunning, Investor Relations, The Equicom Group Inc., (416) 815-0700 or 1-800-385-5451 ext. 255,

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