WINNIPEG, Oct. 7, 2013 /CNW/ - Exchange Income Corporation (TSX: EIF) (the "Corporation"), announced today that as a result of weaker than anticipated margins in WesTower as discussed below the Corporation expects EBITDA of the Corporation to come in at approximately half of the 2012 third quarter results. Although there has been a weakening of margins at WesTower its revenues remain strong.
As discussed in our second quarter release, WesTower has experienced rapid growth in the last 18 months which has put considerable pressure on its resources and systems. To address these challenges WesTower has put tremendous effort into reengineering its processes and systems. While the challenges attributable to rapid growth remain, improvements in WesTower's processes and more recent information obtained have led to changes in certain estimates.
WesTower's earnings are determined using the percentage of completion method. The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate during the period.
During the third quarter the Corporation, WesTower and its external advisors continued to re-engineer processes and systems to drive efficiencies and improve internal controls at WesTower. In the ordinary course of business, and at a minimum on a quarterly basis, management updates projected contract revenue, cost and profit or loss for each of our contracts based on changes in facts, such as an approved scope change, and changes in estimates. Due to reduced profitability for certain contracts completed in July and August, 2013 management determined that certain forecasted estimates of projected contract costs should be increased and related margins reduced. WesTower also regularly reassesses accruals for variations in contract work and other claims with WesTower's customers. During the third quarter, WesTower has amended estimates related to recoveries from WesTower's customers. WesTower continues to dialogue with its customers regarding variations and other claims. The combined impact of the aforementioned items is estimated to result in an increase in expense of approximately $10 million, which is accounted for entirely in the third quarter.
The costs of the ongoing external advisors have been approximately $1.5 million per quarter. The engagement of the external advisors is expected to come to a close early in November 2013.
The Corporation remains committed to the reengineering of WesTower's processes and systems to ensure that they are as efficient and timely as possible. This reengineering process is expected to continue into 2014.
We remain very confident in the long term prosperity of the Corporation and a change in the monthly dividend is not being considered. From a revenue perspective, the pipeline of demand for WesTower's products and services remains very strong. The sustainability of these revenues coupled with the steps taken to improve processes and systems will drive efficiencies through job performance and overhead cost management and will position WesTower well to improve its margins and profitability.
Exchange will host a conference call today, October 7, 2013, at 5:00 pm eastern to discuss the matters above.
All interested parties can join the conference call by dialing 1-888-231-8191 or 647-427-7450. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Monday, October 14, 2013 at midnight. To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 77329571.
A live audio webcast of the conference call will be available at www.ExchangeIncomeCorp.ca and www.newswire.ca. 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.
About Exchange Income Corporation
Exchange Income 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 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 the operations by Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Services, Custom Helicopters and Regional One, and the specialty manufacturing segment consists of the operations by Jasper Tank, Overlanders Manufacturing, Water Blast Manufacturing, Stainless Fabrication and WesTower Communications. For more information on the Corporation, please visit www.ExchangeIncomeCorp.ca.
Additional information relating to the Corporation, including all public filings, is available on SEDAR (www.sedar.com).
This press release contains forward-looking statements and statements which provide a financial outlook within the meaning of applicable securities laws, including statements relating to the anticipated EBITDA and the potential impact of reduced margins at WesTower for the third quarter of 2013. The forward-looking statements and financial outlook are based on certain key expectations and assumptions made by the Corporation, including expectations and assumptions concerning the financial performance of the Corporation and its subsidiaries, including without limitation anticipated revenues, expenses, and margins of WesTower in particular, as well as its other subsidiaries comprising both its manufacturing and aviation segments.
Although the Corporation believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Corporation can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks, including but not limited to risks associated with the recent rapid growth of WesTower, including its revenues, expenses, capital expenditures, margins and the estimated outcome of its contracts. Other general risks to the Corporation include but are not limited risks relating to the dependence of the Corporation on the operations and assets currently owned by it, the degree to which the Corporation's subsidiaries are leveraged, the fact that cash distributions are not guaranteed and will fluctuate with the Corporation's performance dilution, restrictions on potential future growth, 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 exposures, 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, including its latest annual information form and management discussion and analysis, filed by the Corporation with the securities regulatory authorities, available at www.sedar.com.
The forward-looking statements and financial outlook contained in this press release are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or financial outlook, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
SOURCE: Exchange Income Corporation
For further information:
President and CEO
Exchange Income Corporation
The Equicom Group Inc.
Phone: (416) 815-0700 Ext. 243