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Press release from CNW Group

Exchange Income Corporation Reports Financial Results for Second Quarter 2011

Friday, August 12, 2011

Exchange Income Corporation Reports Financial Results for Second Quarter 201117:00 EDT Friday, August 12, 2011-     Revenue up 141% to $147 million; EBITDA up 66% to $19.7 million - -     Record results driven by WesTower and Bearskin acquisitions -  WINNIPEG, Aug. 12, 2011 /CNW/ - Exchange Income Corporation (TSX: EIF) (the "Corporation"), a diversified, acquisition-oriented company focused on the transportation and industrial manufacturing sectors, reported its financial results for the three- and six-month periods ended June 30, 2011. All amounts are in Canadian currency.  In accordance with new reporting requirements for Canadian public companies, Exchange's second quarter results comply with International Financial Reporting Standards (IFRS)."Our second quarter performance marks a watershed in our Company's history," said Mike Pyle, President and CEO of Exchange Income Corporation.  "Not only did we close the acquisition of WesTower, our largest to date with a value of $79 million, we also generated significant growth in each of our key financial metrics, setting a number of new record highs. Most notably, we grew our revenue by 141% to $147 million, increased EBITDA by 66% to $19.7 million and generated free cash flow of $16.9 million.  These results put us well on the path for a breakout year in 2011."Q2 2011 HighlightsConsolidated revenue increased 141% to $146.6 million.EBITDA was up 66% to $19.7 million.Excluding IFRS-mandated acquisition costs and intangible asset amortization, adjusted net earnings were up 33% to $5.8 million.Free Cash Flow was $16.9 million, up 60%.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.Selected Second Quarter Financial HighlightsAll amounts in thousands except % and share data  Q2 2011Q2 2010 Change Revenue$146,575 $60,894+141%EBITDA1$19,738$11,905+66%Net Earnings$4,506$4,179+8%Adjusted Net Earnings2$5,839$4,390+33%Earnings per Share (fully diluted)3$0.27$0.32-16%Adjusted Earnings per Share (fully diluted)$0.34$0.34nilDividends/Distributions declared$6,886$5,006+38%Adam Terwin, Chief Financial Officer of Exchange Income Corporation, said: "As strong as our results were for Q2, they were impacted by IFRS requirements relating to the treatment of acquisition costs and intangible asset amortization. Acquisition costs of $1.0 million were incurred for a transaction that we ultimately decided not to complete because it did not match all of our acquisition criteria. As well we incurred $0.6 million of amortization expense for intangible assets in the second quarter. Upon the close of an acquisition, we are required to assign a value to intangible assets to comply with IFRS. These intangible assets are subsequently amortized and reduce earnings, however these do not have to be replaced and accordingly have no cash impact. Excluding these IFRS-related costs, our adjusted net earnings grew by 33% to $5.8 million."Selected Year-to-date Financial ResultsAll amounts in thousands except % and share data  FY2011FY2010Change Revenue$239,512 $114,755 +109%EBITDA$31,952$20,553+55%Net Earnings$6,546$6,443+2%Adjusted Net Earnings4$8,925$6,921+29%Earnings per Share (fully diluted)$0.40$0.51-22%Adjusted Net Earnings per Share (fully diluted)$0.54$0.54nilDividends/Distributions declared$13,005$9,456+38%Review of Financial ResultsConsolidated revenue for Q2 2011 was $146.6 million, up 141% from $60.9 million for the corresponding period of 2010. The revenue growth was primarily due to the addition of WesTower Communications and Bearskin Airlines to the Company's list of operating subsidiaries. Bearskin and WesTower were acquired on January 1, 2011 and April 1, 2011, respectively. Revenue also increased as a result of the continued growth of the fuel sales by the aviation support companies to third parties, as well as the ongoing recovery of the Manufacturing segment. On a year-to-date basis, revenue for FY2011 was $239.5 million, up 109% from $114.8 million for FY2010.Exchange generates revenue from its Aviation and Manufacturing segments, each of which is comprised of subsidiaries operating in niche markets and generating defensible cash flows.On a segmented basis, the Aviation segment generated revenue in Q2 2011 of $79.8 million, up 66% from $48.1 million for the corresponding period of last year. The growth was due to the acquisition of Bearskin and increased fuel sales of the aviation support companies. In Q2 2011, the Aviation segment generated 54% of Exchange's consolidated total. This compares to 79% of the consolidated total for Q2 2010. The percentage change is consistent with the Company's strategy to have a more balanced and diversified revenue stream.Exchange's Manufacturing segment generated revenue in Q2 2011 of $66.8 million, up 421% from $12.8 million for Q2 2010. The growth was primarily attributable to the acquisition of WesTower. The Manufacturing segment also experienced growth as a result of the ongoing recovery of markets serviced by its subsidiaries. In Q2 2011, the Manufacturing segment generated 46% of Exchange's consolidated total. This compares to 21% of the consolidated total for Q2 2010.Consolidated EBITDA for Q2 2011 was $19.7 million, up 66% from $11.9 million for Q2 2010. The year-over-year gain was due to the Bearskin and WesTower acquisitions as well as to the ongoing improvement of the Corporation's Manufacturing segment. On a year-to-date basis, EBITDA for FY2011 was $32.0 million, up 55% from $20.6 million for FY2010. EBITDA generated by our pre-existing companies contributed $1.5M of this additional EBITDA, which is a 13% increase.On a segmented basis, Exchange's Aviation segment generated EBITDA of $15.6 million for Q2 2011, up from $11.8 million for the same period of last year. EBITDA margin for Q2 2011 was 19.5%, down from 24.6% for Q2 2010, which was primarily impacted by the addition of $10.3 million in third party fuel sales by the aviation support companies, which have EBITDA margins below 3%. It is important to note that these 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. The Manufacturing segment generated EBITDA of $6.1 million for Q2 2011, up from $1.4 million for Q2 2010. The growth was due to the addition of $3.3 million of EBITDA from WesTower, as well as an increase of 100% or $1.4 million of EBITDA from our pre-existing manufacturing companies. EBITDA margin for Q2 2011 was 9.2%, down from 11.2% for Q2 2010, which is the result of the addition of WesTower which is a lower margin business. The EBITDA margins for the remainder of the manufacturing businesses increased to 17.2% from 11.2% in Q2 2010.Exchange reported net earnings for Q2 2011 of $4.5 million, or $0.27 per share fully diluted. In the corresponding period of 2010, Exchange reported net earnings of $4.2 million or $0.32 per share fully diluted. Excluding acquisition costs of $1.0 million and intangible asset amortization of $0.6 million expensed as a result of IFRS, Exchange had adjusted net income of $5.8 million or $0.34 per share fully diluted. Acquisition costs included legal and due diligence expenses associated with the purchase of WesTower as well as to activities conducted in support of Exchange's strategy to acquire companies with high cash flows in niche, defensible markets.On a year-to-date basis, net earnings for FY2011 were $6.5 million, up 2% from $6.4 million for FY2010. Excluding acquisition costs of $1.8 million and intangible asset amortization of $1.0 million expensed as a result of IFRS, Exchange had adjusted net earnings for FY2011 of $8.9 million, up 29% from $6.9 million for FY2010.At June 30, 2011, the Corporation had working capital of $54.8 million, including cash and cash equivalents of $8.1 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.Selected Second Quarter Key Performance IndicatorsAll amounts in thousands except % and share data  Q2 2011 Q2 2010 Change Free Cash Flow5$16,890$10,563+60%Free Cash Flow per share (fully diluted)$0.83$0.67+24%Total Maintenance Capex6$8,831$4,443+99%Free Cash Flow less Total Maintenance Capex7$8,059$6,120+32%Dividends/Distributions Declared$6,886$5,006+38%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 Q2 2011 totaled $16.9 million, up 60% from $10.6 million for Q2 2010. Free Cash Flow on a per share basis in Q2 2011 was $1.00 per share basic and $0.83 per share fully diluted. For the corresponding period of 2010, Free Cash Flow on a per share basis was $0.84 basic and $0.67 fully diluted. The growth in Free Cash Flow was chiefly due to the acquisitions of Bearskin and WesTower.Free Cash Flow less Maintenance Capex was $8.1 million in Q2 2011, up from $6.1 million in Q2 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 maintenance capital expenditures for the remainder of 2011, excluding Bearskin and WesTower which were acquired in 2011, are expected to be more in line with the comparable third and fourth quarters of 2010.Outlook"Looking ahead, we are very confident that we will be able to build on our recent progress," added Mr. Pyle.  "Our acquisition strategy and diversified business model have led us to develop an extremely solid foundation in the form of well-run subsidiaries operating in niche markets and generating strong cash flows.  And given our acquisition track record, disciplined approach and available capital, we believe we are well positioned to add comparable companies.  Combined, these efforts will help to sustain our recent transformative growth through 2011 and beyond."The Corporation's complete financial statements and management's discussion and analysis for the three and six months ended June 30, 2011 can be found at www.exchangeincomecorp.ca or at www.sedar.com.Conference Call NoticeThe Corporation will hold a conference call to discuss its 2011 second quarter financial results on August 15, 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 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, August 22, 2011 at midnight. To access the archived conference call, please dial 1-855-859-2056 or 416-849-0833 and enter the reservation code 87176571.A live audio webcast of the Q2 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 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, Inc, and WesTower Communications Ltd.  For more information on Exchange Income Corporation, please visit www.exchangeincomecorp.ca.Additional information relating to the Corporation, including all public filings, is available on SEDAR (www.sedar.com).____________________________________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 acquisition 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 Q2 2011 adjusted net earnings excludes acquisition costs of $951,000 (Q2 2010 - nil) and intangible amortization of $629,000 (Q2 2010 - $289,000).3 Exchange had 17.0 million common shares outstanding at June 30, 2011, up 3.9 million from 13.1 million at June 30, 2010. The growth is due to an increase in the conversion of debentures, the exercise of warrants by investors, and the issuance of shares in support of acquisition activities.4 Year to date adjusted net earnings excludes acquisition costs of $1,830,000 ($0 - Q2 2010) and intangible amortization of $629,000 ($289,000 - Q2 2010).5 Free 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.6 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 and includes principal payments made on finance leases.7 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.For further information: Mike Pyle President and CEO Exchange Income Corporation (204) 982-1850 mpyle@eig.ca            Joe Racanelli Investor Relations TMX Equicom (416) 815-0700 Ext. 243 jracanelli@equicomgroup.com