TMX group

May 13, 2010 (Canada NewsWire Group) --

- Revenue, net earnings and distributable cash up significantly -

Exchange Income Corporation (TSX: EIF) (the "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, 2010. All amounts are in Canadian currency.

"Building on our recent momentum, our first quarter results, which are typically soft due to seasonal factors, were exceptionally strong as measured by our growth in revenue, earnings and distributable cash," said Mike Pyle, President and CEO of Exchange Income Corporation. "I'm pleased that we were able to raise our per share distributable cash over the comparative period despite the fact that our leverage has significantly decreased. This lower leverage effectively positions us for strategic acquisitions in 2010 and beyond. In the immediate term, however it will put pressure on our per share results until further investments are made. We now have the capacity to make acquisitions totaling up to $100 million without the need for further equity while staying within our target leverage range."

Q1 2010 Highlights

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        -  Consolidated revenue increased 43% to $53.3 million
        -  EBITDA increased 70% to $7.0 million
        -  Net earnings increased 71% to $2.4 million
        -  Distributable cash increased 92% to $5.2 million
        -  Free cash flow increased 63% to $5.6 million
        -  Excluding the dilutive impact of financings earmarked for debt
           reduction and the conversion of the Corporation from an income
           trust fund, distributable cash on a per basic share basis
           increased 15% to $0.53
        -  Total debt to equity ratio is 0.62 versus 1.05 at March 31, 2009,
           a 42% year over year decline
        -  Invested $3.5 million in growth capital expenditures, relating
           primarily to the acquisition of Aviation segment equipment.
    >>

Subsequent to Quarter-end Highlights

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        -  Completed on a bought deal basis a $30 million offering of Series
           H convertible senior secured debentures with a seven year maturity
           and a 6.5% per annum interest rate.
    >>

"Our first quarter performance provides further support to the strength of our business model," said Adam Terwin, Chief Financial Officer of Exchange Income Corporation. "Largely due to the successful acquisition of Calm Air and improved performance in the balance of the aviation segment, we increased our EBITDA by 70%, grew free cash flows by 63%, and increased our distributable cash per share on an adjusted basis by 15%. These gains, combined with our strengthened balance sheet from recent financing activities, provide a solid foundation for growth in the coming periods."

Q1 2010 Results

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    Selected Financial Highlights
    -------------------------------------------------------------------------
    All amounts in thousands except %
     and share data                              Q1 2010   Q1 2009    Change
    -------------------------------------------------------------------------
    Revenue                                      $53,256   $37,196      +43%
    -------------------------------------------------------------------------
    EBITDA(1)                                     $6,962    $4,086      +70%
    -------------------------------------------------------------------------
    Net Earnings                                  $2,362    $1,385      +71%
    -------------------------------------------------------------------------
    Earnings per Share (fully diluted)             $0.20     $0.24    -$0.04
    -------------------------------------------------------------------------
    Dividends/Distributions declared per share     $0.39     $0.39        $0
    -------------------------------------------------------------------------

    -----------------------------
    (1) EBITDA is defined as earnings before interest, income taxes,
        depreciation, amortization, other non-cash expenses and any unusual
        non-operating one-time items. 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.
    >>

Consolidated revenue for Q1 2010 was $53.3 million, up 43% from $37.2 million for the corresponding period of 2009. The revenue growth was primarily attributable to strong performance by the Corporation's Aviation segment, particularly as a result of the acquisition of Calm Air, which was completed in April, 2009.

Exchange Income Corporation 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 of $41.0 million, or 77% of the consolidated total for Q1 2010. This compares to $20.1 million, or 54% of the consolidated total for the corresponding period of 2009. The Manufacturing segment generated revenue of $12.3 million, or 23% of the consolidated total, for Q1 2010. This compares to $17.1 million, or 46% of the consolidated total for Q1 2009.

The year-over-year change in the percentage of revenue generated by each segment is due to higher revenue contributions resulting from the Calm Air acquisition as well as a softening of demand for tanks and other equipment produced by the Manufacturing segment due to weak economic conditions, most notably within the oil and gas sector. The decline is also due to the appreciation of the Canadian currency, which impacts the results of the Manufacturing segment's US-based operations when presented in Canadian dollars in the consolidated financial statements.

Consolidated EBITDA for Q1 2010 was $7 million, up 70% from $4.1 million for Q1 2009. The year-over-year gain was chiefly due to the accretive acquisition of Calm Air and improved performance in the Corporation's pre-existing Aviation segment entities.

The Corporation reported net earnings for Q1 2010 of $2.4 million, or $0.20 per share fully diluted. In the corresponding period of 2009, the Corporation reported net earnings of $1.4 million. The increase in net earnings was also primarily attributable to the Calm Air acquisition.

In Q1 2010, the Corporation generated surplus distributable cash, free cash flows, and cash flows from operations over dividends declared, however net earnings fell short of dividends declared by $2.0 million. The shortfall is due to the seasonality of the Aviation segment, which is adversely impacted by winter conditions that support alternative transportation methods to reach remote communities otherwise served by the Corporation's airlines. The shortfall was also caused by the decline in performance of the Manufacturing segment, which continues to be impacted by unfavorable economic conditions.

At March 31, 2009, the Corporation had working capital of $18.5 million, including cash and cash equivalents of $4.5 million. This compares to $5.5 million and $4.9 million, respectively, at December 31, 2009. The improvement is due to the Corporation's early redemption of its Series E debentures in January of 2010, which was classified as a short-term liability as a result of the Corporation calling this instrument prior to the end of fiscal 2009.

    <<
    Selected Key Performance Indicators
    -------------------------------------------------------------------------
    All amounts in thousands except %
     and share data                              Q1 2010   Q1 2009    Change
    -------------------------------------------------------------------------
    Free Cash Flows(2)                            $5,640    $3,465      +63%
    -------------------------------------------------------------------------
    Distributable Cash(3)                         $5,225    $2,715      +92%
    -------------------------------------------------------------------------
    Distributable Cash per Share (basic)           $0.47     $0.46    +$0.01
    -------------------------------------------------------------------------
    Dividends/Distributions Declared              $4,450    $2,331      +91%
    -------------------------------------------------------------------------
    Total Dividends/Distributions Declared
     (basic) as a Percentage of
     Distributable Cash                              83%       85%      - 2%
    -------------------------------------------------------------------------

    ------------------------------
    (2) Free cash flows is a financial metric used by Management to assess
        the Corporation's performance and assess its ability to sustain its
        dividend policy. Free cash flows 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.
    (3) Distributable cash is a performance measure used by Management to
        summarize the funds available for the payment of dividends to
        shareholders. Distributable cash is defined as EBITDA less cash
        interest, cash taxes and capital expenditures required to maintain
        the operations at their current level. It is not a recognized measure
        under Canadian GAAP.
    >>

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 flows, distributable cash, distributable cash per share and dividends/distributions declared to shareholders, to evaluate its progress and assess its ability to sustain its dividend policy. Although some of these metrics are not commonly utilized to measure the performance of public companies, they were historically used by the Corporation when it operated as an income trust, and are being used to provide a consistent basis for comparison.

Free cash flows for Q1 2010 totaled $5.6 million, representing an increase of 63% from $3.5 million for Q1 of 2009. Distributable cash for Q1 2010 was $5.2 million, up 92% from $2.7 million generated in Q1 2009. Distributable cash on a per share basis for Q1 2010 was $0.47 basic and $0.39 fully diluted. For the corresponding period of 2009, distributable cash on per share basis was $0.46 basic and $0.43 fully diluted. Excluding the dilutive impact of financings earmarked for debt reduction and the conversion of the Corporation from an income trust fund, distributable cash on a per share basis increased 15% to $0.53. The year-over-year improvement to key performance indicators was primarily due to the acquisition of Calm Air.

The Corporation expects that some of the performance indicators used when it operated as an income trust, such as distributable cash or distributable cash per share, may change as it continues its evolution as a publicly-traded corporation.

Outlook

"Since the start of 2010, we have focused our efforts on a two-pronged strategy designed to maximize the performance of each of our segments while continuing to seek opportunities where we can apply our acquisition criteria and build on our successful track record," Mr. Pyle also said. "In the short-term, we expect that this approach will result in organic growth for our existing companies, particularly as economic conditions recover for our Manufacturing segment and seasonal factors improve for our Aviation segment. Over the longer term, we will continue to examine opportunities to add a third segment to our operations. We believe this would result in further diversification of our revenue streams and growth to our cash flows, enabling us to deliver on our commitment of increasing dividend payments. In the short term however per share metrics will be negatively impacted by the under levered balance sheet until this debt capital is redeployed"

Exchange Income Corporation's complete financial statements and management's discussion and analysis for the three months ended March 31, 2010 can be found at www.exchangeincomecorp.ca or at www.sedar.com.

Conference Call Notice

The Corporation will hold a conference call to discuss its 2010 first quarter financial results today, May 13, at 10:30 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 Thursday, May 20, 2010 at midnight. To access the archived conference call, please dial 1-800-642-1687 or 416-849-0833 and enter the reservation code 71180295.

The conference call will be archived for replay until Friday, March 19, 2010 at midnight. To access the archived conference call, please dial 1-800-642-1687 or 416-849-0833 and enter the reservation code 61189327.

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.

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    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 www.sedar.com.

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 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. For more information on Exchange Income Corporation, please visit www.exchangeincomecorp.ca.