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.
Conference Call
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).
Forward-Looking Information:
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
