EXCHANGE INCOME CORPORATION 2016 ANNUAL2016 REPORT STRATEGY EXECUTION RESULTS EXCHANGE INCOME CORPORATION ANNUAL REPORT 2016 MAKE STRATEGIC ACQUISITIONS MAKE INVESTMENTS FOR FUTURE GROWTH STRENGTHEN BALANCE SHEET GENERATE RECORD RESULTS GROW DIVIDEND Since our start in 2004, we increased our dividend twice have followed a simple and and completed a number clear strategy—regularly of major milestones, including increase dividends by being added to the S&P TSX generating steady growth Composite Index and joining through disciplined acquisitions, the exclusive club of Canadian strategic investments and companies with a market cap diversified operations. of more than $1 billion. Through the consistent A proven strategy with execution of our strategy for careful execution always more than a decade. In 2016 we gets winning results. achieved record profitability, 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 1 STRATEGIC ACQUISITIONS 2004 PERIMETER 2005 KEEWATIN AIR JASPER TANK 2006 OVERLANDERS STAINLESS 2008 WATERBLAST 2009 CALM AIR WESTOWER 2011 BEARSKIN 2012 CUSTOM HELICOPTERS 2013 REGIONAL ONE PROVINCIAL AEROSPACE 2015 BEN MACHINE PRODUCTS 2016 CARTENAV SOLUTIONS TEAM J.A.S. Aerospace & Aviation Manufacturing 2 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION Completed the CarteNav is a leading software developer in the intelligence, strategic acquisitions surveillance, and reconnaissance (ISR) industry. Working together with of CarteNav Solutions Provincial Aerospace, the two companies in August 2016 will be able to provide enhanced product and service offerings to increase market and Team J.A.S. in share. CarteNav’s flagship product, AIMS-ISR®, has become the software of November 2016. choice for both government and public- sector customers in more than 30 countries across six continents. Team J.A.S. specializes in parts supply and maintenance repair services for the Twin Otter aircraft. Building on Regional One’s expertise with other regional aircraft, the Team J.A.S. acquisition allows us to expand into a new type of specialized aircraft and will support our fleet of Twin Otters operated by Provincial Airlines. We were able to complete these two strategic acquisitions despite purchase multiples in the market increasing to record highs. In the face of these high multiples we will continue to stick to our disciplined acquisition criteria, where target companies must: • Operate in a niche market with a defensible position • Have strong management teams • Generate steady cash flow • Be immediately accretive to our financial results. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 3 STRATEGIC GROWTH INVESTMENTS 4 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION Through acquisition or These investments included aftermarket planes and equipment that Regional One investment in organic makes available for re-sale or lease to customers around the world. We also growth opportunities, started construction of a maritime we have been able surveillance aircraft at Provincial that will serve as a demonstrator of to meet our return Provincial’s capabilities to potential customers while being available for thresholds. In 2016, quick response deployment when we invested nearly required by customers around the world. Our criteria to make growth investments $160 million into our is the same as making acquisitions. We subsidiaries that will are indifferent. In some ways, we prefer to make organic growth investments grow those operations because of the familiarity and confidence in our existing management teams to get and the returns the returns projected. We have followed they generate going this model since day one, starting with our acquisition of Perimeter. We have forward. since invested more into the business to grow it beyond what it was when it was acquired. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 5 THE STRATEGIC IMPORTANCE OF DIVERSIFICATION 6 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION company. company. apublic became we since strategy our to been core has Diversification AND THE VALUE OF THE CANADIAN DOLLAR OVER THE YEARS EIC'S DIVIDEND DISTRIBUTIONS COMPARED TO THE PRICE OF OIL Jan-07 Apr-07 Jul-07 Canadian $ Fuel Dividend Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 2016 ANNUAL REPORT Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 overalleconomy. dollar and the cyclical nature of the of oil or the value of the Canadian markets, fluctuations in the price possible for us to withstand volatile Being diversified matters. It makes it Jul-12 Oct-12 EXCHANGE INCOMECORPORATION EXCHANGE Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 | Oct-16 7 Our ability to generate record results SOLID and grow our dividend twice during 2016 resulted from the ongoing execution of our well-defined strategy. We EXECUTION strengthened our balance sheet, became more diversified and ended the year well positioned to grow through 2017 and beyond. This execution of our strategy was reflected in a number of milestones. 8 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION Late in the year, we were the only ADDED TO company to be added to the S&P TSX Composite Index, a list of 249 of the largest companies as measured THE S&P by valuation. The addition marks an important milestone for EIC. It represents the culmination of more COMPOSITE than 10 years of steady growth in our market capitalization to approximately INDEX $1.3 billion at year-end, and our ability to attract a wider array of investors, research analysts and media coverage. Membership in the Index effectively solidifies the strength of our business model and our ability to deliver against expected performance. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 9 In December 2016, the Government GOVERNMENT of Canada awarded the Fixed Wing Search and Rescue (FWSAR) Aircraft Replacement Program to Airbus OF CANADA Defence and Space, partnering with Provincial Aerospace. The Government will be replacing its ageing fleet CONTRACT WIN of CC-115 Buffalo and the CC-130 Hercules aircraft with a brand new fleet of sensor-equipped Airbus C295W aircraft. Provincial Aerospace will be YEAR CONTRACT responsible for up to 20 years of In- 20+ Service Support covering all aspects of maintenance not undertaken by the Royal Canadian Air Force technicians. This contract reinforces Provincial’s strong relationship with the Government of Canada and further enhances our relationship with Airbus. 10 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION As part of its plan to deploy growth NEW capital, Regional One signed a re-marketing agreement with Bombardier Commercial Aircraft Asset REMARKETING Management. As part of this agreement, we are in the process of acquiring 13 previously owned CRJ900 aircraft that AGREEMENT will all be delivered by April 2017. The contract includes the opportunity to WITH acquire additional aircraft, which opens up a pipeline of aircraft acquisition opportunities and further develops BOMBARDIER a relationship with another leading aerospace company. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 11 Our Legacy Airlines continued to grow with improved results in 2016 in spite LEGACY of some challenges. Investments made to this group in the past enabled this AIRLINES return. The recently announced expansion into northwestern Ontario with additional MARKET passenger services will allow for that EXPANSION growth to continue. 12 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION A cornerstone of our business model has always been to maintain a strong ROCK SOLID balance sheet with limited leverage and high liquidity. This allows us to BALANCE support existing operations while capitalizing on growth opportunities through investments or acquisitions. SHEET Late in 2016 we executed a bought deal financing that closed at the beginning of 2017 that raised approximately $100 million. The financing was raised at $42.45 per share, an increase of more EQUITY than 70% from the previous raise in $100M RAISED September 2015 at $24.85 per share. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 13 REVENUE RECORD ($millions) RESULTS 891 807 EIC set new benchmarks for its key financial metrics in 543 2016. The results validate 486 509 EIC’s strategy to become more diversified, invest in existing businesses and grow by strategic acquisitions. • 2016 revenue grew by 10% to 2012 2013 2014 2015 2016 $891.0 million. • 2016 EBITDA increased 19% to a record $212.6 million. 16.3% CAGR • 2016 Net earnings grew by 53% to $61.5 million • 2016 Net earnings per share (basic) increased by 34% to $2.18 per share • The dividend payout ratio was 61% even with two dividend increases and DIVIDENDS DECLARED a growth in the average number of ($millions) shares by 14% to 28.2 million. 56.3 45.2 37.4 35.9 32.7 2012 2013 2014 2015 2016 14.6% CAGR All financial data referenced is the Corporation’s continuing operations and presented in a consistent manner. 14 | 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION EBITDA FREE CASHFLOW LESS PAYOUT RATIO ($millions) MAINTENANCE CAPEX (%) ($millions) 92 134 213 74 179 106 71 60 61 94 35 82 31 72 27 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 31.2% CAGR 31.4% CAGR NET EARNINGS NET EARNINGS PER SHARE ($millions) ($per share) 61.5 2.18 40.2 1.63 0.62 * 12.4 10.6 11.2* 0.49 0.51 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 49.2% CAGR 36.9% CAGR * The 2014 Net Earnings and Per Share amounts were adjusted for the non-cash charge coming from the settlement with the Canada Revenue Agency. 2016 ANNUAL REPORT EXCHANGE INCOME CORPORATION | 15 In 2016, we increased the dividends OUR we pay to shareholders twice. The hike marked the fourth in two years DIVIDEND and the 12th since the Company went public in 2004, putting EIC in $2.10 a very exclusive club of Canadian dividend-paying companies.