2024 ANNUAL REPORT PROVEN STRATEGY – UNLIMITED POTENTIAL Stronger Together EIC BY THE Numbers Proven Strategy – Unlimited Potential 20% AVERAGE ANNUAL COMPOUNDED SHAREHOLDER RETURN SINCE INCEPTION 5% DIVIDEND CUMULATIVE AVERAGE GROWTH RATE $1B DIVIDENDS PAID SINCE INCEPTION Follow this link to hear a video message from our leadership 2 0 2 4 A N N U A L R E P O R T 2 17 DIVIDEND INCREASES IN 20 YEARS $1.9B GROWTH INVESTMENTS MADE IN SUBSIDIARIES Meet EIC’s Dividend YOUR BEST FRIEND Woven through each of EIC’s segments and embedded in all our investments is our foundational principle. Delivering the consistent, reliable, long-term returns our investors have expected since EIC’s inception. A reliable companion and best friend to your investment portfolio, EIC is always on your side. $1.9B ACQUISITION INVESTMENTS E X C H A N G E I N C O M E C O R P O R A T I O N 3 ESSENTIAL PORTFOLIO Delivering Outstanding Results 0.0 0.2 0.4 0.6 0.8 1.0 REVENUE ($ MILLIONS) 2020 1,150 2021 1,413 2022 2,059 2023 2,498 2024 2,660 ADJUSTED EBITDA ($ MILLIONS) 2020 285 2021 330 2022 456 2023 556 2024 628 ADJUSTED NET EARNINGS ($ MILLIONS) 2020 47.2 2021 86.0 2022 132.9 2023 144.1 2024 147.3 2 0 2 4 A N N U A L R E P O R T 4 EIC’s proven track record of delivering reliable returns is driven by our relentless focus on identifying unique investment opportunities then working with strong management teams to execute a forward-looking strategic plan that drives sustainable growth. – Mike Pyle, CEO ADJUSTED NET EARNINGS PER SHARE ($) 2020 1.35 2021 2.31 2022 3.29 2023 3.20 2024 3.10 FREE CASH FLOW LESS MAINTENANCE CAPEX PER SHARE ($) 2020 3.23 2021 3.95 2022 4.36 2023 4.49 2024 4.19 DIVIDENDS PER SHARE ($) 2020 2.28 2021 2.28 2022 2.41 2023 2.54 2024 2.64 E X C H A N G E I N C O M E C O R P O R A T I O N 5 Finding Opportunity IN THE ESSENTIAL EIC’s growth and success — and the robust returns we have consistently delivered to our shareholders — are built on a focused strategy of identifying companies who have proven track records, strong management teams and established critical markets positions. Through organic investments, EIC empowers the strong management teams in place to leverage their expertise and experience in pursuit of emerging opportunities. We know that allowing exceptional management to do what they do best fuels the growth that benefits our investors, drives long-term value, and sharpens the competitive edge of every company in our portfolio. Following this approach has unlocked significant value throughout our history, and our experience gives us confidence in our ability to continue unlocking impactful returns going forward. 2 0 2 4 A N N U A L R E P O R T 6 2 0 2 4 A N N U A L R E P O R T Acquisition TIMELINE 2004 2008 2013 2017 2018 2023 2022 2024 2021 2019 2022 2020 2015 2016 2005 2009 2011 2007 2012 2006 Window Systems AEROSPACE & AVIATION SEGMENT MANUFACTURING SEGMENT E X C H A N G E I N C O M E C O R P O R A T I O N 7 READY FOR Opportunity Managing with Discipline Throughout EIC’s history, a hallmark of our success has been our consis- tent ability to capitalize on emerging opportunities by maintaining a strong balance sheet. This has kept our com- pany agile in the face of turbulent mar- kets and given us the ability to expand our essential portfolio while others have been forced to pull back. This cohesive approach enables growth and supports value creation, further strengthening EIC’s foundation as a resilient and forward-looking company. Through the constant refining of our strategy and the careful maintenance of our financial strength, EIC is always poised to capture new opportunities. Since our inception, the success of EIC has been built through strong opera- tional practice and strategic vision which have carried us through even the most volatile economic times. Having built our business on a base of essential service provision, we have been able to consistently mitigate risk and open doors to new opportunities. Our expertise powers informed deci- sions in how we run our operations and write the next chapter for our business. The result is consistent and reliable returns for shareholders fueled by continued growth and innovation in a constantly shifting business landscape. Our strong balance sheet and culture of empowerment of management provide us with the ability to invest in strategic opportunities when the moment is right. – Richard, Wowryk, CFO 2 0 2 4 A N N U A L R E P O R T 2 0 2 4 A N N U A L R E P O R T 8 EIC’s focus on investing to support our subsidiaries also positions us to execute the next strategic acquisition successfully, compounding value without risking returns. – Jake Trainor, EVP Operations E X C H A N G E I N C O M E C O R P O R A T I O N 9 INVESTING FOR THE Next 20 Years Leading International Aerospace with Made-in-Canada Solutions EIC has consistently made informed, strategic investments in our Aero- space business line to position the company for global success. From our commitment to building ex- pertise that will be used to train Can- ada’s next generation of military avi- ators, to our investment in the Force Multiplier Program currently providing essential ISR service to the UK Home Office, to the development of our long-term operations in Canada, the Netherlands and the Dutch Caribbe- an, to our ongoing evolution of Carte- Nav’s Canadian-made mission system software with over 600 deployments in 60 countries, EIC has consistently demonstrated our ability to invest with an eye to the future, capitalize on do- mestic and international opportunity, and deliver consistent returns to our investors over time. 2 0 2 4 A N N U A L R E P O R T 10 EIC deploys capital with an understanding of future returns, building on our already strong foundation while strategically taking forward-looking market positions that will support our continued growth. – Adam Terwin, CCDO E X C H A N G E I N C O M E C O R P O R A T I O N 11 ESSENTIAL AVIATION SERVICE For the North EIC’s commitment to building essen- tial aviation infrastructure, and our understanding of the importance of true partnership in the development of Canada’s North, has positioned our aviation business as a critical facilita- tor of future economic growth. Starting with EIC’s first acquisition of Perimeter Aviation, we have invest- ed in our aviation family with a view to embedding ourselves in the fabric of Northern Canada. We understand how important aviation is to the com- munities we serve, linking critical ser- vices and fostering economic devel- opment opportunities. That is why we are committed to working closely with community leaders and Indigenous peoples to ensure we are building lasting value for all stakeholders. Our vision has always been to build an enduring aviation business in the North that supports and connects communities throughout this vast, re- mote region. Our long-term approach prioritizes community engagement, sustainable development and respon- sible growth strategies that ensure ev- ery investment contributes to the local economy and supports the unique na- ture of life in the North. By building our expertise in Northern aviation and demonstrating through our actions the commitment we have to the communities in our network, we have positioned ourselves for the next major chapter of our Northern aviation story and have entered into a binding purchase agreement to acquire Cana- dian North. EIC understands both the opportunity and the responsibility we are taking on through this acquisition. We have always been enthusiastic about the future of the North, confident in the value we deliver as it continues to de- velop, and excited about the role we can play in unlocking opportunity for the Indigenous peoples who call the region home. EIC Aviation footprint Circa 2010 EIC Aviation footprint in Winnipeg today 2 0 2 4 A N N U A L R E P O R T 12 EIC Aviation footprint in Winnipeg today E X C H A N G E I N C O M E C O R P O R A T I O N 13 Sustainable Solutions FOR INDUSTRY AND ENVIRONMENT EIC has always had an appreciation for the environment and for the im- portance of responsible development that unlocks its economic potential. Informed by that experience, we have made a series of strategic investments in our Environmental Access Solutions business line that have made us a leader in the sector. We believe in North America’s re- source-based economy and we are positioned to be critical infrastructure providers and partners in its ongoing development and growth. 2 0 2 4 A N N U A L R E P O R T 14 GROWING ALONGSIDE North America’s Skyline In building our Multi-Storey Window Solutions business line, EIC has consistently identified opportunities to contribute innovative, vital capabilities that facilitate development and drive opportunity for the future. Our steady approach to investing and acquiring in the sector has steadily built our capacity in the development and installation of the advanced window systems that define North American infrastructure and will be critical to addressing North America’s housing shortage in the long term. By staying connected to our customers, we have successfully curated our offering to deliver full-service solutions for a wide variety of projects, EIC companies are at the heart of urban development today and for the future. E X C H A N G E I N C O M E C O R P O R A T I O N 15 ONE Trusted Name GLOBAL SOLUTION FOR REGIONAL AIRCRAFT NEEDS EIC’s dedicated Aircraft Sales and Leasing business line has progres- sively built our ability to quickly adapt to market trends, identify value and capitalize on opportunities that ben- efit EIC air operators and external customers. Our presence in this crit- ical niche industry further diversifies our portfolio while simultaneously strengthening the company’s market position as a comprehensive aviation service provider. Ultimately, EIC’s Air- craft Sales and Leasing business line promotes sustainability, innovation, and long-term growth in a highly stra- tegic market segment. 2 0 2 4 A N N U A L R E P O R T 16 By staying close to our customers and focused on meeting customized product demands, EIC manufactured components now find themselves at the heart of key industrial supply chains across North America. – Darwin Sparrow, COO Critical COMPONENTS IN DIVERSE INDUSTRIES Providing integral services and goods across North America EIC’s Precision Manufacturing and Engineering business line is built to specialize in bespoke solutions for specialty markets. By focusing on precision manufacturing and tailored engineer- ing, EIC’s manufacturing family delivers high-value products that meet exacting standards which differentiates us in the compet- itive landscape while also insulating against economic shock given the essential space we occupy in the supply chain. EIC’s ability to progressively deliver innovative solutions enhanc- es our long-term resilience and regularly opens avenues for new partnerships. Our manufacturing companies keep us ag- ile, competitive, and well prepared to navigate the challenges of a constantly shifting economic environment. E X C H A N G E I N C O M E C O R P O R A T I O N 17 AT EIC WE DO THE Right Thing Because it is the right thing to do EIC’s culture is rooted in a deep com- mitment to the communities we serve, recognizing that as an essential ser- vice provider we bear a profound re- sponsibility to support, empower and uplift. Our dedication extends beyond delivering a service or a product, it is about investing in the well-being, growth and future of the communities we serve. To meet this responsibility, we have developed specialized training pro- grams, like the Atik Mason Pilot Pathway program, that create oppor- tunities for skills development, profes- sional growth and long-term career advancement for Indigenous peoples. We have built these initiatives to meet the unique needs of our communi- ty members ensuring that everyone, regardless of background, has ac- cess to the opportunities necessary to succeed. By nurturing local talent and providing meaningful educational opportunities, we are working to do our part for sustainable community growth and economic empowerment. Through our growing National Day for Truth and Reconciliation partnership with the Canadian Football League, the Winnipeg Blue Bombers, and with several Indigenous organizations, we have brought the Indigenous commu- nities we serve to special CFL games in Winnipeg that recognize their rich cultural heritage and offer a unique experience that might otherwise be unavailable. EIC understands the importance of true economic reconciliation. Our commitment to inclusivity and opportunity means that we work ev- ery day to be open, understanding and welcoming to Indigenous voices. By en- suring equitable access to opportunities and resources, we strive to create an environment where economic prosper- ity and cultural heritage thrive together. Our role extends far beyond the day- to-day operation of our business. We recognize our obligation to build lasting partnerships and create a legacy of shared success. Doing the right thing is, for us, about keeping the community’s long-term interests in mind and meeting our promise to serve, respect and grow with the com- munities we serve. 2 0 2 4 A N N U A L R E P O R T 18 E X C H A N G E I N C O M E C O R P O R A T I O N 19 Chairman’s Message Proud of our past twenty years and even more confident in our next twenty. 2024 marked EIC’s 20th anniversary since its first acquisition of Perimeter on May 6, 2004. During this time of celebration I took the opportunity to read our first annual report from our 2004-year end. The principles of EIC and our initial investment thesis re- main as true today as they were back then. When the founders of EIC (and its predecessor, Exchange Industrial Income Fund) developed the purpose for the Corporation, we wanted it to provide its shareholders with stable and growing cash distributions, max- imize share value associated with its portfolio of subsidiaries and employ a disciplined acquisition strategy. We continue to be guided by those princi- ples today. The commitment to those fundamental principles has resulted in incredibly strong returns to our share- holders having surpassed $1 billion in cumulative dividends in 2024. I want to congratulate our management teams on 20 years of success driven by their belief and commitment to our principles and values. Our incredible portfolio of businesses will carry us on into 2025 and beyond. I also wanted to say thank you to my current and past board members who all shared a common belief in the merits and pur- pose of our Corporation. I am as excit- ed about our prospects as I am proud of our accomplishments over the past twenty years. My annual message will focus on our past achievements and Mike’s message will focus on the fu- ture aspirations for the business. It seems like the last few years were characterized by anomalous events, whether it be the pandemic, inflation- ary pressures, geopolitical concerns and more currently about national protectionism and tariffs. However, throughout all this instability, our busi- nesses have remained resilient. We have a collective group of niche busi- nesses which provide great diversifi- cation to weather any external events. This continued to be evident in our 2024 results as our Aviation & Aero- space segment posted record finan- cial results which propelled the Com- pany to records for our key financial metrics. These record results are just part of the story of our Company. As a Board we continue to focus on the benefits that our business provides for all our stakeholders whether it be our shareholders, our employees, the communities we serve and the broad- er environment. Our Shareholders We are incredibly proud of the returns we generate for our shareholders. When looking since inception or for any 1, 3, 5, 10 or 15 year period the combination of dividends paid and share appreciation have generated total compounded annual returns to our shareholders that are far in ex- cess of market returns. Furthermore, since inception our shareholder re- turns have been approximately 20% on a cumulative annual compounded growth rate basis and the one-year re- turn for fiscal 2024 was an outstand- ing return of 37%. 2 0 2 4 A N N U A L R E P O R T 20 The growth that has occurred since in- ception has proven the business mod- el - that you can achieve tremendous growth whilst paying a stable and growing dividend in any business en- vironment. Furthermore, the growth of EIC has also resulted in greater diver- sification of the business amongst var- ious business lines resulting in more predictable and stable financial re- sults. The business model is perfectly summarized with a visual representa- tion. The chart above demonstrates the total shareholder returns for EIC since inception compared to an in- vestor in the S&P/TSX index. While a return of 439% in an index-based fund is laudable over a 20-year peri- od, the EIC total shareholder return was a spectacular 3,960%. We are very proud of that achievement and believe that the decisions made in the past set the Corporation up for further long-term growth. Our Employees Our employee group has grown from less than a handful of initial em- ployees back in 2004 to over 8,000 strong by the end of 2024. Our em- ployees are critical to our success and their level of engagement and pride in being part of the EIC family has driven the record financial results. We often talk about how important culture is at each and every subsidiary. Each sub- sidiary has a unique culture that has been an integral component of their individual successes, however there are commonalities of values amongst the cultures including teamwork, trust, passion, a sense of belonging, integri- ty and doing the right thing. It is clear that our employees share EIC’s cor- porate purpose and values as nearly 20% of our employees participate in our employee share purchase plan. To illustrate the unique cultures of our subsidiaries and how EIC has contrib- uted to their future growth while main- taining their culture, we have compiled a coffee table book which is available to our various stakeholders. This book has been distributed throughout our various employee groups and copies are available to those interested. If you would like a copy of the physical book please contact Pam Plaster, Vice President, Investor Development at pplaster@eig.ca. Our employees are also very active in the communities in which we oper- ate. Numerous hours are volunteered through various charitable organi- zations and our companies donate generously to causes within our com- munities through in-kind donations of goods and transportation. As an example of the level of volunteerism, our employees volunteer over 10,000 hours of time throughout the year to ensure a successful Truth and Recon- ciliation event with the Winnipeg Blue Bombers football club. Total Shareholder Return E X C H A N G E I N C O M E C O R P O R A T I O N 21 The Communities that we Serve One of our greatest achievements is giving back to the communities we serve. Through community partner- ships in our various business lines, we provide profit sharing, free and discounted service, and investment capital for local economic and social development projects. This concept was established with EIC’s very first acquisition of Perimeter in 2004 and continues to this day throughout our business lines. Our efforts continue to expand and impact individuals from northern and remote communities through the growth of the Atik Mason Indigenous Pilot Pathway program. The third season of the Atik Mason Indigenous Pilot Pathway saw another training location added in Rankin Inlet, Nunavut. The most recent cohort of students, who attended the program in either Thompson, Goose Bay or Rankin Inlet, saw 23 students fulfilling their dream of becoming a commercial pilot by graduating the program and starting their journey in accumulating flight hours that are necessary prior to joining our Essential Air Services busi- ness line as pilots. EIC has also been instrumental in several Indigenous community members becoming air- craft maintenance engineers through an EIC sponsored and internally de- veloped program. Even though these programs are in their relative infan- cy the impact they are having within the communities we serve has been incredible and will only exponential- ly grow as we continue to expand in geography and the communities we serve. During 2024 we continued to bring attention to the National Day for Truth and Reconciliation. We brought over 1,000 Indigenous peoples from across Canada to attend the Winnipeg Blue Bombers Canadian Football League game and bring attention to the need for reconciliation with our Indigenous peoples to a nationally broadcast au- dience. Collectively, through the Blue Bomber and Atik Mason Indigenous Pilot Pathway, EIC invested over $3 million annually back into our relation- ships with our Indigenous communi- ties and partners. This initiative, which was started by EIC and the Winnipeg Blue Bombers, has been adopted by all nine CFL teams where Truth and Reconciliation is recognized by each team and their fans in different ways. These events, led by EIC, have provid- ed opportunities to Indigenous com- munity members and have inspired the next generation. The Environment EIC continues to focus on best prac- tices and innovations to minimize the environmental impact of its business- es. Our Environmental Access Solu- tions business line is dedicated to the preservation of ecologically sensitive areas where industrial activity is oc- curring. Our Essential Air Services are a critical link between northern Indigenous and remote communities and health care and supplies in the south. The aircraft that EIC flies are chosen because they are ideally suit- ed to the conditions, routes, terrain, and runways within those communi- ties. While management is constantly evaluating new technologies to pro- vide our Essential Air Services, they remain steadfast in providing a safe and reliable mode of transportation to those who have no other means of transportation. Furthermore, due to the harsh conditions of the North, 2 0 2 4 A N N U A L R E P O R T 22 economic and supply factors do not allow us to currently utilize more en- vironmentally friendly fuels such as sustainable aviation fuel although we remain active in industry groups that are continuing to invest in carbon re- duction initiatives as well as research opportunities to utilize such fuels in the future. The Corporation continues working with governments and ex- perts in reducing emissions, however there is no imminent solution. Each of our subsidiaries has developed policies and procedures to track our scope 1 and 2 emissions. In 2024, we undertook a project to compute our most material scope 3 emissions. We are actively evaluating ways to reduce our environmental impact at each of our businesses whether it be through more efficient equipment or upgrad- ing our physical infrastructure. We are very proud of our achievements to date, and continue to invest in our businesses to reduce our impact on our environment. During 2024, we were proud to have our ESG efforts acknowledged through the receipt of one of Canada’s first syndicated social loan facilities. The Future Many of our subsidiaries are celebrat- ing milestone anniversaries in 2025 since their inception. I highlight this fact for two reasons. Firstly, these businesses were already strong niche businesses when we acquired them and they continue to thrive long since their inception. Secondly and more importantly, we provided them with capital, nurtured their management teams and they further thrived un- der our EIC model with exponential growth. That is our secret sauce that makes our model so successful. Perimeter will be celebrating its 65th year milestone in 2025 and it has grown by approximately double digit multiples in Adjusted EBITDA and em- ployee count since the acquisition by EIC in 2004. As another datapoint, WesTower is celebrating its 35th year milestone in 2025 and has effectively doubled its Adjusted EBITDA and em- ployee head count since its acquisi- tion in 2011. These examples illustrate that while investments are initially ac- cretive to our shareholders the real benefits are seen a few years after they join EIC. They are able to achieve this unbelievable growth whilst main- taining the original culture that made them so special to their employees and customers. Lastly, the maintenance of a strong balance sheet has allowed us to ex- ecute on our disciplined acquisition strategy irrespective of market con- ditions. Whether that be the acquisi- tion of Calm Air at the height of the 2009 financial crisis or the execution of acquisitions of Carson Air, MacFab Manufacturing, Telcon Datvox, Ryco Communications, Crew Training Inter- national and Northern Mat & Bridge during the height of the pandemic. Our focus on a conservative balance sheet has afforded us opportunities to acquire great companies at any time and we have continued to focus on our balance sheet to set us up for the next 20 years. Accordingly, we successfully executed on calling the Series J convertible debentures in late 2024 and more recently called the Series K convertible debentures in February 2025, which in aggregate reduced our leverage by approxi- mately $150 million. The Board maintains a long-term fo- cus and ensures we demonstrate a commitment to good governance and strong community and stake- holder relations to ensure the long- term sustainability of our businesses. Our purpose drives our strategy and the decisions that we make, however underpinning EIC’s successes has al- ways been doing the right thing. Those commitments have not changed over the past 20 years and will not change in the future. The Board is very proud of our record results for 2024. Moreover, I am very proud of the continuation of our pur- pose-built culture that the Board and management continue to maintain. Our track record over the last two decades demonstrates how far we have come as an organization and illustrates the power of the EIC busi- ness model and its capability for the future. EIC was purpose built in 2004 and we continue to be “proud of our past twenty and even more confident in our next twenty.” I personally want to thank all our stakeholders for their ongoing support, and I look forward to seeing many of you at our annual gen- eral meeting in May, where we look forward to the next 20 years. Don Streuber, FCPA, FCA Chairman, Board of Directors E X C H A N G E I N C O M E C O R P O R A T I O N 23 CEO’s Message 2024 marks the 20th anniversary of EIC’s first acquisition and I believe the most apt descriptors of our business model are strength, stability, resilience and diversification. Back in May 2004, when embarking on our first acquisition of Perimeter Aviation Limited, we desired to acquire resilient businesses that had strong cash flows and operated in niche industries. Our business model made intuitive sense at the time and we thought that we would be successful based on our initial research performed. In fiscal 2024 our revenues and Adjusted EBITDA were $2.7 billion and $628 million, respectively, compared to our annualized revenues of $30 million and Adjusted EBITDA of $4 million back in 2004. This growth represents a cumulative aggregate annual growth rate on revenue and Adjusted EBITDA of 25% and 29%, respectively, which are incredible achievements over a 20-year history. Another core tenet of our purpose was to pay a stable and growing dividend to our shareholders. Back in 2004 our distribution was $1.08 per unit and has grown to $2.64 per share today. In 2004 our annualized per annum dividend was approximately $1 million, while in 2024 we paid $126 million in dividends, which represents a cumulative annual growth rate of 25%. To date we have paid more than $1 billion of cumulative dividends to our shareholders, which is a remarkable achievement and demonstrates the success of our business model. Furthermore, in addition to the dividend, our shareholders were also rewarded through growth in our share price, which, when combined with the dividend, has yielded a 20% per annum compounded total return over the past 20 years. We are extremely proud of these accomplishments, and this wouldn’t have been possible without our shareholders, our employees and the communities we serve. I firstly wanted to say thank you for the past 20 years and while I am proud of our successes to date, I am even more excited about our future. Our story continues to resonate with numerous prospective business owners in our acquisition pipeline and our story continues to gain traction amongst institutional and retail investors as we meet with them around the world. This leads me to believe that we are only at the start of our journey and the next twenty years will see even greater growth and opportunity for all. Let me highlight some of our 2024 financial results and then I will provide commentary on the future of EIC. 2 0 2 4 A N N U A L R E P O R T 24 Highlights from EIC’s 2024 Financial Performance • Revenue grew by 6% to $2.7 billion. • Adjusted EBITDA increased by 13% to $628 million. • Net Earnings of $121 million compared to $122 million in the prior year. • Adjusted Net Earnings reached $147 million, up 2%. • Free Cash Flow reached $409 million, up 8%. • Free Cash Flow less Maintenance Capital Expenditures of $199 million compared to $202 million in the prior year. Fiscal 2024 represented a step-based improvement upon the foundations laid in prior years. The financial re- sults were primarily driven by organ- ic Growth Capital Expenditures made in the prior years due to previous contract awards. These results were generated while the external finan- cial environment was characterized by difficult macro-economic factors including continued geopolitical in- stability due to conflicts and election uncertainty, sticky inflationary pres- sures and tight labour markets. Man- agement was incredibly diligent in navigating through those conditions, whilst making investments and win- ning new contracts. This will allow us to start fiscal 2025 with strong momentum. Our financial results, our conservative leverage and our diver- sification will allow us to execute on acquisitions long into the future. We remain committed to maintain- ing a strong liquid balance sheet. We called our Series J convertible unse- cured subordinated debentures in December 2024 with the substantial portion of debentures being convert- ed into equity. Subsequent to year end, we called our Series K convertible un- secured subordinated debentures in February 2025 with the vast majority being converted into equity once again. These transactions allowed us to re- duce our overall leverage and set us up for future growth whether by acquisition or organic Growth Capital Expenditures in our existing businesses. While the convertible unsecured subordinated debentures were an effective financing source in the past, we anticipate transi- tioning to more conventional forms of financing to fund future growth. Subsequent to year end, we were elated to announce the strategic Ca- nadian North transaction. The addi- tion of Canadian North will allow EIC, when approved, to knit together the complementary routes as there is currently essentially no overlap in the markets served by EIC and Canadian North. We have the core expertise in Northern aviation, and we have al- ways been incredibly proud of the services we provide to our community partners. We anticipate that our new Canadian North communities will ben- efit from EIC’s involvement whether it be through community infrastruc- ture investments, training programs such as the Atik Mason Indigenous Pilot Pathway program, improved employment opportunities and gen- eral investment in the communities we serve. The acquisition is strategic to EIC in that it provides further infra- structure investment in our Northern operations and it will be ultimately accretive to our shareholders. We are confident in making this acquisition as we have significant experience in op- erating Northern airlines as evidenced by our growth experienced by Perim- eter, Keewatin, Calm and PAL. Acquisitions We continued to execute our disci- plined acquisition strategy and closed two strategic acquisitions within our Environmental Access Solutions busi- ness line. Each of the acquisitions was accretive individually to EIC and just as importantly they culturally aligned with our EIC values. These acquisi- tions will set us up for future growth on both an aggregate and per share basis. The acquisitions of Duhamel and Spartan will be important stra- tegic pillars for the expansion of the business line further eastward and into the US, respectively. E X C H A N G E I N C O M E C O R P O R A T I O N 25 Duhamel provides the Environmen- tal Access Solutions business line a foothold into the Quebec and East- ern Canada markets. Hydro-Quebec’s 2035 Action Plan highlights a $45 to $50 billion investment over the next 10 years to make the power grid more durable and meet the expected growth in electricity demand. These ambitious investment plans, which exist all across Canada and the US in the transmission and distribution sec- tor, will require significant amounts of matting to protect ecologically sensi- tive areas and will provide significant tailwinds for our business line long into the future. Spartan is one of three composite mat manufacturers in North America and provides opportunities to both sell and rent composite mats in the Canadian marketplace as well as al- lowing for the expansion of Environ- mental Access Solutions business line in the United States. The matting industry is expected to exhibit strong growth based on the need for trans- mission and distribution investment in the maintenance of their assets along with future expansion to meet energy demands. Current estimates indicate that the electrical grid’s current ca- pacity would have to quintuple over the next decade to handle the surge in power demand as outlined in the US Energy Departments latest state of the grid report. Furthermore, the new US administration is also anticipated to provide tailwinds in the pipeline and oil & gas industries, which will be beneficial for our Environmental Ac- cess Solutions business line through- out North America. 2025 is off to a strong start with our announcement that we have entered into a binding purchase agreement to acquire Canadian North. I previous- ly touched on the strategic benefits to EIC along with the benefits to the Northern communities it serves. How- ever, this transaction, once approved, will continue to add to the foundation of our Northern airlines. We have be- come synonymous with being experts on Northern aviation and we look for- ward to partnering with the various communities that Canadian North serves and extending our strong rela- tionship with the Nunavut government and Inuit peoples. Our Northern flying is essential to the communities we serve. The map below, from the House of Commons INAN Committee Report, illustrates how the north is connect- ed via airports due to the limited rail and road infrastructure, especially in the Eastern portion of the Northwest Territories and throughout Nunavut. The airlines serving the North are truly akin to the road and rail infrastructure connecting the southern communi- ties. We take great pride in providing a safe and reliable method of transpor- tation for the communities and people we serve. As important as the acquisitions we announced were the prospective ac- quisitions that we didn’t proceed with. This is a testament to our disciplined acquisition strategy. Our acquisition team reviews a significant number of potential transactions throughout each year. If the acquisition metrics are not consistent with our key crite- ria, including expected returns, or if the target is not a cultural fit, we pass on the opportunity. This disciplined acquisition approach has served us well as we look at our 20-year track record and will continue to serve us well in the future. Growth Capital Expenditures In addition to our disciplined ac- quisition strategy, we embarked on several growth initiatives deploying capital into our existing subsidiar- ies. During the year, we continued to invest in new aircraft to service the BC Emergency Health Services fixed wing medevac contract. In 2024 we acquired two new King Air aircraft, 2 0 2 4 A N N U A L R E P O R T 26 modified the interiors and inducted them into the fleet. The Growth Cap- ital Expenditures under the BC con- tract occurred later than initial expec- tations due to delays at the aircraft manufacturer because of a strike in 2024. However, we ensured that cus- tomer requirements were met by uti- lizing other aircraft in the short term. In 2025, we anticipate bringing eight to ten new King Air aircraft into the fleet to service the BC medevac contract. When the aircraft are received, we will be able to deploy the pre-existing aircraft throughout our fleet whether it be for charter services or to service other medevac contracts such as the recently announced Newfoundland and Labrador medevac contract. During 2024, we also invested in our fixed and full motion King Air simula- tors. The project is well under way with the fixed simulator completed and the full motion simulator expected to be received in the first quarter of 2025 and fully commissioned by mid-year. This marks an important milestone for the training of our pilots, especially for pilots of our King Air fleet. We are one of the world’s largest King Air fleet operators and the installation and op- eration of the simulators will allow us to provide the highest level of train- ing for our pilots as they can simulate flying into the various communities that we serve. This is anticipated to provide real dollar cost savings whilst improving our training and safety for our pilots and passengers as well as reducing our carbon footprint. During 2025 we plan to invest further capital into our ISR fleet to add an additional aircraft to service the UK Home Office. This second aircraft was acquired in 2024 and is being retrofit- ted with the ISR technologies request- ed by the UK Home Office and we anticipate it operating in mid-2025. Furthermore, during 2024 we invest- ed in aircraft to service the growth in our route network including routes flown on behalf of Air Canada in the Maritimes and into the US. These in- vestments will provide a foundation for continued momentum into 2025 and beyond. Future Opportunities In the world of business, the seeds we sow today shape the harvest we reap tomorrow. All our successes and results to date are just a precursor to what lies ahead. We have positioned our busi- ness lines to be growth catalysts for the future. Each of the business lines have strong underlying growth fundamentals and EIC has the capital to execute on those initiatives. While the number of initiatives and opportunities are too vast to discuss in my CEO Message, I want- ed to highlight some of the most im- pactful opportunities that are before us in the short to medium-term. Our Aerospace & Aviation segment has tremendous opportunities before it. As previously mentioned, the Ca- nadian North acquisition, announced subsequent to year end, is strategic to our Northern footprint. The additional infrastructure, hangars and bases will allow for greater connectivity and the addition of jets into our fleet allows for greater opportunities for each of our carriers. We can provide our expertise and experience in Canadian North’s turboprop passenger and combi con- figurations to ensure that our custom- ers and communities are optimally served. We also see great opportuni- ties in expanding our Aerospace ISR capabilities around the globe. I have spoken about our world-class ISR ca- pabilities and that was in full demon- stration as our Aerospace business line was one of only three proponents who were invited to bid on the Austra- lia Department of Home Affairs Aerial Surveillance Services contract. This E X C H A N G E I N C O M E C O R P O R A T I O N 27 contract, which has an initial term of 15 years, would be one of the largest sur- veillance contracts around the world. Our Aircraft Sales & Leasing business line has been experiencing unprece- dented demand for aircraft, engines and parts due to the continued de- mand for aircraft worldwide coupled with an acute shortage of parts from the original equipment manufacturers. Our Manufacturing segment also has a plethora of accretive opportunities in front of it. Our Multi-Storey Win- dow Solutions business line is part of the high-rise solution to the hous- ing shortages across Canada and the US. Projects have been identi- fied and due diligence performed, however developers are reticent to execute the development with high interest/mortgage rates and political uncertainty. We anticipate a wave of developments when these uncertain- ties abate. In fact, we started to see increased bookings in the latter part of 2024 which bodes well for the busi- ness 18 to 24 months out and beyond. Our Environmental Access Solutions business has strong tailwinds and en- ergy independence continues to be forefront in Canada and the US. We see significant investments required over the next number of years in the transmission and distribution segment of the economy as electrical grids are required to be invested in to meet fu- ture demands. We are also seeing re- newed interest in pipeline and oil and gas projects which perfectly align with our wooden matting business. Our Precision Manufacturing & Engineer- ing business line is represented by a number of complementary business- es across several industries. They are seeing continued demand spurred on by defense, resource, telecommunica- tions and technology sectors. The opportunities discussed above are just those generated by our pre-existing operations. Our acqui- sitions team has a strong pipeline of deals which would be complementa- ry to our pre-existing operating seg- ments. We remain steadfast in our dis- ciplined acquisition strategy and will only execute on deals that meet our stringent criteria. Funding the Future One of the core tenets of EIC is to maintain a conservative balance sheet and modest leverage to ensure we have available capital to execute on our growth opportunities whether it be organic growth or via acquisition. To that end, we have been diligently working on reassessing our capital strategy and accordingly have called the Series J convertible unsecured subordinated debentures prior to year end and the Series K convertible unse- cured subordinated debentures sub- sequent to year end. The conversion 2 0 2 4 A N N U A L R E P O R T 28 of those debentures will simplify our capital structure and reduce our over- all leverage. Furthermore, we amend- ed our credit facility in May 2024 and introduced one of the first syndicated social loans in Canada. These actions have ensured that we have available liquidity, as and when needed, to ex- ecute on our strategic growth initia- tives. The corresponding reduction in overall leverage and increase in eq- uity by approximately $150 million by converting the debentures will allow us to execute on strategic transac- tions such as the recently announced Canadian North acquisition along with other organic growth initiatives. A Year in Review Our people and our culture are our most important resources in execut- ing our strategy. We are blessed with a strong and stable workforce due to the family-like atmosphere that each business fosters. We are very fortu- nate to have the leaders that we do within each business to inspire our people to always do the right thing. Each subsidiary has detailed succes- sion plans for all key roles. Those suc- cession plans are updated on an annu- al basis and presented to the Board of Directors. Furthermore, a robust talent identification network exists to help high potential candidates achieve their maximum potential along with a mentorship program that is continu- ing to expand. We are confident that as we continue to grow and our senior leadership team expands or retires, we have capable individuals within each or- ganization to take the lead. Our culture is one of our most powerful advantages, hence why such attention is placed on our succession plans and recruiting of new team members. Culture and the development of our own internal talent was the rationale for the Life in Flight Program (“Life in Flight”). Such program was unveiled in May 2019 and its express purpose was to proactively address the short- age in pilots in our airline operations. Life in Flight was later expanded to in- clude aircraft maintenance engineers (“AME”) to address the shortage in AMEs within the industry. Additional- ly, in April 2022, we announced the opening of the Atik Mason Indige- nous Pilot Pathway (“Pilot Pathway”) program in Thompson, Manitoba. In 2024, the Pilot Pathway operated in three jurisdictions – Manitoba, Nun- avut and Newfoundland. The Pilot Pathway is a fully funded program that provides an opportunity for Indige- nous and Inuit community members to learn to fly and build careers as professional pilots. It removes signifi- cant barriers to flight training faced by Indigenous candidates, including cost and location, and honors the impor- tance of retaining a deep connection to Indigenous culture while training. We now have a number of pilots who have joined our various companies as first officers as a direct result of this program. These programs are illus- trative of how each of our companies gives back to the communities that we serve and results in a win/win sce- nario for all involved. For EIC, we see greater retention rates by developing our own pilots and AMEs as opposed to hiring from outside. For our employ- ees and communities, they receive strong stable employment opportuni- ties and become role models for the next generation within their communi- ties. These programs required signifi- cant investment in terms of time and dollars to set up the programs, howev- er we are starting to reap the benefits from such investments. That is why we are so thrilled with the Canadian North announcement as it will allow us to expand the work that we do in their communities that will further benefit the Inuit. Partnerships are at the core of our success at EIC. In 2017 we started partnering with the Winnipeg Blue Bomber Football Club to bring chil- dren from the remote, Northern com- munities we serve to a CFL game as part of an incentive to promote stay- ing in school and supporting mental health. In 2021, in response to the Truth & Reconciliation Calls to Action and the elevation of Orange Shirt Day to a national day of recognition, we expanded that program significantly to raise awareness and bring atten- tion to the need for reconciliation in Canada. In partnership with the Blue Bombers and several Indigenous or- ganizations we brought 1,000 Indig- enous guests to a CFL game to rec- ognize Orange Shirt Day. That event has expanded every year since then and in 2024 more than 70 communi- ties from coast to coast were involved in the event. Many of the community members had never travelled outside of their community nor had the oppor- tunity to attend a professional sporting event and cheer as one with 30,000 other fans. The excitement and cama- E X C H A N G E I N C O M E C O R P O R A T I O N 29 raderie of the guests, and the more than 200 volunteers, was evident on their faces as they arrived the week of the game and while attending the game. As part of the initiative, EIC cov- ers the cost of transportation, lodging, and provides each of the participants with orange gear to wear to the game. All volunteers complete reconciliation education. The awareness this event now raises, across Canada, and the impact it has for both participants and our volunteers are immeasurable and is the reason why we will continue to expand our focus on Truth and Recon- ciliation and will continue this mean- ingful event in 2025. 2024 was an illustration of an adage of reaping the harvest of the seeds sown in the past. Our record results are the product of our investments made in the previous years and the continued execution of our strategy. Although we set several records for our key per- formance indicators, 2024 was not a simple year as our various businesses were impacted by geopolitical uncer- tainty associated with the US election coupled with an uncertain economy as central banks were actively monitor- ing inflationary pressures in making in- terest rate decisions. Overall, we were very happy with the performance of our business and our results demon- strate the resilience and diversifica- tion of our business model. We are not resting on our laurels; rather we con- tinue to sow seeds for future growth. We continue to invest in our operating subsidiaries and the Canadian North transaction is another prime example of an acquisition which will set us up to real- ize on opportunities. Each of our business lines has strong fundamental growth op- portunities and the senior management teams are regularly in contact with each other to discuss how each can capitalize on the opportunities before them, wheth- er by the way of acquisition or organic growth capital investment. I would like to thank all our sharehold- ers, employees, and stakeholders for their continued support. I look forward to discussing our progress with the re- lease of our 2025 first quarter results and seeing you at our AGM in May. I also wanted to say thank you for your support over the past 20 years and I am a firm believer that our next 20 will be even more successful. Mike Pyle Chief Executive Officer Link to Orange Shirt Day Video 2 0 2 4 A N N U A L R E P O R T 30 February 26, 2025 TABLE OF CONTENTS 1) FINANCIAL HIGHLIGHTS AND SIGNIFICANT EVENTS 36 2) ANNUAL RESULTS OF OPERATIONS 39 3) FOURTH QUARTER RESULTS 44 4) INVESTING ACTIVITIES 48 5) DIVIDENDS AND PAYOUT RATIOS 52 6) OUTLOOK 54 7) LIQUIDITY AND CAPITAL RESOURCES 57 8) RELATED PARTY TRANSACTIONS 61 9) CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 62 10) ACCOUNTING POLICIES 66 11) CONTROLS AND PROCEDURES 66 12) RISK FACTORS 66 13) NON-IFRS FINANCIAL MEASURES AND GLOSSARY 85 14) SELECTED ANNUAL AND QUARTERLY INFORMATION 88 15) INDEPENDENT AUDITOR’S REPORT 90 16) CONSOLIDATED FINANCIAL STATEMENTS 96 17) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 100 2024 Annual Report | 31 OPERATING RESULTS AND FINANCIAL POSITION FOR THE YEAR ENDED DECEMBER 31, 2024 Management Discussion & Analysis PREFACE This Management’s Discussion and Analysis (“MD&A”) supplements the audited consolidated financial statements and related notes for the year ended December 31, 2024 (“Consolidated Financial Statements”) of Exchange Income Corporation (“EIC” or “the Corporation”). All amounts are stated in thousands of Canadian dollars, except per share information and share data, unless otherwise stated. This MD&A should be read in conjunction with the Consolidated Financial Statements of the Corporation for the year ended December 31, 2024. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). FORWARD-LOOKING STATEMENTS This report and the documents incorporated by reference herein contain forward-looking statements. All statements other than statements of historical fact contained in this report and the documents incorporated by reference herein are forward-looking statements, including, without limitation, statements regarding the future financial position, business strategy, completed and potential acquisitions or investments and the potential impact of such completed and/or potential acquisitions or investments on the operations, financial condition, capital resources and business of the Corporation and/ or its subsidiaries, the Corporation’s policy with respect to the amount and/or frequency of dividends, budgets, litigation, projected costs and plans and objectives of or involving the Corporation or its subsidiaries or any businesses to potentially be acquired by the Corporation. Prospective investors can identify many of these statements by looking for words such as “believes”, “expects”, “will”, “may”, “intends”, “projects”, “anticipates”, “plans”, “estimates”, “continues” and similar words or the negative thereof. Although management believes that the expectations represented in such forward- looking statements are reasonable at the time they are made, there can be no assurance that such expectations will prove to be correct. Forward-looking statements are necessarily based upon a number of expectations or assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies. There can be no assurance that such expectations or assumptions will prove to be correct. A number of factors could cause actual future results, performance, achievements, and developments of the Corporation and/or its subsidiaries to differ materially from anticipated results, performance, achievements, and developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to: economic and geopolitical conditions; competition; government funding for Indigenous health care; access to capital; market trends and innovation; general uninsured loss; climate; acts of terrorism, armed conflict, labour or social unrest; pandemic; level and timing of government spending; government funded programs; environmental, social and governance; significant contracts and customers; operational performance and growth; laws, regulations and standards; acquisition risk (including receiving any requisite regulatory approvals thereof); concentration and diversification risk; maintenance costs; access to parts and relationships with key suppliers; casualty losses; environmental liability risks; dependence on information systems and technology; cybersecurity; international operations risks; fluctuations in sales prices of aviation related assets; fluctuations in purchase prices of aviation related assets; warranty risk; performance guarantees; global offset risk; intellectual property risk; availability of future financing; income tax matters; commodity risk; foreign exchange; interest rates; credit facility and the trust indentures; dividends; unpredictability and volatility of prices 32 | Exchange Income Corporation of securities; dilution risk; credit risk; reliance on key personnel; employees and labour relations; and conflicts of interest. A further discussion of these risks is included in Section 12 – Risk Factors. For each of the foregoing reasons, readers are cautioned not to place undue reliance on forward-looking statements. The information contained or incorporated by reference in this report identifies additional factors that could affect the operating results and performance of the Corporation and its subsidiaries. Assumptions about the performance of the businesses of the Corporation and its subsidiaries are considered in setting the business plan for the Corporation and its subsidiaries and in setting financial targets. Should one or more of the risks materialize or the assumptions prove incorrect, actual results, performance, or achievements of the Corporation and its subsidiaries may vary materially from those described in forward-looking statements. The forward-looking statements contained herein or contained in a document incorporated by reference herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included or incorporated by reference in this report are made as of the date of this report or such other date specified in such statement. Except as required by law, the Corporation disclaims any obligation to update any forward-looking information, estimates or opinions, future events or results, or otherwise. EXCHANGE INCOME CORPORATION The Corporation is a diversified, acquisition-oriented corporation focused on opportunities in the Aerospace & Aviation and Manufacturing segments. The business plan of the Corporation is to invest in profitable, well-established companies with strong cash flows operating in niche markets. The objectives of the Corporation are: (i) to provide shareholders with stable and growing dividends; (ii) to maximize shareholder value through ongoing active monitoring of and investment in its operating subsidiaries; and (iii) to continue to acquire additional businesses or interests therein to expand and diversify the Corporation’s investments. Segment Summary The Corporation’s operating segments are strategic business units that offer different products and services. The Corporation has two operating segments: Aerospace & Aviation and Manufacturing. All consolidated revenue percentages noted below have been calculated by adjusting revenues for business acquisitions that were completed in fiscal 2024 to reflect a full year contribution. Aerospace & Aviation Segment The Aerospace & Aviation segment is comprised of three lines of business: Essential Air Services, Aerospace, and Aircraft Sales & Leasing. Essential Air Services includes both fixed wing and rotary wing operations. Under various brand names across Canada, our subsidiaries provide essential services to Canada’s northern and remote communities, including medevac, passenger, charter, freight services, and auxiliary services. The majority of the communities we serve are not accessible year-round by ground transportation, meaning our airlines provide a vital link into these communities. Our operations span across Canada, and more specifically include operations in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Nunavut, Ontario, and Quebec. The Corporation also operates two flight schools, training pilots both for our own airlines and for airlines around the world. Essential Air Services accounted for approximately 36% of the Corporation’s consolidated revenues in fiscal 2024. Items impacting margins within this business are fuel prices, load factors, weather, and, in the current operating environment, the ability to source a full complement of pilots and aircraft mechanics. Labour costs in these areas have increased well above the rate of inflation and in certain circumstances cannot be immediately flowed through to the customer. 2024 Annual Report | 33 Essential Air Services includes the operations of Calm Air International LP, CANLink Aviation Inc. (MFC Training), Carson Air Ltd., Custom Helicopters Ltd., Keewatin Air LP, PAL Airlines Ltd., and Perimeter Aviation LP (including its operating division, Bearskin Airlines). Aerospace includes our vertically integrated aerospace offerings that provide customized and integrated special mission aircraft solutions primarily to governments across the globe. These services encompass mission systems design and integration, aircraft modifications, intelligence, surveillance, reconnaissance operations (“ISR”), software development, logistics and in-service support. Most of these services are provided pursuant to long term government contracts. In addition, our subsidiaries deliver training solutions across an array of aviation platforms and have in- depth experience in training pilots and sensor operators on both manned and unmanned aircraft for government agencies. Aerospace accounted for approximately 11% of the Corporation’s consolidated revenues in fiscal 2024. Training solutions typically generate lower margins as there are low capital requirements outside of working capital, whereas ISR flying operations typically have higher margins as the upfront investment in the owned assets to perform the ISR flying operations is reflected as an expense through depreciation. Aerospace includes the operations of Crew Training International, Inc. and PAL Aerospace Ltd. Aircraft Sales & Leasing includes aftermarket aircraft, engine and parts sales, aircraft and engine leasing and aircraft management services. Our subsidiaries specialize in regional and commuter aircraft and seek to monetize their portfolio over the full life cycle of the asset. Our subsidiaries are not typical finance lessors; rather, assets are leased for shorter durations to consume the available green time on those assets. Once the green time has been consumed, the assets can then either be overhauled and leased out again, or torn down into piece parts and sold to airlines around the world to generate further cash flows. Revenue streams include selling whole aircraft, engines and components of those assets, leasing of aircraft and engines, and fee income earned through the provision of services for third parties such as asset management or consignment sales. Our expertise in understanding the value of each component of an aircraft and the anticipated demand for those components, including the next major shop visits and next major overhaul event for each platform we specialize in, provides a competitive advantage on what to buy and what to pay. Aircraft Sales & Leasing accounted for approximately 13% of the Corporation’s consolidated revenues in fiscal 2024. The most significant item impacting margins in this line of business is sales mix. Leasing contributes very high margins and therefore variability in leasing revenue has the largest impact on margins. Within this business line, parts revenue is the most predictable and stable from both sales and margin perspectives; whereas the sale of aircraft and engines varies on a period to period basis, both in volume and in price, but are generally higher dollar and lower margin transactions. Aircraft Sales & Leasing includes the operations of EIC Aircraft Leasing Limited and Regional One, Inc. Manufacturing Segment The Manufacturing segment is comprised of three lines of business: Environmental Access Solutions, Multi-Storey Window Solutions, and Precision Manufacturing & Engineering. Environmental Access Solutions provides matting solutions in both Canada and the United States. In Canada, Environmental Access Solutions is the largest provider of temporary access solutions, providing a turnkey service which includes planning, consultation, delivery and installation, logistical support, and removal and washing solutions. Our access solutions and related services provide temporary ground protection that allow customers to access job sites or use heavy machinery and equipment on wet, loose, or otherwise unstable or environmentally sensitive ground. Access mats and bridges provide access to remote areas in a much more environmentally friendly manner than the construction of temporary gravel roads and installation of culverts and water-diversion devices, which are difficult to remove and remediate and can cause cross-contamination of soil. As the largest operator in this industry, we provide a one-stop solution for our clients with a vertically integrated platform including in-house mat manufacturing capabilities, a sizable fleet of trucks and equipment, and a portable, patented closed-loop mat washing system. 34 | Exchange Income Corporation In the United States, Environmental Access Solutions is one of three manufacturers of composite access mats. While these composite mats are used for the same purposes as the wood mats in Canada, the composite mats are fully recyclable at the end of their useful lives, offering customers a lighter weight, sustainable alternative to traditional wood mats in climates where the composite mats outperform wood mats. Environmental Access Solutions accounted for approximately 10% of the Corporation’s consolidated revenues in fiscal 2024. Rentals generate higher margins than other lines of business within Environmental Access Solutions. Rental activity is influenced by several factors, such as the supply of mats in the marketplace, the availability and pricing of timber used in mat production, and weather conditions, including the amount of precipitation and temperature. In addition to rentals, the sale of mats and the overall sales mix in a given period can also have a significant impact on margins. These mat sale transactions are generally higher dollar value and lower margin when compared to rental revenue. Environmental Access Solutions includes the operations of Northern Mat and Bridge LP, Spartan Mat Inc. and Spartan Composites Inc. Multi-Storey Window Solutions includes the design, manufacture and installation of the exteriors of residential and mixed-use high rise buildings which integrate residential, retail, and office spaces. Our subsidiaries manufacture an advanced unitized window wall system, curtain wall, and railing solutions. This business line provides solutions for the entire façade, including the windows, operable elements and opaque areas that surround the exterior envelope of a building. Our vertically integrated offering within Multi-Storey Window Solutions includes installation services in both Canada and in the United States. In the United States, we have the capability to install both our internally manufactured window solutions and those manufactured by others. Multi-Storey Window Solutions accounted for approximately 17% of the Corporation’s consolidated revenues in fiscal 2024. The most significant items impacting margins within this line of business are the cost of raw materials and product mix. Since our subsidiaries both manufacture and install exteriors of high-rise buildings, the margins realized in a particular period can vary based on the type of work performed. Installation, particularly on jobs completed with non-Quest/BVGlazing product, generates lower margins than for supply and install projects. Multi-Storey Window Solutions includes the operations of BVGlazing Systems and Quest Window Systems. Precision Manufacturing & Engineering provides engineering and precision manufacturing services throughout North America in a wide variety of industries. These services include: wireless and wireline construction and maintenance services; the manufacture of precision parts and components for a variety of industries; the manufacture of portable hydronic climate control equipment; the manufacture of specialized stainless steel tanks, vessels, and processing equipment; electrical and control systems integration focused on the agricultural material handling segment; and the manufacture of specialized heavy-duty pressure washing and steam systems, commercial water recycling systems, and custom tanks. Precision Manufacturing & Engineering accounted for approximately 13% of the Corporation’s consolidated revenues in fiscal 2024. Margins in this line of business are typically stable. While there may be margin pressure in times of rapid escalation of prices of raw materials, generally our subsidiaries have the ability to pass on these costs to customers over time due to the specialty nature of the products that are being provided. Precision Manufacturing & Engineering includes the operations of Ben Machine Products Company Incorporated, DryAir Manufacturing Corp., Hansen Industries Ltd., LV Control Mfg. Ltd., Overlanders Manufacturing LP, Stainless Fabrication, Inc., Water Blast Manufacturing LP, and WesTower Communications Ltd. Management of the Corporation continuously monitors and provides support to the operating subsidiaries. The operating subsidiaries of the Corporation, however, operate autonomously and maintain their individual business identities. 2024 Annual Report | 35 1. FINANCIAL HIGHLIGHTS AND SIGNIFICANT EVENTS The financial highlights for the Corporation for the periods indicated are as follows: FINANCIAL PERFORMANCE 2024 per share basic per share diluted 2023 per share basic per share diluted For the year ended December 31 Revenue $ 2,659,895 $ 2,498,415 Adjusted EBITDA(1) 628,064 555,525 Net Earnings 121,235 $ 2.55 $ 2.49 122,307 $ 2.72 $ 2.65 Adjusted Net Earnings(1) 147,348 3.10 2.99 144,051 3.20 3.07 Free Cash Flow(1) 409,155 8.60 7.60 377,118 8.39 7.38 Free Cash Flow less Maintenance Capital Expenditures(1) 199,266 4.19 3.89 201,827 4.49 4.13 Dividends declared 125,888 2.64 114,588 2.54 Trailing Twelve months as at December 31 Adjusted Net Earnings payout ratio(1) 85% 80% Free Cash Flow less Maintenance Capital Expenditures payout ratio(1) 63% 57% FINANCIAL POSITION December 31, 2024 December 31, 2023 Working capital $ 628,431 $ 540,720 Capital assets 1,824,607 1,571,067 Total assets 4,598,988 4,079,807 Long-term debt 1,821,866 1,422,642 Equity 1,409,669 1,245,473 SHARE INFORMATION December 31, 2024 December 31, 2023 Common shares outstanding 49,602,431 47,136,625 December 31, 2024 December 31, 2023 Weighted average shares outstanding during the period – basic 47,582,612 44,970,513 Note 1) As defined in Section 13 – Non-IFRS Financial Measures and Glossary. SIGNIFICANT EVENTS Normal Course Issuer Bid (“NCIB”) On March 14, 2024, the Corporation renewed its NCIB for common shares and certain series of convertible debentures. Under the renewed NCIB for common shares, purchases can be made during the period commencing on March 19, 2024, and ending on March 18, 2025. The Corporation can purchase a maximum of 4,414,853 shares and daily purchases will be limited to 22,369 shares, other than block purchase exemptions. The Corporation renewed its NCIB because it believes that from time to time, the market price of the common shares may not fully reflect the value of the common shares. The Corporation believes that in such circumstances, the purchase of common shares represents an accretive use of capital. Under the NCIB for certain series of convertible debentures, purchases can be made during the period commencing on March 19, 2024, and ending on March 18, 2025. The Corporation can purchase a maximum of $7,970 principal amount of 36 | Exchange Income Corporation 7 year 5.35% convertible unsecured subordinated debentures of EIC (June 2018), $8,607 principal amount of 7 year 5.75% convertible unsecured subordinated debentures of EIC (March 2019), $14,373 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC (July 2021), and $11,500 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC (December 2021), with daily purchases of principal amount, other than block purchase exceptions, limited to $646, $711, $1,212, and $1,628, respectively. The Corporation sought the NCIB for debentures to permit repurchase and cancellation of these securities during times of market instability where management believes the market price does not reflect the value of the debentures. Credit Facility Upsize and Extension On May 6, 2024, the Corporation amended its credit facility. The enhanced credit facility increased to approximately $2.2 billion from approximately $2.0 billion, extended its term to May 6, 2028, and was completed with no change in pricing. This included $1.846 billion allocated to the Corporation’s Canadian head office and US $260 million allocated to EIIF Management USA, Inc. The amount allocated to the Corporation’s Canadian head office includes a new $200 million social loan tranche, which will be used to fund the purchase of new King Air aircraft for the long-term medevac contract with the Province of British Columbia. The $200 million social loan permits the Corporation to draw on that portion of the facility as the new aircraft are delivered and modified for medical purposes. As part of the transaction, ISS Corporate provided an independent Second Party Opinion that concluded the loan is in alignment with the Social Loan Principles as issued by the Loan Market Association. The increased size of the facility provides the Corporation capacity to continue to execute on its core strategy of pursuing accretive growth through investment in its operating subsidiaries and through acquisition. On October 30, 2024, the Corporation, at its option, reallocated US $100 million from the Corporation’s Canadian head office to EIIF Management USA Inc. There was no change to the overall commitment to the consolidated group under the credit facility. This reallocation was completed in preparation for the closing of the purchase of Spartan. Acquisition of Armand Duhamel & Fils Inc. On June 21, 2024, the Corporation acquired Armand Duhamel & Fils Inc. (“Duhamel”) for a purchase price of $19.5 million, which can increase up to $22.5 million if certain post-closing targets are achieved. The initial purchase price includes EIC share consideration of $3 million and $16.5 million cash paid on closing, and is subject to customary post closing adjustments. Duhamel, located in St-Ignace-de-Stanbridge, Quebec, operates a sawmill operation primarily focused on the manufacture and sale of eastern hemlock products. Duhamel will play an important role to further grow the Corporation’s Environmental Access Solutions business line in the Quebec and Eastern Canada markets. Province of Newfoundland and Labrador Integrated Ambulance Services Contract Award On October 3, 2024, the Corporation announced it was the successful bidder to provide integrated fixed-wing and rotary air ambulance services for the Province of Newfoundland and Labrador. The tendered 10-year contract with a 5-year renewal requires a fleet of up to 6 aircraft. The aircraft are expected to be phased into service with the first aircraft going into service later in 2025. Airborne Intelligence, Surveillance and Reconnaissance Support Contract Award On October 30, 2024, the Corporation was awarded a new 15-month contract to provide airborne intelligence, surveillance and reconnaissance support to the United Kingdom Home Office. The new contract follows an initial contract that saw the deployment of ISR aircraft and expands the Corporation’s contribution to the agency’s enhancement of border security, combat transnational crime and protect vulnerable individuals from exploitation by migrant smugglers. Expanded in scope, this contract will see the Corporation deploy a second aircraft during 2025 and additional technical capabilities to augment their existing operation. Extension of Nunavut Medevac Contracts During the third quarter, the Corporation extended its medevac contracts to service the three separate regions of Nunavut into 2026. These contract extensions included price increases to reflect above inflationary cost escalation in the business since the last contract was signed. 2024 Annual Report | 37 Acquisition of Spartan Mat LLC and Spartan Composites LLC On November 13, 2024, the Corporation completed the acquisition of Spartan Mat LLC, and Spartan Composites LLC (collectively “Spartan”) for US $120 million, including purchase price consideration of US $18 million in EIC common shares, subject to customary post closing adjustments. Spartan, located in Rockledge, Florida is one of three manufacturers of composite access mats in North America. The composite mat is fully recyclable at the end of its useful life, offering customers a sustainable alternative to traditional wood mats. At less than half the weight of a traditional wood mat, it also significantly reduces transportation costs. The acquisition of Spartan is highly strategic in expanding the Corporation’s Environmental Access Solutions business line into the United States matting market. Early Redemption of Convertible Debentures On December 20, 2024, the Corporation redeemed its 7 year, 5.35% convertible debentures which were due on June 30, 2025. Prior to the redemption date, $69 million par value was converted into 1,407,968 common shares at a price of $49.00 per share. On December 20, 2024, the remaining outstanding principal amount of $11 million was redeemed by the Corporation. The redemption of the debentures was completed with cash on hand from the Corporation’s credit facility. SUBSEQUENT EVENTS Early Redemption of Convertible Debentures On February 13, 2025, the Corporation redeemed its 7 year, 5.75% convertible debentures which were due on March 31, 2026. Prior to the redemption date, $78 million par value was converted into 1,605,618 common shares at a price of $49.00 per share. On February 13, 2025, the remaining outstanding principal amount of $8 million was redeemed by the Corporation. The redemption of the debentures was completed with cash on hand from the Corporation’s credit facility. Interim Rotary Wing Medevac Contract The Corporation has recently been awarded a contract to provide a medevac helicopter to the Government of Newfoundland and Labrador for an interim period of six to twelve months beginning during the second quarter of 2025 while the new, full contract is being finalized. Binding Purchase Agreement to Acquire Canadian North On February 24, 2025, the Corporation announced it had signed a binding purchase agreement to acquire Bradley Air Services Limited, operating as Canadian North, for a purchase price of $205 million, subject to adjustments. The purchase price will be funded by cash in the amount of $195 million from the Corporation’s credit facility and $10 million of EIC common shares issued to the vendors. Canadian North provides essential passenger and cargo services, using a combination of leased and owned 737 jets and ATR turboprops, to 24 remote Canadian Arctic communities in Nunavut and the Northwest Territories, from its southern gateways in Ottawa and Edmonton. Canadian North is also the premier provider of air charter services for large resource sector clients requiring dependable, efficient, and economical fly-in, fly- out charter services. Closing of the transaction is subject to obtaining required regulatory approvals and other customary closing conditions and is expected to occur later this year. 38 | Exchange Income Corporation 2. ANNUAL RESULTS OF OPERATIONS The following section analyzes the financial results of the Corporation for the year ended December 31, 2024, and the comparative 2023 year. Year Ended December 31, 2024 Aerospace & Aviation Manufacturing Head Office (2) Consolidated Revenue $ 1,644,277 $ 1,015,618 $ – $ 2,659,895 Expenses (1) 1,120,199 862,954 48,678 2,031,831 Adjusted EBITDA 524,078 152,664 (48,678) 628,064 Depreciation of capital assets 247,846 Amortization of intangible assets 22,510 Finance costs – interest 129,748 Depreciation of right of use assets 40,059 Interest expense on right of use lease liabilities 8,113 Acquisition costs 6,860 Restructuring costs 4,944 Earnings before income taxes 167,984 Current income tax expense 40,318 Deferred income tax expense 6,431 Net Earnings $ 121,235 Net Earnings per share (basic) $ 2.55 Adjusted Net Earnings $ 147,348 Adjusted Net Earnings per share (basic) $ 3.10 2024 Annual Report | 39 Year Ended December 31, 2023 Aerospace & Aviation Manufacturing Head Office (2) Consolidated Revenue $ 1,498,216 $ 1,000,199 $ — $ 2,498,415 Expenses (1) 1,083,745 819,628 39,517 1,942,890 Adjusted EBITDA 414,471 180,571 (39,517) 555,525 Depreciation of capital assets 208,492 Amortization of intangible assets 20,244 Finance costs – interest 112,316 Depreciation of right of use assets 37,091 Interest expense on right of use lease liabilities 7,471 Acquisition costs 7,769 Other (951) Earnings before income taxes 163,093 Current income tax expense 26,016 Deferred income tax expense 14,770 Net Earnings $ 122,307 Net Earnings per share (basic) $ 2.72 Adjusted Net Earnings $ 144,051 Adjusted Net Earnings per share (basic) $ 3.20 Note 1) Expenses include aerospace & aviation expenses (excluding depreciation and amortization), manufacturing expenses (excluding depreciation and amortization) and general and administrative expenses. Note 2) Head Office is not a separate reportable segment. It includes expenses incurred at the head office of the Corporation and is presented for reconciliation purposes. REVENUE AND ADJUSTED EBITDA (Section 13 – Non-IFRS Financial Measures and Glossary) On a consolidated basis, the Corporation generated revenue of $2.7 billion, an increase of $161 million, or 6% over the prior year. The increase occurred in both of Corporation’s segments, with the Aerospace & Aviation segment increasing by $146 million over the prior year and the Manufacturing segment increasing by $15 million over the prior year. Adjusted EBITDA of $628 million was generated by the Corporation during the year, an increase of $73 million or 13% over the prior year. The increase was attributable to the Aerospace & Aviation segment which increased by $110 million over the prior year. This increase was partially offset by a decrease in the Manufacturing segment of $28 million from the prior year. Head Office costs increased by $9 million over the prior year which is attributed to increased expenditures in information technology and cybersecurity, the expansion of the Atik Mason Indigenous Pilot Pathway to a third location in Rankin Inlet, increases in professional service fees, and increased compensation expense. Aerospace & Aviation Segment Revenue generated by the Aerospace & Aviation segment increased by $146 million or 10% to $1.6 billion. Revenue within Essential Air Services increased 17% over the prior year. This increase is primarily attributable to higher average load factors and the positive impact of expanded routes on the East Coast, including routes flown on behalf of Air Canada. Revenues under medevac operations have also increased, primarily attributed to the commencement of the 40 | Exchange Income Corporation Manitoba Critical Care Contract, improved yields on Nunavut operations, and the benefit of expanded scope under the new the British Columbia Emergency Health Services (“BCEHS”) contract. Despite a significant delay in the delivery of the new aircraft from the manufacturer for the BCEHS contract, we were able to provide service under the expanded contract with existing aircraft. Revenue within Aircraft Sales & Leasing increased 19% over the prior year. The increase is primarily attributable to continued improvement in leasing activity during the year. Increased parts demand during the year also contributed positively to the year over year increase, partially offset by a decrease in large asset sales. Large asset sales can fluctuate quarter to quarter and are generally higher dollar transactions with lower margins. Leasing revenue during the year was $80 million (2023 - $53 million) and sales and service revenue, which is the total revenue from all other streams in this business line other than leasing revenue, was $279 million (2023 - $250 million). Revenue within Aerospace decreased 15% from the prior year. The decrease in revenue is primarily attributed to a decrease in revenue within our training business as the planned wind down of existing programs occurred prior to the start of new programs and the impact of a change in scope on one of its support contracts. In particular, the support contract has changed from a performance-based logistics arrangement which typically produces steady revenues to a time and materials arrangement which produces revenues that can vary quarter to quarter. Adjusted EBITDA generated by the Aerospace & Aviation segment increased $110 million or 26% to $524 million. Adjusted EBITDA within Essential Air Services increased 27% over the prior year. The increases in revenue discussed above contributed to the increase in Adjusted EBITDA. In addition, increased pricing for certain medevac contracts to account for previous above inflationary cost escalation contributed positively to Adjusted EBITDA during the year. Investments made previously in our fleets of fixed wing aircraft are starting to produce the returns that were expected when the capital was deployed and we expect a full year contribution from the assets in 2025. Adjusted EBITDA within Aircraft Sales & Leasing increased by 40% over the prior year, primarily attributed to an increase in leasing activity during the period. Margins within this revenue stream are higher than other revenue streams as the capital cost associated with leasing is represented through depreciation, having an outsized impact on Adjusted EBITDA compared to revenue. Consistent with management’s expectations, leasing revenues, which generate higher margins as compared to sales and service revenues, are continuing to increase as more assets are being deployed while run-rates return to historical norms. Adjusted EBITDA within Aerospace increased 8% over the prior year. The increase is attributable to increased ISR flying globally. Adjusted EBITDA increased while revenue declined due to a change in product mix as the training business saw a decline in revenue but generates lower margins while the higher capital intensity nature of ISR flying revenue results in higher Adjusted EBITDA margins. Manufacturing Segment Revenue generated by the Manufacturing segment increased by $15 million or 2% to $1.0 billion. Revenue generated within Environmental Access Solutions decreased by 13% over the prior year. The prior year experienced significant demand for mat and bridge rentals as long linear projects active during the first half of the year and milder weather that is more conducive to activity requiring mat usage resulted in a significant number of rental mats being deployed. The demand for the first half of 2023 was outside of the norm with respect to seasonality traditionally experienced within this business. As this large project started to wind down in the second quarter of 2023, we expect this business to return to more normal seasonality. The second half of the current year experienced the impact of dryer weather and forest fires which decreased the demand for both mat and bridge rentals and sales when compared to the prior year. This business line was positively impacted by the partial year contribution of Duhamel, acquired on June 21, 2024 and the acquisition of Spartan, acquired on November 13, 2024. Revenue generated within Multi-Storey Window Solutions increased 11% over the prior year. The Corporation acquired BVGlazing in May of 2023, for which there is only a partial comparative in the prior year, contributing to the increase in 2024 Annual Report | 41 revenue. During the second half of 2024, the business line began actively integrating the processes of Quest and BVGlazing and the expected production benefits will start to become evident in future periods. The business line continues to manage through project delays and inefficiencies caused by those delays. While the recent declines in benchmark borrowing rates have been positive for our order book, the long lead time between order and build means those positive developments have not yet begun to impact our financial results. Revenue generated within Precision Manufacturing & Engineering was consistent with the prior period. DryAir was acquired in October 2023, with only a partial comparative in the prior year. This increase however, was offset by declines in revenue at our pre-existing businesses as a result of several macroeconomic factors which have led to customers delaying large capital projects. As discussed in prior periods, consistent with previous election cycles, certain customers in the US had put spending on hold until after the US election, and consistent with our previous experience during election cycles, this temporary pause abated once the election was completed. Adjusted EBITDA generated by the Manufacturing segment decreased by $28 million or 15% to $153 million. Adjusted EBITDA within Environmental Access Solutions declined by 22% from the prior year. Adjusted EBITDA declined for the same reasons as discussed in the revenue section above. As a result of the long linear project in the prior year, the demand for rental mats and bridges was higher than in the current year. This change in product mix resulted in Adjusted EBITDA declining at a faster rate than revenue declined since rental revenue carries a higher Adjusted EBITDA margin compared to mat sales revenue. The business line was positively impacted by the partial year contributions from the acquisition of Duhamel and Spartan. Adjusted EBITDA within Multi-Storey Window Solutions decreased 10% from the prior period. The full year of operations from BVGlazing drove an increase in Adjusted EBITDA. This increase was offset by a shift in product mix towards lower Adjusted EBITDA margin third party installations, operational inefficiencies driven by project delays and the impact of the strategic decision to retain experienced staff to allow us to complete projects for our customers that are in our backlog for future periods. During the year, the Corporation recorded a restructuring provision with respect to the costs of combining the two entities which has been excluded from Adjusted EBITDA. Adjusted EBITDA within Precision Manufacturing & Engineering decreased 10% from the prior period. An unseasonably warm fall and winter decreased demand for hydronic heating solutions compared to the prior year, along with US customers deferring capital spend as a result of macroeconomic uncertainty, negatively impacted Adjusted EBITDA. In addition, a change in sales mix to lower margin revenue streams also contributed to the decrease in Adjusted EBITDA. NET EARNINGS Year Ended December 31, 2024 2023 Net Earnings $ 121,235 $ 122,307 Net Earnings per share $ 2.55 $ 2.72 Net Earnings was $121 million, a decrease of $1 million or 1% from the prior year. The Corporation generated higher Adjusted EBITDA compared to the prior year as discussed above, but this increase was offset by several items. First, a gain on contingent consideration of $1 million in the prior year, did not recur in 2024. Second, interest costs increased over the prior year by $17 million due an increase in long-term debt to fund the acquisition and organic growth activity of the Corporation. If not for the interest rate swaps the Corporation entered into during 2023, that resulted in the fixed rate of interest being well below the floating rate of interest, the increase in interest costs would have been higher. Third, depreciation of capital assets increased $39 million over the prior period due to the acquisition activity and investment in Growth Capital Expenditures. Finally, an increase in amortization of intangible assets from the Corporation’s 2023 and 2024 acquisition activity further decreased Net Earnings. Income tax expense increased by $6 million over the prior year, and the Corporation’s effective tax rate increased to 28% from 25% primarily as a result of three factors. First, a greater portion of pre-tax earnings was generated in higher tax 42 | Exchange Income Corporation jurisdictions than in the prior period. Second, the impact of the introduction of Global Minimum Tax legislation increased tax expense in the current period. Finally, in the prior period, the Corporation generated a $1 million gain on remeasurement of contingent consideration which was not subject to tax and reduced the effective tax rate in the prior period Current tax expense was higher than the prior period primarily due to higher pre-tax earnings in higher tax rate jurisdictions, reduced accelerated depreciation for tax purposes in Canada and the US, and to a lesser extent the impact of Global Minimum Tax legislation. Net Earnings per share decreased by 6% from the prior period to $2.55. The weighted average number of shares increased by 6%, which reduced Net Earnings per share. During 2023, the Corporation completed its largest common share offering in its history to fund capital expenditures required for recent contract wins. Details around the change in shares outstanding can be found in Section 7 – Liquidity and Capital Resources. ADJUSTED NET EARNINGS (Section 13 – Non-IFRS Financial Measures and Glossary) Year Ended December 31, 2024 2023 Net Earnings $ 121,235 $ 122,307 Acquisition costs (net of tax of $1,092 and $904) 5,768 6,865 Amortization of intangible assets (net of tax of $5,965 and $5,365) 16,545 14,879 Restructuring (net of tax of $1,335 and $nil) 3,609 — Accelerated interest accretion on redeemed debentures (net of tax of $71 and $nil) 191 — Adjusted Net Earnings $ 147,348 $ 144,051 per share – Basic $ 3.10 $ 3.20 per share – Diluted $ 2.99 $ 3.07 Adjusted Net Earnings generated by the Corporation during the year was $147 million, an increase of $3 million or 2% over the prior year. Adjusted Net Earnings includes the add-back of acquisition-related costs, which are comprised of $17 million in intangible asset amortization and $6 million in acquisition costs, both net of tax, restructuring charges of $4 million, net of tax and accelerated interest accretion on redeemed debentures of $191, net of tax. Details around the calculation of Adjusted Net Earnings can be found in Section 13 – Non-IFRS Financial Measures and Glossary. Adjusted Net Earnings per share decreased by 3% from the prior year to $3.10. The weighted average number of shares increased by 6%, which reduced Adjusted Net Earnings per share. During 2023, the Corporation completed its largest common share offering in its history to fund capital expenditures required for recent contract wins. Details around the change in shares outstanding can be found in Section 7 – Liquidity and Capital Resources. FREE CASH FLOW (Section 13 – Non-IFRS Financial Measures and Glossary) FREE CASH FLOW Year Ended December 31, 2024 2023 Cash flows from operations $ 357,008 $ 353,226 Change in non-cash working capital 81,787 52,555 Acquisition costs (net of tax of $1,092 and $904) 5,768 6,865 Principal payments on right of use lease liabilities (39,017) (35,528) Restructuring (net of tax of $1,335 and $nil) 3,609 — $ 409,155 $ 377,118 per share – Basic $ 8.60 $ 8.39 per share – Diluted $ 7.60 $ 7.38 2024 Annual Report | 43 The Free Cash Flow generated by the Corporation during the year was $409 million, an increase of $32 million, or 8% over the prior year. The primary reason for this increase is the $73 million increase in Adjusted EBITDA, which was partially offset by increases in cash interest and current taxes, and to a lesser extent, an increase in principal payments on right of use assets. Free Cash Flow is discussed further in Section 13 – Non-IFRS Financial Measures and Glossary. Free Cash Flow on a basic per share basis increased 3% over the prior year to $8.60. The weighted average number of shares increased by 6%, which reduced Free Cash Flow per share. During 2023, the Corporation completed its largest common share offering in its history to find capital expenditures required for recent contract wins. Details around the increase in shares outstanding can be found in Section 7 – Liquidity and Capital Resources. Changes in non-cash working capital are included in cash flow from operations per the Statement of Cash Flow and are removed in the reconciliation to Free Cash Flow. As a result, it has no impact on the calculation of Free Cash Flow. A detailed discussion of changes in working capital is included in Section 4 – Investing Activities. 3. FOURTH QUARTER RESULTS The following section analyzes the financial results of the Corporation for the three months ended December 31, 2024, and the comparative three-month period in 2023. Three Months Ended December 31, 2024 Aerospace & Aviation Manufacturing Head Office (2) Consolidated Revenue $ 415,358 $ 272,337 $ — $ 687,695 Expenses (1) 274,934 232,797 12,910 520,641 Adjusted EBITDA 140,424 39,540 (12,910) 167,054 Depreciation of capital assets 66,040 Amortization of intangible assets 5,801 Finance costs – interest 34,005 Depreciation of right of use assets 10,390 Interest expense on right of use lease liabilities 2,037 Acquisition costs 2,762 Restructuring costs 4,944 Earnings before income taxes 41,075 Current income tax expense 6,998 Deferred income tax expense 5,903 Net Earnings $ 28,174 Net Earnings per share (basic) $ 0.58 Adjusted Net Earnings $ 38,740 Adjusted Net Earnings per share (basic) $ 0.80 44 | Exchange Income Corporation Three Months Ended December 31, 2023 Aerospace & Aviation Manufacturing Head Office (2) Consolidated Revenue $ 385,233 $ 271,443 $ — $ 656,676 Expenses (1) 276,326 226,031 10,698 513,055 Adjusted EBITDA 108,907 45,412 (10,698) 143,621 Depreciation of capital assets 56,846 Amortization of intangible assets 4,377 Finance costs – interest 29,177 Depreciation of right of use assets 9,824 Interest expense on right of use lease liabilities 2,065 Acquisition costs 2,170 Earnings before income taxes 39,162 Current income tax expense 2,215 Deferred income tax expense 7,920 Net Earnings $ 29,027 Net Earnings per share (basic) $ 0.62 Adjusted Net Earnings $ 33,768 Adjusted Net Earnings per share (basic) $ 0.72 Note 1) Expenses include aerospace & aviation expenses (excluding depreciation and amortization), manufacturing expenses (excluding depreciation and amortization), and general and administrative expenses. Note 2) Head-office is not a separate reportable segment. It includes expenses incurred at the head office of the Corporation and is presented for reconciliation purposes. REVENUE AND ADJUSTED EBITDA (Section 13 – Non-IFRS Financial Measures and Glossary) Revenue generated by the Corporation during the fourth quarter was $688 million, an increase of $31 million or 5% over the prior period. The Aerospace & Aviation segment revenue increased by $30 million and the Manufacturing segment revenue increased by $1 million. Adjusted EBITDA generated by the Corporation during the fourth quarter was $167 million, an increase of $23 million or 16% over the prior period. The increase was attributable to the Aerospace & Aviation segment, which increased by $31 million over the prior period. The Manufacturing segment decreased by $6 million from the prior period. Head Office costs increased by $2 million over the prior period which is attributed to increased expenditures in information technology and cybersecurity, the expansion of the Atik Mason Indigenous Pilot Pathway to a third location in Rankin Inlet, increases in professional service fees and increased compensation expense. Aerospace & Aviation Segment In the Aerospace & Aviation segment, revenue increased by $30 million or 8% to $415 million. Revenue within Essential Air Services increased 15% over the prior period. The reasons for the increase compared to the prior period are largely consistent with the drivers for the annual increase discussed above, including the positive impact of expanded routes on the East Coast, increased revenues under medevac operations attributed to the Manitoba Critical 2024 Annual Report | 45 Care Contract and Nunavut operations, and the expanded scope under the BCEHS contract. Medevac operations within our rotary wing operations also contributed positively to revenue during the period. Revenue within Aircraft Sales & Leasing increased by 48% over the prior period. The increase is attributed to continued improvement in leasing activity. Revenue was also positively impacted by an increase in large asset sales during the period. Large asset sales can fluctuate quarter to quarter and are generally higher dollar transactions with lower margins. Leasing revenue during the period was $21 million (2023 – $15 million) and sales and service revenue, which is the total revenue from all other streams in this business line other than leasing revenue, was $86 million (2023 – $57 million) Revenue within Aerospace decreased 41% from the prior period. The decrease is attributed to a reduction in revenue in our training business as the planned wind down of existing programs occurred prior to the start of new programs and the impact of a change in scope on one of its support contracts. In particular, the support contract has changed from a performance-based logistics arrangement which typically produces steady revenues to a time and materials arrangement which produces revenues that can vary quarter to quarter. Adjusted EBITDA generated by the Aerospace & Aviation segment increased by $31 million or 29% to $140 million. Adjusted EBITDA within Essential Air Services increased by 37% over the prior period. The increases in revenue discussed above drove increases in Adjusted EBITDA. Finally, increased pricing for certain medevac contracts to account for previous above inflationary cost escalation benefitted the period. Investments previously made in our fleets are now starting to produce the returns that were expected when the capital was deployed and we expect a full year contribution from these assets in 2025. Adjusted EBITDA within Aircraft Sales & Leasing increased 54% over the prior period. The increase is primarily attributed to an increase in leasing activity during the period. Margins within this revenue stream are higher than other revenue streams as the capital cost associated with leasing is represented through depreciation, having an outsized impact on Adjusted EBITDA compared to revenue. An increase in large asset sales also contributed to the increase in Adjusted EBITDA during the period. Adjusted EBITDA within Aerospace decreased by 21% from the prior period for the same reasons discussed in the revenue section above. Manufacturing Segment Revenue generated by the Manufacturing segment increased by $1 million to $272 million. Revenue generated within Environmental Access Solutions decreased by 7% from the prior period. Despite experiencing similar demand for rental mats and bridges, the prior period was marked by increased demand for mat sales and auxiliary services which drove the decrease in revenue. The decrease in revenue was partially offset by the contributions from Duhamel and Spartan for which there is no comparative in the prior period. Revenue generated within Multi-Storey Window Solutions decreased 1% from the prior period. This business line continues to manage through project delays and the inefficiencies caused by those delays. While the recent declines in benchmark borrowing rates have been positive for our order book, the long lead time between order and build means those positive developments have not yet started to impact our financial results. The increases in our orderbook generally take between 18 and 24 months before revenue is recorded. Revenue generated within Precision Manufacturing & Engineering increased 6% over the prior period. While the abnormally mild fall and winter discussed earlier negatively impacted demand for hydronic heating solutions in the current period, this was more than offset by increases within our other subsidiaries. As we have seen in previous election cycles, certain customers put spending on hold until more clarity was available on policy going forward. Consistent with our prior experience in election cycles, the waiting on the sidelines quickly abated once the election was over. 46 | Exchange Income Corporation Adjusted EBITDA generated by the Manufacturing segment decreased by $6 million or 13% to $40 million. Adjusted EBITDA within Environmental Access Solutions decreased 16% from the prior period. The reason for the decrease is consistent with the revenue discussion as a consistent demand for rental mats and bridges was offset by a decreased demand for mat sales and auxiliary services. The contribution from the acquisitions of Duhamel and Spartan contributed positively to Adjusted EBITDA during the period as there was no comparative in the prior period. Adjusted EBITDA within Multi-Storey Window Solutions decreased 29% from the prior period. The decrease is attributed to a change in product mix, operational inefficiencies driven by project delays and the strategic decision to retain experienced staff to allow us to meet increased demand in the future as projects that are currently on hold are awarded. During the year, the Corporation recorded a restructuring provision with respect to the costs of combining the two entities which has been excluded from Adjusted EBITDA. Adjusted EBITDA within the Precision Manufacturing & Engineering decreased 2% from the prior period. A change in product mix between entities contributed positively to Adjusted EBITDA during the period, which was offset in a decrease in Adjusted EBITDA due to lower demand for hydronic heating solutions during the period as discussed above. NET EARNINGS Three Months Ended December 31 2024 2023 Net Earnings $ 28,174 $ 29,027 Net Earnings per share $ 0.58 $ 0.62 Net Earnings for the three months ended December 31, 2024, were $28 million, a decrease of $1 million or 3% from the prior period. The Corporation generated higher Adjusted EBITDA compared to the prior period as discussed above, which was offset by two items. First, interest costs increased over the prior period by $5 million due to an increase in long-term debt to fund the acquisition and organic growth activity of the Corporation. Second, depreciation on capital assets increased $9 million over the prior period due to investment in Growth Capital Expenditures, increased levels of flying and the acquisition activity of the Corporation. Income tax expense increased by $3 million from the prior period while the Corporation’s effective rate of tax increased to 31% from 26%. The effective tax rate increased primarily because a greater proportion of pre-tax earnings was generated in higher tax jurisdictions than in the prior period and to a lesser extent, the impact of Global Minimum tax legislation. Net Earnings per share decreased by 6% from the prior period to $0.58. The decrease in Net Earnings as well as a 2% increase in the weighted average shares outstanding compared to the prior period contributed to the decrease. Further details around the change in shares outstanding can be found in Section 7 – Liquidity and Capital Resources. ADJUSTED NET EARNINGS (Section 13 – Non-IFRS Financial Measures & Glossary) Three Months Ended December 31 2024 2023 Net Earnings $ 28,174 $ 29,027 Acquisition costs (net of tax $260 and $646) 2,502 1,524 Amortization of intangible assets (net of tax $1,537 and $1,160) 4,264 3,217 Restructuring (net of tax, $1,335 and $nil) 3,609 — Accelerated interest accretion on redeemed debentures (net of tax of $71 and $nil) 191 — Adjusted Net Earnings $ 38,740 $ 33,768 per share – Basic $ 0.80 $ 0.72 per share – Diluted $ 0.78 $ 0.70 2024 Annual Report | 47 Adjusted Net Earnings increased by $5 million or 15% over the prior period. Adjusted Net Earnings includes the add-back of acquisition-related costs, which are comprised of $4 million in intangible asset amortization and $3 million in acquisition costs, both net of tax, the add-back of restructuring charges of $4 million, net of tax and accelerated interest accretion on redeemed debentures of $191, net of tax. Adjusted Net Earnings per share increased by 11% over the prior period to $0.80. The increase in Adjusted Net Earnings was partially offset by the 2% increase in the weighted average shares outstanding compared to the prior period. Further details around the change in shares outstanding can be found in Section 7 – Liquidity and Capital Resources. FREE CASH FLOW (Section 13 – Non-IFRS Financial Measures and Glossary) FREE CASH FLOW Three Months Ended December 31 2024 2023 Cash flows from operations $ 140,531 $ 169,757 Change in non-cash working capital items (25,720) (59,945) Acquisition costs (net of tax of $260 and $646) 2,502 1,524 Principal payments on right of use lease liabilities (10,316) (9,071) Restructuring (net of tax, $1,335 and $nil) 3,609 — $ 110,606 $ 102,265 per share – Basic $ 2.30 $ 2.17 per share – Fully Diluted $ 2.03 $ 1.92 The Free Cash Flow generated by the Corporation for the fourth quarter of 2024 was $111 million, an increase of $8 million or 8% over the prior period. The increase in Adjusted EBITDA of $23 million is the primary reason for the increase in Free Cash Flow for the period. This was partially offset by increases in cash interest and cash taxes paid and to a lesser extent, an increase in principal payments on right of use assets. Free Cash Flow is discussed further in Section 13 – Non-IFRS Financial Measures and Glossary. Changes in non-cash working capital balance is included in cash flow from operations per the Statement of Cash Flow and is removed in the reconciliation to Free Cash Flow. As a result, it has no impact on the calculation of Free Cash Flow. A discussion of changes in working capital is included within Section 4 – Investing Activities. 4. INVESTING ACTIVITIES Investment through the acquisition of new businesses, the purchase of capital assets, and investment in working capital to maintain and grow our existing portfolio of subsidiaries is a primary objective of the Corporation. ACQUISITIONS Armand Duhamel & Fils Inc. On June 21, 2024, the Corporation acquired the shares of Armand Duhamel & Fils Inc. (“Duhamel”). Duhamel, located in St-Ignace-de-Stanbridge, Quebec, operates a sawmill operation primarily focusing on the manufacture and sale of eastern hemlock products. The acquisition is strategic to EIC as Duhamel will play an important role in partnership with Northern Mat & Bridge to further grow the Corporation’s Environmental Access Solutions business line in the Quebec and Eastern Canada markets. 48 | Exchange Income Corporation The components of the consideration paid to acquire Duhamel are outlined in the table below. Consideration given: Cash $ 16,500 Issuance of 67,828 shares of the Corporation at $44.23 per share 3,000 Final working capital settlement 243 Contingent consideration – earn out 2,381 Total purchase consideration $ 22,124 Spartan Mat LLC & Spartan Composites LLC On November 13, 2024, the Corporation acquired the shares of Spartan Mat LLC, and Spartan Composites LLC (collectively “Spartan”). Spartan, located in Rockledge, Florida is one of three manufacturers of composite access mats in North America. The composite mat is fully recyclable at the end of its useful life, offering customers a sustainable alternative to traditional wood mats. At less than half the weight of a traditional wood mat, it also significantly reduces transportation costs. The acquisition of Spartan is highly strategic in expanding the Corporation’s Environmental Access Solutions business line into the United States matting market. Consideration given: Cash and deferred cash purchase consideration $ 144,450 Issuance of 458,252 shares of the Corporation at $54.74 per share 25,087 Estimated working capital settlement 447 Total purchase consideration $ 169,984 CAPITAL EXPENDITURES Year Ended December 31, 2024 CAPITAL EXPENDITURES Aerospace & Aviation Manufacturing Head Office Total Maintenance Capital Expenditures $ 182,114 $ 27,230 $ 545 $ 209,889 Growth Capital Expenditures 218,494 1,075 732 220,301 $ 400,608 $ 28,305 $ 1,277 $ 430,190 Year Ended December 31, 2023 CAPITAL EXPENDITURES Aerospace & Aviation Manufacturing Head Office Total Maintenance Capital Expenditures $ 148,705 $ 26,063 $ 523 $ 175,291 Growth Capital Expenditures 279,388 23,656 — 303,044 $ 428,093 $ 49,719 $ 523 $ 478,335 Maintenance Capital Expenditures for the year ended December 31, 2024, increased by $35 million or 20% over the prior year. The increase in the Aerospace & Aviation segment was $34 million and the increase in the Manufacturing segment was $1 million over the prior year. Investments made in prior years to increase capacity, now requiring ongoing routine maintenance, are the driver of the increase in the Aerospace & Aviation segment and acquisition activity in the Manufacturing segment drove the increases. Maintenance Capital Expenditures for the Corporation’s Essential Air Services have historically been weighted more towards the first half of the year as heavy checks, overhauls, and engine maintenance events are scheduled at a time when demand is lowest. With a larger fleet, we are more easily able to share 2024 Annual Report | 49 aircraft across our organization if maintenance events occur during an operationally busier time of the year. As the size of our fleet has increased, maintenance schedules have become more equally distributed through the entire year than we would have experienced historically. Maintenance Capital Expenditures for the Manufacturing segment can vary from period to period due to the capital required to maintain production equipment, with the exception of Maintenance Capital Expenditures for the Environmental Access Solutions rental portfolio, which is calculated using depreciation as a proxy. Further discussion of future Maintenance Capital Expenditures is included in Section 6 – Outlook. Aerospace & Aviation Segment Maintenance Capital Expenditures for Essential Air Services for the year ended December 31, 2024 were $145 million, an increase of 31% over the prior year. Parts inflation and increased labour rates have resulted in increased Maintenance Capital Expenditures over the prior year. In addition, as the Corporation has invested to meet increased demand over the last number of years, our fleet size has increased, necessitating additional Maintenance Capital Expenditures. Overall, the current Maintenance Capital Expenditures are in line with expectations. Growth Capital Expenditures for the year ended December 31, 2024 within Essential Air Services were $86 million. This includes investments made in aircraft and infrastructure for the BCEHS contract, investment in aircraft and infrastructure for the Manitoba Critical Care contract, continued investment for the acquisition of a full motion King Air simulator, and the construction of the Gary Filmon Indigenous Terminal. Maintenance Capital Expenditures for Aerospace for the year ended December 31, 2024 were $23 million, an increase of 63% over the prior period. The increase over the prior year is attributed to an increased number of heavy checks and overhauls to support increased levels of flying in addition to higher overhaul costs experienced by the business due to inflationary pressures and labour costs. Growth Capital Expenditures for the year ended December 31, 2024 were $30 million which relates to the purchase of a previously leased hangar for our European operations, the purchase of an additional aircraft for modification into a surveillance platform, and the preparation of aircraft for the upgrade of the surveillance aircraft for the expanded Curaçao contract. Maintenance Capital Expenditures for Aircraft Sales & Leasing for the year ended December 31, 2024 were $14 million, a decrease of 40% from the prior period. Lower reinvestment in the lease portfolio was required as investments made in prior periods allowed those assets to be deployed or are in the preparation of being deployed to customers. Growth Capital Expenditures for the year ended December 31, 2024 were $102 million. Several assets were purchased during the period that have either been placed on lease or will be placed on lease in the coming quarters. The table below provides a summary of the fleet of assets in Regional One’s lease portfolio. Regional One Lease Portfolio December 31, 2024 December 31, 2023 Aircraft Engines Aircraft Engines Lease portfolio 67 (1) 131 51(1) 125 Note 1) The aircraft total above includes 19 airframes that do not have engines (December 31, 2023 – 8 airframes) including 8 (December 31, 2023 – 8 airframes) that will be leased out in conjunction with engines owned by Aero Engines LLC, the joint venture between the Corporation and SkyWest. The lease portfolio for Aircraft Sales & Leasing is comprised of several different types of aircraft and engines. The predominant platforms are the Bombardier CRJ aircraft, Embraer ERJ aircraft and the Dash – 8 Q400 aircraft. The predominant engine platforms are the General Electric CF 34 engine series along with the Pratt & Whitney engines. Earnings on the leasing of aircraft and engines are not derived solely from a financing spread as in the traditional leasing business but rather cash flows are generated from acquiring assets, leasing them out, and once the available green time on the assets is consumed and the aircraft have been retired from the active fleet, the assets are sold or parted out to generate further cash flows. It is important to note that not all the aircraft and engines in the portfolio will be on lease at any given time. 50 | Exchange Income Corporation The fleet of aircraft and engines to be leased has been underutilized since the onset of the pandemic and as a result, the available green time on those aircraft is not being consumed at the same rate as in prior periods. While the impacts of the pandemic have lessened, the lease fleet remained underutilized earlier in the year due to a worldwide flight crew shortage, most notably in experienced pilots. This impact also lessened as we moved throughout the year. Historically, the Corporation has used depreciation as a proxy for Maintenance Capital Expenditures because the assets are being depleted as they are being flown by lessees and therefore depreciation reflects the required ongoing investment to maintain Free Cash Flow at current levels. As the fleet remains underutilized, the historical approach continues to not be appropriate. The actual costs of maintaining the fleet were significantly lower than the depreciation expense recorded during the year. Starting in the second quarter of 2020, the actual expenditures on assets already owned have been used as the costs of maintaining the fleet until such time the fleet utilization again warrants the use of depreciation as a proxy for Maintenance Capital Expenditures. Prior to the onset of the pandemic, Growth Capital Expenditures represented the difference between net capital assets acquired (assets purchased less assets sold or transferred to inventory) and the amount of Maintenance Capital Expenditures, calculated using depreciation as a proxy. The Corporation continues to record Maintenance Capital Expenditures as cash outflows associated with maintaining the fleet and Growth Capital Expenditures as all purchases of assets, net of disposals and transfers to inventory. Because the timing between the removal of assets from the lease portfolio and the replacement of those assets can vary from quarter to quarter, it is possible that negative Growth Capital Expenditures may arise in a particular quarter. However, it is not expected that negative Growth Capital Expenditures would consistently occur over a longer period as it is the Corporation’s intention to continue to maintain or grow the lease portfolio. Manufacturing Segment Maintenance Capital Expenditures in the Precision Manufacturing & Engineering and Multi-Storey Window Solutions business lines primarily relate to the replacement of production equipment, or components of that equipment, and can vary significantly from year to year. Certain manufacturing assets have long useful lives and, therefore, can last for many years before requiring replacement or significant repair. Maintenance Capital Expenditures for Environmental Access Solutions primarily relate to the depreciation on mats and bridges, as well as maintenance on or replacement of equipment which, similar to Precision Manufacturing & Engineering and Multi-Storey Window Solutions, can vary based on what assets require repair or replacement. For the year ended December 31, 2024, Maintenance Capital Expenditures for Environmental Access Solutions was $23 million, an increase of 12% over the prior year. This increase is driven by the replacement of rolling stock which did not occur in the prior year. For the year ended December 31, 2024, Growth Capital Expenditures were negative $2 million. During the first and fourth quarters, Environmental Access Solutions took advantage of opportunities to sell some mats in its fleet in response to customer demand. This was partially offset by investments made during the second and third quarters to build new mats for the rental fleet. For the year ended December 31, 2024, Multi-Storey Window Solutions had Maintenance Capital Expenditures of $1 million, which is consistent with the prior year. Growth Capital Expenditures for the year ended December 31, 2024 were $2 million which reflects investments in new equipment to support production efficiencies between our Multi-Storey Window Solutions businesses. For the year ended December 31, 2024, Precision Manufacturing & Engineering had Maintenance Capital Expenditures of $3 million, a decrease of 19% from the prior year. Growth Capital Expenditures for the year ended December 31, 2024 were $1 million attributed to investments in new equipment to enhance our ability to meet increasing customer demand and create efficiencies. INVESTMENT IN WORKING CAPITAL During the year ended December 31, 2024, the Corporation invested $82 million into working capital to support several growth initiatives and increased revenues, as discussed further below. As discussed in our year-end 2023 report, a portion of the investment during the period relates to a receivable collected in advance for which a corresponding 2024 Annual Report | 51 payable of approximately $30 million was settled in early January 2024. The remaining investment relates to the impact of increased business volumes and timing as discussed further below. During the year, the Corporation continued to invest in the Aircraft Parts & Leasing business making several purchases for assets that will be parted out and sold in future quarters. This increase in inventory will support future parts sales, but due to the shortage of available MRO shop time around the world, we expect there may be delays in completing the tear down of these assets into their component parts for resale. In addition, several aircraft and engines have been purchased for resale which will be monetized in future periods. The impact of these investments on the current year is approximately $30 million. Certain government receivables are higher than normal and behind our historical collection patterns and reflect the bulk of the remaining investment in working capital. Increased business volumes in aggregate across the Corporation has necessitated some investment in working capital as well, albeit not material compared to other areas of investment noted above. Further details of the investment in working capital are included in Note 24 and the Statement of Cash Flows in the Corporation’s Consolidated Financial Statements. 5. DIVIDENDS AND PAYOUT RATIOS The payment of stable and growing dividends to shareholders is a cornerstone goal of the Corporation which is achieved through the consistent execution of our core strategy of diversification, disciplined investment in our subsidiaries, and disciplined acquisition of companies with defensible and steady cash flows. Dividends Month Record date Per Share 2024 Dividends Amount Record date Per Share 2023 Dividends Amount January January 31, 2024 $ 0.22 $ 10,380 January 31, 2023 $ 0.21 $ 8,927 February February 29, 2024 0.22 10,389 February 28, 2023 0.21 8,933 March March 29, 2024 0.22 10,402 March 31, 2023 0.21 8,945 April April 30, 2024 0.22 10,410 April 28, 2023 0.21 8,968 May May 31, 2024 0.22 10,419 May 31, 2023 0.21 9,067 June June 28, 2024 0.22 10,446 June 30, 2023 0.21 9,774 July July 31, 2024 0.22 10,457 July 31, 2023 0.21 9,781 August August 30, 2024 0.22 10,468 August 31, 2023 0.21 9,789 September September 27, 2024 0.22 10,478 September 29, 2023 0.21 9,799 October October 31, 2024 0.22 10,483 October 31, 2023 0.21 9,878 November November 29, 2024 0.22 10,643 November 30, 2023 0.22 10,357 December December 31, 2024 0.22 10,913 December 29, 2023 0.22 10,370 Total $ 2.64 $ 125,888 $ 2.54 $ 114,588 Dividends declared for the twelve months ended December 31, 2024, increased over the prior year. The increase was driven primarily three items. First, the Corporation increased its dividend by 5% in the fourth quarter of 2023. Second, the completion of the equity offering in the second quarter of 2023 increased the number of shares outstanding. Finally, the issuance of shares as part of the acquisitions of Hansen and BVGlazing in the second quarter of 2023, DryAir in the fourth quarter of 2023, Duhamel in the second quarter of 2024, and Spartan in the fourth quarter of 2024 further increased the number of shares outstanding. Further information on shares outstanding can be found in Section 7 – Liquidity and Capital Resources. 52 | Exchange Income Corporation The Corporation uses both an earnings-based payout ratio (Adjusted Net Earnings) and a cash flow-based payout ratio (Free Cash Flow less Maintenance Capital Expenditures) to assess its ability to pay dividends to shareholders. Both methods of calculating the payout ratio provide an indication of the Corporation’s ability to generate enough funds from its operations to pay dividends. See Section 13 – Non-IFRS Financial Measures and Glossary for more information on Non- IFRS measures. Adjusted Net Earnings exclude acquisition costs, amortization of intangible assets, and unusual one-time items such as restructuring costs. Amortization of intangible assets results from intangible assets that are recorded when the Corporation completes an acquisition as part of the purchase price allocation for accounting purposes. There are no future capital expenditures associated with maintaining or replacing these intangible assets, therefore intangible asset amortization is not considered when assessing the ability to pay dividends. Acquisition costs are not required to maintain existing cash flows and therefore these costs are not considered in assessing the payment of dividends and include acquisition costs and pre-revenue ramp-up costs for significant expansions. Adjusted Net Earnings includes depreciation on all capital expenditures and is not impacted by the period to period variability in Maintenance Capital Expenditures. Free Cash Flow less Maintenance Capital Expenditures is a measure that ensures the resulting payout ratio reflects the replacement of capital assets that is necessary to maintain the Corporation’s existing revenue streams. Cash outflows associated with acquisitions and capital expenditures that will result in growth are not included in this payout ratio because they will generate future returns in excess of current cash flows. The Corporation analyzes its payout ratios on a trailing twelve-month basis when assessing its ability to pay and increase dividends. The use of a longer period reduces the impact of seasonality on the analysis. Seasonality exists across a large portion of our operations. The first quarter of the fiscal year is always the most seasonally challenging for the Corporation. Winter roads into northern communities lessen the demand for the Corporation’s air services. Therefore, a single quarter can be impacted by seasonal variations that do not impact the Corporation’s ability to pay dividends over a longer period. Environmental Access Solutions is also subject to seasonal variability, where the second and third quarters have the highest demand, the fourth quarter is slower, and the first quarter is the slowest. Finally, DryAir experiences significant seasonality where the third and fourth quarters have the highest demand. Payout Ratios (Section 13 – Non-IFRS Measures and Glossary) Basic per Share Payout Ratios for the Corporation Periods Ended December 31 2024 2023 Three Months Trailing Twelve Months Three Months Trailing Twelve Months Adjusted Net Earnings 83% 85% 90% 80% Free Cash Flow less Maintenance Capital Expenditures 73% 63% 61% 57% The trailing twelve month Adjusted Net Earnings payout ratio was 85% at December 31, 2024 compared to 80% at December 31, 2023 primarily due to increased interest costs and depreciation, reducing Adjusted Net Earnings from the prior year. The increase in interest costs is driven by higher borrowings over the prior year, while depreciation is driven by investment in Growth Capital Expenditures. The trailing twelve month Free Cash Flow less Maintenance Capital Expenditures payout ratio was 63% at December 31, 2024 compared to 57% in the prior year and was also impacted by increased interest expense and increased Maintenance Capital Expenditures. See Section 4 – Investing Activities for more information on Maintenance Capital Expenditures. The nature of Maintenance Capital Expenditures is such that fluctuation can occur from period to period based on the timing of maintenance events, as discussed in Section 4 – Investing Activities. The Adjusted Net Earnings payout ratio is not impacted by the timing differences in Maintenance Capital Expenditures. 2024 Annual Report | 53 The graph that follows shows the Corporation’s historical Free Cash Flow less Maintenance Capital Expenditures trailing twelve-month payout ratio and Adjusted Net Earnings trailing twelve-month payout ratio on the left axis. On the right axis, the annualized dividend rate per share is shown. 6. OUTLOOK Our record results and key financial metrics reflected the continued execution of our strategy. The organic growth initiatives, specifically the Aerospace & Aviation segment contract wins, will continue to ramp in 2025 and drive profitability well into the future. We have a 20-year track record of executing on our strategic priorities and the culture of excellence that has driven the historical results remain ingrained in our culture. We confirm our guidance for 2025 with an Adjusted EBITDA range of $690 million to $730 million, which is an increase between 10% and 16% from our 2024 results, based on our existing portfolio of subsidiaries at December 31, 2024 and excluding any acquisitions executed after year end. Our business model is based on diversified and resilient cash flows generated by our various subsidiaries. However, we are exposed to certain amounts of seasonality in our segments. For purposes of the Outlook we will provide a high level reminder on the seasonality and its drivers along with qualitative discussions regarding our segment expectations for 2025 and thereafter. Seasonality The first quarter is our seasonally slowest quarter. While the majority of our operations experience this seasonality, it is especially impactful in our Essential Air Services and Environmental Access Solutions business lines. The Essential Air Services business line is impacted as winter roads are available to transport people and goods to and from certain remote northern communities that our airlines service. The fixed cost nature of scheduled flying coupled with potential reduced traffic results in lower passenger and cargo revenues with a corresponding reduction in Adjusted EBITDA during the first quarter. Our Environmental Access Solutions business line also experiences seasonality as the frozen terrain generally experienced in the first quarter does not require the same degree of mat coverage that would be required during the spring, summer and fall periods. Regarding the remaining quarters, we generally experience the highest level of activity in both our Aerospace & Aviation and Manufacturing segments during the third quarter. An increased level of activity typically results in the highest level of profitability during the third quarter. Our second quarter is our second highest level of revenue and profitability followed closely by the fourth quarter, which would be an average level of per annum revenue and profitability. 54 | Exchange Income Corporation The seasonality above is based on general predictable patterns. Unusual weather patterns or other events can impact individual subsidiaries; however, our geographic diversity mitigates such risk. Outlook by Segment Our Aerospace & Aviation segment revenue and Adjusted EBITDA is expected to increase for fiscal 2025 due to our organic growth investments made in our aviation entities and continued execution on the contract wins announced in 2023 and 2024. Our Essential Air Services business line will reflect the impact of the commercial agreement with Air Canada and the full year contribution of the medevac contracts with British Columbia and Manitoba as well as the investment in aircraft and infrastructure to service these agreements. Service commenced under the Air Canada agreement on July 1, 2023 with operations ramping up during 2023 with four of the aircraft flying the contracted routes in November 2023. The fifth and sixth aircraft started flying partway through the second quarter of 2024 including routes to the United States starting in the fourth quarter of 2024. The British Columbia fixed wing medevac contract started in November 2023, with services being provided by existing aircraft. However, the full impact on profitability will be evident when the new aircraft are deployed and the pre-existing aircraft are redeployed in other contracts. The first two aircraft were received from the manufacturer, modified with the state-of-the-art medical interior and started operating under the contract in 2024. We anticipate that eight to ten remaining aircraft will be delivered in 2025 and be placed into service in 2025. In February 2024, the Manitoba medevac contract started with the modification and deployment of turboprop aircraft and the medevac jets aircraft were modified and introduced into the fleet in the third quarter of 2024. In 2024 we announced that we were the successful proponent, along with Medavie Health NL, to design, manage and operate the integrated ambulance services for the Province of Newfoundland and Labrador. Our specific work scope includes fixed wing and rotary air ambulance services. We are continuing to finalize the contract with the Province of Newfoundland and Labrador and expect it to be completed in the second quarter of 2025 with service beginning later in the year. The Aerospace business line is expected to increase for fiscal 2025 due to high tempo flying under certain of our ISR contracts coupled with the deployment of a second ISR aircraft under the 15 month contract with the UK Home Office with utilization starting in mid-2025. Furthermore, we also announced that we were a member of the successful SkyAlyne team on the awarding of the Future Air Crew Training Program. We are continuing to negotiate and finalize the expanded scope of our arrangement with the other program members and anticipate finalization of the contract in the second quarter of 2025 with services starting later in 2025. During the fourth quarter we submitted our proposal to the Government of Australia Department of Home Affairs for the provision of Aerial Surveillance Services and anticipate a response to our submission in mid-2025 with commencement of the contract occurring in fiscal 2028. Lastly, the Aircraft Sales & Leasing business line continues to strengthen. Leasing revenue continues to increase as we deploy our assets throughout the globe. Furthermore, air operators are continuing to look for spare engines and repaired parts to capitalize on the current and growing demand around the world, resulting in strong parts, aircraft and engine sales. The announcement of the binding purchase agreement to acquire Canadian North, subsequent to year end, will be strategic to the Aerospace & Aviation segment. The timing of the closing of the transaction will be dependent upon completion of the regulatory approval process. The acquisition will expand our existing route network as there is currently essentially no overlap in the markets served. The aircraft that Canadian North flies are complementary to our current fleet and our Aircraft Sales & Leasing business line can provide support for maintenance and future growth of the fleet. Lastly, the infrastructure network owned by Canadian North will provide further expansion opportunities for our Aerospace business line. With our significant Northern aviation experience, we are uniquely suited to operate the route network and provide the Inuit communities with the social and economic benefits that our current customers expect from EIC. On a longer-term basis, the outlook for our Aerospace & Aviation segment continues to be bullish. The services we provide to the Northern communities are essential services. We have invested significantly in our fleets and infrastructure over the past number of years and the result of those investments will continue to drive our financial results. Further tailwinds exist, as Canada’s resources economy continues to develop, which will necessitate further transportation to remote areas. There continues to be opportunities to expand the geographical footprint of our world class medevac capabilities to other regions throughout Canada and the ability to expand our ISR offerings to other geographies around the world. Lastly, our Aircraft Sales & Leasing business line is continuing to expand. With the well-publicized production issues of new aircraft and the related risks and uncertainties, we have noted an uptick in demand for parts, aircraft and 2024 Annual Report | 55 engines for prior generation aircraft. Furthermore, air operators are continuing to look for spare engines and repaired parts to capitalize on the current and growing demand around the world. These factors are expected to provide tailwinds to Aircraft Sales & Leasing. Our Manufacturing segment is expected to improve due to the strengthening business environment for certain of our subsidiaries coupled with contributions to our Environmental Access Solutions business line due to the acquisitions of Duhamel and Spartan which were executed in 2024. Our Environmental Access Solutions business line is expected to improve from a Revenue and Adjusted EBITDA perspective due to the acquisition of Duhamel and Spartan which will contribute for a full fiscal year along with anticipated increased rentals due to expected projects commencing in the latter half of 2025 and increased activity within the remaining business line. Our Multi-Storey Windows Solutions business line is expected to slightly decline due to reduced project activity because of the delays in booking projects early in 2024, compressed margins on projects being manufactured in 2025, customer deferrals of certain projects and one-time integration costs. The increases in the backlog experienced in the latter portion of 2024 are anticipated to positively impact 2026 and beyond, consistent with historical trends. Our Precision Manufacturing & Engineering business line is expected to significantly expand in Revenue and Adjusted EBITDA due to strong telecommunication customer demand coupled with strategic growth initiatives undertaken amongst the various subsidiaries. All of our businesses are continuing to see a significant number of inquiries and we are seeing the conversion of bookings to firm orders continue in early 2025. On a longer-term basis, we continue to believe our Manufacturing segment businesses are poised for profitable growth based on business fundamentals and North American trends. Our Environmental Access Solutions business line sees opportunities for further geographic expansion into the US while the composite matting manufacturing capability of Spartan will allow for overall diversification of our product line. On a macro basis, as the electrical grid is expanded in the transmission and distribution sector and opportunities in the resource sector are realized the utilization of matting and bridge solutions will be increased to protect ecologically sensitive areas. The long-term macroeconomic trends associated with the shortage in housing and rentals across North America provides significant medium and long-term upside to our Multi-Storey Windows Solutions business line. We are seeing an increase in the number of apartment rental projects as opposed to condominiums, in certain markets, along with re-skinning projects to convert commercial properties into residential buildings. Our Multi-Storey Windows Solutions business line is agnostic to the type of project as our subsidiaries have significant experience in all subsectors. The increased bookings and resultant significant increase in backlog experienced in the latter portion of 2024 are expected to be manufactured within the next 18 to 24 months, consistent with historical trends. Lastly, our Precision Manufacturing & Engineering business line is poised for further growth based on the anticipated increased demand as customers are reshoring manufacturing capabilities to North America coupled with execution on opportunities that are expected to materialize as interest rates continue to decline and macroeconomic uncertainty continues to abate. Head Office is not a separate operating segment, but rather represents expenses incurred at the Head Office in support of the various segments. Expenses are anticipated to increase due to continued investment in people through additional head count to support the operating segments, increases in expenditures related to Indigenous Reconciliation associated the Atik Mason Pilot Pathway, and additional costs related to investments in IT and cybersecurity. These cost increases are expected to be commensurate with revenues and profitability increases of the underlying segments. Tariffs and Geopolitical Uncertainty Our Aerospace & Aviation segment is not directly impacted by potential tariffs, however, may be temporarily exposed to secondary risks associated with tariffs and protectionist policies. Our Essential Air Services and Aerospace business lines may be impacted by short-term fluctuations in foreign exchange rates and risks associated with countervailing tariffs should they be enacted. However, the majority of revenues and expenditures would not be impacted within the Essential Air Services and Aerospace business lines due to the essential nature of such services. Our Aircraft Sales & Leasing business may be a benefactor of geopolitical uncertainty as aircraft acquisitions may be deferred by airline operators around the world, which could increase demand for parts and leased assets coupled with a strengthening US dollar which would have foreign exchange translation benefits. 56 | Exchange Income Corporation Our Manufacturing segment may be temporarily exposed to secondary risks associated with tariffs and protectionist policies. Our Environmental Access Solutions and Precision Manufacturing & Engineering business lines do not have significant cross border activities except for the operations of DryAir which are an immaterial component of the overall Manufacturing segment. Our Multi-Storey Windows Solutions business line has the capability to manufacture goods either in Canada or the US and therefore can mitigate certain of the risks. However, results may be impacted by short-term fluctuations in foreign exchange rates, risks associated with aluminum and steel tariffs, countervailing tariffs should they be enacted, short-term dislocation in pricing and the potential deferral of purchasing decisions by customers who are concerned about uncertain economic and political outlooks. Overall, we have taken several strategic initiatives throughout our operations to mitigate known exposures, however unintended consequences from political decisions and protectionist policies may exist and may not be reliably measurable or mitigated. Capital Expenditures Maintenance Capital Expenditures are undertaken to maintain the earning power of the business. The vast majority of our Maintenance Capital Expenditures are related to the Aerospace & Aviation segment, and these are driven by required maintenance intervals generally based on flight hours. With the expanded fleet size, contract wins, persistent inflation related to parts and labour costs and US dollar strength, we anticipate increases in our Maintenance Capital Expenditures in our Essential Air Services, Aircraft Sales & Leasing and Aerospace business lines consistent with increases in Adjusted EBITDA. Maintenance Capital Expenditures in our Manufacturing segment are primarily expected to increase due to the acquisitions of Duhamel and Spartan in 2024. Growth Capital Expenditures for 2025 will be primarily driven by the contract wins announced in 2023 and 2024 within the Aerospace & Aviation segment. The Growth Capital Expenditures pertain to the acquisition of the new KingAir aircraft and related interior modifications which are required for the British Columbia medevac contract along with the planned redeployment or pre-existing aircraft and/or potential acquisition of aircraft to service the Newfoundland and Labrador medevac contract. As previously announced, we have become one of the world’s largest KingAir operators and accordingly, we are acquiring and installing fixed and full motion King Air simulators with the commissioning of the full motion simulator occurring in mid-2025. Within the Aerospace business line, Growth Capital Expenditures will be required for the second surveillance aircraft for the United Kingdom Home Office contract. Finally, as the Aircraft Sales & Leasing business line is an opportunistic acquiror, Growth Capital Expenditures may be undertaken if opportunities are identified, and returns are commensurate with management’s expectations. These opportunistic purchases are held to the same level of diligence and discipline as an acquisition and will only be executed if appropriate financial metrics and risk mitigation exist. Growth Capital Expenditures in our Manufacturing segment are expected to be relatively consistent with 2024. Our Environmental Access Solutions business line constantly monitors the market and may right size its rental bridge and mat fleet and accordingly may incur either positive or negative Growth Capital Expenditures. 7. LIQUIDITY AND CAPITAL RESOURCES The Corporation’s working capital position, Free Cash Flow, and capital resources remain strong. The Corporation completed several capital transactions in 2023, strengthening its balance sheet as the Corporation prepared for future growth. These transactions positioned EIC with access to capital to make acquisitions and invest in its operating subsidiaries, which the Corporation successfully did in 2024. With sights set on the future, the Corporation took several steps with respect to its capital structure in 2024 and early 2025. First, during the second quarter of 2024, the Corporation completed an upsize and extension of its credit facility. Second, near the end of 2024, the Corporation exercised its right to call its debenture series maturing in 2025, with a significant majority of the debentures converting to equity. Finally, continuing to position our balance sheet for the future, the Corporation, subsequent to the end of the year, exercised its right to call its debenture series maturing in 2026, which also saw a significant majority of the debentures convert into equity. These debenture transactions reduced the Corporation’s total leverage and positions the Corporation to continue to execute on its strategy of investing in the growth of its subsidiaries and acquisitive growth. After these transactions, including the redemption that occurred subsequent to year end, the Corporation does not have any long- term debt due until May 6, 2028. The structured timing of debt maturities provides additional financial flexibility and provides the ability to weather economic downturns in the future. 2024 Annual Report | 57 As at December 31, 2024, the Corporation’s key financial covenant for its credit facility is its senior leverage ratio, and its facility allows for a maximum of 4.0x. The Corporation’s current senior leverage ratio is 2.80x, with the increase compared to the prior year attributable to Growth Capital Expenditures related to recently awarded contracts funded using the Corporation’s credit facility, the impact of the funding of recent acquisitions with the credit facility, the redemption of the 2025 convertible debenture series, and the depreciation of the Canadian exchange rate on US denominated debt. As the Corporation continues to get the benefit of the deployment of the assets, Adjusted EBITDA will increase and the senior leverage ratio will decline. The Corporation’s total leverage ratio includes the impact of outstanding convertible debentures, and the importance of this form of capital relative to Adjusted EBITDA has declined in recent years. Historically, our target was 1.0x unsecured debt to Adjusted EBITDA, and based on the midpoint of the 2025 guidance, along with the impact of the debentures redeemed early in 2025, these debentures approximated 0.36x. Consistent with EIC’s historical balance sheet management, the Corporation has been proactive in managing its liquidity such that should an opportunity present itself, EIC has the capability and financial resources to execute. As at December 31, 2024, the Corporation has liquidity of approximately $770 million through cash on hand, its credit facility, and the credit facility accordion feature, which when combined with strong Free Cash Flow, maintains the Corporation’s very strong liquidity position. As at December 31, 2024, the Corporation had a cash position of $72 million (December 31, 2023 - $104 million) and a net working capital position of $628 million (December 31, 2023 - $541 million) which represents a current ratio of 1.97 to 1 (December 31, 2023 – 1.87 to 1). The current ratio is calculated by dividing current assets by current liabilities, as presented on the Statement of Financial Position. Overview of Capital Structure The Corporation’s capital structure is summarized below. December 31 2024 December 31 2023 Total senior debt outstanding (principal value) $ 1,825,157 $ 1,427,035 Convertible debentures outstanding (par value) 344,689 424,502 Common shares 1,377,171 1,252,890 Total capital $ 3,547,017 $ 3,104,427 On February 13, 2025, subsequent to the end of the year, the Corporation completed the early redemption of its 7 year, 5.75% debentures which were due on March 31, 2026. The redemption was completed with cash on hand from the Corporations credit facility. Prior to the redemption date, $78 million par value was converted into 1,605,618 common shares at a price of $49.00 per share. On February 13, 2025, the remaining outstanding principal amount of $8 million was redeemed by the Corporation. The redemption of the debentures was completed with cash on hand from the Corporation’s credit facility. The following table summarizes the effect of the early redemption on the Corporation’s capital structure. December 31 2024 (Adjusted) December 31 2023 Total senior debt outstanding (principal value), after giving effect to repayments identified above $ 1,832,732 $ 1,427,035 Convertible debentures outstanding (par value) 258,732 424,502 Common shares, after giving effect to bought deal financing of common shares 1,455,553 1,252,890 Total capital $ 3,547,017 $ 3,104,427 58 | Exchange Income Corporation Credit facility On May 6, 2024, the Corporation amended its credit facility. The enhanced credit facility increased to approximately $2.2 billion from approximately $2.0 billion and extended its terms to May 6, 2028, and was completed with no change in pricing. This includes $1.846 billion allocated to the Corporation’s Canadian head office and US $260 million allocated to EIIF Management USA Inc. The amount allocated to the Corporation’s Canadian head office includes a new $200 million social loan tranche, which will be used to fund the purchase of new King Air aircraft for the long-term medevac contract with the Province of British Columbia. The $200 million social loan permits the Corporation to draw on that portion of the facility as the new aircraft are delivered and modified for medical purposes. As part of the transaction, ISS Corporate provided an independent Second Party Opinion that concluded the loan is in alignment with the Social Loan Principles as issued by the Loan Market Association. The increased size of the facility provides the Corporation with capacity to continue to execute on its core strategy of pursuing accretive growth through investment in its operating subsidiaries and through acquisition. As of December 31, 2024, the Corporation had drawn $350 million and US $1,025 million (December 31, 2023 - $540 million and US $671 million). During the third quarter of 2024, the Corporation, at its option, reallocated US $100 million from the Corporation’s Canadian head office to EIIF Management USA Inc. There was no change to the overall commitment to the consolidated group under the credit facility. This reallocation was completed in preparation for the closing of the purchase of Spartan. The Corporation’s long-term debt, net of cash, increased by $431 million since December 31, 2023. The increase is attributable to investments in Growth Capital Expenditures, investment in working capital, and the acquisitions of Duhamel and Spartan as discussed in Section 3 – Investing Activities. During the year, the Corporation used derivatives through several cross-currency basis swaps (“swap”) with a member of the Corporation’s lending syndicate. The swap requires that funds are exchanged back in one month at the same terms unless both parties agree to extend the swap for an additional month. By entering into the swap, the Corporation can take advantage of lower interest rates. The swap mitigates the risk of changes in the value of the US dollar borrowings as it will be exchanged for the same Canadian equivalent in one month. As at December 31, 2024, US $562 million (December 31, 2023 – US $338 million) of the Corporation’s US denominated borrowings are hedged with these swaps. During the year, the Corporation continued the use of interest rate swaps with certain members of its syndicate. The effect of these transactions results in approximately $540 million of the Corporation’s credit facility debt being subject to a fixed rate with varying maturity dates. Convertible Debentures The following summarizes the convertible debentures outstanding as at December 31, 2024, and changes in the amounts of convertible debentures outstanding during the year ended December 31, 2024: Series - Year of Issuance Trade Symbol Maturity Interest Rate Conversion Price Unsecured Debentures – 2018 EIF.DB.J June 30, 2025 5.35% $ 49.00 Unsecured Debentures – 2019 EIF.DB.K March 31, 2026 5.75% $ 49.00 Unsecured Debentures – July 2021 EIF.DB.L July 31, 2028 5.25% $ 52.70 Unsecured Debentures – December 2021 EIF.DB.M January 15, 2029 5.25% $ 60.00 2024 Annual Report | 59 Par value Balance, beginning of year Issued Converted Redeemed / Matured Balance, end of year Unsecured Debentures – June 2018 79,702 — (68,991) (10,711) — Unsecured Debentures – March 2019 86,068 — (111) — 85,957 Unsecured Debentures – July 2021 143,732 — — — 143,732 Unsecured Debentures – December 2021 115,000 — — — 115,000 Total $ 424,502 $ — $ (69,102) $ (10,711) $ 344,689 On February 13, 2025, subsequent to the end of the year, the Corporation completed the early redemption of its 7 year, 5.75% convertible debentures as discussed above. Share Capital The following summarizes the changes in the shares outstanding of the Corporation during the year ended December 31, 2024: Date issued Number of shares Shares outstanding, beginning of year 47,136,625 Issued upon conversion of convertible debentures various 1,410,231 Issued under dividend reinvestment plan (DRIP) various 441,395 Issued under employee share purchase plan various 63,372 Issued under deferred share plan various 15,084 Issued under Indigenous community partnership agreements June 25, 2024 9,644 Issued to Armand Duhamel & Fils vendors on closing June 21, 2024 67,828 Issued to Spartan vendors on closing November 13, 2024 458,252 Shares outstanding, end of year 49,602,431 In the prior year, the Corporation closed a bought deal financing of common shares, which, inclusive of the over-allotment exercised by the underwriters, resulted in 3,306,250 shares of the Corporation at $52.25 per share, for gross proceeds of approximately $173 million. This offering was the largest common share offering in the Corporation’s history and was completed to fund capital expenditures required for contracts that require upfront capital investment. The weighted average shares outstanding during the three and twelve months ended December 31, 2024, increased by 2% and 6%, respectively compared to the prior year. The increase is primarily attributable to shares issued in connection with the Corporation’s dividend reinvestment plan, shares issued as part of the acquisitions of BVGlazing, Hansen, DryAir, Duhamel, and Spartan, and the impact of the bought deal financing completed in 2023. Issued shares from the conversion of debentures occurred near the end of 2024 and therefore had a smaller impact on the weighted average shares during 2024. Normal Course Issuer Bid On March 14, 2024, the Corporation renewed its NCIB for common shares and certain series of convertible debentures. Under the renewed NCIB for common shares, purchases can be made during the period commencing on March 19, 2024, and ending on March 18, 2025. The Corporation can purchase a maximum of 4,414,853 shares and daily purchases will be limited to 22,369 shares, other than block purchase exemptions. The Corporation renewed its NCIB because it believes that from time to time, the market price of the common shares may not fully reflect the value of the common shares. The Corporation believes that in such circumstances, the purchase of common shares represents an accretive use of capital. 60 | Exchange Income Corporation Under the NCIB for certain series of convertible debentures, purchases can be made during the period commencing on March 19, 2024, and ending on March 18, 2025. The Corporation can purchase a maximum of $7,970 principal amount of 7 year 5.35% convertible unsecured subordinated debentures of EIC, $8,607 principal amount of 7 year 5.75% convertible unsecured subordinated debentures of EIC, $14,373 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC, and $11,500 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC, with daily purchases of principal amount, other than block purchase exceptions, limited to $646, $711, $1,212 and $1,628 respectively. The Corporation sought the NCIB for debentures to permit repurchase and cancellation of these securities during times of market instability where management believes the market price does not reflect the value of the debentures. During the year ended December 31, 2024, the Corporation did not make any purchases under either NCIB and therefore still has the full amounts detailed above available for repurchase. Schedule of Financial Commitments The following are the financial commitments of the Corporation and its subsidiaries at December 31, 2024: Total Less than 1 year Between 1 year and 5 years More than 5 years Long-term debt (principal value) $ 1,825,157 $ - $ 1,825,157 $ - Convertible debentures (par value) 344,689 - 344,689 - Lease payments excluded from right of use lease liability 22,356 5,595 10,401 6,360 Right of Use lease liability payments (undiscounted value) 204,402 48,728 107,920 47,754 $ 2,396,604 $ 54,323 $ 2,288,167 $ 54,114 8. RELATED PARTY TRANSACTIONS The following transactions were carried out by the Corporation with related parties. The Corporation leases several buildings from related parties who were vendors of businesses that the Corporation has acquired. These vendors are considered related parties because of their continued involvement in the management of those acquired businesses. These leases are considered to be at market terms and are recognized in the consolidated financial statements at the exchange amounts. The total costs incurred in 2024 for related party leases was $4.5 million (2023 – $6.1 million) and the lease term maturities range from 2025 to 2031. Key Management Compensation The Corporation identifies its key management personnel as being those persons having authority and responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly, including any director of the Corporation’s board (whether executive or otherwise). The key management personnel include the executive management team and the Board of Directors. Compensation expensed for key management during the 2024 year, and the comparative 2023 year is detailed in the table below. Share based compensation vests over a period of up to three years and is expensed over that period. Awards under the Restricted Share Plan are expensed over the three year vesting period and the expense recognized in respect to the recipient, ignoring the impact of the Corporation’s Restricted Share Plan derivative hedge, is impacted by the change in share price of the restricted shares issued. The 2023 figures in the chart below have been restated to reflect consistently the inclusion of individuals added in 2024 to key management. Year Ended December 31, 2024 2023 Salaries and short-term benefits $ 8,597 $ 8,110 Share-based compensation expense 6,720 5,049 $ 15,317 $ 13,159 2024 Annual Report | 61 Co-investments with CRJ Capital Corp. CRJ Capital Corp., a corporation controlled by the CEO of Regional One, can, subject to the approval of the Corporation, co-invest with the Corporation, on a non-controlling basis, in certain aircraft assets. As a co-investor in these isolated aircraft assets, CRJ Capital Corp. receives distributions as money is collected on the sale or lease of the aircraft assets. In connection with this agreement, the CEO of Regional One has extended his non-compete agreement with the Corporation. The assets are managed by Regional One and Regional One charges a management fee to CRJ Capital Corp. for services rendered. Cash flow returns are paid out when collected from the customer and therefore there can be a delay between when income is recognized and when returns become paid or payable to CRJ Capital Corp. During 2024, CRJ Capital Corp. invested US $0.2 million (2023 - US $1.5 million). CRJ Capital Corp.’s total investment generated cash flow returns paid or payable of US $1.5 million (2023 - US $3.2 million). As a result of the sale of certain assets, depreciation recorded on its leasing assets, and the return of initial investment to CRJ Capital Corp., the remaining assets attributable to CRJ Capital Corp. at December 31, 2024, were US $3.2 million (December 31, 2023 - US $8.2 million). At December 31, 2024, US $0.1 million is recorded as an account receivable from CRJ Capital Corp. (December 31, 2023 - account payable of US $1.3 million). 9. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of consolidated financial statements requires management to use judgment in applying its accounting policies and estimates and assumptions about the future. Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. The following discusses the most significant accounting judgments and estimates that the Corporation has made in the preparation of the consolidated financial statements. These underlying assumptions are reviewed on an ongoing basis. Actual results could differ materially from those estimates. Accounting Estimates Business Combinations The Corporation’s business acquisitions have been accounted for using the acquisition method of accounting. Under the acquisition method, the acquiring company adds to its statement of financial position the estimated fair values of the acquired company’s assets and assumed liabilities. There are various assumptions made when determining the fair values of the acquired company’s assets and assumed liabilities. The most significant assumptions and those requiring the most judgment involve the estimated fair values of intangible assets. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the subsidiary, and the equity interests issued by the Corporation. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the Corporation is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration liability are generally recognized in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. The initial recognition of intangible assets acquired that require critical accounting estimates are customer contracts, customer relationships, customer lists, order backlog, certifications, software intellectual property (“IP”), and brand names. To determine the fair value of customer-based intangible assets (excluding brand names), the Corporation uses the excess earning method. This valuation technique values the intangible assets based on the capitalization of the earnings, which are calculated to be in excess of what a reasonable amount of earnings would be on the tangible assets used to generate the earnings. Significant assumptions include, among others, the determination of projected revenues, cash flows, customer retention rates, discount rates, and anticipated average income tax rates. To determine the fair value of the brand name and software IP intangible assets, the Corporation uses the royalty relief method. This valuation technique values the intangible assets based on the present value of the expected after-tax royalty cash flow stream using a 62 | Exchange Income Corporation hypothetical licensing arrangement. Significant assumptions include, among others, the determination of projected revenues, royalty rate, discount rates, and anticipated average income tax rates. To determine the fair value of the certifications, the Corporation uses the cost approach. This valuation technique values the intangible assets based on the estimated costs a market participant would incur to obtain the certification. The Corporation’s liabilities for contingent consideration associated with the earn out portion of its acquisitions are reassessed each period end subsequent to the related acquisition. The carrying value of the liability is based on an estimate of both the amount of the potential payment and probability that the earn out will be paid. During the year, there was no change to the estimated final payment to vendors (2023 – $1.0 million). Long-term Contract Revenue Recognition Revenue and income from fixed price construction contracts are recognized over time using the methodology that most accurately reflects the transfer of goods to the customer. The Corporation has a process whereby progress on jobs is reviewed by management on a regular basis and estimated costs to complete are updated. However, due to unforeseen changes in the nature or cost of the work to be completed or performance factors, contract profit can differ significantly from earlier estimates. Management believes, based on its experience that its current systems of management and accounting controls allow the Corporation to produce materially reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period, which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labour, the performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather conditions, changes in underlying raw material cost estimates, and the accuracy of the original bid estimate. Accordingly, management applies significant judgment to estimate the costs to complete these long-term construction contracts, including the use of significant assumptions with respect to estimated labour costs, material costs and subcontracting costs, as applicable. Since the Corporation has many contracts in process at any given time, these changes in estimates can offset each other without impacting overall profitability. However, changes in cost estimates on larger, more complex construction projects can have a material impact on the Corporation’s consolidated financial statements and are reflected in the results of operations when they become known. Estimating the transaction price of a contract is an involved process that is affected by a variety of uncertainties that depend on the outcome of a series of future events. The estimates must be revised each period throughout the life of the contract when events occur and as uncertainties are resolved. The major factors that must be considered in determining total estimated revenue include (a) the basic contract price, (b) contract options, (c) change orders, (d) claims, and (e) contract provisions for penalty and incentive payments, including award fees and performance incentives. The Corporation is required to make estimates of variable consideration in determining the transaction price, subject to the guidance on constraining estimates of variable consideration. A change order results from a change to the scope of the work to be performed compared to the original contract that was signed. Unpriced change orders are change orders that have been approved as to scope but unapproved as to price. For such change orders, the Corporation will include in the transaction price an estimate of the variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Claims are amounts in excess of the agreed contract price or amounts not included in the original contract price, that the Corporation seeks to collect from clients or others for client-caused delays, errors in specifications and designs, contract terminations, change orders in dispute, or unapproved as to both scope and price, or other causes of unanticipated additional costs. Judgment is required to determine if the claim is an enforceable obligation based on the specific facts and circumstances, however, the Corporation will include in the transaction price an estimate of the variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Given 2024 Annual Report | 63 the above-noted critical accounting estimates associated with the accounting for construction contracts, it is possible, based on existing knowledge, that outcomes within the next financial year or later could be different from the estimates and assumptions adopted and could require a material adjustment to revenue and/or the carrying amount of the asset or liability affected. Depreciation & Amortization Period for Long-lived Assets The Corporation makes estimates about the expected useful lives of long-lived assets and the expected residual values of the assets based on the estimated current fair value of the assets, the Corporation’s aircraft fleet plans, and the cash flows expected to be generated from them. Changes to these estimates, which can be significant, could be caused by a variety of factors, including changes to maintenance programs, changes in utilization of the aircraft, changing market prices for aircraft of the same or similar types, and changes in the utilization of other major manufacturing equipment and buildings. Estimates and assumptions are evaluated at least annually. Generally, these adjustments are accounted for as a change in estimate, on a prospective basis, through depreciation or amortization expense. For the purposes of sensitivity analysis on these estimates, a 50% reduction to residual values on the Corporation’s aircraft with remaining useful lives greater than five years as at December 31, 2024, would result in an increase of approximately $11.7 million (2023 – $10.3 million) to annual depreciation expense. For the Corporation’s aircraft with shorter remaining useful lives and other major manufacturing equipment and buildings, the residual values are not expected to change significantly. Impairment Considerations on Long-lived Assets Goodwill and indefinite life intangible assets are not amortized. Goodwill and all indefinite life intangibles are assessed for impairment at least annually. Impairment testing is performed on long-lived assets by comparing the carrying amount of the asset or cash generating unit (“CGU”) to its recoverable amount, which is calculated as the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use. Fair value less costs of disposal calculates the recoverable amount using Adjusted EBITDA multiples based on financial forecasts prepared by management (level 3 within the fair value hierarchy). Intangible Assets The recoverable amount is forecasted with management’s best estimate using market participant assumptions considering historical and expected operating plans, current strategies, economic conditions, and the general outlook for the industry and markets in which the cash generating units operate. The recoverable amount of the CGUs was based on value in use using a discounted cash flow model, which requires management to make a number of significant assumptions including assumptions relating to future operating plans, discount rates, and future growth rates. The assumptions include the Corporation’s pre-tax weighted average cost of capital at the assessment date (level 3 within the fair value hierarchy). Management has prepared cash flow estimates for a three year period which are extrapolated using an estimated terminal growth rate of 3.0% and a discount rate (pre-tax) of 16%. The Corporation has concluded that there are no impairments of its indefinite lived intangible assets as a result of this assessment as at December 31, 2024. Goodwill The recoverable amount of the goodwill CGUs was calculated based on the fair value less costs of disposal, using an Adjusted EBITDA multiple approach (Level 3 within the fair value hierarchy) based on the Corporation’s assessment of market participant assumptions. The Corporation used its forecasted Adjusted EBITDA based on its approved budget and used its best estimate of market participant Adjusted EBITDA multiples (Level 3 within the fair value hierarchy). The Adjusted EBITDA multiple used for the Aerospace & Aviation segment was 8.0x (2023 – 8.0x) and was 7.5x (2023 – 7.5x) for the Manufacturing segment. The 64 | Exchange Income Corporation Corporation will, at times, perform various scenario and sensitivity analysis when calculating the recoverable amounts of CGUs which may include alternative models and assumptions. The Corporation has concluded that there was no impairment of its goodwill CGUs as a result of this assessment at December 31, 2024. Deferred Income Taxes The Corporation is subject to income taxes in Canada, the United States, and certain other jurisdictions. Significant judgment is required in determining the provision for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Corporation maintains provisions for uncertain tax positions that are believed to appropriately reflect our risk with respect to tax positions under discussion, audit, dispute, or appeal with tax authorities, or which are otherwise considered to involve uncertainty. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The Corporation regularly assesses the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made. Critical Accounting Judgments Measurement and Presentation of Capital Assets and Inventory The Corporation may purchase certain aircraft and aircraft components in the normal course of the operations. The Corporation must assess whether the aircraft and engines should be recognized as either inventory or capital assets depending on the anticipated use of such assets, including the ability to lease these tangible assets to customers. The determination is based on available cycle times related to aviation components and whether such assets are expected to be used over several periods, in which case they would be classified as capital assets and depreciated over their useful lives commencing when the asset is available for use and capable of operating in a manner intended by management. The Corporation reviews its tangible assets on a regular basis to assess whether reclassifications are required between capital assets and inventory. In the normal course of business, it may acquire entire aircraft or components of an aircraft for breakdown into saleable parts. The Corporation relieves cost out of inventory using the average cost to sales percentage based on the expected selling price. Accordingly, the carrying value of inventory and recognition of the related cost of sale requires estimates related to the margins that the Corporation will ultimately earn on the parts. The Corporation has a process whereby such estimates are reviewed and assessed for reasonableness on a regular basis and the underlying inventory may be appraised by a third party. However, due to unforeseen changes in market conditions or other factors, the estimated average cost to sales percentages may differ significantly from earlier estimates. Management believes, based on its industry experience, that its current systems of management and accounting controls allow the Corporation to produce materially reliable estimates of the carrying value of inventory and related cost of sales. However, many factors can and do change throughout a component part’s life, which can result in a change to future average cost to sales percentage estimates. Some of the factors that can change include significant changes in worldwide utilization of certain aircraft types which the parts support, the available supply of original equipment manufacturer or aftermarket parts, and changes in airworthiness directives by aviation authorities. Such changes can alter the supply and demand associated with the Corporations parts inventory and therefore, it is possible that outcomes within the next financial year could be different from the estimates and assumptions and could result in an impairment of inventory or a decrease in the average cost to sales percentage on future sales. The Corporation manufactures access mats. In addition, the Corporation purchases bridges from third parties. Upon completion of the mats, or acquisition of the bridges, management must assess the intended use of those assets. If the asset will be rented to third parties, the asset is included within capital assets and depreciated over its useful life. If the 2024 Annual Report | 65 asset will be sold to a third party, the asset is recorded in inventory. If management’s intention for use of the mats and bridges changes from the initial classification, those assets are reclassified based on management’s new intended use of the asset. 10. ACCOUNTING POLICIES The accounting policies of the Corporation used in the determination of the results for years ended December 31, 2024, and 2023 that are discussed and analyzed in this report are described in detail in Note 3 of the Corporation’s 2024 consolidated financial statements. 11. CONTROLS AND PROCEDURES Internal Controls over Financial Reporting Management is responsible for establishing and maintaining internal controls over financial reporting to provide reasonable assurance with regards to the reliability of financial reporting and preparation of financial statements in accordance with IFRS, as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Consistent with the concept of reasonable assurance, the Corporation recognizes that all systems of internal controls, no matter how well designed, have inherent limitations. As such, the Corporation’s internal controls over financial reporting can only provide reasonable, and not absolute, assurance that the objectives of such controls are met. An assessment of internal controls over financial reporting was conducted by the Corporation’s management, under supervision by the Chief Executive Officer and Chief Financial Officer. Management has used the 2013 Internal Control – Integrated Framework to evaluate the Corporation’s internal controls over financial reporting, which is recognized as a suitable framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has evaluated the design and operating effectiveness of the Corporation’s internal controls over financial reporting as at December 31, 2024, and has concluded that the internal controls over financial reporting are effective. Duhamel was acquired on June 21, 2024 and Spartan was acquired on November 13, 2024. In accordance with section 3.3(1)(b) of National Instrument 52-109, management has limited the scope of its design and evaluation of internal controls over financial reporting to exclude the controls at each of these entities as management has not completed its review of internal controls over financial reporting for these newly acquired companies. These entities had revenue of $22 million included in the consolidated results of the Corporation for the year ended December 31, 2024. As at December 31, 2024, these entities had current assets of $46 million, non-current assets of $181 million, current liabilities of $14 million, and non- current liabilities of $19 million. There have been no other material changes to the Corporation’s internal controls during the 2024 year that would have materially affected or are likely to materially affect the internal controls over financial reporting. Disclosure Controls and Procedures Management has established and maintained disclosure controls and procedures to provide reasonable assurance that material information relating to the Corporation is made known to management in a timely manner and that information required to be disclosed by the Corporation is reported within the time periods prescribed by applicable securities legislation. Management has concluded that disclosure controls and procedures were effective as at December 31, 2024. 12. RISK FACTORS The Corporation and its subsidiaries (“Subsidiary” or “Subsidiaries”) are subject to a number of risks. These risks relate to the corporate structure of the Corporation and the operations of the Subsidiaries. The risks and uncertainties described below are all of the significant risks that management of the Corporation is aware of and believe to be material to the business and results of operations of the Corporation. When reviewing forward-looking statements and other information 66 | Exchange Income Corporation contained in this report, investors and others should carefully consider these factors, as well as other uncertainties, potential events, and industry and Corporation-specific factors that may adversely affect future results of the Corporation. The Corporation and its Subsidiaries operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management of the Corporation to predict all risk factors or the impact of such factors on the business of the Corporation. The Corporation assumes no obligation to update or revise these risk factors or other information contained in this report to reflect new events or circumstances, except as may be required by law. RISK GOVERNANCE The Corporation maintains an Executive Risk Committee and a formalized framework whereby it applies an ongoing systematic approach to managing conditions of uncertainty by applying policies, procedures, or practices in the analysis, evaluation, control, and communication of its key risks. This Enterprise Risk Management (“ERM”) framework is a top-down driven initiative that strives to promote a culture of risk awareness and where possible, integrates risk management into strategic, financial, and operational objectives from the head office level through to its Subsidiaries. This ongoing process includes an assessment of current risk exposures, including vulnerability and impact, risk mitigation activities currently in place to address such exposures and additional risk mitigation activities to consider going forward. Furthermore, any new risks are discussed and appropriately addressed at such times. For each identified risk, a risk leader has been identified and is accountable for implementing measures to further mitigate the impact of such risks and/or limit the likelihood of these risks from materializing. The risk leader works with the Corporation’s respective functions (i.e. finance, legal, information technology, operations, and/or human resources) in the design and implementation of the corresponding risk mitigating actions. The Risk and Controls department will further provide a level of assurance on the effectiveness and efficiency of controls over these mitigating actions as necessary. A summary of this risk evaluation is presented each quarter to the members of the Audit Committee and the Board to report on the changes in the overall position of the Corporation’s current risk exposures and mitigation activities from the previous quarter. 2024 Annual Report | 67 The most significant risks are categorized by their source and described as follows: External • Economic and Geopolitical Conditions • Competition • Government Funding for Indigenous Health Care • Access to Capital • Market Trends and Innovation • General Uninsured Loss • Climate • Acts of Terrorism, Armed Conflict, Labour and/or Social Unrest • Pandemic • Level and Timing of Government Spending • Government-Funded Programs • Environmental, Social and Governance Operational • Significant Contracts and Customers • Operational Performance and Growth • Laws, Regulations and Standards • Acquisition Risk • Concentration and Diversification Risk • Maintenance Costs • Access to Parts and Relationships with Key Suppliers • Casualty Losses • Environmental Liability Risks • Dependence on Information Systems and Technology • Cybersecurity • International Operations Risks • Fluctuations in Sales Prices of Aviation Related Assets • Fluctuations in Purchase Prices of Aviation Related Assets • Warranty Risk • Performance Guarantees • Global Offset Risk • Intellectual Property Risk Financial • Availability of Future Financing • Income Tax Matters • Commodity Risk • Foreign Exchange • Interest Rates • Credit Facility and the Trust Indentures • Dividends • Unpredictability and Volatility of Securities Pricing • Dilution Risk • Credit Risk Human Capital • Reliance on Key Personnel • Employees and Labour Relations • Conflicts of Interest 68 | Exchange Income Corporation EXTERNAL RISKS: Economic and Geopolitical Conditions External economic factors over which the Corporation exercises no influence could affect customer demand and disposable income. Economic and geopolitical conditions may impact demand for products and services provided by the Corporation’s Subsidiaries and in general may also impact the Corporation’s operating costs, costs and availability of fuel, foreign exchange costs, and costs and availability of capital. These conditions of instability may be further exacerbated by results of upcoming political elections throughout the world, including more recently in the United States with the shift in government coupled with the Canadian election in 2025. A weaker economy will impact the Corporation’s ability to sustain its operating results and create growth. A downturn in economic growth could have the effect of reducing demand for passenger travel, as well as the demand for charter and cargo services in Essential Air Services. Reduced demand will have an impact on revenue, but will have a larger impact on profitability because of the significant fixed costs of Essential Air Services’ operations. The exposure to economic risk is mitigated as many of the communities serviced by Essential Air Services have no alternative transportation access, making aviation services a de facto essential service. In addition to the sensitivity of operations to cycles driven by the economy, the operating results of Essential Air Services are also subject to seasonal fluctuations due to a variety of factors including weather, changes in purchasing patterns, pricing policies, and the demand and supply levels of aviation related assets. Aerospace is affected by changes in economic and geopolitical conditions. Geopolitical events drive the need for aerospace related services such as maritime surveillance, larger aerospace modification contracts or mission system software. If the number of such events decrease, so does potentially the need for Aerospace related services. Many of these contracts are long-term, significant dollar contracts that continue to exist as minimum regional or national safeguards; therefore, even as such events and conditions change, there is a certain level maintained as a necessity in many instances to ensure the continued safety of the region or country. Aircraft Sales & Leasing is exposed to economic factors that adversely impact the global commercial aviation industry generally. The global commercial aviation industry is historically cyclical and has been negatively affected in the past by geopolitical events, high oil prices, lack of capital, and weak economic conditions. As a result of these economic conditions, Aircraft Sales & Leasing has had customers that have ceased operations or filed for bankruptcy or otherwise reorganized in the past. In addition, any reduction in the global operating fleet of aircraft will result in reduced demand for parts and maintenance activities for the type of aircraft involved. Further, tight credit conditions may negatively impact the amount of liquidity available to customers to buy parts, services, engines, and aircraft. A deteriorating airline environment may also result in airline bankruptcies, and an inability to fully collect outstanding accounts receivable. It may also diminish the ability to deploy aircraft that are part of a lease pool. Reduced demand from customers caused by weak economic conditions, including tight credit conditions and customer bankruptcies, may adversely impact Aircraft Sales & Leasing’s business, results of operations, and financial condition. With the ongoing geopolitical instability around the world, the cost of Hull and War insurance on the Corporation’s aircraft has increased significantly and a number of insurers have exited this market altogether. Depending on the size of losses incurred by insurers, this type of insurance may become more costly or could prove difficult to obtain in the future. Furthermore, insurance contracts may exclude certain jurisdictions and countries. Geopolitical events could result in an increase in the number of excluded jurisdictions and countries. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Inflation experienced around the world has had a negative impact on the Corporation’s operations through increased costs of everyday goods, materials used in production, and the cost to recruit and retain employees. While inflation has come down from its peak in mid-2022, inflation not returning to historical norms could have a negative impact on the Corporation’s profitability if these increased costs could not be passed onto the Corporation’s customers. Furthermore, this could result in increased interest rates and borrowing costs for the Corporation. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. 2024 Annual Report | 69 Central banks around the world have begun to reduce borrowing rates as inflationary pressures slow; however, increasing geopolitical uncertainty and the potential for increased tariffs and trade barriers add uncertainty to the outlook for inflation and interest rates. In addition, rapidly changing international policy from the United States is increasing volatility, the outcome of which for the Corporation is uncertain at this point in time. As such, there are increased concerns that countries in which the Corporation operates could enter into a recession in the coming years. In the event of a recession, demand for certain of the Corporation’s goods and services could be materially negatively impacted. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Negative changes in the economy will impact each of the Corporation’s Manufacturing segment subsidiaries differently as they are diversified and geographically dispersed. For instance, a downturn in the oil and gas industry will have a greater impact on some regions, like Alberta and North Dakota, whose economies are driven by oil and gas more than others. A shift in government spending towards larger projects in the transmission and distribution, pipelines, or oil and gas initiatives, could impact Environmental Access Solutions’ pipeline of future work or larger project renewals. With increasing uncertainties in the US political environment, a US economic downturn impacts Subsidiaries operating in the Environmental Access Solutions, Multi-Storey Window Solutions and Precision Manufacturing & Engineering business lines more than the Corporation’s other operations as their products and services are provided to a wide variety of US customers. Certain Subsidiaries within Precision Manufacturing & Engineering may be further impacted by the large customer capital expenditure programs that are often on different cycles than the general economy or may be dependent upon governmental decisions on defence and security spending. The Manufacturing segment has historically experienced some time lag between the economy weakening and the reduced demand for its products as the Manufacturing segment generally has a reasonable order backlog, as well, some of the Manufacturing segment’s projects are longer in nature, which gives it a buffer to prepare for a reduction in demand. Competition New competition or increased competition could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Essential Air Services currently focuses on niche markets in Alberta, Manitoba, Ontario, Nunavut, Newfoundland and Labrador, Québec, Nova Scotia, New Brunswick and British Columbia and experiences different levels of competition depending on the geography and the nature of the service provided. The objective of this business line is to provide the best service through efficient management of operations, maintaining an owned fleet of appropriately sized aircraft, maintaining significant ground infrastructure and fostering strong relationships with customers and communities. Essential Air Services would be exposed to downside earnings risk if a well-capitalized competitor were to commence operations, or if a current competitor were to significantly expand services, in the niche markets where the Subsidiaries currently operate. The greatest impact would be on the Essential Air Service’s scheduled operations, as competition would put pressure on load factors resulting in declining margins due to the nature of fixed costs in these Subsidiaries. This impact would be more pronounced in the short-term until the affected Subsidiary made the appropriate operational changes to respond to the competition. The design and build business within Aerospace is largely driven by the customization of aircraft and the integration of various component systems. The market for such products and services is highly competitive and Aerospace faces competition from a number of sources, both domestic and international, including original equipment manufacturers (“OEM”). These competitive pressures could adversely affect Aerospace’s business, results from operations, and financial condition. The markets for the products and services of Aircraft Sales & Leasing are highly competitive. This business line faces competition from a number of sources, both domestic and international. Competitors include aircraft and aircraft parts manufacturers, airline and aircraft service companies, other companies providing maintenance, repair and overhaul services, other aircraft spare parts distributors and redistributors, aircraft leasing companies and other after-market service providers. Some of these competitors may have substantially greater financial and other resources than Aircraft Sales & Leasing has, and others may price their products and services below the business line’s selling prices. These competitive pressures could adversely affect Aircraft Sales & Leasing’s business, results from operations, and financial condition. 70 | Exchange Income Corporation The markets for the products of the Corporation’s Manufacturing segment are competitive; however, the level of competition is lower on the more customized products as a result of the uniqueness of the products. Increased competition from current or new competitors would put pressure on margins and revenues. The Manufacturing segment’s current competitive position in its principal markets is sound and the Subsidiaries within the Manufacturing segment continuously look to differentiate themselves from their competitors by providing value-added services that competitors may not be able to provide. The competitive environment in the manufacturing industry has been impacted by customers seeking to take advantage of the low cost environments that exist in certain countries. As a result, there is the possibility of increased competition from suppliers that have manufacturing operations in these countries. The loss of any significant production contract to competitors in low cost countries could have an adverse effect on the profitability of the Manufacturing segment. Government Funding for Indigenous Health Care Many of the communities to which Essential Air Services provides services to have very limited medical resources and as a result, trips to medical facilities outside of their communities are required to seek adequate medical care. Certain Subsidiaries within Essential Air Services invoice the Government of Canada for the cost of the ticket for the trips. Medevac flights are utilized when a patient requires urgent care at a larger medical facility and cannot wait for a scheduled flight, or is in such a condition that would make travel on a regular flight impossible. If any or all of the government agencies that are serviced by Essential Air Services decide to reduce or eliminate funding for medical-related transportation services, this would have a significant negative impact on the applicable Subsidiary, which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Access to Capital One of the objectives of the Corporation is to continue to acquire additional companies or interests therein to expand and diversify the Corporation’s investments. The ability to execute this objective is dependent on the Corporation’s ability to raise funds in the capital markets. If the capital markets’ desire for income producing investments, such as Common Shares and Debentures, were to significantly decrease, the Corporation would have difficulty in executing its acquisition objectives or funding organic growth initiatives. Market Trends and Innovation The success of the Subsidiaries is dependent on their ability to anticipate and respond in a timely manner to changing consumer preferences, tastes and demands. Accordingly, any sustained failure to identify and respond to emerging trends could adversely affect consumer acceptance of products or the ability to continue to obtain orders, which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. The Subsidiaries continue to invest in technology and innovation as the industries in which they operate are constantly undergoing development and change. Technology is undergoing rapid advancements, such as with the development of artificial intelligence. The Subsidiaries’ ability to anticipate changes in technology to successfully develop and introduce new and enhanced products or to purchase new equipment and train employees on a timely basis using such technologies will be a significant factor in the Corporation’s Subsidiaries remaining competitive. If there is a shift away from the use of such technologies, costs may not be recovered, adversely affecting the Corporation’s results of operations and financial condition. In addition, if other technologies in which the investment of the Subsidiaries is not as great or their expertise is not as fully developed emerge as the industry-leading technologies, the Subsidiaries may be placed at a competitive disadvantage, which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. General Uninsured Loss Each of the Corporation’s Subsidiaries carries comprehensive general liability, fire, flood and extended coverage insurance with policy specifications, limits and deductibles customarily carried for similar businesses. There are, however, certain types of risks, generally of a catastrophic nature, such as wars, fungal, viral, bacterial, or environmental 2024 Annual Report | 71 contamination, which are either uninsurable or not fully insurable on an economically viable basis. Should an uninsured or underinsured loss occur, anticipated profits and cash flows could be negatively impacted. Climate The Corporation’s results of operations could be impacted by fluctuations from weather and natural disasters. Severe weather conditions and natural disaster conditions can significantly disrupt service by impeding the movement of goods or disruptions with landing and take-offs, which could have an adverse effect on the Corporation’s business, results of operations and financial condition. This disruption could also impact Essential Air Services’ ability to maintain its flight training schedules, leading to fewer flights being flown. In addition, increases in frequency, severity or duration of severe weather events, including changes in the global climate, could result in increases in fuel consumption to avoid such weather, turbulence-related injuries, delays and cancellations, any of which would increase the potential for loss of revenue and higher costs. Certain of the Subsidiaries within the Essential Air Services business line are impacted by the length of winter road season, which is impacted by the weather during the first few months of the calendar year. The colder the winter season, the longer the winter roads are available for customers to use as an alternative to flying with these operators. Similarly, Environmental Access Solutions can also be affected by shifting climate variables such as length of the winter season or precipitation levels, which can impact the potential need for the use of its services and rental mats and bridges. The effects of climate change could create further operational and financial implications indirectly through supply chain disruptions that could impact the availability and/or cost of materials. This could further impact the Corporation’s decision to maintain existing facilities or expand into new geographies where physical climate risks are becoming more volatile. Any of these factors can result in increased pricing for the Corporation’s products and services, the resources needed to obtain and/or manufacture and service, or their related insurance costs. As climate change initiatives and regulations continue to evolve at varying degrees, the continued lack of consistent legislation could create economic and regulatory uncertainty. This uncertainty could affect the methods in which the Corporation manufactures, its ability to operate at current service levels or schedules, or associated costs. Furthermore, as the Corporation operates in multiple jurisdictions, its ability to ensure compliance could create unexpected exposure or additional costs, particularly if different regulations are adopted. Acts of Terrorism, Armed Conflict, Labour and/or Social Unrest The occurrence of a terrorist attack could cause a decrease in passenger demand for travel and an increase in security measures, travel restrictions, and related costs in the airline industry. Furthermore, acts of terrorism or similar events could impact the supply chain for both the Manufacturing and Aerospace & Aviation segments or the protection and accessibility of physical assets. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Pandemic The occurrence or reoccurrence of contagious diseases or pandemic events could have a significant impact on passenger demand for air travel, cause shortages of employees to staff the Corporation’s facilities, interrupt supplies from third parties upon which the Corporation relies for its inputs, and ultimately, its ability to continue full operations. The extent to which such events may impact the Corporation’ business going forward is dependent on many factors. The Corporation is unable to predict what actions governments will take, or what customer sentiment will be going forward, which may intensify this impact or other correlated risks described herein. This uncertainty influences for example: discretionary spending, government restrictions, customer demand, supply chain, safety, and vaccination effectiveness and coverage. The Corporation can never predict the likelihood of a pandemic event occurring nor the impact it could have on operations. A pandemic could have an adverse effect on the Corporation’s business, results from operations, and financial condition. 72 | Exchange Income Corporation Level and Timing of Government Spending A significant portion of the revenues in Aerospace, and to a lesser extent, Precision Manufacturing & Engineering, comes from sales to aerospace and defence customers, including sales to governments, directly and indirectly, from various countries. If government spending on their products and services decreases, these business lines will experience the effects of program restructures, reductions and cancellations which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Government-Funded Programs Like most companies that supply products and services to governments, the Corporation and its Subsidiaries can be audited and reviewed from time to time. Some costs may not be reimbursed or allowed in negotiations of fixed-price contracts. Any adjustments that result from government audits and reviews may have an adverse effect on the Corporation’s business, results from operations, and financial condition. Environmental, Social and Governance Stakeholders and public markets are increasingly requiring that public companies be recognized as corporately responsible in adhering to various environmental, social and governance (“ESG”) criteria. Such factors include having awareness of the Corporation’s impact on the environment, its social involvement with its stakeholders, and the methods by which the Corporation governs its business. While the Corporation has always considered these factors in the fabric of its business, for instance by considering fuel efficiency factors for its aircraft, being actively involved in the communities it services, in the human rights standards practiced, or in its approach to overall corporate governance, it is possible that the perceptions of such initiatives may not fully meet the definition of what stakeholders define the Corporation’s ESG responsibilities to be or in the extent of its efforts. The inclusion (or lack thereof) of such factors in the Corporation’s practices and strategy could have an impact on the Corporation’s business, results from operations, and financial condition, and its reputation. This is further emphasized by ongoing advancements and implementation of global strategies and disclosure requirements supporting various ESG related matters that continue to evolve at a rapid pace. On December 18, 2024, the Canadian Sustainability Standards Board (CSSB) released their Canadian Sustainability Disclosure Standards (CSDS), which are substantively identical to the International Sustainability Standards Board (ISSB) IFRS S1 “General Requirements for Disclosure of Sustainability-related Financial Information” and IFRS S2 “Climate-related Disclosures,” published on June 26, 2023. CSDS 1 sets out to establish general requirements for the disclosure of material sustainability-related financial information, while CSDS 2 focuses on the disclosure of climate-related financial information, including associated governance, strategy, risk management and metrics related to climate change. Both CSDS 1 and 2 have not yet been adopted by Canadian standard setters as of today’s date. Furthermore, there is ongoing evolution of similar regulatory requirements in other jurisdictions where the Corporation operates. If adoption of these standards were to occur, it may have an immediate impact to current processes and strategies that could further impact the Corporation’s business and results from operations, and financial condition. The Corporation continues to monitor the activities of regulators in Canada and those other applicable jurisdictions which may have an impact on the Corporation, while continuing to engage in consultations and participate in programs to focus on such matters. OPERATIONAL RISKS: Significant Contracts and Customers The Corporation and its Subsidiaries are currently parties to a number of significant contracts with key customers, including governments. Within the Aerospace & Aviation segment, these significant contracts are for a variety of services but primarily relate to charter work, cargo, medevac services, medical related passenger travel, aircraft modifications, airborne maritime surveillance operations, the maintenance of certain specialized surveillance and other purpose built aircraft, and advanced pilot and sensor operator training solutions. Within the Manufacturing segment, these significant contracts are for the production or installation of certain products and maintenance related services. Overall the Corporation’s significant contracts are spread over a number of different Subsidiaries, thereby reducing the Corporation’s 2024 Annual Report | 73 overall reliance on a single contract or customer. The loss of significant contracts or customers could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Operational Performance and Growth The Corporation’s principal source of funds is cash generated from its Subsidiaries and other investments. It is expected funds from these sources will provide it with sufficient liquidity and capital resources to meet its current and future financial obligations at existing performance levels. If additional capital and operating expenditures depend on increased cash flow or additional financing in the future, the lack of those funds could limit or delay the future growth of the Subsidiaries and their cash flow. Furthermore, the underperformance of a material Subsidiary and/or under achievement of expected efficiencies between Subsidiaries could have an adverse effect on the Corporation’s business, results from operations, and financial condition by also limiting or delaying future growth of the Subsidiaries and their cash flow, while potentially impacting the amount of cash available for dividends to the Shareholders. Laws, Regulations and Standards The Corporation and its Subsidiaries are subject to a variety of federal, provincial, state and local laws, regulations, and guidelines including but not limited to income, health and safety, competition, employment standards, securities laws (disclosure and insider trading), privacy laws, and airline safety. New, or changes in, accounting standards and pronouncements may also impact the Corporation’s financial results. Failure by the Corporation to comply with applicable laws, regulations and standards could result in financial penalties, assessments or legal action that could have an adverse effect on the reputation and financial results of the Corporation and its Subsidiaries. Furthermore, the financial and managerial resources necessary to ensure such compliance could escalate significantly in the future which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. The airline industry in Canada, the United States and elsewhere in the world is subject to strict government standards and regulations. Government entities such as Transport Canada, the Competition Bureau, the Canadian Transportation Agency (“CTA”), the Federal Aviation Administration (“FAA”), and other government entities may implement new laws or regulatory schemes, or render decisions, rulings, or policy changes that could have an adverse effect on the airline industry in general by significantly increasing the cost of airline operations, imposing additional requirements on operations, increasing airport and/or user fees, or reducing the demand for air travel. The Subsidiaries within the Essential Air Services business line have been subject to Pilot Fatigue and Flight Duty Time Regulations implemented over the last five years. Transport Canada continues to update regulatory guidance material for this subject, which may require operators to make changes to their schedules or impact the number of required pilots. This impact is recognized as industrywide, and the Corporation and its Essential Air Services business line continue to implement and enhance a multidimensional strategy to address aviation industry pilot recruitment and retention challenges inclusive of this additional regulatory impact. Flight schedules, operating schedules, and fatigue risk management systems continue to be examined and adjusted to mitigate the impacts of these new regulations. In 2019, Transport Canada enacted the Air Passenger Protection Regulations (“APPR”). At the time, these requirements did not have a material impact on the Corporation’s operations as the compensation the Corporation provided was relatively consistent with what was required under those regulations. The Budget Implementation Act, 2023, which was passed by Parliament in mid-2023, modifies the CTA to strengthen the Canadian air passenger protection regime. In response, the CTA initiated a consultation on proposed changes to the APPR. The consultation presented a number of potential changes, that if implemented, may have an adverse effect on the Corporation’s business, results from operations, and financial condition. In August 2021, the Pay Equity Act came into force, impacting the Corporation’s federally regulated Subsidiaries, such as within the Essential Air Services business line. The legislation requires plans to be developed within three years for employers to examine and adjust any gender wage gaps within their Subsidiaries for work of equal value. Failure to comply could result in an adverse effect on the Corporation’s business, results from operations, and financial condition. 74 | Exchange Income Corporation The Canadian federal government outlined a pan-Canadian framework which benchmarks pricing for carbon emissions in response to global climate change initiatives. The framework outlines that jurisdictions may either implement an explicit price-based system, such as a carbon tax or levy, or a cap-and-trade system. The impact of this legislation applies to a broad set of emission sources which includes fossil fuel sources including jet fuel used within the aviation industry. Certain provinces such as British Columbia and Québec had previously implemented a carbon pricing system. In other provinces, such as Manitoba, where no pricing system was previously in place, the federal nation-wide carbon tax pricing that came into effect on April 1, 2019, continued to apply. The Government of Canada updated this federal benchmark for carbon pricing post-2022 with annual increases through to 2030. Due to the upcoming Canadian federal election in 2025, there is uncertainty on the future state of this policy; however, in its current form, this legislation will have the greatest impact on the Subsidiaries within the Essential Air Services business line, while also having potential indirect implications through the supply chains of the Corporation’s other business lines. Furthermore, the Corporation may be subject to mandated greenhouse gas emissions reduction, reporting or carbon trading requirements in other jurisdictions where the Corporation operates. This legislation could result in additional costs, which the Corporation might be unable to fully pass on through its sales prices, having an adverse effect on the Corporation’s business, results from operations, and financial condition. With respect to Aerospace and Aviation, its products that are to be installed in an aircraft, such as engines, engine parts, components and airframe and accessory parts and components, must meet certain standards of airworthiness established by Transport Canada, the FAA or other regulatory agencies. New and more stringent governmental regulations may be adopted in the future that, if enacted, could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Due to CTI having certain United States security clearances and the Corporation being organized in Canada, the Corporation maintains a Special Security Agreement (the “SSA”) with the United States Department of Defense. The implementation and maintenance of the terms of the SSA are required for CTI to maintain its security clearances. In the event the Corporation fails to adequately implement and/or maintain the mitigation measures set forth in the SSA, this could have a material impact on CTI’s ability to deliver on current or future contracts, including the potential termination of the SSA, having an adverse effect on the Corporation’s business, results from operations, and financial condition. While management believes that affected Subsidiaries are currently in compliance with all applicable government standards and regulations, there can be no assurance that the Subsidiaries will be able to continue to comply with all applicable standards and regulations. A failure to comply with applicable standards and regulations could result in the revocation of the operating certificate of the applicable Subsidiary and a temporary or permanent cessation of flight operations, the inability to sell its products or services and carry on business, or the inability to continue manufacturing operations and the provision of related services in the case of the Corporation’s Manufacturing segment. Certain of the Subsidiaries process, transmit and store credit card data and are therefore subject to compliance with certain requirements established by credit card companies. Non-compliance with these requirements, whether through system breaches or limitations, may result in substantial fines and/or temporary or permanent exclusion from one or more credit card acceptance programs. The inability to process one or more credit card brands could have an adverse impact on the passenger bookings, revenue and profitability of certain of the Subsidiaries. The Corporation’s business practices must comply with Canada’s Corruption of Foreign Public Officials Act, the U.S. Foreign Corrupt Practices Act, and any local anti-bribery or anti-corruption laws that may be applicable. These anti-bribery or anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. These risks can be more acute in emerging markets. If violations of these laws were to occur, they could subject the Corporation and/or its Subsidiaries to fines and other penalties, reduced access to future government contracts as well as increased compliance costs and could have an adverse effect on the Corporation’s business, results from operations, and financial condition. 2024 Annual Report | 75 Certain of the Corporation’s Subsidiaries are parties to non-disclosure agreements relating to technical assistance agreements and manufacturing licensing agreements involving U.S. International Traffic in Arms Regulations (“ITAR”) controlled defence articles and technical data, and therefore assume all rights, responsibilities, liabilities and obligations that may exist regarding the transfer of such information. In the event that these Subsidiaries are not compliant with such regulations, there is a risk of incurring fines and other penalties that could lead to increased compliance costs or restriction of information that could hinder the acquisition of future contracts. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Certain of the Corporation’s Subsidiaries regularly engage in business transactions with United States based suppliers and customers. The United States-Mexico-Canada Agreement (USMCA) enacted in 2020, replacing the previous North American Free Trade Agreement, could result in new tariffs, increased difficulty associated with the movement of goods and people across the border and changes to access to work permits by employees. More specifically, a significant review and potential renegotiation scheduled for mid-2026 may have a more pervasive impact on the Corporation’s risk position by influencing variables within other key risks (e.g. select commodities, interest rates, etc.). This could be further exacerbated by interim additional trade and tariff barriers. Any of such events could have an adverse effect on the Corporation’s business, results from operations, and financial condition. The legalization of recreational cannabis and related products has led to additional policies to ensure a safe workplace environment. While the rules and policies around this topic area continue to evolve, there is a risk that such rules may impact the Corporation’s ability to fulfill its obligations without having to implement additional protocols, disclosure or training. Failure to maintain safety and compliance requirements may have an adverse effect on the Corporation’s business, results from operations, and financial condition. On May 3, 2023, the Canadian Parliament passed Bill S-211 or Fighting Against Forced Labour and Child Labour in Supply Chains Act, to protect vulnerable populations from human rights abuses and exploitation. The bill imposes strict reporting requirements on Canadian businesses with first reports required to have been filed on or before May 31, 2024. On February 22, 2024, the Corporation released its first Modern Slavery Report that will be provided concurrently with its annual filings going forward. Bill S-211 may have an impact on the way the Corporation contracts within its supply chains and therefore may affect aspects of production, sales, or importing of goods produced outside of Canada into the country. If violations of this law were to occur, they could subject the Corporation and/or its Subsidiaries to fines, reduced access to future contracts, as well as increased compliance costs, any of which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. On June 20, 2024, the Canadian Parliament passed Bill C-59 resulting in amendments to Canada’s Competition Act that aim to strengthen prohibitions on misleading advertising and marketing practices by explicitly targeting misleading environmental benefit claims. This amendment imposes a requirement that environment benefit claims with respect to products are based on adequate and proper testing and that claims regarding the environmental benefits of a business or business activity be supported by adequate and proper substantiation in accordance with internationally recognized methodology. Further, it enables private parties to bring forward instances where deceptive advertising practices may exist before the Competition Tribunal as of mid-2025. If such cases against the Corporation are brought forward, these new provisions would result in the Corporation having to bear the burden of proving that such testing or substantiation took place, which would not only result in increased compliance costs, but could also have an adverse effect on the Corporation’s business, results from operations, and financial condition. Acquisition Risk Led by a formal corporate development department, the Corporation regularly reviews potential acquisition opportunities to support its strategic objective to expand and diversify the Corporation’s investments. The Corporation’s ability to successfully grow or diversify through additional acquisitions will be dependent on a number of factors, including the identification of suitable acquisition targets in both new and existing markets, the negotiation of purchase agreements on satisfactory terms and prices, securing attractive financing arrangements, and, where applicable, the integration of newly acquired operations into the existing business. 76 | Exchange Income Corporation In pursuing a strategy of acquiring other businesses or interests, the Corporation will face risks commonly encountered with growth through acquisitions. These risks include, but are not limited to, incurring higher capital expenditures and operating expenses than expected, entering new unfamiliar markets, incurring undiscovered liabilities at acquired businesses, disrupting ongoing business, diverting management resources, failing to maintain uniform standards, controls and policies, impairing relationships with employees, suppliers and customers as a result of changes of ownership, increasing expenses for accounting and computer systems and incorrectly valuing acquired entities. The Corporation may not adequately anticipate all the demands that its growth will impose on its personnel, procedures and structures, including its financial and reporting control systems, data processing systems and management structure. Moreover, the Corporation’s failure to retain qualified management personnel at any acquired business may increase the risk associated with integrating such businesses. If the Corporation cannot adequately anticipate and respond to these demands, it may fail to realize the expected operating performance and its resources will be focused on incorporating new operations into its structure rather than on areas that may be more profitable. The Corporation conducts business, legal and financial due diligence investigations in connection with its acquisitions and the purchase and sale agreements pursuant to which the Corporation directly or indirectly acquires a business or interest will generally contain customary representations and warranties with respect to the applicable business and related indemnities from the vendors regarding corporate matters, taxes, litigation, environmental, operations, employee matters and financial statements, among other things. However, there can be no assurance the Corporation will uncover all risks associated with the investment through its due diligence investigations, that the representations and warranties given by such vendors will adequately protect against such risks or that the Corporation will recover any losses incurred in the event of a breach of a representation or warranty. In light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual operating condition of these businesses. Concentration and Diversification Risk The Corporation’s performance is dependent on the results of its Subsidiaries which are concentrated in two segments: (i) Aerospace & Aviation; and (ii) Manufacturing. Although diversification exists, financial results are heavily tied to the North American economy. An economic decline, a major shift in consumer demands, or technology change could result in both segments experiencing simultaneous negative results. In the event both segments experience a downturn leading to negative results, this could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Similarly, becoming economically dependent on one Subsidiary or customer could result in an imbalance in the diversification level of the Corporation. This could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Furthermore, considerable pressure may be placed on resources, processes, and systems to manage the imbalance. Aircraft Sales & Leasing’s portfolio of parts, engines and leased aircraft are concentrated in specific types of regional aircraft. The leasing and sales industry related to aircraft assets can experience periods of undersupply and oversupply. As a result, this business line’s profitability is susceptible to economic conditions specific to the regional aircraft platform that underlies its business strategy. Maintenance Costs Essential Air Services and Aerospace each rely on aircraft that are tailored to operate in extreme and remote environments. Many such aircraft types are no longer in production, so by nature, this business line is working with aging aircraft and have specific aging aircraft protocols to ensure the safety and longevity of the aircraft. Comprehensive, in- house maintenance teams continually assess the airframe, engines and components of each aircraft in the fleet. The ongoing maintenance costs, as well as the fleet renewal costs, may be significantly higher than anticipated, adversely impacting the Corporation’s business, results from operations, and financial condition. 2024 Annual Report | 77 Access to Parts and Relationships with Key Suppliers The Subsidiaries are at times dependent on the continued efficient supply of component parts, fuel and raw materials from various suppliers. Any shortage of supply, significant delays in delivery, or an inability to source such items on satisfactory terms, would jeopardize the ability of the Subsidiaries to provide their products or services, or within contractually agreed upon terms. Each, and any of these circumstances, could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Casualty Losses The Corporation has operations and physical locations throughout the world and accordingly is exposed to loss from inclement weather or natural disasters, equipment defects, malfunctions and failures, vehicular or aviation accidents, loss of life, suspension of operations and business interruption. These Subsidiaries are also subject to the inherent business risk of liability claims and adverse publicity if any of their services is alleged to have resulted in adverse effects to a user, including an aircraft accident in the case of the Subsidiaries within the Aerospace & Aviation segment. There can be no assurance that the Corporation’s insurance coverage will be sufficient or remain available at reasonable costs to cover one or more large claims. Additionally, any incident or disaster involving either the Aerospace & Aviation and/or Manufacturing segment could significantly harm the Corporation’s reputation for safety. In either event, the Corporation’s business, results from operations, and financial condition could be adversely affected. Environmental Liability Risks As owners of real property, and in particular fuel farms, fuel storage containers and other fuel transportation equipment, the Subsidiaries are subject to various federal, provincial, state and municipal laws relating to environmental matters. Such laws provide that the Subsidiaries could be liable for the costs of removal of certain hazardous substances and remediation of certain hazardous locations. The failure to remove or remedy such substances or locations, if any, could potentially result in actions, penalties and/or claims against the Subsidiaries. Future environmental regulatory developments in North America and abroad concerning environmental issues, such as climate change, could adversely affect the operations of the Subsidiaries, increase operating costs and, through their impact on customers, reduce demand for the products and services of the Subsidiaries. Actions may be taken in the future by federal, provincial, state or local governments, the International Civil Aviation Organization, or by signatory countries through a new global climate change treaty to regulate the emission of greenhouse gases by the aviation industry. The precise nature of any such requirements and their applicability to the Subsidiaries within the Essential Air Services business line and their customers are difficult to predict, but the impact to the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits. Dependence on Information Systems and Technology Information systems are an important part of the business process of the Subsidiaries, including marketing their products and services, managing inventory, coordinating logistical support and managing finance functions. In addition, management of the Corporation and its Subsidiaries will continue to rely on information systems to analyze operating performance on an ongoing basis and to aid in the preparation of budgets and forecasts. Any disruptions in these systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect the Corporation’s business, results from operations, and financial condition. The integration of complex systems and technology presents significant challenges in terms of costs, human resources and development of effective internal controls. In the ordinary course of business, systems will require modifications and refinements to address the Corporation’s growth and business requirements. The Subsidiaries could be adversely affected if they are unable to modify their systems as necessary. The rapid pace of artificial intelligence (AI) development and use necessitates a dynamic approach to risk management, as new and unforeseen challenges are constantly emerging alongside the innovative possibilities. As the Corporation and its 78 | Exchange Income Corporation Subsidiaries continue to investigate opportunities for using this technology, the Corporation continues to monitor the risks arising from its development. The use of this technology can further magnify potential exposure to other risk factors including, but not limited to, competition, market trends and innovation, laws and regulations, cybersecurity, intellectual property, and/or conflicts of interest. Each, and any of these circumstances, could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Cybersecurity The Corporation’s reliance on information technology to manage its business exposes the Corporation to potential risks related to cybersecurity attacks and unauthorized access to the Corporation’s customers’, suppliers’, counterparties’ and employees’ sensitive or confidential information (which may include personally identifiable information and credit information) through hacking, viruses or otherwise (for the purpose of this section, collectively “cybersecurity threats”). The Corporation uses information technology systems and network infrastructure, which include controls for interconnected systems of generation, distribution, and transmission, some of which are shared with third parties for operating purposes. Through the normal course of business, the Corporation also collects, processes, and retains sensitive and confidential customer, supplier, counterparty and employee information. Cybersecurity threats are continually growing and changing and require continuous monitoring and detection efforts to address. While the Corporation has security measures in place, its systems, assets and information could be vulnerable to cybersecurity attacks and other data security breaches that could cause system failures, disrupt operations, adversely affect safety, result in loss of service to customers and result in the release of sensitive or confidential information. Despite such security measures, there is no assurance that cybersecurity threats can be fully detected, prevented or mitigated. Should such threats materialize, the Corporation could suffer costs, losses and damages such as property damage, corruption of data, lower earnings, reduced cash flow, third party claims, fines and penalties; all or some of which may not be recoverable. Furthermore, certain of these information technology solutions are maintained by third-party vendors upon which the Corporation is dependent to maintain their own security and control measures. If these third parties were to become incapable of maintaining efficient and/or secured technological solutions in line with the Corporation’s expectations, this could increase the Corporation’s exposure to additional cybersecurity threats, business disruptions or costs, adversely affecting the Corporation’s business, results from operations, and financial condition. International Operations Risks Certain of the Subsidiaries conduct business with certain countries other than Canada and the United States, some of which are politically unstable or subject to military or civil conflicts. Consequently, these Subsidiaries are subject to a variety of risks that are specific to international operations, including the following: • military conflicts, civil strife, and political risks; • export regulations that could erode profit margins or restrict exports; • compliance with applicable anti-bribery laws; • the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; • contract award and funding delays; • potential restrictions on transfers of funds; • import and export duties and value-added taxes; • foreign exchange risk; • transportation delays and interruptions; • uncertainties arising from foreign local business practices and cultural considerations; 2024 Annual Report | 79 • travel restrictions; and • payment risk. While these Subsidiaries have and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of doing business internationally, the Corporation cannot ensure such measures will be adequate or the regions in which they operate will continue to be stable enough to allow these Subsidiaries to operate profitably or at all. Fluctuations in Sales Prices of Aviation Related Assets Aircraft Sales & Leasing uses a number of assumptions when determining the recoverability of inventories, aircraft, and engines, which are on lease, available for lease or for sale. These assumptions include historical sales trends, current and expected usage trends, replacement values, current and expected lease rates, residual values, future demand and future cash flows. Reductions in demand for inventories or declining market values, as well as differences between actual results and the assumptions utilized by this business line when determining the recoverability of inventories, aircraft, and engines, could result in impairment charges in future periods. Aircraft Sales & Leasing’s operations include leasing aircraft and engines to its customers on an operating lease basis in addition to finance leases or sale transactions. Its ability to re-lease or sell these assets on acceptable terms when the operating lease expires is subject to a number of factors that drive industry capacity, including new aircraft deliveries, availability of used aircraft and engines in the marketplace, overhaul capacity, component parts availability, competition, financial condition of customers, overall health of the airline industry and general economic conditions. The inability to re- lease or sell aircraft and engines could adversely affect Aircraft Sales & Leasing’s results of operations and financial condition. Fluctuations in Purchase Prices of Aviation Related Assets The success of Aircraft Sales & Leasing depends, in part, on its ability to acquire strategically attractive aircraft and aviation related assets and enter into profitable leases or sale transactions following their acquisition. The leasing and sales industry for aircraft related assets can experience periods of undersupply and oversupply. The Subsidiaries within the Aircraft Sales & Leasing business line may not be able to enter into profitable leases or sales transactions following the acquisition of aircraft. An acquisition of one or more aircraft may not be profitable and may not generate sufficient cash flow to justify those acquisitions. If the Aircraft Sales & Leasing business line experiences significant delays in the implementation of its business strategies, including delays in the acquisition and leasing or sale of the aviation related assets, its fleet management strategy and long-term results of operations could be adversely affected. The other Subsidiaries within the Aerospace & Aviation segment are also exposed to changes in demand and availability of aviation related assets mainly when these Subsidiaries are looking to replace or grow their aircraft fleets and to a lesser degree when disposing of aircraft from their fleets. Warranty Risk Certain Subsidiaries are exposed to warranty risk. Defects may be found in products before and/or after they are delivered to the customer. Additionally, contractual service levels may not be achieved. This could result in significant additional costs to modify and/or retrofit to correct defects or remediate service levels. The occurrence of defects and failures could give rise to non-conformity costs, including warranty and damage claims, negatively affecting reputation and profitability and could result in the loss of customers. Correcting such defects could require significant capital investment where such claims cannot be passed on to component suppliers. In particular, Aerospace manufactures highly complex and sophisticated surveillance aircraft and software solutions, incorporating various technologies and components. These aircraft are subject to detailed specifications, which are listed in contracts with customers, as well as stringent certification or approval requirements. Multi-Storey Window Solutions manufactures and installs windows for high rise apartment and condominium projects and provides a warranty of ten years on the integrity of the windows. Failure of the windows due to a fault in the manufacturing or installation processes could negatively impact reputation and could result in significant additional cost to remedy the issue identified under a valid warranty claim. 80 | Exchange Income Corporation Performance Guarantees Certain Subsidiaries within Essential Air Services business line operate under contractual arrangements that require performance guarantees through maintaining an agreed upon level of service. Failure to achieve the specified levels of service could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Global Offset Risk Offset obligations are common in numerous countries in the global aerospace market. Aerospace has significant business operations in the UAE. All government defence and aerospace supply contracts in the UAE are subject to offset obligations, calculated as a percentage of the value of the supply contract. Offset credits are generated in a number of ways including, employment of local citizens, a maintenance of a profitable business within the jurisdiction, development of IP within the jurisdiction, investment within the jurisdiction, and exports from the jurisdiction. In the event sufficient offset credits are not generated, Aerospace may be subject to financial penalties which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Intellectual Property Risk Certain proprietary intellectual property is not protected by any patent or patent application, and, despite precautions, it may be possible for third parties to obtain and use such intellectual property without authorization. The Corporation and its Subsidiaries have generally sought to protect such intellectual property in part by maintaining confidentiality agreements with strategic partners and employees. There is no guarantee these agreements adequately protect the trade secrets and other intellectual property or proprietary rights of the Corporation or its Subsidiaries. In addition, there can be no assurance these agreements will not be breached, that adequate remedies for any breach will be in place, or that such persons or institutions will not assert rights to intellectual property arising out of these relationships. Furthermore, the steps taken or that may be taken in the future, may not prevent misappropriation of such solutions or technologies, particularly in respect of officers and employees who are no longer employed by the Corporation or its Subsidiaries or in foreign countries where laws or law enforcement practices may not protect the Corporation’s proprietary rights as fully as in Canada. Where applicable, the Corporation takes reasonable steps (e.g. available copyright protection and, as applicable, patent protection) to protect and enforce its intellectual property rights. There is no assurance that such measures will be enforceable or adequate. The cost of enforcing rights, or the inability to protect against infringement or unauthorized copying or use, can be substantial and, in certain cases, may prove to be uneconomic. Despite the Corporation’s efforts, the steps taken to protect intellectual property may not be adequate to prevent or deter infringement or other misappropriation of intellectual property. The Corporation may not be able to detect unauthorized use of its intellectual property, or take appropriate steps to enforce its intellectual property rights. FINANCIAL RISKS: Availability of Future Financing The Corporation’s ability to sustain continued growth depends on its ability to identify, evaluate and contribute financing to its Subsidiaries. The Corporation may require additional equity or debt financing to meet its capital and operating expenditure requirements. There can be no assurance this financing will be available when required or available on commercially favourable terms or on terms that are otherwise satisfactory to the Corporation, in which event the financial condition of the Corporation may be adversely affected. Lack of those funds could limit or delay future growth of the Subsidiaries and the amount of cash available for dividends to Shareholders may be reduced. Income Tax Matters The business and operations of the Corporation and its Subsidiaries are complex and the Corporation has, over the course of its history, undertaken a number of significant financings, reorganizations, acquisitions, divestitures and other material transactions. The computation of income taxes payable as a result of these transactions involves many complex factors including the Corporation’s interpretation of relevant tax legislation and regulations. Tax filing positions are subject 2024 Annual Report | 81 to review and adjustment by taxation authorities who may challenge the Corporation’s interpretation of the applicable tax legislation and regulations. If any challenge to the Corporation’s tax filing positions were to succeed, it could result in a reassessment of taxes or otherwise have a material adverse effect on the Corporation’s tax obligations. Furthermore, federal or provincial or foreign tax legislation may be amended, or its interpretation changed (whether by legislative or judicial action or decision), retroactively or for the future, which could adversely affect the Corporation’s tax positions. Commodity Risk Certain Subsidiaries are vulnerable to price fluctuations in select commodities required to conduct business. Some of the products manufactured by the Subsidiaries require specialized raw materials such as lumber, aluminum and steel. The market prices and availability of such commodities have and may continue to fluctuate widely depending on many factors including general economic and market conditions, geopolitical events, competition, freight and transportation costs and prevailing exchange rates. If such raw materials are not available or not available under satisfactory terms, the applicable Subsidiary may not be able to manufacture and fulfill customer orders with the contractual terms or timelines. Revenue and relationships with customers could be negatively affected as a result. Fuel costs are a significant component of the total operating costs of the Aerospace & Aviation segment. Fuel prices have and may continue to fluctuate widely depending on many factors including international market conditions, geopolitical events, jet fuel refining costs and the Canada/United States dollar exchange rate. The Corporation cannot predict future fuel prices. While most of the travel by the Aerospace & Aviation segment’s customers is not discretionary (i.e. for medical or other necessary reasons) and overland travel from and to many of the communities serviced is only possible for brief periods of the year over winter roads, if prices were to escalate significantly it may impact demand for services. The operations of certain Subsidiaries within the Manufacturing segment in Alberta have historically been impacted by prevailing oil prices. As oil prices fluctuate, demand for certain products manufactured within Precision Manufacturing & Engineering increases and decreases accordingly. Essential Air Services is further impacted by mineral commodity pricing as the service requirements of several major customers are impacted by mineral commodity pricing levels. Foreign Exchange The Corporation’s financial results are sensitive to the fluctuating value of the Canadian dollar, particularly in relation to the United States dollar. The Corporation’s Canadian and United States Subsidiaries are impacted differently from fluctuations in the Canada/United States dollar exchange rate. The Corporation’s Canadian operations have significant United States dollar inflows and outflows and it varies greatly by entity. For instance, many Subsidiaries in Essential Air Services have net annual outflows of United States dollars as parts cost, engines, and aircraft purchases are often purchased in United States dollars. As well, the price of fuel, while purchased in Canadian dollars, is impacted by fluctuations in the Canada/United States dollar exchange rate. However, certain other entities have significant contracts under which the customer pays in United States dollars. When viewed in the aggregate, the Corporation’s Canadian operations do not have a large exposure to fluctuations in the Canada/United States dollar exchange rate. It is important to note that while exchange rate fluctuations may have a short-term impact on the results from any one of the Subsidiaries in Canada, none of their business models are based on arbitraging between the two currencies and ultimately exchange rate changes will be reflected in their pricing charged to customers. The Corporation’s United States Subsidiaries’ operations are not impacted by fluctuations in the exchange rate as the vast majority of their revenues and expenditures are in United States dollars. However, when their results are included in the Corporation’s consolidated results for financial reporting purposes, the Corporation’s consolidated results will be impacted by the translation of the Corporation’s United States Subsidiaries results from their functional currency into the Corporation’s reporting currency, which is Canadian dollars. 82 | Exchange Income Corporation The Corporation is further nominally exposed to other foreign currencies, such as Euros, under certain contracts maintained within Aerospace, which must be converted to Canadian dollars for reporting purposes. Fluctuations in foreign exchange rates related to denominations beyond the United States dollar for which the Corporation’s Subsidiaries operate in, could have an impact on financial results and cash flows. Interest Rates As at December 31, 2024, the Credit Facility has a variable interest rate on the Canadian and United States portions of the amount outstanding under the facility. The terms of the Credit Facility allow for the Corporation to choose the base interest rate between prime, Canadian Overnight Repo Rate Average (CORRA), or Secured Overnight Financing Rate (SOFR). The Corporation manages the base rate used on the outstanding facility and seeks financing terms in individual arrangements that are most advantageous. The Corporation considers derivative instruments to manage the variable interest rate risk and has entered into interest rate swaps on a portion of its debt to manage this risk. The Corporation’s outstanding Debentures have fixed interest rates that are not affected by changes in rates until the maturity of the Debentures when they may need to be refinanced if the holders have not converted the Debentures into equity. Credit Facility and the Trust Indentures The Corporation has significant debt service obligations pursuant to the financing agreements relating to the Credit Facility and the Trust Indentures. The degree to which the Corporation and its Subsidiaries are leveraged could have important consequences to Shareholders, including: • the ability of the Corporation and/or its Subsidiaries to obtain additional financing for working capital, capital expenditures, or acquisitions in the future may be limited; • a substantial portion of cash flow from operations of the Subsidiaries of the Corporation will be dedicated to servicing its indebtedness, thereby reducing funds available for future operations or dividend payments; • certain borrowings of the Corporation and/or its Subsidiaries will be at variable rates of interest, which will expose the Corporation and its Subsidiaries to future fluctuations of interest rates; and • the Corporation and/or its Subsidiaries may be more vulnerable to economic downturns and may be limited in their ability to withstand competitive pressure. The ability of the Corporation and/or its Subsidiaries to make scheduled payments of the principal of or interest on, or to refinance, their respective indebtedness will depend on future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond its control. This is also influenced by existing lenders’ willingness to continue to lend at their current commitment level or increase their commitments in the future should the Corporation seek to increase the size of its credit facility. The financing agreements relating to the Credit Facility and Trust Indentures that govern the Debentures contain restrictive covenants that limit the discretion of management with respect to certain business matters. These covenants may place significant restrictions on, among other things, the ability of the Subsidiaries and other restricted parties under such financing agreements to incur additional indebtedness, to create liens or other encumbrances, to pay dividends, to redeem equity or debt, or make certain other payments, investments, capital expenditures, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the financing agreement relating to the Credit Facility contains a number of financial covenants that require the Corporation to meet certain financial ratios and financial condition tests. A failure to comply with the obligations and covenants under the financing agreements relating to the Credit Facility or the Trust Indentures that govern the Debentures could result in an event of default under such agreements, as the case may be, which, if not cured or waived, could permit acceleration of indebtedness. If the indebtedness under such agreements were to be accelerated, there can be no assurance the assets of the Corporation and its Subsidiaries under such agreements would be sufficient to repay that indebtedness in full. 2024 Annual Report | 83 Dividends Although the Corporation intends to continue to declare and pay monthly dividends on Common Shares, there can be no assurance dividends will continue in the future at the same frequency and in the same amounts, or at all. The dividends declared and amount paid by the Corporation in respect of the Common Shares will depend upon numerous factors, including profitability, fluctuations in working capital, capital expenditures and the sustainability of margins of its Subsidiaries. Unpredictability and Volatility of Securities Pricing The market price of the Common Shares and Debentures could be subject to significant fluctuations in response to variations in operating results, monthly dividends, and other factors. In addition, industry specific fluctuations in the stock market may adversely affect the market price of Common Shares and Debentures regardless of the operating performance of the Corporation. There can be no assurance of the price at which the Common Shares and Debentures will trade. The annual dividend yield on the Common Shares as compared to the annual yield on other financial instruments may also influence the price of Common Shares and Debentures in the public trading markets. In addition, the securities markets have experienced significant price and volume fluctuations from time to time in recent years that often have been unrelated or disproportionate to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of the Common Shares and Debentures. Dilution Risk The authorized share capital of the Corporation is comprised of an unlimited number of Common Shares. The Corporation may issue additional Common Shares, or securities which are convertible, exchangeable or exercisable into Common Shares, such as the Debentures, for consideration and on those terms and conditions as are established by the Corporation without the approval of Shareholders. The Corporation intends to pursue further acquisitions which will likely require the issuance of additional Common Shares. Credit Risk Credit risk arises from the potential a counterparty will fail to fulfil its obligations and the Corporation is exposed to credit risk from its customers or parties where the Corporation has advanced funds under a promissory note or loan arrangement. This includes lease arrangements within Aircraft Sales & Leasing where long-term receivables are recognized with aviation companies in finance lease arrangements. HUMAN CAPITAL RISKS: Reliance on Key Personnel The success and culture of the Corporation is dependent on a number of key senior employees both at the Corporation’s head office level and at the Subsidiary level. The loss of any one of these key employees would impair the Corporation’s ability to operate at its optimum level of performance and could have an adverse effect on the Corporation’s business, results from operations, and financial condition. There can be no assurance the Corporation will be able to retain its existing senior management, attract additional qualified executives, or adequately fill new senior management positions or vacancies created by expansion, turnover or illness related impacts at either its head office or Subsidiaries. Employees and Labour Relations The success of the Subsidiaries is dependent in large part upon their ability to attract and retain skilled management and employees. Recruiting and maintaining personnel in the industries in which the Subsidiaries are involved is highly competitive and it cannot be guaranteed these Subsidiaries will be able to attract and retain the qualified personnel needed for their businesses. In particular, skilled labour within Precision Manufacturing & Engineering such as for tower maintenance and erection, and for certain metal fabricators, or the engineers, and software developers in Aerospace’s operations, are all specialized such that it can be difficult to find qualified personnel and retain them given the competitive environments in which these businesses operate. The previously enacted Transport Canada regulations concerning pilot 84 | Exchange Income Corporation fatigue and flight duty times will have a continued impact on the number of pilots, nurses and maintenance personnel required for Essential Air Services. The airline industry continues to experience a material shortage of experienced pilots and aircraft maintenance engineers. If this shortage continues to extend, it could impact the ability of Essential Air Services to attract and retain these employees, who are key to the Subsidiaries within the Essential Air Services business line’s ability to operate. A failure to attract or retain qualified personnel could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Certain employees have labour-related agreements but there can be no assurance future agreements with employee unions or the outcome of arbitrations will be on terms consistent with the Corporation’s expectations or comparable to agreements entered into by the Corporation’s competitors. Any future agreements or outcomes of negotiations, mediations or arbitrations including in relation to wages or other labour costs or work rules may result in increased labour costs or other charges which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. There can be no assurance there will not be a labour conflict that could lead to an interruption or stoppage in the Corporation’s service or otherwise adversely affect the ability of the Corporation to conduct its operations, all of which could have an adverse effect on the Corporation’s business, results from operations, and financial condition. Conflicts of Interest The Corporation may be subject to various conflicts of interest due to the fact that its Directors and management are or may be engaged in a wide range of other business activities. The Corporation may become involved in transactions that conflict with the interests of these other business activities. The Directors and management of the Corporation and associates or affiliates may from time to time deal with persons, firms, institutions or organizations with which the Corporation may be dealing, or which may be seeking investments similar to those desired by the Corporation. The interests of these persons could conflict with those of the Corporation. In addition, from time to time, these persons may compete with the Corporation for available investment opportunities. Any such conflicts will be resolved in accordance with the provisions of the Canada Business Corporations Act (“CBCA”) relating to conflicts of interest. 13. NON-IFRS FINANCIAL MEASURES AND GLOSSARY Adjusted EBITDA, Adjusted Net Earnings, Free Cash Flow, and Maintenance and Growth Capital Expenditures are not recognized measures under IFRS and are, therefore, defined below. On May 27, 2021, the Canadian Securities Administrators issued National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure along with the companion policy for that instrument that came into effect for financial years ending after October 15, 2021. As a result of the requirements under this instrument, the Corporation presents “Adjusted EBITDA” which is determined in the exact same manner as “EBITDA” was presented in its prior MD&A reports. As such, all amounts presented as “Adjusted EBITDA” are directly comparable to amounts presented as “EBITDA” in prior MD&A reports. Adjusted EBITDA: is defined as earnings before interest, income taxes, depreciation, amortization, other non-cash items such as gains or losses recognized on the fair value of contingent consideration items, asset impairment, and restructuring costs, and any unusual non-operating one-time items such as acquisition costs. It is used by management to assess its consolidated results and the results of its operating segments. Adjusted EBITDA is a performance measure utilized by many investors to analyze the cash available for distribution from operations before allowance for debt service, capital expenditures, and income taxes. The most comparable IFRS measure, presented in the Corporation’s Statements of Income as an additional IFRS measure, is Earnings before Depreciation, Amortization, Finance Costs, Taxes, and Other. Adjusted Net Earnings: is defined as Net Earnings adjusted for acquisition costs, amortization of intangible assets, interest accretion on acquisition contingent consideration, accelerated interest accretion on convertible debentures, and non-recurring items, such as restructuring costs. Adjusted Net Earnings is a performance measure, along with 2024 Annual Report | 85 Free Cash Flow less Maintenance Capital Expenditures, which the Corporation uses to assess cash flow available for distribution to shareholders. The most comparable IFRS measure is Net Earnings. Interest accretion on contingent consideration is recorded in the period subsequent to an acquisition after the expected payment to the vendors is discounted. The value recorded on acquisition is accreted to the expected payment over the earn out period. Accelerated interest accretion on convertible debentures reflects the additional interest accretion recorded in a period that, but for the action to early redeem the debenture series, would have been recorded over the remaining term to maturity. This interest reflects the difference in the book value of the convertible debentures and the par value outstanding. The Corporation presents Adjusted Net Earnings per share, which is calculated by dividing Adjusted Net Earnings, as defined above, by the weighted average number of shares outstanding during the period, as presented in the Corporation’s Financial Statements and Notes. The Corporation presents an Adjusted Net Earnings payout ratio, which is calculated by dividing dividends declared during a period, as presented in the Corporation’s Financial Statements and Notes, by Adjusted Net Earnings, as defined above. The Corporation uses this metric to assess cash flow available for distribution to shareholders. Free Cash Flow: for the year is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, acquisition costs, principal payments on right of use lease liabilities, and any non-recurring items, such as restructuring costs. Free Cash Flow is a performance measure used by management and investors to analyze the cash generated from operations before the seasonal impact of changes in working capital items or other unusual items. The most comparable IFRS measure is Cash Flow from Operating Activities. Adjustments made to Cash Flow from Operating Activities in the calculation of Free Cash Flow include other IFRS measures, including adjusting the impact of changes in working capital and deducting principal payments on right of use lease liabilities. The Corporation presents Free Cash Flow per share, which is calculated by dividing Free Cash Flow, as defined above, by the weighted average number of shares outstanding during the period, as presented in the Corporation’s Financial Statements and Notes. Free Cash Flow less Maintenance Capital Expenditures: for the year is equal to Free Cash Flow, as defined above, less Maintenance Capital Expenditures, as defined below. The Corporation presents Free Cash Flow less Maintenance Capital Expenditures per share, which is calculated by dividing Free Cash Flow less Maintenance Capital Expenditures, as defined above, by the weighted average number of shares outstanding during the period, as presented in the Corporation’s Financial Statements and Notes. The Corporation presents a Free Cash Flow less Maintenance Capital Expenditures payout ratio, which is calculated by dividing dividends declared during a period, as presented in the Corporation’s Financial Statements and Notes, by Free Cash Flow less Maintenance Capital Expenditures, as defined above. The Corporation uses this metric to assess cash flow available for distribution to shareholders. Maintenance and Growth Capital Expenditures: Maintenance Capital Expenditures is defined as the capital expenditures made by the Corporation to maintain the operations of the Corporation at its current level, depreciation on the Corporation’s mat and bridge rental portfolio assets, and, prior to the onset of the pandemic, depreciation recorded on assets in the Corporation’s aircraft and engine leasing pool. Other capital expenditures are classified as Growth Capital Expenditures as they will generate new cash flows and are not considered by management in determining the cash flows required to sustain the current operations of the Corporation. While there is no comparable IFRS measure for Maintenance Capital Expenditures or Growth Capital Expenditures, the total of Maintenance Capital Expenditures and Growth Capital Expenditures is equivalent to the total of capital asset and intangible asset purchases, net of disposals, on the Statement of Cash Flows. The Corporation’s Maintenance Capital Expenditures include aircraft engine overhauls and airframe heavy checks that are recognized when these events occur and can be significant. Each aircraft type has different requirements for its major components according to manufacturer standards and the timing of the event can be dependent on the extent that the aircraft is utilized. As a result, the extent and timing of these Maintenance Capital Expenditure events can vary significantly from period to period, both within the year and when analyzing to the comparative period in the prior year. 86 | Exchange Income Corporation Regional One’s purchases of operating aircraft and engines within its lease portfolio are capital expenditures and, prior to the onset of the pandemic, the process used to classify those expenditures as either growth or maintenance was based on the depreciation of that portfolio. Aircraft that are leased to third parties are being consumed over time, therefore reinvestment is necessary to maintain the ability to generate future cash flows at existing levels. This depletion of the remaining green time of these aircraft was historically represented by depreciation. Only net capital expenditures more than depreciation were classified as Growth Capital Expenditures. If there were no purchases of capital assets during the period by Regional One, Maintenance Capital Expenditures would still be equal to depreciation recorded on its leased assets and Growth Capital Expenditures would be negative, representing the depletion of potential future earnings and cash flows. The aggregate of Maintenance and Growth Capital Expenditures always equals the actual cash spent on capital assets during the period. This ensures that the payout ratio reflects the necessary replacement of Regional One’s leased assets. Historically, the Corporation has used depreciation as a proxy for Maintenance Capital Expenditures at Regional One because the assets are being depleted as they are being flown by lessees and therefore depreciation reflects the required ongoing investment to maintain Free Cash Flow at current levels. Starting in the second quarter of 2020, the actual expenditures on assets already owned have been used as the costs of maintaining the fleet until such time the impact of the pandemic wanes and the fleet utilization again warrants the use of depreciation as a proxy for Maintenance Capital Expenditures. While the impact of the pandemic has lessened, the lease fleet remains underutilized due to a worldwide shortage of flight crews, most notably pilots. The acute shortage of pilots has resulted from a significantly lower number of pilots graduating from flight school due to the impacts the pandemic had on the ability to complete flight training coupled with higher than average pilot retirements during the pandemic. All purchases of new assets, net of disposals and transfers to inventory, will be reflected as Growth Capital Expenditures during this time. Northern Mat & Bridge has a portfolio of access mats and bridges that it rents to third parties. The utility of those assets is consumed over the useful life of the assets, represented by depreciation, and therefore depreciation on these assets reflects the reinvestment required to maintain Free Cash Flow at current levels. Any capital expenditures in the access mat and bridge rental portfolio in excess of the depreciation will result in Growth Capital Expenditures as this increased investment will generate additional cash flows in the future. It is possible to have negative Growth Capital Expenditures during a given period where total reinvestment is less than depreciation recorded on its rental portfolio. Purchases of inventory are not reflected in either Growth or Maintenance Capital Expenditures. Aircraft purchased for part out or resale or access mats constructed for resale are recorded as inventory and are not capital expenditures. If a decision is made to take an asset out of either lease portfolio and either sell it or part it out, the net book value is transferred from capital assets to inventory. For Regional One, capital assets on the balance sheet include operating aircraft and engines that are either on lease or are available for lease. Individual parts are recorded within inventory and capital assets that become scheduled for part out or access mats that intended to be sold to a third party have been transferred to inventory as at the balance sheet date. Investors are cautioned that Adjusted EBITDA, Adjusted Net Earnings, Free Cash Flow, and Maintenance Capital Expenditures and Growth Capital Expenditures should not be viewed as an alternative to measures that are recognized under IFRS such as Net Earnings or cash flow from operating activities. The Corporation’s method of calculating Adjusted EBITDA, Adjusted Net Earnings, Free Cash Flow, and Maintenance Capital Expenditures and Growth Capital Expenditures may differ from that of other entities and therefore may not be comparable to measures utilized by them. 2024 Annual Report | 87 14. SELECTED ANNUAL AND QUARTERLY INFORMATION The following table provides selected annual information for the Corporation for the years ended 2022 through to 2024. 2024 2023 2022 Revenues $ 2,659,895 $ 2,498,415 $ 2,059,373 Expenses (1) 2,031,831 1,942,890 1,602,931 Adjusted EBITDA $ 628,064 $ 555,525 $ 456,442 Total non-operating expense 506,829 433,218 346,773 Net Earnings $ 121,235 $ 122,307 $ 109,669 Net Earnings per share Basic $ 2.55 $ 2.72 $ 2.72 Diluted 2.49 2.65 2.64 Adjusted Net Earnings $ 147,348 $ 144,051 $ 132,915 Basic 3.10 3.20 3.29 Diluted 2.99 3.07 3.13 Dividends declared $ 125,888 $ 114,588 $ 97,473 Per share 2.64 2.54 2.41 Free Cash Flow $ 409,155 $ 377,118 $ 332,025 Per share basic 8.60 8.39 8.23 Per share fully diluted 7.60 7.38 7.16 Free Cash Flow less Maintenance Capital Expenditures $ 199,266 $ 201,827 $ 176,104 Per share basic 4.19 4.49 4.36 Per share fully diluted 3.89 4.13 3.99 Financial Position Working capital $ 628,431 $ 540,720 $ 465,481 Total assets 4,598,988 4,079,807 3,548,836 Total long-term liabilities (2) 2,310,054 2,003,312 1,771,557 Total liabilities 3,189,319 2,834,334 2,529,782 Share Information Common shares outstanding as at December 31, 49,602,431 47,136,625 42,479,063 Weighted average common shares outstanding during the year - basic 47,582,612 44,970,513 40,348,003 Note 1) Expenses include direct operating expenses (excluding depreciation and amortization), cost of goods sold (excluding depreciation and amortization) and general and administrative expenses, but it excludes any unusual non-operating one-time items. Note 2) Long-term liabilities include the non-current portions of long-term debt, convertible debentures, long-term deferred revenue, long-term right of use lease liabilities, and other long-term liabilities. 88 | Exchange Income Corporation The following summary reflects quarterly results of the Corporation: 2024 2023 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Revenue $ 687,695 $ 709,856 $ 660,575 $ 601,769 $ 656,676 $ 687,673 $ 627,222 $ 526,844 $ 543,360 Adjusted EBITDA 167,054 192,914 157,045 111,051 143,621 167,751 147,036 97,117 124,052 Net Earnings 28,174 55,885 32,648 4,528 29,027 49,523 36,896 6,861 26,990 Basic 0.58 1.18 0.69 0.10 0.62 1.06 0.85 0.16 0.64 Diluted 0.57 1.08 0.67 0.09 0.61 0.99 0.80 0.16 0.62 Adjusted Net Earnings 38,740 61,372 37,662 9,574 33,768 55,263 43,480 11,540 32,049 Basic 0.80 1.29 0.80 0.20 0.72 1.19 1.00 0.27 0.76 Diluted 0.78 1.18 0.77 0.20 0.70 1.09 0.93 0.27 0.73 Free Cash Flow (“FCF”) 110,606 136,116 100,502 61,931 102,265 117,143 98,002 59,708 82,533 Basic 2.30 2.86 2.13 1.31 2.17 2.51 2.25 1.40 1.95 Diluted 2.03 2.50 1.88 1.19 1.92 2.20 1.96 1.26 1.71 FCF less Maintenance Capital Expenditures 43,150 81,201 52,322 22,593 49,971 74,341 58,592 18,923 40,243 Basic 0.90 1.71 1.11 0.48 1.06 1.60 1.34 0.44 0.95 Diluted 0.84 1.53 1.02 0.47 0.99 1.43 1.21 0.44 0.88 Maintenance Capital Expenditures 67,456 54,915 48,180 39,338 52,294 42,802 39,410 40,785 42,290 Growth Capital Expenditures 42,995 93,180 44,800 39,326 101,566 81,115 85,952 34,411 48,885 ADDITIONAL INFORMATION Additional information relating to the Corporation is on SEDAR+ at www.sedarplus.ca 2024 Annual Report | 89 Independent auditor’s report To the Shareholders of Exchange Income Corporation Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Exchange Income Corporation and its subsidiaries (together, the Corporation) as at December 31, 2024 and 2023, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards). What we have audited The Corporation’s consolidated financial statements comprise: • the consolidated statements of financial position as at December 31, 2024 and 2023; • the consolidated statements of income for the years then ended; • the consolidated statements of comprehensive income for the years then ended; • the consolidated statements of changes in equity for the years then ended; • the consolidated statements of cash flows for the years then ended; and • the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. PricewaterhouseCoopers LLP Richardson Building, 1 Lombard Place, Suite 2300, Winnipeg, Manitoba, Canada R3B 0X6 T.: +1 204 926 2400, F.: +1 204 944 1020, Fax to mail: ca_winnipeg_main_fax@pwc.com “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 90 | Exchange Income Corporation Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2024. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Cost of sales recognition – aviation parts for resale inventories Refer to note 3 – Material accounting policies, note 5 – Critical accounting estimates and judgments and note 7 – Inventories to the consolidated financial statements. The Corporation’s aviation parts for resale inventories carrying value was $292.2 million as at December 31, 2024. A portion of the $178.8 million of inventories expensed and recorded within aerospace and aviation expenses, excluding depreciation and amortization, related to the Corporation’s aviation parts for resale cost of sales for the year ended December 31, 2024. In the normal course of the Corporation’s business, it may acquire entire aircraft or components of an aircraft for breakdown into saleable parts. The cost of sales recognized is determined using the average cost to sales percentage method at expected selling prices. Management applied significant judgment in estimating the average cost to sales percentage, which included the determination of the expected selling price. We considered this a key audit matter due to the significant judgment applied by management when developing the average cost to sales percentage estimate. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating evidence relating to the determination of the expected selling price. The audit effort involved the use of professionals with specialized skill and knowledge. Our approach to addressing the matter included the following procedures, among others: • Tested how management estimated the average cost to sales percentage based on expected selling prices for aviation parts for resale inventories, which included the following: – Evaluated the appropriateness of the average cost to sales percentage method at expected selling prices. – Tested the completeness and accuracy of the data used in the average cost to sales percentage method at expected selling prices. – Evaluated the reasonableness of the significant assumption made by management related to expected selling price for aviation parts for resale inventories on a sample basis by considering the historical profit margin recognized on the parts sales. – Developed an independent expectation for the expected selling price of the aviation parts for resale inventories on a sample basis with the assistance of professionals with specialized skill and knowledge in the field of valuation and compared the independent expectation to management’s assumption to evaluate the reasonableness of management’s assumption. 2024 Annual Report | 91 Key audit matter How our audit addressed the key audit matter Revenue recognition – estimated costs to complete on long-term construction contracts using the input-based measure for uncompleted contracts as at year-end. Refer to note 3 – Material accounting policies, note 5 – Critical accounting estimates and judgments and note 17 – Construction contracts to the consolidated financial statements. The Corporation recognized revenue of $682.9 million from long-term construction contracts for the year ended December 31, 2024 related to revenue recognized over time, including revenue from long-term construction contracts at BVGlazing Systems Ltd. (BVGlazing), Provincial Aerospace Ltd., Stainless Fabrication Inc., Quest Window Systems Inc. (Quest) and WesTower Communications Ltd. (WesTower). For BVGlazing, Quest and WesTower, some of the revenue is recognized over time using an input-based measure, such as the ratio of actual costs incurred to date over estimated total costs, and makes up a significant portion of total revenue of $682.9 million from long-term construction contracts. Management applies significant judgment to estimate the costs to complete these long-term construction contracts, including the use of significant assumptions with respect to estimated labour costs, material costs and subcontracting costs, as applicable. We considered this a key audit matter due to the significant judgment applied by management in determining the estimated costs to complete long-term construction contracts. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the significant assumptions used by management. Our approach to addressing the matter included the following procedures, among others: • Tested how management determined the estimated costs to complete on long-term construction contracts using the input-based measure at BVGlazing, Quest and WesTower for a sample of uncompleted contracts as at year-end, which included the following: – Evaluated the appropriateness of management’s input-based method and tested the mathematical accuracy of the ratio of actual costs incurred to date over estimated total costs at completion. – Tested the underlying data used by management in the input-based method. – Evaluated the reasonableness of significant assumptions used by management with respect to estimated labour costs, material costs and subcontracting costs by: O Testing the estimated costs to complete by comparing the costs initially budgeted for the completed phases of the contracts to the actual costs incurred for those phases; and O Inquiring with management, including project managers, regarding the status of contracts and the estimates of costs to complete. • For a sample of uncompleted long-term construction contracts at the beginning of the year, performed look back procedures and compared the originally estimated costs to actual costs incurred on similar completed contracts. 92 | Exchange Income Corporation Other information Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Corporation’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered 2024 Annual Report | 93 material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Corporation to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Corporation as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 94 | Exchange Income Corporation From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Robert Hawley. Chartered Professional Accountants Winnipeg, Manitoba February 26, 2025 2024 Annual Report | 95 EXCHANGE INCOME CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (audited, in thousands of Canadian dollars) As at December 31 2024 December 31 2023 ASSETS CURRENT Cash and cash equivalents $ 71,797 $ 103,559 Accounts receivable 614,250 543,611 Amounts due from customers on construction contracts (Note 17) 59,610 40,207 Inventories (Note 7) 496,543 408,379 Prepaid expenses and deposits 37,031 63,602 1,279,231 1,159,358 OTHER ASSETS (Note 8) 134,685 133,725 CAPITAL ASSETS (Note 9) 1,824,607 1,571,067 RIGHT OF USE ASSETS (Note 10) 168,611 170,099 INTANGIBLE ASSETS (Note 11) 364,625 332,362 GOODWILL (Note 11) 827,229 713,196 $ 4,598,988 $ 4,079,807 LIABILITIES CURRENT Accounts payable and accrued expenses $ 473,962 $ 461,917 Income taxes payable 8,764 7,274 Deferred revenue 81,610 71,281 Amounts due to customers on construction contracts (Note 17) 46,632 41,300 Current portion of right of use lease liability (Note 10) 39,832 36,866 650,800 618,638 OTHER LONG-TERM LIABILITIES 17,477 33,607 LONG-TERM DEBT (Note 12) 1,821,866 1,422,642 CONVERTIBLE DEBENTURES (Note 13) 330,390 403,775 LONG-TERM RIGHT OF USE LEASE LIABILITY (Note 10) 140,321 143,288 DEFERRED INCOME TAX LIABILITY (Note 26) 228,465 212,384 3,189,319 2,834,334 EQUITY SHARE CAPITAL (Note 14) 1,377,171 1,252,890 CONVERTIBLE DEBENTURES - Equity Component (Note 13) 10,140 13,979 CONTRIBUTED SURPLUS 17,150 16,635 DEFERRED SHARE PLAN 18,215 16,756 RETAINED EARNINGS Cumulative Earnings 921,423 800,188 Cumulative Dividends (Note 15) (1,000,268) (874,380) Cumulative impact of share cancellation under the NCIB (26,122) (26,122) 1,317,709 1,199,946 ACCUMULATED OTHER COMPREHENSIVE INCOME 91,960 45,527 1,409,669 1,245,473 $ 4,598,988 $ 4,079,807 The accompanying notes are an integral part of the consolidated financial statements. Approved on behalf of the directors by: Duncan Jessiman, Director Donald Streuber, Director Signed Signed 96 | Exchange Income Corporation EXCHANGE INCOME CORPORATION CONSOLIDATED STATEMENTS OF INCOME (audited, in thousands of Canadian dollars, except for per share amounts) For the years ended December 31 2024 2023 REVENUE Aerospace & Aviation $ 1,644,277 $ 1,498,216 Manufacturing 1,015,618 1,000,199 2,659,895 2,498,415 EXPENSES Aerospace & Aviation expenses - excluding depreciation and amortization 941,229 919,630 Manufacturing expenses - excluding depreciation and amortization 750,511 718,469 General and administrative 340,091 304,791 2,031,831 1,942,890 EARNINGS BEFORE DEPRECIATION, AMORTIZATION, FINANCE COSTS, TAXES, AND OTHER (Note 4) 628,064 555,525 Depreciation of capital assets (Note 9) 247,846 208,492 Amortization of intangible assets (Note 11) 22,510 20,244 Finance costs - interest 129,748 112,316 Depreciation of right of use assets (Note 10) 40,059 37,091 Interest expense on right of use lease liabilities 8,113 7,471 Acquisition costs 6,860 7,769 Restructuring costs 4,944 – Other (Note 5) – (951) EARNINGS BEFORE INCOME TAXES 167,984 163,093 INCOME TAX EXPENSE (Note 26) Current 40,318 26,016 Deferred 6,431 14,770 46,749 40,786 NET EARNINGS $ 121,235 $ 122,307 NET EARNINGS PER SHARE (Note 18) Basic $ 2.55 $ 2.72 Diluted $ 2.49 $ 2.65 The accompanying notes are an integral part of the consolidated financial statements. Exchange Income Corporation CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (audited, in thousands of Canadian dollars) Attributable to common shareholders For the years ended December 31 2024 2023 NET EARNINGS $ 121,235 $ 122,307 OTHER COMPREHENSIVE INCOME (LOSS) Items that are or may be reclassified to the Statement of Income Cumulative translation adjustment, net of tax expense of nil and nil, respectively. 69,153 (17,300) Net gain (loss) on hedge of net investment in foreign operations, net of tax recovery of ($117) and nil, respectively. (16,887) 4,511 Net gain (loss) on hedge of restricted share plan, net of tax expense (recovery) of $1,014 and ($875), respectively. 2,452 (2,431) Net loss on interest rate swap, net of tax recovery of ($2,219) and ($78), respectively. (8,285) (125) 46,433 (15,345) COMPREHENSIVE INCOME $ 167,668 $ 106,962 The accompanying notes are an integral part of the consolidated financial statements. 2024 Annual Report | 97 EXCHANGE INCOME CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (audited, in thousands of Canadian dollars) Retained Earnings Share Capital Convertible Debentures - Equity Component Contributed Surplus - Matured Debentures Deferred Share Plan Cumulative Earnings Cumulative Dividends Cumulative impact of share repurchases under NCIB Accumulated Other Comprehensive Income (Loss) Total Balance, January 1, 2023 $ 1,019,772 $ 14,017 $ 16,635 $ 15,791 $ 677,881 $ (759,792) $ (26,122) $ 60,872 $ 1,019,054 Shares issued to acquisition vendors 42,363 – – – – – – – 42,363 Prospectus offering 167,067 – – – – – – – 167,067 Convertible debentures Converted into shares 1,000 (38) – – – – – – 962 Shares issued under dividend reinvestment plan (Note 14) 19,017 – – – – – – – 19,017 partnership agreements (Note 14) 50 – – – – – – – 50 Deferred share plan vesting (Note 20) – – – 1,503 – – – – 1,503 Deferred share plan issuance (Note 14) 538 – – (538) – – – – – Shares issued under ESPP (Note 14) 3,083 – – – – – – – 3,083 Comprehensive income (loss) – – – – 122,307 – – (15,345) 106,962 Dividends declared (Note 15) – – – – – (114,588) – – (114,588) Balance, December 31, 2023 $ 1,252,890 $ 13,979 $ 16,635 $ 16,756 $ 800,188 $ (874,380) $ (26,122) $ 45,527 $ 1,245,473 Balance, January 1, 2024 $ 1,252,890 $ 13,979 $ 16,635 $ 16,756 $ 800,188 $ (874,380) $ (26,122) $ 45,527 $ 1,245,473 Shares issued to acquisition vendors (Note 6) 28,181 – – – – – – – 28,181 Convertible debentures Converted into shares 71,564 (3,324) – – – – – – 68,240 Matured/Redeemed – (515) 515 – – – – – – Shares issued under dividend reinvestment plan (Note 14) 20,731 – – – – – – – 20,731 Shares issued under Indigenous community partnership agreements (Note 14) 400 – – – – – – – 400 Deferred share plan vesting (Note 20) – – – 1,747 – – – – 1,747 Deferred share plan issuance (Note 14) 288 – – (288) – – – – – Shares issued under ESPP (Note 14) 3,117 – – – – – – – 3,117 Comprehensive income (loss) – – – – 121,235 – – 46,433 167,668 Dividends declared (Note 15) – – – – – (125,888) – – (125,888) Balance, December 31, 2024$ 1,377,171 $ 10,140 $ 17,150 $ 18,215 $ 921,423 $ (1,000,268) $ (26,122) $ 91,960 $ 1,409,669 The accompanying notes are an integral part of the consolidated financial statements. 98 | Exchange Income Corporation EXCHANGE INCOME CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (audited, in thousands of Canadian Dollars) For the years ended December 31 2024 2023 OPERATING ACTIVITIES Net earnings for the year $ 121,235 $ 122,307 Items not affecting cash: Depreciation of capital assets (Note 9) 247,846 208,492 Amortization of intangible assets (Note 11) 22,510 20,244 Depreciation of right of use assets (Note 10) 40,059 37,091 Accretion of interest 6,734 6,998 Gain on disposal of capital assets (7,767) (4,673) Deferred income tax expense 6,431 14,770 Deferred share program share-based vesting (Note 20) 1,747 1,503 Other – (951) 438,795 405,781 Changes in non-cash current and long-term working capital (Note 24) (81,787) (52,555) 357,008 353,226 FINANCING ACTIVITIES Proceeds from long-term debt, net of issuance costs (Note 12) 374,212 489,404 Repayment of long-term debt (Note 12) (48,114) (263,965) Long-term debt discount 1,599 (1,082) Settlement of convertible debentures (Note 13) (10,711) – Principal payments on right of use lease liabilities (Note 10) (39,017) (35,528) Issuance of shares, net of issuance costs 24,245 187,113 Cash dividends (Note 15) (125,888) (114,588) 176,326 261,354 INVESTING ACTIVITIES Purchase of capital assets (488,233) (503,270) Proceeds from disposal of capital assets 60,201 27,504 Purchase of intangible assets (2,157) (2,569) Return from (investment in) other assets 16,449 (5,776) Cash outflow for acquisitions, net of cash acquired (Note 6) (147,813) (155,837) Payment of contingent acquisition consideration and prior period working capital settlements (Note 23) (5,990) (10,805) (567,543) (650,753) NET DECREASE IN CASH AND CASH EQUIVALENTS (34,209) (36,173) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 103,559 139,896 EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,447 (164) CASH AND CASH EQUIVALENTS, END OF YEAR $ 71,797 $ 103,559 Supplementary cash flow information Interest paid $ 119,848 $ 106,718 Income taxes paid $ 38,456 $ 20,155 The accompanying notes are an integral part of the consolidated financial statements. 2024 Annual Report | 99 EXCHANGE INCOME CORPORATION Corporation Exchange Income NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2024, AND 2023 (in thousands of Canadian dollars, unless otherwise noted and except per share information and share data) 1. ORGANIZATION Exchange Income Corporation (“EIC” or the “Corporation”) is a diversified, acquisition-oriented corporation focused on opportunities in the Aerospace & Aviation and Manufacturing segments. The business plan of the Corporation is to invest in profitable, well-established companies with strong cash flows operating in niche markets. The Corporation is incorporated in Canada and the address of the registered office is 101 – 990 Lorimer Boulevard, Winnipeg, Manitoba, Canada R3P 0Z9. As at December 31, 2024, the principal operating subsidiaries of the Corporation are Ben Machine Products Company Incorporated, BVGlazing Systems (“BVGlazing”), Calm Air International LP, CANLink Aviation Inc. (“MFC Training”), Carson Air Ltd. (“Carson Air”), Custom Helicopters Ltd., DryAir Manufacturing Corporation (“DryAir”), EIC Aircraft Leasing Limited, Hansen Industries Ltd. (“Hansen”), Keewatin Air LP, LV Control Mfg. Ltd., Northern Mat & Bridge LP (“Northern Mat”), Overlanders Manufacturing LP, Perimeter Aviation LP (including its operating division, Bearskin Airlines), Provincial Aerospace Ltd., Quest Window Systems, Regional One Inc., Spartan Mat Inc., Spartan Composites Inc. (collectively, “Spartan”), Water Blast Manufacturing LP, and WesTower Communications Ltd. Crew Training International, Inc., Quest USA., Regional One, Inc., Spartan Mat Inc., Spartan Composites Inc. and Stainless Fabrication Inc. are wholly owned subsidiaries of EIIF Management USA Inc. Through the Corporation’s subsidiaries, products and services are provided in two business segments: Aerospace & Aviation and Manufacturing. The Corporation’s results are impacted by seasonality factors. The Aerospace & Aviation segment revenues have historically been the strongest in the second and third quarters when demand tends to be highest, relatively modest in the fourth quarter and the lowest in the first quarter as communities serviced by certain of the airlines are less isolated with the use of winter roads for transportation during the winter. Northern Mat and Spartan’s businesses are also subject to seasonal variability, where the second and third quarters have the highest demand, the fourth quarter is slower and the first quarter is the slowest. 2. BASIS OF PREPARATION The Corporation prepares its financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) – Part I as set out in the CPA Canada Handbook – Accounting (“CPA Handbook”). Part I of the CPA Handbook incorporates International Financial Reporting Standards (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements are presented in thousands of Canadian dollars, except per share information and share data. The consolidated financial statements were approved by the Board of Directors of the Corporation for issue on February 26, 2025. 3. MATERIAL ACCOUNTING POLICIES The material accounting policies used in the preparation of these consolidated financial statements, which have been consistently applied to all the years presented, unless otherwise stated, are as follows: a) Basis of Measurement The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets, financial liabilities, and derivative instruments measured at fair value. 100 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) b) Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All inter-company transactions have been eliminated for the purpose of these consolidated financial statements. Subsidiaries are all entities (including structured entities) which the Corporation controls. The Corporation controls an entity when it is exposed to, or has the rights to, variable returns from its investment with the entity and has the ability to affect those returns through its power over those entities. Subsidiaries are fully consolidated from the date on which control is obtained by the Corporation and are de-consolidated from the date that control ceases. c) Revenue Recognition The Corporation recognizes revenue from the sale of retail and manufactured goods and the sale of services. Revenue is recognized for the major business activities using the methods outlined below. The Corporation may in the normal course of operations accept a nonmonetary item as consideration. The accounting for nonmonetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis of that used in monetary transactions. Thus, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange. The fair value of the asset received shall be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered. Aerospace & Aviation Segment i. Aftermarket parts sales Revenue from the sale of parts is recognized when control of the part has passed to the customer, which is generally when the part is shipped and the title has passed. The Corporation is also party to consignment agreements where parts are sold with the Corporation acting as the consignee. With respect to consignment sales, the Corporation assesses whether it is a principal or an agent under the terms of the agreement. In circumstances where the Corporation is a principal, revenue is recognized in a manner consistent with other parts sales as described above. In circumstances where the Corporation is an agent, revenue is recorded net of the related cost of the part, such that the revenue recognized is equal to the margin earned by the Corporation. ii. Aircraft and engine sales Revenue from the sale of aircraft and engines is recognized when control of the asset has passed to the customer, which is generally when the asset has been delivered to the customer in accordance with the contract and title has passed. iii. Aircraft and engine lease revenue Revenue from the leasing of aircraft and aircraft components is recognized as revenue on a straight-line basis over the terms of the lease agreements. Certain of the Corporation’s lease contracts call for billings either in advance of or subsequent to the customer’s usage of the aircraft under the lease. Lease revenue received in advance is recorded as deferred revenue until such time that it has been earned. Security deposits received from customers are recorded as a liability within “Other Long-Term Liabilities” on the Statement of Financial Position. Certain leases require payments from the customer that are for the purpose of maintenance of the leased aircraft. In circumstances where the payment must be returned to the customer if it is not used for maintenance activities, the payment received from the customer is recorded as a maintenance liability. The maintenance liability is recorded in Other Long-Term Liabilities on the Statement of Financial Position. 2024 Annual Report | 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The Corporation, as a dealer of certain aircraft and related components, may enter into a finance lease with customers. In such circumstances, the Corporation records a gross profit from the lease equivalent to the present value of the lease payments reduced by any down payments less the cost basis of the related asset. Interest is earned over the term of the lease and recognized using the effective interest method. Long-term lease receivables are recorded on the statement of financial position within “Other Assets”. iv. Surveillance and aircraft modification services Revenue from surveillance services is recognized when the surveillance flight has been taken. For basing fees that are earned on its surveillance contracts, the Corporation recognizes revenue over time as the period for which the fee relates passes. In the case of aircraft modification services, the customer is obligated to pay for work performed to date, therefore revenue is recognized over time as the modification services are performed. The stage of completion is determined based on the costs incurred to date in comparison to the expected total costs. The timing of billings to the customer and customer payments can result in either an asset (“Amounts due from customers on construction contracts”) or a liability (“Amounts due to customers on construction contracts”). v. Software development and sales of software licenses Revenue from software development is recognized over time based on the completion of contractual performance obligations. The stage of completion is determined based on the costs incurred to date in comparison to the expected total costs. vi. Charter, passenger flight, medevac, and cargo services The Corporation records revenue from flight services (charter, passenger, medevac, and cargo) when the flight has been completed. Payments for these services that are received in advance of the related flight are recorded as deferred revenue until the flight is taken, the ticket expires or the goods are shipped. Where a customer receives loyalty points based on the value of the ticket purchased, the points awarded are recognized as a separate component of the purchase price of the ticket. The amount allocated to the loyalty points component is determined based on the fair value of the loyalty points relative to the fair value of the ticket purchased. The amount allocated to the loyalty points awarded is deferred and recognized as revenue when the loyalty points are redeemed by the passenger. The Corporation performs regular evaluations of its deferred revenue liabilities and these evaluations may result in adjustments to the amount of revenue recognized. Due to the complexity associated with pricing, refunds, exchanges, and historical experience with unused tickets and other factors, certain amounts are recognized as revenue based on estimates. Events and circumstances may cause actual results to be different from estimates. vii. Fixed Base Operations (“FBO”) sales and services The Corporation records revenue from the sale of fuel, de-icing, and other FBO sales and services when the goods or services have been delivered to the customer. Certain fuel sales transactions have the characteristics of agent sales and as a result, revenue from this type of transaction is recorded based on the net amount received from the customer. The net amount is the difference between the amount billed to the customer less the amount paid to the supplier of the fuel. The amount receivable from the customer and the amount owed to the fuel supplier are not recorded on a net basis because the legal right of offset does not exist. viii. Training Services The Corporation records revenue from training services over time based on the provision of training, primarily flight training hours and classroom time, which varies based on the actual training hours provided to students each month. 102 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Manufacturing Segment i. Sale of equipment and manufactured goods Revenue from the sale of equipment and manufactured goods is recognized when control of the asset has passed to the customer, which is generally at the time of delivery. Payments received from customers in advance of the delivery of the goods are recorded as deferred revenue. ii. Manufactured window sales Revenue from the manufacture and installation of window systems is recognized over time based on input or output measures, whichever most accurately reflects the transfer of goods to the customer and for which reasonable estimates can be made. Such contracts provide that the customer accept completion of progress to date and compensate the Corporation for services rendered. Revenue recognized over time based on input measures is determined using the ratio of actual costs incurred to date over estimated costs. The timing of billings to the customer and customer payments can result in either an asset (“Amounts due from customers on construction contracts”) or a liability (“Amounts due to customers on construction contracts”). iii. Tower construction services Revenue from the construction of towers is recognized over time based on the stage of completion. The stage of completion is determined based on the costs incurred to date in comparison to the expected total costs. Such contracts provide that the customer accept completion of progress to date and compensate the Corporation for services rendered. The timing of billings to the customer and customer payments can result in either an asset (“Amounts due from customers on construction contracts”) or a liability (“Amounts due to customers on construction contracts”). iv. Stainless tank sales Revenue from the construction of stainless tanks is recognized over time based on the stage of completion. The stage of completion is determined based on the costs incurred to date in comparison to the expected total costs. Such contracts provide that the customer accept completion of progress to date and compensate the Corporation for services rendered. The timing of billings to the customer and customer payments can result in either an asset (“Amounts due from customers on construction contracts”) or a liability (“Amounts due to customers on construction contracts”). v. Sales and Rentals of Mats and Bridges Northern Mat earns revenues from mat and bridge sales and rentals, and equipment services, based on pre-determined rates. Revenue is recognized when the asset is delivered to the customer on sales of assets and for rentals is recognized based on the rental agreement with the customer, which usually calls for daily rental rates. Revenue is measured based on consideration specified in a contract with a customer. Contracts are generally short-term in nature and are not considered to have a significant financing component. d) Expenses Aerospace & Aviation expenses – excluding depreciation and amortization The fixed and variable costs along with the cost of sales incurred in the operations of the Corporation’s Aerospace & Aviation segment are included in this line item on the Consolidated Statements of Income. This includes costs related to shipping and handling and the cost of sales of inventory. Depreciation and amortization are presented separately on a consolidated basis. 2024 Annual Report | 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Manufacturing expenses – excluding depreciation and amortization The cost of sales for the Corporation’s Manufacturing segment is included in this line item on the Consolidated Statements of Income. This includes costs related to shipping and handling and the cost of sales of finished goods inventory. Depreciation and amortization are presented separately on a consolidated basis. e) Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each consolidated entity in the EIC group are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Canadian dollars, which is EIC’s functional and presentation currency. The financial statements of entities that have a functional currency different from that of the Corporation (“foreign operations”) are translated into Canadian dollars as follows: assets and liabilities – at the closing exchange rate at the date of the statement of financial position, and income and expenses – at the average exchange rate of the period (as this is considered a reasonable approximation to actual rates). All resulting changes are recognized in other comprehensive income as cumulative translation adjustments. If the Corporation disposes of its entire interest in a foreign operation, or, loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive income related to the foreign operation are recognized in profit or loss. If the Corporation disposes of part of an interest in a foreign operation that remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary is reallocated between controlling and non-controlling interests. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the statement of income. f) Cash and Cash Equivalents Cash and cash equivalents are comprised of cash and temporary investments consisting of highly liquid investments having maturities of three months or less. Interest is recorded on an accrual basis. g) Financial Instruments Recognition Financial assets and liabilities are recorded on the statement of financial position of the Corporation when the Corporation becomes a party to the financial instrument. Classification The Corporation classifies its financial assets and liabilities into the following measurement categories: • those measured subsequently at fair value, either through profit or loss or through OCI • those measured at amortized cost 104 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The classification of the financial asset or liability is dependent on the business model and the nature of the cash flows associated with the financial asset or liability. The Corporation will only change the classification of financial assets when the model for managing those financial assets has changed. The classification of financial liabilities cannot be changed from the classification election chosen at the time of recognition. For assets measured at fair value, gains and losses will be either recorded in profit or loss or other comprehensive income. For equity investments not held for trading, this will depend on whether the Corporation has made an irrevocable election at the time of initial recognition to account for the investment at fair value through other comprehensive income (“FVOCI”). The Corporation’s cash and cash equivalents are classified as financial assets measured at fair value through profit or loss (“FVTPL”). Accounts and other receivables, loans receivable and deposits are classified as financial assets measured at amortized cost. Accounts payable, the Corporation’s credit facility debt, and convertible debentures are classified as financial liabilities measured at amortized cost. All financial assets and liabilities measured at amortized cost use the effective interest rate method with interest income/expense recorded in the statement of operations, as applicable. Measurement The Corporation initially measures its financial asset or liability at its fair value plus or minus, in the case of a financial asset or liability not measured at FVTPL, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. After initial recognition, the Corporation shall measure a financial asset at one of amortized cost, FVOCI, or FVTPL. Measurement of financial liabilities is chosen at the time of initial recognition and unless specifically identified as FVTPL at the time of adoption, are subsequently measured at amortized cost. The Corporation subsequently measures debt instruments based on the business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories: Amortized cost: Assets that are held for the collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method. FVOCI: Debt instruments that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue, and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. FVTPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt instrument that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in the statement of profit or loss within other gains/(losses) in the period in which it arises. The Corporation subsequently measures all equity investments at fair value. Where the Corporation has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognized in profit or loss when the Corporation’s right to receive payments is established. 2024 Annual Report | 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Impairment Expected credit losses are to be recognized using a forward-looking approach that reflects any changes in credit risk associated with the financial instruments. For trade receivables or contract assets that do not contain a significant financing component, the loss allowance is measured at initial recognition and throughout its life at an amount equal to its lifetime expected credit loss. For trade receivables, contract assets, or lease receivables that contain a significant financing component, the Corporation applies the general model. For financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the time value of money. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases. Impairment losses (and reversal of impairment losses) on equity investments measured at fair value through other comprehensive income are not reclassified from other comprehensive income. Hedge Accounting and Derivatives The Corporation enters into foreign currency, interest rate, and share forward contract derivatives to manage the associated risks. Derivative instruments are recorded on the consolidated statement of financial position at fair value, including those derivatives that are embedded in financial or non-financial contracts that are required to be accounted for separately. Changes in the fair value of derivative instruments are recognized in the consolidated statement of income, except for effective changes for designated derivatives under hedge accounting as described below. All cash flows associated with purchasing and selling derivatives are classified as consistent with the hedged item in the consolidated statement of cash flow. The Corporation documents at the inception of the hedging transaction the economic relationship between the hedging instrument and hedged item including whether the hedging instrument is expected to offset changes in the cash flows or the fair value of the hedged item. The Corporation documents its risk management objective and strategy for undertaking various hedge transactions at the inception of each hedging relationship. Hedges of a net investment in a foreign operation The Corporation applies hedge accounting to certain foreign currency differences arising between the functional currency of the foreign operation and the Corporation’s presentation currency, regardless of whether the net investment is held directly or through an intermediate parent. The Corporation designates either financial liabilities and/or derivative financial instruments as hedging items of the net investments in a foreign operation. When the hedged net investment is disposed of, the relevant amounts in the translation reserve is transferred to the statement of income as part of the gain or loss on disposal. Financial Liabilities Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective. Derivative financial instruments The Corporation may enter into derivative financial instruments to hedge its foreign currency exposure associated with its net investment in a foreign operation. Gains and losses on such derivative instruments are recognized in other comprehensive income to the extent the hedge is effective. 106 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Cash flow hedges of foreign currency, interest rate, and Restricted Share Plan liabilities The Corporation applies hedge accounting to certain designated derivatives related to the cash flow hedge of foreign currency, interest rate, and Restricted Share Plan liabilities. Under hedge accounting, to the extent effective, the gain or loss on the hedging derivatives is recorded in other comprehensive income. Premiums paid for option contracts and the time value of the option contracts are deferred as a cost of the hedge in other comprehensive income, if applicable. Amounts accumulated in other comprehensive income are reclassified to the statement of income in the corresponding line item to the hedged risk. On initial designation of the derivative or financial liability as a hedging instrument, the Corporation formally documents the relationship between the hedging instrument and the hedged item, including the risk management objectives, the strategy in undertaking the hedge transaction and the hedged risk, the identification of the nature of the risk being hedged and how the Corporation will assess whether the hedging relationship meets the hedge effectiveness requirements. The Corporation makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging relationship meets the hedge effectiveness requirements including the economic relationship, the conclusion that credit risk does not dominate the value changes from that economic relationship and the hedge ratio is appropriate. To the extent that the hedge is ineffective, such differences are recognized in the statement of income. When the hedged net investment is disposed of, the relevant amount in the translation reserve is transferred to the statement of income as part of the gain or loss on disposal. When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to the statement of income. h) Inventory Raw material and parts inventories have been valued at the lower of cost and net realizable value. Work in progress and finished goods inventories have been valued at the lower of cost of materials and labour, plus systematically allocated overhead, and net realizable value. Cost is determined using the average cost method and net realizable value is computed as the actual selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventory items previously written-down to net realizable value can be subsequently reversed, up to the original cost of the inventory, if the net realizable value of the inventory subsequently recovers. The Corporation classifies its inventory into the following categories: • Parts and other consumables: this includes the inventory of the Aerospace & Aviation segment subsidiaries and represents items utilized in the operations and repair of the aircraft and items purchased for resale, as applicable. • Raw materials: this includes items used in the manufacturing of products by the Manufacturing segment subsidiaries that have no labour work performed on them. • Work in process: this includes items that have begun to be utilized in production by the Manufacturing segment subsidiaries. • Finished goods: this includes items that have completed the manufacturing process and are available for sale or items purchased for resale by the Manufacturing segment subsidiaries, including consignment inventory held at certain entities in the Manufacturing segment. 2024 Annual Report | 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) • Aviation parts for resale: Cost for aviation parts and components is established based upon the price paid for the inventory, including any costs of purchase, costs of conversion, and other costs to bring such inventories to their present location and condition. Regional One’s parts inventory carrying value is subsequently impacted by the use of the average cost to sales percentage method at expected selling prices to record cost of sales. The average cost to sales percentage is based on historical profitability or from contracted rates under certain procurement arrangements. Remanufactured inventory cost is based upon the price paid for the cores and also includes expenses incurred for freight, direct manufacturing costs, third party repair costs, and overhead, as applicable. i) Capital Assets Tangible assets comprised mainly of land, buildings, aircraft, aircraft spare parts, machinery, tooling, and equipment are valued at cost less accumulated depreciation and impairment losses. The cost of purchased capital assets is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire it. The cost of self-constructed assets includes the cost of material, direct labor, an appropriate proportion of production overheads, and borrowing costs to construct. When an asset includes major components that have different useful lives, they are accounted for as separate items. Expenditures incurred to replace a component in a tangible asset that is accounted for separately, including major inspection and overhaul costs, are capitalized. Other subsequent expenditures are capitalized only when it increases the future economic benefits embodied in the asset. Any replacement of an essential component will result in the original component being written off and the replacement being capitalized. All other expenditures such as ordinary maintenance and repairs are recognized in the statement of income as an expense as incurred. In regards to the maintenance of the Corporation’s aircraft, costs for routine aircraft maintenance as well as repair costs are charged as maintenance expense as incurred. Costs for major aircraft frame, engine overhauls and other major aircraft components incurred on aircraft are capitalized and amortized over the useful economic life of the components concerned. Depreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of the assets. For the Aerospace & Aviation segment’s aircraft related assets, the useful lives are primarily based on hours flown on the aircraft related item. Land is not depreciated. Residual values, method of depreciation, and useful lives of the assets are reviewed annually and adjusted if appropriate in the period of the change. The estimated useful lives of the main categories of depreciable capital assets are: Buildings 20 – 50 years Aircraft frames and rotables 2 – 30 years Aircraft engines 2 – 20 years Aircraft propellers 4 – 7 years Aircraft landing gear 7 – 15 years Equipment 5 – 10 years Rental Mats 5 – 10 years Rental Bridges 50 years Other 2 – 15 years Leasehold improvements over the term of the lease The aviation related capital assets of Regional One have useful lives that range between 1 – 7 years and depending on the condition and expected useful lives of the assets in leasing arrangements. Gains or losses arising on the disposal of tangible fixed assets are included in the statement of income in earnings before income taxes. 108 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) j) Intangible Assets Intangible assets are recorded at cost. The Corporation has intangible assets with indefinite lives which are not amortized. Intangible assets with finite lives are amortized as follows: Customer contracts Straight line based on contract term Customer relationships Straight-line over 5 – 10 years Non-compete contracts Straight-line over the non-compete term Certificates Straight-line over 2 – 30 years or until expiry Information technology systems Straight-line over 3 – 10 years Backlog Over the term of the backlog The amortization method and estimates of useful lives ascribed to separately identifiable intangible assets are reviewed at least each financial year end and if necessary, amortization is adjusted for on a prospective basis. The indefinite life intangible assets, including brand names, are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The assessment of indefinite life is reviewed each period to determine whether the indefinite life assumption continues to be supportable. If it is deemed unsupportable the change in the useful life from indefinite to finite life is made and amortization is recognized on a prospective basis. k) Goodwill Goodwill is recognized to the extent of the excess of the purchase price over the fair value of the underlying identifiable net assets acquired in a business combination. Goodwill acquired through a business combination is allocated to each cash-generating unit (“CGU”), or group of CGUs, that are expected to benefit from the related business combination. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. l) Impairment of Long-Lived Assets Capital assets and intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived assets that are not amortized, such as the Corporation’s indefinite life intangible assets, are included in the related CGU and are tested annually for impairment or when events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating units or CGUs). The recoverable amount is the higher of an asset or CGU’s fair value less costs of disposal and value in use. An impairment loss is recognized for the amount by which the asset or CGU’s carrying amount exceeds its recoverable amount. The Corporation determines the fair value less costs of disposal as an amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal but when no active market exists it is derived using estimation techniques including discounted cash flow analysis or earnings multiples, as applicable. The Corporation determines value in use as being the present value of the expected future cash flows of the relevant asset or CGU. Goodwill is reviewed for impairment annually or more frequently if an indicator of impairment exists. For purposes of impairment testing, goodwill is allocated to each CGU (or group of CGUs) based on the level at which management monitors goodwill, however not higher than an operating segment. Management has allocated its goodwill to its two operating segments which represents the lowest level at which goodwill is monitored. The Corporation evaluates impairment losses, other than goodwill impairment, for potential reversals when events or circumstances warrant such consideration. 2024 Annual Report | 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) m) Current and Deferred Income Taxes Income tax comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly in other comprehensive income or directly in equity, in which case the income tax is also recognized directly in other comprehensive income or equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not recognized if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit nor loss. Deferred income tax is provided on temporary differences arising on investment in subsidiaries and associates, except, in the case of subsidiaries where the timing of the reversal of the temporary difference is controlled by the Corporation and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are reviewed annually and reduced to the extent it is no longer probable that sufficient profits will be available to allow all or part of the asset to be recovered. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realized or liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Deferred income tax assets and liabilities are presented as non-current. Tax related amounts are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The Corporation adopted the amendments to IAS 12 — Income Taxes introduced in May 2023, and has applied the exception to recognizing and disclosing information about deferred tax assets and liabilities related to Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD). In June 2024, Canada enacted its Pillar Two legislation which is effective for annual reporting periods beginning on or after January 1, 2024. The Pillar Two legislation did not have a material impact on the consolidated financial statements. n) Employee Benefits Share-Based Compensation – Deferred Share Plan Certain employees of the Corporation and the Corporation’s Board of Directors participate in a share-based compensation plan of the Corporation’s shares (Note 20). The plan consists of individuals being granted ‘deferred shares’ which are essentially phantom shares. The deferred shares granted to the Corporation’s non-management Board of Directors vest immediately at the time of the grant and the deferred shares granted to the employees of the Corporation vest evenly over a three-year period. The deferred shares are redeemable upon certain events and the Corporation will issue common shares from treasury equal to the number of deferred shares that have vested. The dividend rate declared by the Corporation on issued Corporation shares is also applied to the deferred shares. The dividend amount on the deferred shares is converted into additional deferred shares based on the market value of the Corporation’s shares at the time of the dividend. These additional deferred shares vest at the same time as the deferred shares that the dividend rate was applied to. 110 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The Deferred Share Plan is accounted for as an equity-settled award. Under this method, the deferred shares granted are valued at the grant date when the grant is approved by the Corporation’s board. The grant date value is based on the market price of the Corporation’s stock at the grant date. As the deferred shares vest the Corporation records an expense and increases equity in accordance with the graded vesting model, including an estimate of forfeitures. Share-Based Compensation – Restricted Share Plan During 2018, the Corporation replaced its deferred share plan with a restricted share plan for employees of the Corporation. The plan consists of individuals being granted ‘restricted shares’ which are essentially phantom shares. The first grant under this new plan occurred in March 2019. The restricted shares granted to employees of the Corporation vest on December 15 of the year that is two years following the applicable award date. The Corporation records an expense over the vesting period relating to the fair value of the initial grant and any changes in the value of the Corporation’s share price will result in a fair value measurement adjustment in the Consolidated Statement of Income. The dividend rate declared by the Corporation on issued Corporation shares is also applied to the restricted shares. The dividend amount on the restricted shares is converted into additional restricted shares based on the market value of the Corporation’s shares at the time of the dividend. These additional restricted shares vest at the same time as the restricted shares that the dividend rate was applied to. The Restricted Share Plan is accounted for as a cash-settled award. Under this method, the restricted shares granted are valued at the grant date when the grant is approved by the Corporation’s board. Over the vesting period, the cost of the program, including any fair value adjustments based on the change in the trading price of the Corporation’s shares and an estimate for forfeitures, is recorded as an expense in the Statement of Income with a corresponding liability recorded in Accounts Payable and Accrued Liabilities. The grant date value is based on the market price of the Corporation’s shares at the grant date. Share-Based Compensation – Employee Share Purchase Plan Certain employees of the Corporation participate in a share based compensation plan of the Corporation’s shares. The fair value of shares to be awarded to employees is recognized as compensation expense on a straight-line basis over the applicable vesting period net of estimated forfeitures. For a share granted to an employee who is eligible to retire at the grant date, the fair value of the share is expensed on the grant date. For a share granted to an employee who will become eligible to retire during the vesting period, the fair value of the share is expensed over the period from the grant date to the date the employee becomes eligible to retire. o) Provisions Provisions are recognized when the Corporation has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the Corporation’s best estimate of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material. The Corporation performs evaluations to identify onerous contracts which are contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and, where applicable, records provisions for such contracts. Onerous contract provisions are recognized when the unavoidable costs of meeting the obligation exceed the economic benefit derived from the contract. The provision for onerous contracts is measured at the present value of the estimated future cash flows underlying the obligations less any estimated recoveries, discounted at the credit adjusted risk-free rate. 2024 Annual Report | 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) p) Borrowing Costs Borrowing costs attributable to the acquisition, construction, or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognized as interest expense in the statement of income in the period in which they are incurred. q) Leases and Right of Use Assets The Corporation leases various buildings, land, and equipment. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Leases are recognized as a right of use asset and corresponding liability at the date of which the leased asset is available for use by the Corporation. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: - Fixed payments (including in-substance fixed payments), less any lease incentives receivable; - Variable lease payments that are based on an index or a rate; - The exercise price of a purchase or extension option if the lessee is reasonably certain to exercise that option; and - Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. Variable lease payments that are not based on an index or rate, such as those that are based on usage, are excluded from IFRS 16 and are recorded as an operating expense. Several of the Corporation’s agreements include extension options and the Corporation reviews each option and includes the extension option in the calculation of the right of use liability when appropriate. If the Corporation exercises an extension option in the future that was not assumed to be exercised on initial recognition, the Corporation will record a right of use asset and right of use lease liability at that time. The lease agreements do not impose any covenants and leased assets may not be used as security for borrowing purposes. Each lease payment is allocated between the liability and interest expense. The interest cost is charged to the consolidated statement of operations over the lease period to produce a constant rate of interest on the remaining balance of the liability for each period. Right of use assets are accounted for under IAS 16 Property, Plant and Equipment. Right of use assets have the same accounting policies as directly owned assets. r) Share Capital Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. s) Dividends Dividends on common shares of the Corporation are recognized in the Corporation’s financial statements in the period in which the dividends are declared. t) Earnings per Share Basic earnings per share (“EPS”) is calculated by dividing the net income for the period attributable to equity owners of the Corporation by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The Corporation’s potential dilutive instruments are convertible debentures and deferred shares under the Corporation’s Deferred Share Plan. The dilutive impact of convertible debentures is calculated using the “if converted” method. 112 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Future accounting changes In April 2024, the IASB issued IFRS 18 – Presentation and Disclosure in Financial Statements, which will replace IAS 1 – Presentation of Financial Statements and will be accompanied by narrow scope amendments to IAS 7 – Statement of Cash Flows. IFRS 18 will introduce a defined structure for the statement of profit or loss and add disclosures about management-defined performance measures and new principles for aggregation and disaggregation of information. The standard will be effective for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted. The Corporation is currently assessing the impact adoption of IFRS 18 will have on its consolidated financial statements. 4. EARNINGS BEFORE DEPRECIATION, AMORTIZATION, FINANCE COSTS, TAXES, AND OTHER The Corporation presents, as an additional IFRS Accounting Standards measure, earnings before depreciation, amortization, finance costs, taxes, and other in the consolidated statement of income to assist users in assessing financial performance. The Corporation’s management and the Board use this measure to evaluate consolidated operating results and assess the ability of the Corporation to incur and service debt. In addition, this measure is used to make operating decisions as it is an indicator of the performance of the business and how much cash is being generated by the Corporation and assists in determining the need for additional cost reductions, evaluation of personnel, and resource allocation decisions. Earnings before depreciation, amortization, finance costs, taxes, and other is referred to as an additional IFRS Accounting Standards measure and may not be comparable to similar measures presented by other companies. 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of consolidated financial statements requires management to use judgment in applying its accounting policies and estimates and assumptions about the future. Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. The following discusses the most significant accounting judgments and estimates that the Corporation has made in the preparation of the consolidated financial statements. These underlying assumptions are reviewed on an ongoing basis. Actual results could differ materially from those estimates. Accounting Estimates Business Combinations The Corporation’s business acquisitions have been accounted for using the acquisition method of accounting. Under the acquisition method, the acquiring company adds to its statement of financial position the estimated fair values of the acquired company’s assets and assumed liabilities. There are various assumptions made when determining the fair values of the acquired company’s assets and assumed liabilities. The most significant assumptions and those requiring the most judgment involve the estimated fair values of intangible assets. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the subsidiary, and the equity interests issued by the Corporation. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the Corporation is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration liability are generally recognized in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. 2024 Annual Report | 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The initial recognition of intangible assets acquired that require critical accounting estimates are customer contracts, customer relationships, customer lists, order backlog, certifications, software intellectual property (“IP”), and brand names. To determine the fair value of customer-based intangible assets (excluding brand names), the Corporation uses the excess earning method. This valuation technique values the intangible assets based on the capitalization of the earnings, which are calculated to be in excess of what a reasonable amount of earnings would be on the tangible assets used to generate the earnings. Significant assumptions include, among others, the determination of projected revenues, cash flows, customer retention rates, discount rates, and anticipated average income tax rates. To determine the fair value of the brand name and software IP intangible assets, the Corporation uses the royalty relief method. This valuation technique values the intangible assets based on the present value of the expected after-tax royalty cash flow stream using a hypothetical licensing arrangement. Significant assumptions include, among others, the determination of projected revenues, royalty rate, discount rates, and anticipated average income tax rates. To determine the fair value of the certifications, the Corporation uses the cost approach. This valuation technique values the intangible assets based on the estimated costs a market participant would incur to obtain the certification. The Corporation’s liabilities for contingent consideration associated with the earn out portion of its acquisitions are reassessed each period end subsequent to the related acquisition. The carrying value of the liability is based on an estimate of both the amount of the potential payment and probability that the earn out will be paid. During the year, there was no change to the estimated final payment to vendors (2023 – $1.0 million). Amounts related to changes in the estimated purchase consideration are recognized within “Other” in the Statement of Income. Long-term Contract Revenue Recognition Revenue and income from fixed price construction contracts are recognized over time using the methodology that most accurately reflects the transfer of goods to the customer. The Corporation has a process whereby progress on jobs is reviewed by management on a regular basis and estimated costs to complete are updated. However, due to unforeseen changes in the nature or cost of the work to be completed or performance factors, contract profit can differ significantly from earlier estimates. Management believes, based on its experience that its current systems of management and accounting controls allow the Corporation to produce materially reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period, which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labour, the performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather conditions, changes in underlying raw material cost estimates, and the accuracy of the original bid estimate. Accordingly, management applies significant judgment to estimate the costs to complete these long-term construction contracts, including the use of significant assumptions with respect to estimated labour costs, material costs and subcontracting costs, as applicable. Since the Corporation has many contracts in process at any given time, these changes in estimates can offset each other without impacting overall profitability. However, changes in cost estimates on larger, more complex construction projects can have a material impact on the Corporation’s consolidated financial statements and are reflected in the results of operations when they become known. Estimating the transaction price of a contract is an involved process that is affected by a variety of uncertainties that depend on the outcome of a series of future events. The estimates must be revised each period throughout the life of the contract when events occur and as uncertainties are resolved. The major factors that must be considered in determining total estimated revenue include (a) the basic contract price, (b) contract options, (c) change orders, (d) claims, and (e) contract provisions for penalty and incentive payments, including award fees and performance incentives. The Corporation is required to make estimates of variable consideration in determining the transaction price, subject to the guidance on constraining estimates of variable consideration. 114 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) A change order results from a change to the scope of the work to be performed compared to the original contract that was signed. Unpriced change orders are change orders that have been approved as to scope but unapproved as to price. For such change orders, the Corporation will include in the transaction price an estimate of the variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Claims are amounts in excess of the agreed contract price or amounts not included in the original contract price, that the Corporation seeks to collect from clients or others for client-caused delays, errors in specifications and designs, contract terminations, change orders in dispute, or unapproved as to both scope and price, or other causes of unanticipated additional costs. Judgment is required to determine if the claim is an enforceable obligation based on the specific facts and circumstances, however, the Corporation will include in the transaction price an estimate of the variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Given the above-noted critical accounting estimates associated with the accounting for construction contracts, it is possible, based on existing knowledge, that outcomes within the next financial year or later could be different from the estimates and assumptions adopted and could require a material adjustment to revenue and/or the carrying amount of the asset or liability affected. Depreciation & Amortization Period for Long-lived Assets The Corporation makes estimates about the expected useful lives of long-lived assets and the expected residual values of the assets based on the estimated current fair value of the assets, the Corporation’s aircraft fleet plans, and the cash flows expected to be generated from them. Changes to these estimates, which can be significant, could be caused by a variety of factors, including changes to maintenance programs, changes in utilization of the aircraft, changing market prices for aircraft of the same or similar types, and changes in the utilization of other major manufacturing equipment and buildings. Estimates and assumptions are evaluated at least annually. Generally, these adjustments are accounted for as a change in estimate, on a prospective basis, through depreciation or amortization expense. For the purposes of sensitivity analysis on these estimates, a 50% reduction to residual values on the Corporation’s aircraft with remaining useful lives greater than five years as at December 31, 2024, would result in an increase of approximately $11,697 (2023 – $10,341) to annual depreciation expense. For the Corporation’s aircraft with shorter remaining useful lives and other major manufacturing equipment and buildings, the residual values are not expected to change significantly. Impairment Considerations on Long-lived Assets Goodwill and indefinite life intangible assets are not amortized. Goodwill and all indefinite life intangibles are assessed for impairment at least annually. Impairment testing is performed on long-lived assets by comparing the carrying amount of the asset or cash generating unit (“CGU”) to its recoverable amount, which is calculated as the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use. Fair value less costs of disposal calculates the recoverable amount using Adjusted EBITDA multiples based on financial forecasts prepared by management (level 3 within the fair value hierarchy). Intangible Assets The recoverable amount is forecasted with management’s best estimate using market participant assumptions considering historical and expected operating plans, current strategies, economic conditions, and the general outlook for the industry and markets in which the cash generating units operate. The recoverable amount of the CGUs was based on value in use using a discounted cash flow model, which requires management to make a number of significant assumptions including assumptions relating to future operating plans, 2024 Annual Report | 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) discount rates, and future growth rates. The assumptions include the Corporation’s pre-tax weighted average cost of capital at the assessment date (level 3 within the fair value hierarchy). Management has prepared cash flow estimates for a three year period which are extrapolated using an estimated terminal growth rate of 3.0% and a discount rate (pre-tax) of 16%. The Corporation has concluded that there are no impairments of its indefinite lived intangible assets as a result of this assessment as at December 31, 2024. Goodwill The recoverable amount of the goodwill CGUs was calculated based on the fair value less costs of disposal, using an Adjusted EBITDA multiple approach (Level 3 within the fair value hierarchy) based on the Corporation’s assessment of market participant assumptions. The Corporation used its forecasted Adjusted EBITDA based on its approved budget and used its best estimate of market participant Adjusted EBITDA multiples (Level 3 within the fair value hierarchy). The Adjusted EBITDA multiple used for the Aerospace & Aviation segment was 8.0x (2023 – 8.0x) and was 7.5x (2023 – 7.5x) for the Manufacturing segment. The Corporation will, at times, perform various scenario and sensitivity analysis when calculating the recoverable amounts of CGUs which may include alternative models and assumptions. The Corporation has concluded that there was no impairment of its goodwill CGUs as a result of this assessment at December 31, 2024. Deferred Income Taxes The Corporation is subject to income taxes in Canada, the United States, and certain other jurisdictions. Significant judgment is required in determining the provision for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Corporation maintains provisions for uncertain tax positions that are believed to appropriately reflect our risk with respect to tax positions under discussion, audit, dispute, or appeal with tax authorities, or which are otherwise considered to involve uncertainty. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The Corporation regularly assesses the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made. Critical Accounting Judgments Measurement and Presentation of Capital Assets and Inventory The Corporation may purchase certain aircraft and aircraft components in the normal course of the operations. The Corporation must assess whether the aircraft and engines should be recognized as either inventory or capital assets depending on the anticipated use of such assets, including the ability to lease these tangible assets to customers. The determination is based on available cycle times related to aviation components and whether such assets are expected to be used over several periods, in which case they would be classified as capital assets and depreciated over their useful lives commencing when the asset is available for use and capable of operating in a manner intended by management. The Corporation reviews its tangible assets on a regular basis to assess whether reclassifications are required between capital assets and inventory. 116 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) In the normal course of its business, it may acquire entire aircraft or components of an aircraft for breakdown into saleable parts. The Corporation relieves cost out of inventory using the average cost to sales percentage based on the expected selling price. Accordingly, the carrying value of inventory and recognition of the related cost of sale requires estimates related to the margins that the Corporation will ultimately earn on the parts. The Corporation has a process whereby such estimates are reviewed and assessed for reasonableness on a regular basis and the underlying inventory may be appraised by a third party. However, due to unforeseen changes in market conditions or other factors, the estimated average cost to sales percentages may differ significantly from earlier estimates. Management believes, based on its industry experience, that its current systems of management and accounting controls allow the Corporation to produce materially reliable estimates of the carrying value of inventory and related cost of sales. However, many factors can and do change throughout a component part’s life, which can result in a change to future average cost to sales percentage estimates. Some of the factors that can change include significant changes in worldwide utilization of certain aircraft types which the parts support, the available supply of original equipment manufacturer or aftermarket parts, and changes in airworthiness directives by aviation authorities. Such changes can alter the supply and demand associated with Regional One’s parts inventory and therefore, it is possible that outcomes within the next financial year could be different from the estimates and assumptions and could result in an impairment of inventory or a decrease in the average cost to sales percentage on future sales. The Corporation manufactures access mats. In addition, it purchases bridges from third parties. Upon completion of the mats, or acquisition of the bridges, management must assess the intended use of those assets. If the asset will be rented to third parties, the asset is included within capital assets and depreciated over its useful life. If the asset will be sold to a third party, the asset is recorded in inventory. If management’s intention for use of the mats and bridges changes from the initial classification, those assets are reclassified at carrying value based on management’s new intended use of the asset. 6. ACQUISITIONS Armand Duhamel & Fils Inc. On June 21, 2024, the Corporation acquired the shares of Armand Duhamel & Fils Inc (“Duhamel”). Duhamel, located in St-Ignace-de-Stanbridge, Quebec, operates a sawmill operation that focuses on the manufacture and sale of eastern hemlock products. The components of the consideration paid to acquire Duhamel are outlined in the table below. Consideration given: Cash $ 16,500 Issuance of 67,828 shares of the Corporation at $44.23 per share 3,000 Final working capital settlement 243 Contingent consideration – earn out 2,381 Total purchase consideration $ 22,124 2024 Annual Report | 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The purchase price included an initial payment of cash and the issuance of common shares to the vendors, net of normal closing adjustments, plus a multi-year earn out if certain performance targets are met over a three-year period. The maximum earnout that can be achieved by the vendors is $3,000. The contingent consideration recorded by the Corporation reflects the discounted liability of the estimated likelihood of performance targets being met over the three- year period, which was assessed as of the date of acquisition. The allocation of the purchase price is reflected in the table that follows. Fair value of assets acquired: Cash $ 358 Accounts receivable 2,032 Inventory 3,351 Prepaid expenses and deposits 208 Capital assets 5,873 Intangible assets 5,900 17,722 Less fair value of liabilities assumed: Accounts payable and accrued liabilities 1,043 Income taxes payable 57 Deferred revenue 118 Deferred income tax liability 2,220 Fair value of identifiable net assets acquired 14,284 Goodwill 7,840 Total purchase consideration $ 22,124 Of the $5,900 acquired intangible assets, $4,400 was assigned to customer relationships and $1,500 was assigned to brand name. The customer relationship intangible asset is subject to amortization while the brand name is considered to have an indefinite life. The goodwill is attributable to the skilled workforce and the profitability of the acquired business. Spartan Mat LLC and Spartan Composites LLC On November 13, 2024, the Corporation completed the acquisition of Spartan Mat LLC and Spartan Composites LLC (collectively “Spartan”). Spartan, located in Rockledge, Florida is one of three manufacturers of composite access mats in North America. The composite mat is fully recyclable at the end of its useful life, offering customers a sustainable alternative to traditional wood mats. At less than half the weight of a traditional wood mat, it also significantly reduces transportation costs. 118 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The components of the consideration paid to acquire Spartan are outlined in the table below. Consideration given: Cash and deferred cash purchase consideration $ 144,450 Issuance of 458,252 shares of the Corporation at $54.74 per share 25,087 Estimated working capital settlement 447 Total purchase consideration $ 169,984 A portion of the purchase price was deferred from the date of acquisition to early 2025. Accordingly, subsequent to year end, US $7,672 was paid on January 2, 2025. The preliminary allocation of the purchase price is reflected in the table that follows. Fair value of assets acquired: Cash $ 2,728 Accounts receivable 16,730 Inventory 13,175 Prepaid expenses and deposits 656 Capital assets 23,980 Right of use assets 2,622 Intangible assets 41,800 101,691 Less fair value of liabilities assumed: Accounts payable and accrued liabilities 11,434 Income taxes payable Deferred revenue 14 Right of use lease liabilities 2,622 Deferred income tax liability 7,789 Fair value of identifiable net assets acquired 79,832 Goodwill 90,152 Total purchase consideration $ 169,984 The purchase price allocation above is preliminary and subject to change as the assessment is completed by the Corporation. During 2025, the Corporation will complete the purchase price allocation. The goodwill is attributable to the skilled workforce and the profitability of the acquired business. 2024 Annual Report | 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 7. INVENTORIES The inventory of the Corporation’s operating subsidiaries is classified into the following categories: December 31 2024 December 31 2023 Parts and other consumables $ 78,384 $ 71,257 Aviation parts for resale 291,642 222,981 Raw materials 52,906 49,448 Work in process 18,531 17,109 Finished goods 55,080 47,584 Total inventory $ 496,543 $ 408,379 During 2024, inventory from the Aerospace & Aviation segment with a value of $178,771 (2023 – $153,876) was recorded as an expense within the Aerospace & Aviation expenses – excluding depreciation and amortization, and inventory from the Manufacturing segment with a value of $210,544 (2023 – $194,018) was recorded as an expense within Manufacturing expenses – excluding depreciation and amortization. 8. OTHER ASSETS The other assets of the Corporation consist of the following: December 31 2024 December 31 2023 Long-term prepaid expenses and security deposits $ 5,882 $ 4,273 Long-term receivables 1,316 894 Equity method investments 103,037 114,528 Other investments – Fair value through OCI (Note 23) 6,830 6,718 Derivative financial instruments – Fair value through profit and loss (Note 23) 17,620 7,312 Total other assets $ 134,685 $ 133,725 The Corporation is invested in a number of equity accounted investments in non-trading entities at December 31, 2024. The Corporation’s ownership percentages in the entities are 25%, 33%, 49% , 49%, 50% and 50%, and the carrying values at December 31, 2024 are $14,196 (2023 – $13,817), $11,830 (2023 – $11,203), $4,555 (2023 – $7,192), $29,665 (2023 – $25,109), $22,210 (2023 – $37,464), and $20,581 (2023 – $19,743), respectively. The reporting period end for the equity accounted investments is December 31. These entities have total assets of $335,916 (2023 – $337,077) and total liabilities of $119,398 (2023 – $99,788) at December 31, 2024. The entities had revenues of $382,578 (2023 – $358,994) and net income of $34,899 (2023 – $26,252) for the year ended December 31, 2024. These investments, for which fair market value is not available, have been included within the equity method investments line above. The Corporation is invested in non-trading entities that are accounted for at fair value through OCI. At December 31, 2024, the carrying value of these entities is $6,830 (2023 – $6,718). The Corporation uses several derivative financial instruments to manage various risks as discussed further in Note 23. This includes an interest rate swap, cross currency swap, and hedge of its equity compensation plan. The amount recorded in other assets is the net asset position on any of these derivatives. Any net liability positions are presented in Other Long-Term Liabilities. 120 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 9. CAPITAL ASSETS The Corporation’s capital assets consist of the following: Cost Accumulated Depreciation December 31, 2024 Net Book Value Land $ 14,576 $ – $ 14,576 Buildings 196,618 56,484 140,134 Aircraft frames 778,127 227,718 550,409 Aircraft engines 408,805 179,048 229,757 Aircraft propellers and rotors 88,366 36,587 51,779 Aircraft landing gear 71,641 24,535 47,106 Aircraft rotable parts 192,567 82,040 110,527 Equipment 370,465 227,999 142,466 Other 35,929 26,134 9,795 Leasehold improvements 42,497 27,298 15,199 2,199,591 887,843 1,311,748 Assets for rent or lease to third parties 803,417 290,558 512,859 Total $ 3,003,008 $ 1,178,401 $ 1,824,607 Year Ended December 31, 2024 Net Book Value Opening Acquisition (Note 6) Additions/ Transfers Disposals Depreciation Exchange Differences Ending Land $ 10,323 $ 4,137 $ 39 $ – $ – $ 77 $ 14,576 Buildings 120,179 766 23,809 (38) (4,777) 195 140,134 Aircraft frames 484,973 – 120,507 (3,631) (51,442) 2 550,409 Aircraft engines 209,967 – 65,104 (4,691) (40,626) 3 229,757 Aircraft propellers and rotors 46,585 – 17,644 (559) (11,891) – 51,779 Aircraft landing gear 46,266 – 7,000 (738) (5,422) – 47,106 Aircraft rotable parts 87,416 – 49,320 (887) (25,349) 27 110,527 Equipment 124,432 20,469 21,781 (233) (25,998) 2,015 142,466 Other 11,827 253 1,065 (398) (3,043) 91 9,795 Leasehold improvements 12,201 624 4,552 – (2,460) 282 15,199 1,154,169 26,249 310,821 (11,175) (171,008) 2,692 1,311,748 Assets for rent or lease to third parties 416,898 3,124 177,579 (41,259) (76,838) 33,355 512,859 Total $ 1,571,067 $ 29,373 $ 488,400 $ (52,434) $ (247,846) $ 36,047 $ 1,824,607 During the year, the Corporation had transfers of $167 (December 31, 2023 $1,968) from right of use assets to capital assets, which had no cash impact. During the year, the Corporation had net transfers of $7,684 from capital assets to inventory (December 31, 2023 – $12,430 from capital assets to inventory). The Corporation transfers capital assets out of the assets for rent or lease to third parties portfolio into inventory for part out and resale when it is determined beneficial to do so as part of the normal life cycle of older aircraft. In addition, the Corporation may also transfer assets from inventory to capital assets to increase the future economic benefit of its operating aircraft (Note 5). The net of these transfers is included within the Additions/Transfers column. 2024 Annual Report | 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) In the tables above and below, assets for lease to third parties includes both the Corporation’s aircraft and engine lease portfolio and its rental access mat and bridge portfolio. Cost Accumulated Depreciation December 31, 2023 Net Book Value Land $ 10,323 $ – $ 10,323 Buildings 169,431 49,252 120,179 Aircraft frames 671,536 186,563 484,973 Aircraft engines 365,290 155,323 209,967 Aircraft propellers and rotors 78,988 32,403 46,585 Aircraft landing gear 66,385 20,119 46,266 Aircraft rotable parts 152,403 64,987 87,416 Equipment 323,122 198,690 124,432 Other 38,641 26,814 11,827 Leasehold improvements 36,005 23,804 12,201 1,912,124 757,955 1,154,169 Assets for rent or lease to third parties 636,934 220,036 416,898 Total $ 2,549,058 $ 977,991 $ 1,571,067 Year Ended December 31, 2023 Net Book Value Opening Acquisition Additions/ Transfers Disposals Depreciation Exchange Differences Ending Land $ 9,499 $ 845 $ – $ – $ – $ (21) $ 10,323 Buildings 113,631 1,279 9,068 – (3,746) (53) 120,179 Aircraft frames 360,429 – 156,607 (159) (31,903) (1) 484,973 Aircraft engines 159,651 – 86,832 (1,615) (34,901) – 209,967 Aircraft propellers and rotors 36,980 – 19,347 (372) (9,370) – 46,585 Aircraft landing gear 33,552 – 17,179 – (4,465) – 46,266 Aircraft rotable parts 71,169 – 37,772 (203) (21,334) 12 87,416 Equipment 85,129 15,573 50,061 (1,806) (24,282) (243) 124,432 Other 9,719 2,270 2,505 (150) (2,463) (54) 11,827 Leasehold improvements 9,940 1,474 3,105 – (2,239) (79) 12,201 889,699 21,441 382,476 (4,305) (134,703) (439) 1,154,169 Assets for rent or lease to third parties 394,710 – 122,762 (18,526) (73,789) (8,259) 416,898 Total $ 1,284,409 $ 21,441 $ 505,238 $ (22,831) $ (208,492) $ (8,698) $ 1,571,067 Certain amounts in the prior year tables above have been reclassified to align with the current year presentation. There was no impact on the total net book value, only the classification of certain components within the table above. 122 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 10. LEASES The Corporation’s right of use assets consist of the following: January 1, 2024 December 31, 2024 Net Book Value Opening Acquisitions (Note 6) Additions Disposals/ Transfers Depreciation Exchange Differences Ending Land $ 26,741 $ – $ 623 $ (429) $ (1,558) $ – $ 25,377 Building 97,688 2,628 32,419 (4,273) (24,702) 1,775 105,535 Aircraft 32,025 – 672 – (9,324) – 23,373 Equipment 5,393 – 4,953 (71) (4,065) 5 6,215 Other 8,252 – 277 (8) (410) – 8,111 Total $ 170,099 $ 2,628 $ 38,944 $ (4,781) $ (40,059) $ 1,780 $ 168,611 January 1, 2023 December 31, 2023 Net Book Value Opening Acquisitions Additions Disposals Depreciation Exchange Differences Ending Land $ 27,665 $ – $ 654 $ (37) $ (1,541) $ – $ 26,741 Building 77,933 26,352 16,758 (222) (22,664) (469) 97,688 Aircraft 38,331 – 2,633 – (8,939) – 32,025 Equipment 6,474 – 2,006 (1,968) (1,117) (2) 5,393 Other 6,916 30 4,383 (247) (2,830) – 8,252 Total $ 157,319 $ 26,382 $ 26,434 $ (2,474) $ (37,091) $ (471) $ 170,099 During the year the Corporation transferred $167 from right of use assets to capital assets, which had no cash impact and is reflected in the Disposals column. The Corporation’s right of use lease liabilities consist of the following: Right of Use Lease Liability 2024 2023 Opening balance, January 1 $180,154 $164,260 Additions to right of use lease liabilities, including through acquisitions 41,572 52,818 Disposals of right of use assets and derecognition of lease liabilities (4,627) (838) Principal payments on right of use lease liabilities (39,017) (35,528) Exchange differences 2,071 (558) Closing balance, December 31 $180,153 $180,154 Current portion $ 39,832 $ 36,866 During the year, the Corporation expensed $12,087 (December 31, 2023 – $10,154) in leases that did not meet the thresholds for recognition under IFRS 16. These leases were either low value, less than twelve months or contained variable payments that fell outside of the scope of the standard. The Corporation assessed the extension periods embedded within each lease for inclusion in the right of use lease liabilities on a lease by lease basis. When it determined it was reasonably certain to exercise the extension option within 2024 Annual Report | 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) the lease, the Corporation has included those extension periods in the initial recognition of the right of use asset and right of use lease liability. Significant leases where assumptions have been made are long-term airport leases and long-term building leases. Undiscounted Right of Use Lease Liability Payments December 31, 2024 December 31, 2023 Less than 1 year $ 48,728 $ 43,743 Between 1 year and 5 years 107,920 114,674 More than 5 years 47,754 48,840 $ 204,402 $ 207,257 The Corporation enters into operating leases as a lessor as it leases aircraft and engines to third parties. During 2024, the Corporation generated $80,304 in lease income from these leases, of which $42,311 relates to variable lease payments that are not dependent on an index or a rate. The Corporation manages the risks associated with its lease portfolio through how it purchases these assets. The Corporation purchases aftermarket aircraft and engines with green time remaining generally with the intent to part the aircraft out for sale after the green time has been consumed by lessees. While the Corporation may overhaul an engine to put it back into the lease portfolio, typically assets are parted out and sold as piece components if they have reached the stage where they require significant overhaul. The Corporation has an intimate understanding of the value of the individual components and this mitigates the risk that an asset will be returned by a lessee in a condition where the Corporation is unable to monetize the remaining value of the asset. There are also lease redelivery conditions within certain leases that ensures the asset is returned in specific conditions by the lessee. The Corporation’s investment philosophy for these types of assets results in shorter term leases than a typical finance lessor. The chart below shows the undiscounted minimum fixed lease payments the Corporation is entitled to receive under these lease arrangements, which are generally shorter term due to the nature of the assets owned by the Corporation. Undiscounted Future Minimum Lease Payments December 31, 2024 Less than 1 year $ 48,807 Between 1 year and 5 years 55,983 More than 5 years 468 $ 105,258 124 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 11. INTANGIBLE ASSETS & GOODWILL The following summarizes the Corporation’s intangible assets as at December 31, 2024 and 2023: December 31, 2024 Cost Accumulated Amortization Net Book Value Indefinite Life Assets Brand name $ 168,787 $ – $ 168,787 Finite Life Assets Customer contracts and relationships 272,546 106,189 166,357 Certifications 10,961 869 10,092 Information technology systems 34,065 18,887 15,178 Other 10,374 6,163 4,211 Total $ 496,733 $ 132,108 $ 364,625 Year Ended December 31, 2024 Net Book Value Opening Acquisition Additions/ Transfers (Note 6) Disposals Amortization Exchange Differences Ending Indefinite Life Assets Brand name $ 151,985 $ 13,802 $ – $ – $ – $ 3,000 $ 168,787 Finite Life Assets Customer contracts and relationships 150,649 33,898 – – (20,092) 1,902 166,357 Certifications 9,811 – 294 – (27) 14 10,092 Information technology systems 16,477 – 669 – (1,968) – 15,178 Other 3,440 – 1,194 – (423) – 4,211 Total $ 332,362 $ 47,700 $ 2,157 $ – $ (22,510) $ 4,916 $ 364,625 December 31, 2023 Cost Accumulated Amortization Net Book Value Indefinite Life Assets Brand name $ 151,985 $ – $ 151,985 Finite Life Assets Customer contracts and relationships 235,989 85,340 150,649 Certifications 10,630 819 9,811 Information technology systems 33,543 17,066 16,477 Other 9,354 5,914 3,440 Total $ 441,501 $ 109,139 $ 332,362 2024 Annual Report | 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Year Ended December 31, 2023 Net Book Value Opening Acquisition Additions/ Transfers Disposals Amortization Exchange Differences Ending Indefinite Life Assets Brand name $ 128,207 $ 24,500 $ – $ – $ – $ (722) $ 151,985 Finite Life Assets Customer contracts and relationships 142,336 26,200 – – (17,573) (314) 150,649 Certifications 9,820 – 18 – (27) – 9,811 Information technology systems 17,060 – 1,632 – (2,214) (1) 16,477 Other 2,951 – 919 – (430) – 3,440 Total $ 300,374 $ 50,700 $ 2,569 $ – $ (20,244) $ (1,037) $ 332,362 The Corporation has brand name indefinite life assets for subsidiaries across both of its operating segments. These subsidiaries each have a brand name that represents the quality of goods or services and safety standards that those entities provide to their customers. Goodwill 2024 2023 Balance, beginning of year $ 713,196 $ 626,341 Goodwill from business acquisitions (Note 6) 97,991 90,498 Measurement period adjustment – settlement of working capital and other (Note 23) 80 – Translation of goodwill of foreign operations 15,962 (3,643) Balance, end of year $ 827,229 $ 713,196 As a result of the foreign currency translation policy for the consolidation of US dollar functional currency subsidiaries as described in Note 3, the goodwill recorded in these subsidiaries of US $199,168 is valued at the period-end exchange rate. As a result, the goodwill fluctuates as the Canadian dollar reporting currency changes in comparison to the US dollar. The Corporation completed its annual impairment testing for goodwill and indefinite life intangible assets as at December 31, 2024 (Note 5). As at December 31, 2024, there was no impairment of goodwill or indefinite life intangible assets based on management’s assessment. 12. LONG-TERM DEBT The following summarizes the Corporation’s long-term debt as at December 31, 2024, and December 31, 2023: December 31 2024 December 31 2023 Revolving term facility: Canadian dollar amounts drawn $ 350,000 $ 540,000 United States dollar amounts drawn (US$1,025,198 and US$670,675 respectively) 1,475,157 887,035 Total credit facility debt outstanding, principal value 1,825,157 1,427,035 less: unamortized transaction costs (3,291) (2,794) less: unamortized discount on outstanding Banker’s Acceptances – (1,599) Long-term debt $ 1,821,866 $ 1,422,642 126 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The Corporation’s credit facility is secured by a general security agreement over the assets of the Corporation, subject to customary terms, conditions, covenants, and other provisions, and includes both financial and negative covenants. The Corporation is in compliance with all financial and negative covenants as at December 31, 2024. Interest expense recorded by the Corporation during the year ended December 31, 2024 for long-term debt was $101,886 (2023 – $84,216). On May 6, 2024, the Corporation completed an upsize and extension of its credit facility. The Corporation increased its credit facility to approximately $2.2 billion and extended its term to May 6, 2028. This included $1.846 billion allocated to the Corporation’s Canadian head office and US $260 million allocated to EIIF Management USA, Inc. The amount allocated to the Corporation’s Canadian head office includes a new $200 million social loan tranche, and the Corporation obtained a Second Party Opinion that concluded on the alignment of the loan with Social Loan Principles. On October 30, 2024, the Corporation, at its option, reallocated US $100 million from the Corporation’s Canadian head office to EIIF Management USA Inc. There was no change to the overall commitment to the consolidated group under the credit facility. This reallocation was completed in preparation for the closing of the purchase of Spartan (Note 6). Credit Facility The following is the continuity of long-term debt for the year ended December 31, 2024: Year Ended December 31, 2024 Opening Withdrawals Repayments Exchange Differences Ending Credit facility amounts drawn Canadian dollar amounts $ 540,000 $ 160,800 $ (350,800) $ – $ 350,000 United States dollar amounts 887,035 539,202 (21,314) 70,234 1,475,157 $ 1,427,035 $ 1,825,157 Year Ended December 31, 2023 Opening Withdrawals Repayments Exchange Differences Ending Credit facility amounts drawn Canadian dollar amounts $ 201,000 $ 720,200 $ (381,200) $ – $ 540,000 United States dollar amounts 1,017,326 483,839 (595,920) (18,210) 887,035 $ 1,218,326 $ 1,427,035 In the tables above, withdrawals and repayments include the impact of entering into cross currency swaps with members of the Corporation’s lending syndicate whereby an exchange of Canadian and US denominated debt occurs. There is no impact on cash flow and therefore the impact has been netted on the Statement of Cash Flow. More information on the cross currency swaps can be found in Note 23. 2024 Annual Report | 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 13. CONVERTIBLE DEBENTURES Series – Year of Issuance Trade Symbol Maturity Interest Rate Conversion Price Unsecured Debentures – 2018 EIF.DB.J June 30, 2025 5.35% $ 49.00 Unsecured Debentures – 2019 EIF.DB.K March 31, 2026 5.75% $ 49.00 Unsecured Debentures – July 2021 EIF.DB.L July 31, 2028 5.25% $ 52.70 Unsecured Debentures – December 2021 EIF.DB.M January 15, 2029 5.25% $ 60.00 Summary of the debt component of the convertible debentures: 2024 Balance, Beginning of Year Debentures Issued Accretion Charges Debentures Converted Redeemed / Matured 2024 Balance, End of Year Unsecured Debentures – 2018 $ 78,301 $ – $948 $(68,538) $(10,711) $ – Unsecured Debentures – 2019 84,737 – 570 (110) – 85,197 Unsecured Debentures – July 2021 139,465 – 837 – – 140,302 Unsecured Debentures – December 2021 111,292 – 651 – – 111,943 337,442 less: unamortized transaction costs (7,052) Convertible Debentures – Debt Component, end of year $ 330,390 Convertible Debentures – Debt Component (long-term portion) 330,390 2023 Balance, Beginning of Year Debentures Issued Accretion Charges Debentures Converted Redeemed / Matured 2023 Balance, End of Year Unsecured Debentures – 2018 78,215 – 864 (778) – 78,301 Unsecured Debentures – 2019 84,384 – 531 (178) – 84,737 Unsecured Debentures – July 2021 138,699 – 783 (17) – 139,465 Unsecured Debentures – December 2021 110,683 – 609 – – 111,292 413,795 less: unamortized transaction costs (10,020) Convertible Debentures – Debt Component, end of year $ 403,775 During the year ended December 31, 2024, convertible debentures totaling a par value of $68,648 were converted by the holders at various times into 1,410,231 shares of the Corporation (2023 – $998 and 20,338 shares). Interest expense recorded during the 2024 year for the convertible debentures was $27,794 (2023 – $28,100). On March 14, 2024, the Corporation received approval from the TSX for the renewal of its Normal Course Issuers Bid (“NCIB”) to purchase up to $7,970 principal amount of 7 year 5.35% convertible unsecured subordinated debentures of EIC (June 2018), $8,607 principal amount of 7 year 5.75% convertible unsecured subordinated debentures of EIC (March 2019), $14,373 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC (July 2021); and $11,500 principal amount of 7 year 5.25% convertible unsecured subordinated debentures of EIC (December 2021), representing 10% of the public float of each series of Securities at March 5, 2024. Purchases of Securities pursuant to the NCIB can be made through the facilities of the TSX during the period commencing on March 19, 2024 and ending on March 18, 2025. Daily purchases will be limited to $646 principal amount of Debentures (June 2018), $711 principal amount of Debentures (March 2019), $1,212 principal amount of Debentures (July 2021) and $1,628 principal amount of Debentures (December 2021), other than block purchase exemptions. 128 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) During the years ended December 31, 2024 and December 31, 2023, the Corporation did not make any purchases of the principal amounts of its convertible debentures under its NCIB. On December 20, 2024, the Corporation completed the early redemption its 7 year, 5.35% convertible debentures which were due on June 30, 2025. Prior to the redemption date, debentureholders converted $68,991 par value into 1,407,968 shares of the Corporation. On December 20, 2024, the Corporation completed the early redemption of the debentures, redeeming the remaining $10,711 principal value. On February 13, 2025, subsequent to the end of the year, the Corporation completed the early redemption of its 7 year, 5.75% convertible debentures, which were due on March 31, 2026. The redemption of the debentures was completed with cash on hand from the Corporations credit facility. Prior to the redemption date, $78,383 par value was converted into 1,605,618 common shares at a price of $49.00 per share. On February 13, 2025, the remaining outstanding principal amount of $7,574 was redeemed by the Corporation. June 2018 Unsecured Convertible Debenture Offering Each debenture is convertible, at the debentureholder’s option, into shares of the Corporation at any time prior to the close of business on the day prior to the maturity date at a conversion price of $49.00. At the Corporation’s option, on the maturity date, the debentures (or any portion thereof) shall be convertible into shares at the Corporation’s forced conversion price equal to 95% of the weighted average trading price of the shares for the 20 trading days ending five days prior to the maturity date. The debentures are not redeemable until after June 30, 2021. After June 30, 2021, but prior to June 30, 2023, the Corporation has the option to redeem these debentures provided that certain thresholds are met surrounding the weighted average market price of the shares at that time. On and after June 30, 2023, but prior to the maturity date, the Corporation has the option to redeem these debentures without any weighted average market price thresholds. The June 2018 convertible unsecured debentures have $nil (2023 – $79,702) of principal outstanding as at December 31, 2024. March 2019 Unsecured Convertible Debenture Offering Each debenture is convertible, at the debentureholder’s option, into shares of the Corporation at any time prior to the close of business on the day prior to the maturity date at a conversion price of $49.00. At the Corporation’s option, on the maturity date, the debentures (or any portion thereof) shall be convertible into shares at the Corporation’s forced conversion price equal to 95% of the weighted average trading price of the shares for the 20 trading days ending five days prior to the maturity date. The debentures are not redeemable until after March 31, 2022. After March 31, 2022, but prior to March 31, 2024, the Corporation has the option to redeem these debentures provided that certain thresholds are met surrounding the weighted average market price of the shares at that time. On and after March 31, 2024, but prior to the maturity date, the Corporation has the option to redeem these debentures without any weighted average market price thresholds. If the Corporation elects to redeem the debentures, the debentureholders have the option to convert the debentures into shares of the Corporation at the conversion price. The March 2019 convertible unsecured debentures have $85,957 (2023 – $86,068) of principal outstanding as at December 31, 2024, and mature in March 2026. July 2021 Unsecured Convertible Debenture Offering Each debenture is convertible, at the debentureholder’s option, into shares of the Corporation at any time prior to the close of business day on the day prior to the maturity date at a conversion price of $52.70. 2024 Annual Report | 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) At the Corporation’s option, on the maturity date, the debentures (or any portion thereof) shall be convertible into shares at the Corporation’s forced conversion price equal to 95% of the weighted average trading price of the shares for the 20 trading days ending five days prior to the maturity date. The debentures are not redeemable until after July 31, 2024. After July 31, 2024, but prior to July 31, 2026, the Corporation has the option to redeem these debentures provided that certain thresholds are met surrounding the weighted average market price of the shares at that time. On and after July 31, 2026, but prior to the maturity date, the Corporation has the option to redeem these debentures without any weighted average market price thresholds. If the Corporation elects to redeem the debentures, the debentureholders have the option to convert the debentures into shares of the Corporation at the conversion price. The July 2021 convertible unsecured debentures have $143,732 (2023 – $143,732) of principal outstanding as at December 31, 2024, and mature in July 2028. December 2021 Unsecured Convertible Debenture Offering Each debenture is convertible, at the debentureholder’s option, into shares of the Corporation at any time prior to the close of business on the day prior to the maturity date at a conversion price of $60.00. At the Corporation’s option, on the maturity date, the debentures (or any portion thereof) shall be convertible into shares at the Corporation’s forced conversion price equal to 95% of the weighted average trading price of the shares for the 20 trading days ending five days prior to the maturity date. The debentures are not redeemable until after January 15, 2025. After January 15, 2025, but prior to January 15, 2027, the Corporation has the option to redeem these debentures provided that certain thresholds are met surrounding the weighted average market price of the shares at that time. On and after January 15, 2027, but prior to the maturity date, the Corporation has the option to redeem these debentures without any weighted average market price thresholds. If the Corporation elects to redeem the debentures, the debentureholders have the option to convert the debentures into shares of the Corporation at the conversion price. The December 2021 convertible unsecured debentures have $115,000 (2023 – $115,000) of principal outstanding as at December 2024, and mature in January 2029. Convertible Debentures Equity Component Since all the outstanding convertible debentures contain a conversion feature available to the debenture-holder to convert debenture principal into shares of the Corporation, the debenture obligation is classified partly as debt and partly as shareholders’ equity. The debt component represents the present value of interest and principal payments over the life of the convertible debentures discounted at a rate approximating the rate which would have applied to non-convertible debentures at the time the convertible debentures were issued. The difference between the principal amount of the convertible debentures and the present value of interest and principal payments over the life of the convertible debentures is accreted over the term of the convertible debentures through periodic charges to the debt component, such that, on maturity, the debt component equals the principal amount of the convertible debentures outstanding. Summary of the equity component of the convertible debentures: December 31 2024 December 31 2023 Unsecured Debentures – 2018 – 3,835 Unsecured Debentures – 2019 2,487 2,491 Unsecured Debentures – July 2021 4,240 4,240 Unsecured Debentures – December 2021 3,413 3,413 Convertible Debentures – Equity Component, end of year $ 10,140 $ 13,979 130 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) All convertible debentures outstanding at December 31, 2024, represent direct unsecured debt obligations of the Corporation. 14. SHARE CAPITAL Changes in the shares issued and outstanding during the year ended December 31, 2024, are as follows: Number of Shares 2024 Amount Share capital, beginning of year 47,136,625 $ 1,252,890 Issued upon conversion of convertible debentures 1,410,231 71,564 Issued under dividend reinvestment plan 441,395 20,731 Issued under employee share purchase plan 63,372 3,117 Issued under deferred share plan 15,084 288 Issued under Indigenous community partnership agreements 9,644 400 Shares issued to Armand Duhamel & Fils Inc. vendors on closing (Note 6) 67,828 2,992 Shares issued to Spartan vendors on closing (Note 6) 458,252 25,189 Share capital, end of year 49,602,431 $ 1,377,171 Changes in the shares issued and outstanding during the year ended December 31, 2023, are as follows: Number of Shares 2023 Amount Share capital, beginning of year 42,479,063 $ 1,019,772 Issued upon conversion of convertible debentures 20,338 1,000 Issued under dividend reinvestment plan 396,099 19,017 Issued under employee share purchase plan 63,458 3,083 Issued under deferred share plan 16,423 538 Issued under Indigenous community partnership agreements 2,039 50 Shares issued to Hansen Industries Ltd. vendors on closing 85,102 4,436 Shares issued to BVGlazing Systems Ltd. vendors on closing 431,598 22,952 Shares issued to DryAir Manufacturing Corporation on closing 336,255 14,975 Prospectus offering, including over-allotment 3,306,250 167,067 Share capital, end of year 47,136,625 $ 1,252,890 On March 14, 2024, the Corporation received approval from the TSX for the renewal of its NCIB to purchase up to an aggregate of 4,414,853 Common Shares, representing 10% of the issued and outstanding shares at March 5, 2024. Purchases of shares pursuant to the renewed NCIB can be made through the facilities of the TSX during the period commencing on March 19, 2024 and ending on March 18, 2025. The maximum number of shares that can be purchased by the Corporation daily is limited to 22,369 shares, other than block purchase exemptions. During the years ended December 31, 2024 and December 31, 2023, the Corporation did not make any purchases of shares under its NCIB and therefore has the full 4,414,853 shares available for repurchase. During the year ended December 31, 2024, the Corporation issued 1,410,231 shares upon conversion of convertible debentures (Note 13). 2024 Annual Report | 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) On June 21, 2024, the Corporation issued 67,828 shares as purchase consideration for the acquisition of Duhamel (Note 6). On November 13, 2024, the Corporation issued 458,252 shares as purchase consideration for the acquisition of Spartan (Note 6). On February 13, 2025, subsequent to the end of the year, the Corporation redeemed its 7 year, 5.75% convertible debentures which were due on March 31, 2026. Prior to the redemption date, $78,383 par value was converted into 1,605,618 common shares at a price of $49.00 per share (Note 27). 15. DIVIDENDS DECLARED The Corporation pays cash dividends on or about the 15th of each month to shareholders of record on the last business day of the previous month. The Corporation’s Board of Directors regularly examines the dividends paid to shareholders. Cumulative dividends during the 2024 year and the comparative 2023 year are as follows: Year Ended December 31 2024 2023 Cumulative dividends, beginning of year $ 874,380 $ 759,792 Dividends during the year 125,888 114,588 Cumulative dividends, end of year $ 1,000,268 $ 874,380 The amounts and record dates of the dividends during the year ended December 31, 2024, and the comparative 2023 year are as follows: Month Record date Per Share 2024 Dividends Amount Record date Per Share 2023 Dividends Amount January January 31, 2024 $ 0.22 $ 10,380 January 31, 2023 $ 0.21 $ 8,927 February February 29, 2024 0.22 10,389 February 28, 2023 0.21 8,933 March March 29, 2024 0.22 10,402 March 31, 2023 0.21 8,945 April April 30, 2024 0.22 10,410 April 28, 2023 0.21 8,968 May May 31, 2024 0.22 10,419 May 31, 2023 0.21 9,067 June June 28, 2024 0.22 10,446 June 30, 2023 0.21 9,774 July July 31, 2024 0.22 10,457 July 31, 2023 0.21 9,781 August August 30, 2024 0.22 10,468 August 31, 2023 0.21 9,789 September September 27, 2024 0.22 10,478 September 29, 2023 0.21 9,799 October October 31, 2024 0.22 10,483 October 31, 2023 0.21 9,878 November November 29, 2024 0.22 10,643 November 30, 2023 0.22 10,357 December December 31, 2024 0.22 10,913 December 29, 2023 0.22 10,370 Total $ 2.64 $ 125,888 $ 2.54 $ 114,588 After December 31, 2024, and before these consolidated financial statements were authorized, the Corporation declared a monthly dividend of $0.22 per share for January and February 2025. 132 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 16. SEGMENTED AND SUPPLEMENTAL INFORMATION Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Chief Executive Officer. The Corporation’s operating business segments include strategic business units that offer different products and services. The Corporation has two operating business segments: Aerospace & Aviation and Manufacturing. The Aerospace & Aviation segment provides essential airline services to communities across Canada and also sells and leases aircraft, engines, and sells aftermarket parts to regional airline operators around the world. In addition, the segment designs, modifies, maintains, and operates custom sensor-equipped aircraft. The segment’s two flight schools provide pilot training services. Finally, our businesses deliver training solutions for governments across an array of aviation platforms and have in-depth experience in training pilots and sensor operators on both manned and unmanned aircraft. The Manufacturing segment consists of niche and specialty manufacturers in markets throughout Canada and the United States including engineering and precision metal manufacturing and engineering services, and the design, manufacture and installation of the exteriors of residential and mixed use high rise buildings. In addition, the segment has in-house access mat manufacturing capabilities and rents and sells these products to customers. The Corporation evaluates each segment’s performance based on Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”). The Corporation’s method of calculating Adjusted EBITDA may differ from that of other corporations and therefore may not be comparable to measures utilized by them. The Corporation’s method of calculating Adjusted EBITDA is consistent with the Corporation’s Earnings before Depreciation, Amortization, Finance Costs, Taxes, and Other presented in the consolidated Statement of Income. All inter-segment and intra-segment transactions are eliminated, and all segment revenues presented in the tables below are from external customers. “Head Office” used in the following segment tables is not a separate segment and is only presented to reconcile to the Corporation’s total Adjusted EBITDA, certain statement of financial position amounts, and capital asset additions. It includes expenses incurred at the head office of the Corporation. Year Ended December 31, 2024 Aerospace & Aviation Manufacturing Head Office Consolidated Revenue $ 1,644,277 $ 1,015,618 $ – $ 2,659,895 Expenses 1,120,199 862,954 48,678 2,031,831 Adjusted EBITDA 524,078 152,664 (48,678) 628,064 Depreciation of capital assets 247,846 Amortization of intangible assets 22,510 Finance costs – interest 129,748 Depreciation of right of use assets 40,059 Interest expense on right of use lease liabilities 8,113 Acquisition costs 6,860 Restructuring 4,944 Earnings before income taxes 167,984 Current income tax expense 40,318 Deferred income tax expense 6,431 Net Earnings $ 121,235 2024 Annual Report | 133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Year Ended December 31, 2023 Aerospace & Aviation Manufacturing Head Office Consolidated Revenue $ 1,498,216 $ 1,000,199 $ – $ 2,498,415 Expenses 1,083,745 819,628 39,517 1,942,890 Adjusted EBITDA 414,471 180,571 (39,517) 555,525 Depreciation of capital assets 208,492 Amortization of intangible assets 20,244 Finance costs – interest 112,316 Depreciation of right of use assets 37,091 Interest expense on right of use lease liabilities 7,471 Acquisition costs 7,769 Other (Note 5) (951) Earnings before income taxes 163,093 Current income tax expense 26,016 Deferred income tax expense 14,770 Net Earnings $ 122,307 For the year ended December 31, 2024 Aerospace & Aviation Manufacturing Head Office(1) Consolidated Total assets $ 2,908,643 $ 1,623,576 $ 66,769 $ 4,598,988 Net capital asset additions 398,450 28,305 1,277 428,032 Indefinite lived intangible assets (Note 11) 68,727 100,060 – 168,787 Goodwill 290,723 536,506 – 827,229 For the year ended December 31, 2023 Aerospace & Aviation Manufacturing Head Office(1) Consolidated Total assets $ 2,476,405 $ 1,428,011 $ 175,391 $ 4,079,807 Net capital asset additions 425,991 49,261 514 475,766 Indefinite lived intangible assets 66,668 85,317 – 151,985 Goodwill 284,289 428,907 – 713,196 Note 1) Includes corporate assets not directly attributable to operating segments. Such unallocated assets include corporate cash that is part of the Corporation’s mirror banking arrangements. 134 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Revenues The following table provides disaggregated information about revenue from contracts with customers. Management believes that disaggregation by type of sale is most appropriate. The purpose of this disclosure is to provide information about the nature of the Corporation’s contracts and the timing, amount and uncertainties associated with customer contracts. Revenue Streams December 31 2024 December 31 2023 Aerospace & Aviation Segment Sale and lease of goods – point in time $ 382,568 $ 342,478 Sale of services – point in time 1,098,150 949,361 Sale of services – over time 163,559 206,377 Manufacturing Segment Sale and lease of goods – point in time 270,700 275,341 Sale of services – point in time 80,363 97,789 Sale of goods and services – over time 664,555 627,069 Total revenue $ 2,659,895 $ 2,498,415 The following is the geographic breakdown of revenues for the year ended December 31, 2024, and the 2023 comparative year, based on the location of the customer, and long-term assets as at the balance sheet dates: Year Ended December 31 2024 2023 Canada $ 1,730,870 $ 1,587,052 United States 598,902 614,551 Europe 155,322 83,525 Other 174,801 213,287 Total revenue for the year $ 2,659,895 $ 2,498,415 As at December 31, 2024 Other Assets Capital Assets Right of Use Assets Intangible Assets Goodwill Canada $ 66,098 $ 1,258,075 $ 143,624 $ 276,551 $ 569,580 United States 64,032 147,775 22,274 88,074 257,649 Europe – 342,215 2,713 – – Other 4,555 76,542 – – – $ 134,685 $ 1,824,607 $ 168,611 $ 364,625 $ 827,229 2024 Annual Report | 135 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) As at December 31, 2023 Other Assets Capital Assets Right of Use Assets Intangible Assets Goodwill Canada $ 49,057 $ 1,168,567 $ 144,673 $ 289,489 $ 561,661 United States 80,081 192,515 19,745 42,873 151,535 Europe – 208,474 5,681 – – Other 4,587 1,511 – – – $ 133,725 $ 1,571,067 $ 170,099 $ 332,362 $ 713,196 Contract Assets December 31 2024 December 31 2023 Accounts receivable, including long-term portion $ 615,566 $ 544,505 Amounts due from customers on construction contracts 59,610 40,207 Total $ 675,176 $ 584,712 Current 673,860 583,818 Non-current $ 1,316 $ 894 Amounts relating to contract assets are balances due from customers under construction contracts that arise when the Corporation receives payments from customers in line with a series of performance related milestones. The Corporation will previously have recognized a contract asset for any work performed. Any amount previously recognized as a contract asset is reclassified to trade receivables at the point at which it is invoiced to the customer. Contract Liabilities December 31 2024 December 31 2023 Customer loyalty programs – Airlines $ 1,580 $ 1,730 Deferred revenue, excluding customer loyalty programs 80,030 69,551 Amounts due to customers on construction contracts 46,632 41,300 Total $ 128,242 $ 112,581 Current 128,242 112,581 Contract liabilities relating to construction contracts are balances due to customers under construction contracts. These arise if a particular milestone payment exceeds the revenue recognized. 17. CONSTRUCTION CONTRACTS Operations within the Manufacturing segment and the Aerospace & Aviation segment have long-term construction contracts where revenues are recognized over time. Under the terms of the contract, the Corporation has an enforceable right to payment for work performed. Revenue is recognized over time using an input or output based method based on which method provides a reasonable estimate of percentage completed. The input or output methods represent an appropriate measure of progress towards complete satisfaction of the performance obligation. During the year ended December 31, 2024, the Corporation recognized revenue on these types of long-term contracts totaling $682,936 (2023 – $634,317). 136 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The following summarizes the costs and estimated earnings on uncompleted contracts as of December 31, 2024, and the 2023 comparative year: As at December 31 2024 2023 Costs incurred on uncompleted contracts $ 737,589 $ 539,047 Estimated earnings 215,936 145,268 953,525 684,315 less: billings to date (940,547) (685,408) Total $ 12,978 $ (1,093) Amounts due from customers on construction contracts $ 59,610 $ 40,207 Amounts due to customers on construction contracts (46,632) (41,300) Total $ 12,978 $ (1,093) 18. EARNINGS PER SHARE Basic earnings per share for the Corporation is calculated by dividing the Net Earnings by the weighted average number of common shares outstanding during the year. Diluted Net Earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume the conversion of all dilutive securities to common shares. The Corporation has two categories of dilutive potential common shares: deferred shares under the Corporation’s Deferred Share Plan and convertible debentures. For the convertible debentures, the convertible debt is assumed to have been converted into common shares and Net Earnings is adjusted to eliminate the interest expense from the convertible debt less the tax effect. The computation for basic and diluted earnings per share for the year ended December 31, 2024, and the comparative for the 2023 year are as follows: Year Ended December 31 2024 2023 Net earnings $ 121,235 $ 122,307 Effect of dilutive securities Convertible debenture interest 10,579 15,382 Diluted Net Earnings $ 131,814 $ 137,689 Basic weighted average number of shares 47,582,612 44,970,513 Effect of dilutive securities Deferred Shares 976,440 900,576 Convertible debentures 4,279,991 6,117,909 Diluted basis weighted average number of shares 52,839,043 51,988,998 Net Earnings per share: Basic $ 2.55 $ 2.72 Diluted $ 2.49 $ 2.65 2024 Annual Report | 137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 19. EXPENSES BY NATURE The following disaggregates expenses by nature for direct operating expenses, cost of goods sold, and general and administrative expenses (all excluding depreciation and amortization), which are presented in the statement of income. 2024 2023 Salaries, wages & benefits $ 809,039 $ 721,406 Aircraft and component parts 212,581 189,225 Aircraft operating expenses 266,101 262,696 Materials and installation costs 424,177 433,602 General and administrative 129,408 135,668 Building rent and maintenance 38,094 37,430 Communication and information technology 28,383 26,711 Advertising 5,758 6,344 Sub-contracting services 97,993 112,356 Other 20,297 17,452 $ 2,031,831 $ 1,942,890 20. EMPLOYEE BENEFITS Deferred Share Plan The number of deferred shares granted under the Deferred Share Plan was as follows: 2024 2023 Deferred shares outstanding, beginning of year 900,576 835,270 Granted during the year 40,339 36,795 Granted through dividends declared during the year 50,609 44,933 Redeemed during the year (15,084) (16,422) Deferred shares outstanding, end of year 976,440 900,576 Vested portion of deferred shares outstanding, end of year 955,345 887,899 The fair value of the deferred shares granted during the 2024 year was $1,903 at the time of the grant (weighted average grant price of $47.18 per share) and was based on the market price of the Corporation’s shares at that time (2023 – $1,894, weighted average grant price of $51.48 per share). During the 2024 year, the Corporation recorded a compensation expense of $1,747 (2023 – $1,503) for the Deferred Share Plan within head office expenses. Restricted Share Plan During the year ended December 31, 2024, the Corporation granted 191,653 (2023 – 242,707) restricted shares to certain personnel. The fair value of the restricted share units granted was $8,779 (2023 – $12,089) at the time of the grant and was based on the market price of the Corporation’s shares at that time. During the year ended December 31, 2024, the Corporation recorded compensation expense of $8,501 (2023 – $8,157) for the Corporation’s Restricted Share Plan within 138 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) the general and administrative expenses of head office net of its restricted share plan hedge, with a corresponding liability recorded in Accounts Payable and Accrued Expenses. Employee Share Purchase Plan Certain employees of the Corporation participate in an Employee Share Purchase Plan (“ESPP”). Under the ESPP, employees can make contributions of up to 5% of their base salaries to purchase Corporation shares out of Treasury, and upon the employees remaining employed with the Corporation or its subsidiaries during an 18-month vesting period, they are entitled to receive an additional number of shares (“additional shares”) equal to 33.3% of the number of shares they purchased and dividends declared on those additional shares over the vesting period. The cost of the award is recognized in head office expenses of the Corporation over the 18-month vesting period. At the decision of the employee, any dividends paid on the additional shares over the vesting period are either paid to the employee in cash upon vesting or shares are purchased using these dividend funds. During 2024, employees acquired 63,372 shares (2023 – 63,458 shares) from Treasury at a weighted average price of $49.18 per share (2023 – $48.58 per share). The grant date fair value of the shares that will be awarded upon the vesting conditions of the plan being attained is estimated at $1,078 (2023 – $1,064) based on the share price and monthly dividend rate at that time. The ESPP plan is adjusted for changes in the Corporation’s share price at the period-end, any changes in the Corporation’s dividend rate, and any estimated forfeitures. During 2024, the total expense recorded for the ESPP in head office expenses was $1,192 (2023 – $819). At December 31, 2024, the Corporation had $782 (2023 – $545) recorded within Accounts Payable and Accrued Expenses, representing the portion of additional shares that have vested at that date. Pension Plan The Corporation has pension-related costs associated with the defined contribution pension plans to which certain personnel are entitled. The Corporation’s accounting policy is to expense contributions as earned during the period when the contributions become payable and are recorded within general and administrative expenses. During 2024, the Corporation recorded defined contribution pension plan costs of $8,853 (2023 – $7,858). 21. CONTINGENCIES AND COMMITMENTS The Corporation and its subsidiaries rent premises and equipment under operating lease agreements some of which fall outside the scope of IFRS 16. The minimum lease payments under these contractual obligations are as follows: Commitments December 31, 2024 December 31, 2023 Less than 1 year $ 5,595 $ 6,528 Between 1 year and 5 years 10,401 8,886 More than 5 years 6,360 5,653 $ 22,356 $ 21,067 Included in the table above are commitments to related parties in association with leased property used in the operations which are described further in Note 22. The Corporation has letters of credit and surety bonds outstanding with varying maturities that are contingent on certain operational products and services being provided by the Corporation’s subsidiaries. As of December 31, 2024, the total value of these letters of credit and surety bonds was $334,174 (2023 – $308,844). 2024 Annual Report | 139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 22. RELATED PARTY TRANSACTIONS The following transactions were carried out by the Corporation with related parties. The Corporation leases several buildings from related parties who were vendors of businesses that the Corporation has acquired. These vendors are considered related parties because of their continued involvement in the management of those acquired businesses. These leases are recognized in the consolidated financial statements at the exchange amounts. The total costs incurred in 2024 for related party leases was $4,481 (2023 – $6,147) and the lease term maturities range from 2025 to 2031. Key Management Compensation The Corporation identifies its key management personnel being those persons having authority and responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly, including any director of the Corporation’s board (whether executive or otherwise). The key management personnel include the executive management team and the Board of Directors. Compensation expensed for key management during the 2024 year, and the comparative 2023 year is detailed in the table below. Share based compensation vests over a period of up to three years and is expensed over that period. Awards under the Restricted Share Plan are expensed over the three year vesting period and the expense recognized in respect to the recipient, ignoring the impact of the Corporation’s Restricted Share Plan derivative hedge, is impacted by the change in share price of the restricted shares issued. The 2023 figures in the chart below have been restated to reflect consistently the inclusion of individuals added in 2024 to key management. Year Ended December 31, 2024 2023 Salaries and short-term benefits $ 8,597 $ 8,110 Share-based compensation expense 6,720 5,049 $ 15,317 $ 13,159 Co-investments with CRJ Capital Corp. CRJ Capital Corp., a corporation controlled by the CEO of Regional One, can, subject to the approval of the Corporation, co-invest with the Corporation, on a non-controlling basis, in certain aircraft assets. As a co-investor in these isolated aircraft assets, CRJ Capital Corp. receives distributions as money is collected on the sale or lease of the aircraft assets. In connection with this agreement, the CEO of Regional One has extended his non-compete agreement with the Corporation. The assets are managed by Regional One and Regional One charges a management fee to CRJ Capital Corp. for services rendered. Cash flow returns are paid out when collected from the customer and therefore there can be a delay between when income is recognized and when returns become paid or payable to CRJ Capital Corp. During 2024, CRJ Capital Corp. invested US $213 (2023 – US $1,549). CRJ Capital Corp.’s total investment generated cash flow returns paid or payable of US $1,454 (2023 – US $3,217). As a result of the sale of certain assets, depreciation recorded on its leasing assets, and the return of initial investment to CRJ Capital Corp., the remaining assets attributable to CRJ Capital Corp. at December 31, 2024, was US $3,159 (December 31, 2023 – US $8,212). At December 31, 2024, US $105 is recorded as accounts recoverable from CRJ Capital Corp (December 31, 2023 – US $1,314 accounts payable to CRJ Capital Corp.). 140 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Corporation’s activities expose it to a variety of financial risks: market risk (primarily currency, interest rate risk, and other price risk), credit risk, and liquidity risk. Senior management is responsible for setting acceptable levels of risk and reviewing risk management activities as necessary. Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of currency, interest rate, and other price risk. Currency Risk The Corporation has US $1,025,198 or $1,475,157 (2023 – US $670,675 or $887,035) outstanding on its credit facility. The outstanding funds in USD result in currency risk that the future cash flows will fluctuate with the changes in market currency rates. The exposure for the USD portion of its credit facility outstanding is offset by the cash generated through the operations of its US based subsidiaries. Of the total US credit facility drawn, US $316,498 (2023 – US $189,575) is drawn by EIIF USA, an entity with US dollars as its functional currency. Therefore, the currency risk on this balance is recognized in other comprehensive income. The Corporation’s investment in those subsidiaries with USD functional currencies are hedged partially by US $146,900 (2023 – US $140,000) of credit facility draws, which mitigates the foreign currency translation risk arising from the subsidiary`s net assets. The loan is designated as a net investment hedge and no ineffectiveness was recognized from the net investment hedge. During the year, the Corporation continued the use of derivatives through several cross-currency basis swaps (“swap”) with a member of the Corporation’s lending syndicate. The swap requires that funds are exchanged back in one month at the same terms unless both parties agree to extend the swap for an additional month. By borrowing in US dollars, the Corporation can take advantage of lower interest rates. The swap mitigates the risk of changes in the value of the Corporation’s US dollar SOFR borrowings as they will be exchanged for the same Canadian equivalent in one month. The swap is designated as a hedge of the underlying debt instrument and no ineffectiveness was recognized. The fair value of the swaps at December 31, 2024, was a financial asset of $12,374 (2023 – financial liability of $12,326). At December 31, 2024, the notional value of the swaps outstanding is US $561,800 (2023 – US $427,000). Hedging gains and losses are reclassified from other comprehensive income to the consolidated statement of income to the extent effective. Accordingly, $12,374 was reclassified from other comprehensive income in 2024 (2023 – $12,326). No hedge ineffectiveness was recorded during 2024 or 2023. A $0.01 weakening in the value of the Canadian dollar in relation to the US dollar applied to the Corporation’s US financial instruments outstanding at December 31, 2024, would have a $nil (2023 – $44) impact on net earnings and decrease the foreign currency translation adjustment in Other Comprehensive Income by approximately $14,752 (2023 – $8,827). Interest Rate Risk The Corporation is subject to the risk that future cash flows associated with the credit facility outstanding (Note 12) will fluctuate due to fluctuations in interest rates. The Corporation manages this risk and seeks financing terms in individual arrangements that are most advantageous, including an assessment of what portion of the Corporation’s overall debt level is comprised of fixed rate instruments compared to variable rate instruments. The terms of the credit facility allow for the Corporation to choose the base interest rate between Prime, Canadian Overnight Repo Rate Average (“CORRA”), or the Secured Overnight Financing Rate (“SOFR”). At December 31, 2024: • US $1,023,050 (December 31, 2023 – US $668,900) was outstanding under SOFR; 2024 Annual Report | 141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) • US $2,148 (December 31, 2023 – US $1,775) was outstanding under US Prime; and • $350,000 (December 31, 2023 – $540,000) was outstanding under CORRA. Based on the outstanding credit facility throughout 2024, a 1% increase in interest rates for the Corporation would decrease pre-tax net earnings by approximately $10,258 ($7,518 after-tax) (2023 – $5,581 ($4,097 after-tax)). The interest rates of the convertible debentures (Note 13) have fixed interest rates. The Corporation has multiple interest rate swaps transactions in place with members of its lending syndicate. These swaps fix the underlying interest rate on the Corporation’s credit facility debt. A summary of swaps outstanding are as follows: • $350,000, maturing April 17, 2026, and • US $140,000, maturing on April 27, 2026. These derivative financial instruments hedge the exposure to variability in cash flow associated with the future payment of interest on CORRA or SOFR debt that would impact profit or loss and therefore qualify as a cash flow hedges. The fair value of interest rate swaps are recorded within other long-term financial liability of $1,012 (December 31, 2023 – other long-term financial asset of $7,312) and are recorded as a separate line within other comprehensive income. Other Price Risk The Corporation’s Restricted Share Plan is a cash settled plan. Participants are awarded restricted shares and the payment to the participants at the end of the vesting period fluctuates based on the change in the Corporation’s share price from the grant date to the vesting date. To mitigate the income statement impact of a change in the Corporation’s share price, the Corporation entered into a derivative instrument for each of the 2022, 2023 and 2024 Restricted Share Plan grants, which fixes the cost of the initial grant for the Corporation. Any changes in fair value will either be paid to the counterparty or be paid to the Corporation by the counterparty at the vesting date. This derivative fixes the cost to the Corporation and does not impact the variability of the award received by the participant. The derivative financial instrument hedges the exposure to variability in cash flow associated with the future settlement of restricted shares issued under the Restricted Share Plan that would impact profit or loss and therefore qualifies as a cash flow hedge. On a combined basis, the initial grant date fair value of the Restricted Share Plan for the 2022, 2023 and 2024 programs was $30,673. The fair value of the instruments are recorded in long- term financial asset of $5,246 (December 31, 2023 – long-term financial liability of $445) and are recorded as a separate line within other comprehensive income. Hedging gains and losses are reclassified from other comprehensive income to the consolidated statement of income to the extent effective. Accordingly, a gain of $4,338 was reclassified to other comprehensive income in 2024 (2023 – loss of $639) which was in respect to previously recognized effective hedging instruments as they matured. No hedge ineffectiveness was recorded during 2024 or 2023. Credit Risk Credit risk arises from the potential that a counterparty will fail to perform its obligations. The maximum credit exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents, accounts receivable, deposits, other investments, and the counterparty’s obligations under the swap. Unless otherwise specified, the Corporation does not hold any collateral from counterparties related to such financial assets. The Corporation is exposed to credit risk arising from deposits of cash and cash equivalents with financial institutions. The Corporation maintains its cash and cash equivalents with highly rated financial institutions within Canada and the US. 142 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) In addition, the Corporation is exposed to credit risk from its customers. While the operations primarily serve markets across North America and to a lesser extent around the world, the Corporation has a large number of customers and the customer receivables are monitored at each business entity level. As at December 31, 2024, $90,289 (2023 – $77,262) of the receivables were outstanding for greater than 90 days before any consideration of allowance for doubtful accounts. Approximately $27,910 (2023 – $18,850) of this relates to the Manufacturing segment and $62,379 (2023 – $58,412) relates to the Aerospace & Aviation segment. The increase in receivables outstanding for greater than 90 days relates to the impact of acquisitions and the associated receivable profile as well as certain government receivables that are aged beyond our historical collection pattern. Excluding the impact of acquisitions, receivables outstanding for greater than 90 days increased from the prior year. Management at each of the Corporation’s subsidiaries monitor accounts receivables overdue amounts on a daily basis and respond accordingly. The Corporation’s subsidiaries maintain an adequate allowance for doubtful accounts and review the allowance on a monthly basis. The Corporation has credit risk exposure on the amounts advanced under any promissory note or loan arrangement. This includes the items within Other Assets on the Corporation’s consolidated statement of financial position, in particular, the lessor arrangements of Regional One where long-term receivables are recognized with aviation companies in finance lease arrangements. The security the Corporation has from these arrangements is considered adequate to cover the carrying value of these items. Liquidity Risk Liquidity risk is the risk that the Corporation is not able to meet its financial obligations as they become due or can do so only at excessive cost. The Corporation’s growth is financed through a combination of the cash flows from operations, borrowings under existing credit facilities, and the issuance of either or a combination of debentures and equity. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. One of management’s primary goals is to maintain an optimal level of liquidity through the active management of the assets and liabilities as well as cash flows. Due to the nature of the business, the Corporation aims to maintain flexibility in funding by maintaining committed and available credit facilities (Note 12). During the year, the Corporation amended its credit facility as discussed in Note 12. The Corporation’s financial liabilities and related capital amounts have contractual maturities which are summarized below into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the following table are the contractual undiscounted cash flows: Total Less than 1 year Between 1 year and 5 years More than 5 years Accounts payable and accrued expenses $ 473,962 $ 473,962 $ – $ – Long-term debt (principal value) 1,825,157 – 1,825,157 – Convertible debentures (par value) 344,689 – 344,689 Contractual interest (1) 389,560 114,713 274,847 – Total $ 3,033,368 $ 588,675 $ 2,444,693 $ – Note 1) The contractual interest reflects the assumption that amounts outstanding and floating interest rates at December 31, 2024, will remain at current levels until maturity. 2024 Annual Report | 143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Fair Value of Financial Instruments The following table provides fair value information about financial assets and liabilities in the consolidated balance sheet and categorized by level according to the significance of the inputs used in making the measurements and their related classifications: Fair Value Recurring fair value measurements Carrying Value December 31, 2024 Quoted prices in an active market Level 1 Significant other observable inputs Level 2 Significant unobservable inputs Level 3 Financial Assets Other long-term assets – Cross currency basis swap – Financial asset at fair value through profit and loss (Note 8) $ 12,374 $ – $12,374 $ – Other long-term assets – Restricted Share Plan Hedge – Financial asset at fair value through profit and loss (Note 8) 5,246 – 5,246 – Other long-term assets – Fair value through OCI (Note 8) 6,830 – – 6,830 Financial Liabilities Consideration liabilities – Financial liability at fair value through profit and loss (17,729) – – (17,729) Other long-term liabilities – Interest Rate Swap – Financial liability at fair value through OCI (1,012) – (1,012) – Fair Value Disclosures Other assets – Amortized cost 4,654 – 4,654 – Long-term debt – Amortized cost (1,821,866) – – (1,825,157) Convertible debt – Amortized cost (330,390) (344,689) – – Fair Value Recurring fair value measurements Carrying Value December 31, 2023 Quoted prices in an active market Level 1 Significant other observable inputs Level 2 Significant unobservable inputs Level 3 Financial Assets Other long-term assets – Interest Rate Swap – Financial asset at fair value through OCI (Note 8) 7,312 – 7,312 – Other long-term assets – Fair value through OCI (Note 8) 6,718 – – 6,718 Financial Liabilities Consideration liabilities – Financial liability at fair value through profit and loss (10,384) – – (10,384) Other long-term liabilities – Cross-currency basis swap – Financial liability at fair value through profit and loss (12,326) – (12,326) – Other long term liabilities – Restricted Share Plan Derivative – Financial liability at fair value through profit and loss (445) – (445) – Fair Value Disclosures Other assets – Amortized cost 3,563 – 3,563 – Long-term debt – Amortized cost (1,422,642) – – (1,427,035) Convertible debt – Amortized cost (403,775) (411,151) – – The Corporation valued the level 3 consideration liabilities based on the present value of estimated cash outflows using probability weighted calculations, discount rates, and the observable fair market value of its equity, as applicable. 144 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) The following table summarizes the changes in the consideration liabilities recorded on the acquisitions of Northern Mat, BVGlazing, DryAir, and Duhamel including any changes for settlements, changes in fair value, and changes due to foreign currency fluctuations: Consideration Liability Summary For the years ended December 31 2024 December 31 2023 Opening balance $ 10,384 $ 4,700 Accretion 95 – Change in estimate (314) (951) Acquisition of BVGlazing – 11,136 Acquisition of DryAir – 6,304 Acquisition of Duhamel (Note 6) 2,381 – Settled during the period (5,990) (10,805) Acquisition of Spartan 11,173 Ending balance $ 17,729 $ 10,384 The liabilities for contingent consideration recorded as part of the acquisitions are included in Other Long-Term Liabilities in the Statement of Financial Position unless they are expected to be settled within a year. The remaining consideration liabilities, primarily consisting of estimated working capital settlements, are recorded within Accounts Payable and Accrued Expenses in the consolidated Statement of Financial Position. The fair value of each earn out liability is determined at the time of the acquisition and uses several estimates. At the end of each reporting period, the Corporation reviews these estimates for reasonableness and makes any required adjustments to the carrying value of the liability. Financial Instrument Fair Value Disclosures The fair values of cash and cash equivalents, accounts receivable, deposits, accounts payable, and accrued expenses approximate their carrying values due to their short-term nature. As at December 31, 2024, management had determined that the fair value of its long-term debt approximates its carrying value. The fair value of long-term debt has been calculated by discounting the expected future cash flows using a discount rate of 5.0%. The discount rate is determined by using a risk-free benchmark bond yield for instruments of similar maturity adjusted for the Corporation’s specific credit risk. In determining the adjustment for credit risk, the Corporation considers market conditions, the underlying value of assets secured by the associated instrument, and other indicators of the Corporation’s credit-worthiness. As at December 31, 2024, management estimated the fair value of the convertible debentures based on trading values. The estimated fair value of its convertible debentures is $344,689 (December 31, 2023 – $411,151) with a carrying value of $330,390 (December 31, 2023 – $403,775). The Corporation’s policy is to recognize transfers in and out of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfer. There were no such transfers during the current period. 2024 Annual Report | 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) 24. CHANGES IN WORKING CAPITAL The changes in non-cash operating working capital are as follows: Year Ended December 31 2024 2023 Accounts receivable, including long-term portion $ (38,518) $ (4,320) Amounts due from customers on construction contracts (18,648) 650 Inventories (46,901) (52,936) Prepaid expenses and deposits, including long-term portion 28,751 39,942 Accounts payable and accrued expenses, including long-term portion (21,559) (36,973) Income taxes receivable/payable 1,250 5,329 Deferred revenue, including long-term portion 10,174 10,833 Amounts due to customers on construction contracts 3,664 (15,080) Net change in working capital $ (81,787) $ (52,555) 25. CAPITAL MANAGEMENT The Corporation manages its capital to utilize prudent levels of debt. The Corporation’s goal is to maintain its total leverage within a range of 2.5 – 3.5 times funded total debt to Earnings before Depreciation, Amortization, Finance Costs, Taxes, and Other, normalized for the full year contribution of in-year acquisitions in accordance with the terms of its credit facility. The Corporation’s objective in managing capital is to: - ensure flexibility in the capital structure to fund the operations, distributions to shareholders, capital investments and to support the external growth strategy; - maintain adequate liquidity at all times; and - maintain a diversified capital structure. The Corporation actively manages and monitors the capital structure and makes adjustments based on the objectives described above in response to changes in economic conditions and the risk characteristics of the underlying assets. The following is considered by the Corporation as capital and may not be comparable to measures presented by other public companies: December 31 2024 December 31 2023 Total senior debt outstanding (principal value) $ 1,825,157 $ 1,427,035 Convertible debentures outstanding (par value) 344,689 424,502 Common shares 1,377,171 1,252,890 Total capital $ 3,547,017 $ 3,104,427 There are certain requirements of the Corporation’s credit facility that include financial covenants and ratios, including leverage ratios that assess the funded senior debt to adjusted earnings before interest, income tax expense, depreciation, amortization, acquisition costs, and other (“Adjusted EBITDA”) ratio. Management considers these requirements in the decisions made in managing the level and make-up of the Corporation’s capital structure. The Corporation has been in compliance with all of the financial covenants during the 2024 year. 146 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) As at December 31, 2024, the Corporation’s key financial covenant for its credit facility is its senior leverage ratio, calculated under the terms of the credit facility. The Corporation’s credit facility allows for a maximum senior leverage ratio of 4.0x, and at December 31, 2024, the Corporation’s current senior leverage ratio is 2.80x. Changes in the capital of the Corporation during the year ended December 31, 2024, are mainly attributed to the following events that occurred during the year. During the current year, the Corporation issued shares and used its credit facility to fund the acquisitions of Duhamel and Spartan, and capital asset purchases throughout the year. The Corporation also used its credit facility to redeem the remaining $10,711 principal value on its 7 year, 5.35% convertible debentures after debentureholders previously converted $68,991 par value into common shares of the Corporation. Finally, the Corporation issued shares under its Dividend Reinvestment Plan during the year. 26. INCOME TAX Reconciliation of Effective Tax Rate The tax on the Corporation’s profit before tax differs from the amount that would arise by applying the statutory income tax rate to pre-tax earnings of the consolidated entities as follows: 2024 2023 Earnings before income taxes $ 167,984 $ 163,093 Combined Canadian federal and provincial tax rates 26.5% 26.5% Income tax expense at statutory rates 44,516 43,220 Increase (decrease) in taxes resulting from: Permanent differences 2,367 4,244 Realized capital gains (213) (1,529) Impact of foreign jurisdiction differences 605 (2,867) Amounts in respect of prior periods (626) (2,593) Other 100 311 Provision for income taxes $ 46,749 $ 40,786 Unrecognized Deferred Tax Liabilities At December 31, 2024, no deferred tax liability for temporary differences related to investments in subsidiaries was recognized because the Corporation controls the timing and reversal of the differences and such differences will not reverse in the foreseeable future. The temporary differences associated with the Corporation’s foreign subsidiaries are approximately $202,026 (2023 – $165,687). 2024 Annual Report | 147 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Movement in Deferred Tax Balances during the Year The movement in the net deferred income tax balances during the 2024 year and the 2023 comparative year are as follows: December 31, 2023 Business Acquisitions Credited /(charged) through statement of income Credited /(charged) to other comprehensive income Credited / (charged) through equity December 31, 2024 Deferred income tax assets Accruals – deductible when paid $ 7,344 $ 512 $ (3,408) $ 186 $ – $ 4,634 Financing costs 1,836 – (1,048) – 157 945 ROU lease liabilities 48,187 645 (1,119) 534 – 48,247 Capital and non-capital loss carryforwards 34,811 – 10,637 1,284 – 46,732 Non-deductible reserves 2,249 490 2,247 1,152 – 6,138 Tax credits and other 1,226 – 123 21 – 1,370 Total deferred income tax asset $ 95,653 $ 1,647 $ 7,432 $ 3,177 $ 157 $ 108,066 Deferred income tax liability Capital assets $ (173,500) $ (4,453) $ (15,756) $ (1,807) $ – $ (195,516) ROU assets (45,506) (645) 1,427 (459) – (45,183) Intangible assets (76,624) (6,138) (635) (2,195) – (85,592) Convertible debentures (2,837) – 794 – 123 (1,920) Amounts recognized in OCI (1,820) – (508) 1,206 – (1,122) Investments (7,750) – 899 (347) – (7,198) Total deferred income tax liability (308,037) (11,236) (13,779) (3,602) 123 (336,531) Net $ (212,384) $ (9,589) $ (6,347) $ (425) $ 280 $ (228,465) December 31, 2022 Business Acquisitions Credited /(charged) through statement of income Credited /(charged) to other comprehensive income Credited / (charged) through equity December 31, 2023 Deferred income tax assets Accruals – deductible when paid $ 4,673 $ 779 $ 1,985 $ (93) $ – $ 7,344 Financing costs 1,113 41 (1,420) – 2,102 1,836 ROU lease liabilities 44,208 7,019 (2,881) (159) – 48,187 Capital and non-capital loss carryforwards 24,821 144 10,239 (393) – 34,811 Non-deductible reserves 4,188 (7,097) 5,619 (461) – 2,249 Tax credits and other 1,077 (39) 193 (5) – 1,226 Total deferred income tax asset $ 80,080 $ 847 $ 13,735 $ (1,111) $ 2,102 $ 95,653 Deferred income tax liability Capital assets $ (139,865) $ (3,783) $ (30,244) $ 392 $ – $ (173,500) ROU assets (42,336) (7,019) 3,710 139 – (45,506) Intangible assets (63,738) (13,576) 55 635 – (76,624) Convertible debentures (3,650) – 813 – – (2,837) Amounts recognized in OCI (3,158) – 384 954 – (1,820) Investments (5,107) – (2,909) 266 – (7,750) Total deferred income tax liability (257,854) (24,378) (28,191) 2,386 – (308,037) Net $ (177,774) $ (23,531) $ (14,456) $ 1,275 $ 2,102 $ (212,384) 148 | Exchange Income Corporation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands of Canadian dollars, unless otherwise noted except per share information and share data) Income taxes credited (charged) through the Statement of Income includes investment tax credits of $84 (2023 – $314) that were classified as reductions of the related expenditures incurred. Deferred income tax assets and liabilities are offset on the balance sheet when they relate to income taxes levied by the same taxation authority. December 31 2024 December 31 2023 Deferred tax liabilities $ (228,465) $ (212,384) $ (228,465) $ (212,384) 27. SUBSEQUENT EVENTS Early Redemption of Convertible Debentures On February 13, 2025, the Corporation redeemed its 7 year, 5.75% convertible debentures which were due on March 31, 2026. Prior to the redemption date, $78,383 par value was converted into 1,605,618 common shares at a price of $49.00 per share. On February 13, 2025, the remaining outstanding principal amount of $7,574 was redeemed by the Corporation. The redemption of the debentures was completed with cash on hand from the Corporations credit facility. Binding Purchase Agreement to Acquire Canadian North On February 24, 2025, the Corporation announced it had signed a binding purchase agreement to acquire Bradley Air Services Limited, operating as Canadian North, for a purchase price of $205,000, subject to adjustments. The purchase price will be funded by cash in the amount of $195,000 from the Corporation’s credit facility and $10,000 of EIC common shares issued to the vendors. Canadian North provides essential passenger and cargo services, using a combination of leased and owned 737 jets and ATR turboprops, to 24 remote Canadian Arctic communities in Nunavut and the Northwest Territories, from its southern gateways in Ottawa and Edmonton. Canadian North also provides air charter services for large resource sector clients requiring fly-in, fly-out charter services. Closing of the transaction is subject to obtaining required regulatory approvals and other customary closing conditions and is expected to occur later this year. 2024 Annual Report | 149 SHAREHOLDER INFORMATION BOARD OF DIRECTORS Donald Streuber, F.C.P.A., F.C.A. Chairman Duncan D. Jessiman, K.C. Executive Vice-Chairman & Chair, Disclosure & Competition Committee Brad Bennett, CM., O.B.C. Gary Buckley Chair, Compensation Committee Polly Craik, ICD.D Barb Gamey, ICD.D. Bruce Jack, F.C.P.A., F.C.A. Chair, Audit Committee Carmele Peter, K.C., LL.B. President Michael Pyle, MBA, ICD.D. Chief Executive Officer Melissa Sonberg, B.SC., M.H.A., ICD.D Chair, Governance Committee Edward Warkentin, LL.B. SENIOR MANAGEMENT AND OFFICERS Michael Pyle, MBA, ICD.D. Chief Executive Officer Carmele Peter, K.C., LL.B. President Duncan D. Jessiman, K.C. Executive Vice-Chairman Steven Stennett Chief Legal Officer Richard Wowryk, C.P.A. C.A., C.B.V. Chief Financial Officer Adam Terwin, C.P.A., C.A., C.F.A. Chief Corporate Development Officer Darwin Sparrow Chief Operating Officer Jake Trainor Executive Vice-President, Operations Curtis Anderson Chief Technology Officer Travis Muhr, C.P.A., C.A. Chief Administration Officer David White Executive Vice-President, Aviation Dianne Spencer Corporate Secretary LEGAL COUNSEL MLT Aikins LLP Winnipeg, MB AUDITORS PricewaterhouseCoopers LLP Winnipeg, MB BANKERS National Bank Financial Canadian Imperial Bank of Commerce The Toronto-Dominion Bank Royal Bank of Canada The Bank of Nova Scotia Bank of Montreal Wells Fargo Bank, N.A. Canadian Branch Bank of America, N.A., Canadian Branch ATB Financial Raymond James Financial Company of Canada Laurentian Bank of Canada TRANSFER AGENT TSX Trust Calgary, AB STOCK EXCHANGE LISTING & SYMBOL TSX: EIF ANNUAL GENERAL MEETING Perimeter Aviation Hangar Facility 900 Ferry Road Winnipeg, MB R3H 0Y8 Date: May 13, 2025 Time: 10:30 am CT See company website for additional details. CORPORATE OFFICE 101 - 990 Lorimer Blvd. Winnipeg, MB R3P 0Z9 Tel: (204) 982-1857 Fax: (204) 982-1855 exchangeincomecorp.ca WEBSITE LISTINGS FOR SUBSIDIARY COMPANIES BVGlazing Systems bvglazing.com Calm Air calmair.com exchangepetroleum.ca Carson Air carsonair.com Crew Training International cti-crm.com Custom Helicopters customheli.com DryAir Manufacturing dryair.ca Hansen Industries hansenindustries.com Keewatin Air keewatinair.com advancedparamedic.com Perimeter Aviation perimeter.ca bearskinairlines.com PAL Group of Companies palaerospace.com palairlines.ca cartenav.com atlanticavionics.com palaviationservices.com mfctraining.com lifeinflight.ca Regional One regionalone.com teamjas.com Alberta Operations hotsyab.com jaspertank.com stormkingpw.com Ben Machine benmachine.com macfab.ca L.V. 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