Magellan Aerospace Corporation announces financial results
TORONTO, March 27 /CNW/ - Magellan Aerospace Corporation ("Magellan" or
the "Corporation") released its financial results for the fourth quarter of
2008. All amounts are expressed in Canadian dollars unless otherwise
indicated.
The results are summarized as follows:
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Three-months ended Twelve-months ended
December 31 December 31
(Expressed in ----------------------------------------------------------
thousands, 2008 2007 Change 2008 2007 Change
except per
share amounts)
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Revenues $ 180,145 $ 155,544 15.8% $ 686,436 $ 597,808 14.8%
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Gross Profit $ 19,746 $ 12,896 53.1% $ 77,459 $ 58,914 31.5%
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Net Income
(Loss) $ 7,411 $ (4,949) - $ 12,900 $ (11,341) -
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Net Income
(Loss)
per share $ 0.39 $ (0.29) - $ 0.62 $ (0.71) -
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EBITDA(*) $ 21,989 $ 8,052 173.1% $ 77,429 $ 36,398 112.7%
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EBITDA(*) per
share $ 1.21 $ 0.50 142.0% $ 4.26 $ 2.00 113.0%
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This press release contains certain forward-looking statements that
reflect the current views and/or expectations of the Corporation with
respect to its performance, business and future events. Such statements
are subject to a number of risks, uncertainties and assumptions, which
may cause actual results to be materially different from those expressed
or implied. The Corporation assumes no future obligation to update these
forward-looking statements.
(*) The Corporation has included certain measures in this press release,
including EBITDA, the terms for which are not defined under Canadian
generally accepted accounting principles. The Corporation defines EBITDA
as earnings before interest, taxes, depreciation and amortization and
non-cash charges. The Corporation has included these measures, including
EBITDA, because it believes this information is used by certain investors
to assess financial performance and EBITDA is a useful supplemental
measure as it provides an indication of the results generated by the
Corporation's principal business activities prior to consideration of how
these activities are financed and how the results are taxed in various
jurisdictions. Although the Corporation believes these measures are used
by certain investors (and the Corporation has included them for this
reason), these measures may not be comparable to similarly titled
measures used by other companies.
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In the fourth quarter of 2008, the Corporation generated increased
revenue and gross profit over the fourth quarter 2007, and corresponding
increases for the twelve months ending December 31, 2008. Revenues in the
fourth quarter of 2008 benefited from the strengthening of the United States
dollar in relation to the Canadian dollar. The benefit of the currency
fluctuations in the fourth quarter of 2008 were offset, in part, by the
negative impact of a two month strike at one of the Corporation's major
customers.
The Corporation achieved improvements in EBITDA on a year-over-year
quarterly basis, and on a year-to-date basis from 2007 to 2008. Underlying
operational improvements, rationalization of product lines, and updates of
commercial agreements have each contributed to earnings in the fourth quarter,
and in the twelve months to December 31, 2008. In light of the current
economic environment the Corporation has experienced decreased production
expectations on certain product lines and expects this to continue through
2009.
The Corporation achieved improvements in operating efficiency as new
technology and methodologies reached operational status at its operating
sites, improving throughput in the fourth quarter. The Corporation also
continued to transfer non-core work packages to emerging market sites,
generating capacity in its facilities for additional complex core work. The
Corporation's jointly owned treatments facility in India completed
construction in the fourth quarter of 2008, and will receive customer
certifications in early 2009.
In December 2008, the Corporation's Board of Directors established a
committee consisting of three independent directors. This committee was formed
to consider the financial condition of the Corporation and to consider
proposals to restructure the capital structure of the Corporation through the
issuance of debt or equity, or through the sale of assets or other alternative
transaction should such transactions be required.
The independent committee and the independent members of the Board of
Directors concluded that the Corporation is in serious financial difficulty
because, even though management believes that the Corporation will generate
sufficient cash through operations in order to meet its obligations as they
come due, if the Corporation is unable to renew or re-finance its operating
credit facility and extend the $50.0 million loan (the "Original Loan") from
Edco Capital Corporation ("Edco"), its ability to continue as a going concern
is uncertain. The Corporation's operating credit facility is due on May 23,
2009 and the Original Loan is due on July 1, 2009. While, the consolidated
financial statements for the period ending December 31, 2008 have been
prepared on the "going concern" basis which presumes that the Corporation will
be able to realize its assets and discharge its liabilities in the normal
course of business for the foreseeable future, if the Corporation is unable to
renew or refinance its operating credit facility and extend the Original Loan,
its ability to continue as a going concern is uncertain.
The Corporation announced on February 4, 2009 that the independent
members of its Board of Directors approved additional financing initiatives,
which are designed to improve the Corporation's financial position and are
reasonable for the Corporation in the circumstances. These financial
initiatives consist of a new secured subordinated loan in the amount of $15.0
million, the extension of the Original Loan of $50.0 million to July 1, 2010,
the issuance of up to $40.0 million principal amount of 10% convertible
secured subordinated debentures (the "Convertible Secured Subordinated
Debentures") and the continuation of one of the Corporation's existing
securitization programs of up to $35.0 million of Canadian based accounts
receivables, declining to $20.0 million by April 30, 2009 and to nil by
December 31, 2009.
Edco and Mr. Edwards, the Chairman of the Board of the Corporation and
the Corporation agreed to the following financing transactions:
(a) the subscription by Mr. Edwards, directly or indirectly, for the
purchase of a minimum of $25.0 million principal amount of a new
issue of the Convertible Secured Subordinated Debentures;
(b) the extension of the Original Loan from Edco to the Corporation
in the principal amount of $50.0 million to July 1, 2010 in
consideration of the payment of a one time fee to Edco equal to
1% of the principal amount outstanding and increasing the
interest rate on the loan from 10% to 12% per annum (the "Amended
Original Loan"); and
(c) an additional secured subordinated loan from Edco of $15.0
million maturing on July 1, 2010 with an interest rate of 12% per
annum, payable monthly in arrears with similar terms as the
Amended Original Loan.
(together the "2009 Financing Arrangements")
The agreement of the Corporation, Edco and Mr. Edwards is subject to the
extension of the operating credit facility for a period of at least one year
on or before April 30, 2009 on terms satisfactory to the Board of Directors of
the Corporation. In addition the agreement of Mr. Edwards and Edco is subject
to there being no material adverse change in the business, operations or
capital of the Corporation.
The acquisition of a minimum of $25.0 million of Convertible Secured
Subordinated Debentures would result, in the event of conversion of the
Convertible Secured Subordinated Debentures, in Mr. Edwards holding in excess
of 66 2/3% of the common shares of the Corporation on a fully diluted basis.
As a result, such holdings would constitute a change of control and the
Corporation,as defined in the 8.5% convertible unsecured debentures (the "New
Debentures") will have an obligation to make an offer to purchase the New
Debentures due January 31, 2010 and outstanding in the principal amount of
$20.95 million at a price of 102.5% of the principal amount plus accrued and
unpaid interest. In addition, subject to the terms of the Ontario Business
Corporations Act, pursuant to a similar change of control definition in the
First Preference Shares, Series A (the "Preference Shares") terms, the
Corporation will be required to retract its outstanding Preference Shares at a
price of $10.00 per share plus accrued and unpaid dividends. Dividends
declared on the Preference Shares have been fully paid to December 31, 2008.
In order to provide the Corporation with sufficient funds to honour the
obligation to purchase the New Debentures, Mr. Edwards has agreed to purchase
the additional $15 million of the Convertible Secured Subordinated Debentures
offered. These funds plus available working capital will be used to repurchase
the New Debentures for 102.5% of the principal amount of the New Debentures or
$21.5 million. This will result in the Corporation satisfying the obligation
to purchase the New Debentures and dealing with the maturity of the New
Debentures , which is in the next 12 months.
On March 20, 2009, the Board of Directors of the Corporation determined
to commence with the negotiations with the Corporation's lenders on the
extension of its operating credit facility and instructed management to
formulate plans for the offer to purchase the outstanding New Debentures if
and when required. The Board of Directors also determined not to declare or
pay dividends, due on April 30, 2009, on the Preference Shares as it was
unable to obtain reasonable assurances that such declaration and payment would
not contravene the Ontario Business Corporation Act. The Corporation does not
currently believe it will be able to retract the Preference Shares as it does
not expect to have the funds to do so, and in any event it is prohibited from
doing so by the terms of its operating credit facility and any default in the
operating credit facility would result in the Corporation being unable to pay
its liabilities as they become due and constitute a contravention of the
Ontario Business Corporations Act.
There can be no assurance that the additional financing initiatives will
be completed on the terms set forth or at all. The Corporation has commenced
in initial discussions, but has not yet engaged in any negotiations, with its
lenders to renew the operating credit facility. At this early stage, no
assurance can be given that the operating credit facility will be renewed on
terms satisfactory to the Board of Directors of the Corporation. As part of
the refinancing, the holder of the Original Loan has already agreed to extend
the terms of the Original Loan to July 1, 2010 subject to the extension of the
operating credit facility for a period of at least one year.
Revenues
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Three-months ended Twelve-months ended
December 31 December 31
(Expressed in ----------------------------------------------------------
thousands) 2008 2007 Change 2008 2007 Change
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Canada $ 80,551 $ 78,876 2.1 % $ 304,123 $ 289,904 4.9 %
United States 64,890 48,285 34.4 % 245,455 188,330 30.3 %
United Kingdom 34,704 28,383 22.3 % 136,858 119,574 14.5 %
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Total revenue $ 180,145 $ 155,544 15.8 % $ 686,436 $ 597,808 14.8 %
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Consolidated revenues for the fourth quarter of 2008 were $180.1 million,
an increase of $24.6 million or 15.8% over the fourth quarter of 2007. The
strengthening of the United States dollar related to the Canadian dollar in
the fourth quarter of 2008 contributed to the overall sales growth of the
Corporation by approximately $23.9 million. Lower deliveries in Canada, in the
fourth quarter of 2008 relative to the same period in 2007, in particular the
proprietary products, were offset by the strengthening of the United States
dollar. Higher activity levels in the United States combined with a more
favourable exchange rate upon translation produced a 34.4% increase in sales
in the fourth quarter of 2008 over the fourth quarter of 2007. Increased sales
in the United Kingdom can be attributed to the Corporation's increased
participation on the Airbus family of parts over the fourth quarter of 2007
and the acquisition of Verdict Aerospace Components Ltd.
Gross Profit
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Three-months ended Twelve-months ended
December 31 December 31
(Expressed in ----------------------------------------------------------
thousands) 2008 2007 Change 2008 2007 Change
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Gross profit $ 19,746 $ 12,896 53.1 % $ 77,459 $ 58,914 31.5 %
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Percentage
of revenue 11.0 % 8.3 % 11.3 % 9.9 %
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Gross profits of $19.8 million (11.0% of revenues) were reported for the
fourth quarter of 2008 compared to $12.9 million (8.3% of revenues) during the
same period in 2007. Gross profit, as a percentage of sales, increased over
the fourth quarter of 2007 due to changes in the Corporation's product mix as
well as the strengthening of the United States dollar over the Canadian dollar
in the fourth quarter of 2008. Had exchange rates remained the same as in the
fourth quarter of 2007, gross margins would have been approximately $5.9
million lower for the fourth quarter of 2008 and approximately 7.7% of
revenues. The inability of the Corporation to record the future tax asset
benefit of its scientific research and experimental development claims in the
quarter impacted the gross margin by $1 million in the fourth quarter of 2008.
The Corporation continues to assess its core competencies to look at improving
efficiencies whether internally or through emerging markets to strengthen
future gross margins.
Administrative and General Expenses
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Three-months Twelve-months
ended ended
December 31 December 31
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(Expressed in thousands) 2008 2007 2008 2007
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Administrative and general
expenses $ 11,884 $ 10,774 $ 45,479 $ 42,446
Plant and program
closure costs 4,558 - 3,770 -
Foreign exchange
(gain) loss (3,658) (54) (6,904) 5,576
Loss (gain) on sale of
capital assets 288 5 (1,355) (1,257)
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Total administrative and
general expenses $ 13,072 $ 10,725 $ 40,990 $ 46,765
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Percentage of revenue 7.3 % 6.9 % 6.0 % 7.8%
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Total administrative and general expenses were $13.1 million (7.3% of
revenues) in the fourth quarter of 2008 compared to $10.7 million (6.9% of
revenues) in the same period of 2007. Administrative and general expenses
before plant and program closure costs, foreign exchange and the gain on the
sale of capital assets were $11.9 million (6.6% of revenues) in the fourth
quarter of 2008, an increase when compared to $10.8 million (6.9% of revenues)
in the fourth quarter of 2007. The Corporation increased a previously recorded
provision by $0.8 million in relation to the 2006 closure of its Fleet
Industries plant and also, due to the decline in the financial markets,
recorded a charge to administrative and general expenses in the fourth quarter
of 2008 of $3.8 million in respect of a pension obligation for the Fleet
Industries pension plan that is in the process of being wound-up.
Administrative and general expenses in the fourth quarter of 2007 were offset
by currency collar gains of $0.6 million that did not recur in the fourth
quarter of 2008. During the fourth quarter of 2008, the Corporation increased
its allowance for bad debt by $0.6 million in relation to one customer.
Interest Expense
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Three-months Twelve-months
ended ended
December 31 December 31
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(Expressed in thousands) 2008 2007 2008 2007
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Interest on bank
indebtedness and other
long-term debt $ 4,066 $ 3,015 $ 15,070 $ 12,068
Convertible debenture
interest 450 1,488 2,141 5,950
Accretion charge for
convertible debt 66 585 437 2,354
Discount on sale of
accounts receivable 262 1,528 4,301 4,211
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Total interest expense $ 4,844 $ 6,616 $ 21,949 $ 24,583
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Interest expense in the fourth quarter of 2008 of $4.8 million decreased
in comparison to the fourth quarter of 2007 of $6.6 million. Interest on bank
indebtedness and other long-term debt has increased by $1.0 million as a
result of higher debt levels in the fourth quarter of 2008 than the
comparative quarter in 2007. This increase was offset by lower interest and
accretion expense in the fourth quarter of 2008 in relation to the convertible
debentures due to lower principal amounts of convertible debentures
outstanding. Lower sales of accounts receivables in the fourth quarter of 2008
when compared to the same period in 2007 also resulted in lower interest
charges.
Provision for (recovery of) Income Taxes
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Three-months Twelve-months
ended ended
December 31 December 31
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(Expressed in thousands) 2008 2007 2008 2007
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(Recovery of) provision for
current income taxes $ (578) $ (1,210) $ (194) $ 207
(Recovery of) provision for
future income taxes (5,003) 1,714 1,814 (1,300)
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Total (recovery of)
provision for income
taxes $ (5,581) $ 504 $ 1,620 $ (1,093)
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Effective Tax Rate (305) % (11.3) % 11.1 % 8.8 %
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The Corporation recorded an income tax recovery of $5.6 million for the
fourth quarter of 2008, compared to an income tax expense of $0.5 million for
the fourth quarter of 2007. The recovery of taxes in the fourth quarter of
2008 resulted, in part, from an adjustment to the future tax asset as a result
of rate adjustments recorded in the United States and the release of a future
tax reserve. The recovery was offset by the recording of a non-cash charge of
$3.0 million to establish a valuation allowance against the Corporation's net
future tax assets in Canada.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
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In addition to the primary measures of earnings and earnings per share in
accordance with GAAP, the Corporation includes certain measures in this MD&A,
including EBITDA (earnings before interest expense, income taxes,
depreciation, amortization and certain non-cash charges). The Corporation has
provided these measures because it believes this information is used by
certain investors to assess financial performance and EBITDA is a useful
supplemental measure as it provides an indication of the results generated by
the Corporation's principal business activities prior to consideration of how
these activities are financed and how the results are taxed in the various
jurisdictions. Each of the components of this measure are calculated in
accordance with GAAP, but EBITDA is not a recognized measure under GAAP, and
our method of calculation may not be comparable with that of other companies.
Accordingly, EBITDA should not be used as an alternative to net earnings as
determined in accordance with GAAP or as an alternative to cash provided by or
used in operations.
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Three-months Twelve-months
ended ended
December 31 December 31
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(Expressed in thousands) 2008 2007 2008 2007
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Net income (loss) $ 7,411 $ (4,949) $ 12,900 $ (11,341)
Interest 4,844 6,616 21,949 24,583
Taxes (5,581) 504 1,620 (1,093)
Stock based compensation (166) 400 742 1,450
Depreciation and
amortization 8,192 5,481 25,744 22,799
Amortization of deferred
development costs 7,289 - 14,474 -
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EBITDA $ 21,989 $ 8,052 $ 77,429 $ 36,398
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EBITDA for the fourth quarter of 2008 was $22.0 million, compared to $8.1
million in the fourth quarter of 2007. Growth in revenues and higher gross
profit in the fourth quarter of 2008 compared to 2007 contributed to the
increase in EBITDA for the current quarter. Prior to the adoption of the CICA
Handbook Section 3031, "Inventories", the Corporation included in inventory
deferred development costs and the amortization of these costs were not a
component within the EBITDA calculation.
Liquidity and Capital Resources
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Cash Flow from Operations
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Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands) 2008 2007 2008 2007
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(Increase) decrease in
accounts receivable $ (18,198) $ 17,958 $ (22,844) $ 16,148
Decrease (increase) in
inventories 270 4,831 (16,628) (16,112)
Decrease (increase) in
prepaid expenses
and other 1,401 2,887 2,176 (5,064)
Increase (Decrease) in
accounts payable 9,240 (11,277) 4,475 (1,463)
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Changes to non-cash
working capital balances $ (7,287) $ 14,399 $ (32,821) $ (6,491)
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Cash provided by operating
activities $ 13,951 $ 17,329 $ 23,155 $ 3,050
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In the quarter ended December 31, 2008, the Corporation generated $14.0
million of cash in its operations, compared to $17.3 million in the fourth
quarter of 2007. Cash was generated by increased profits that were offset by a
use in non-cash working capital balances. The use of working capital resulted
from increased accounts receivable, offset by decreased inventories and
prepaid expenses and an increase in accounts payable. The increase in accounts
receivable resulted primarily from the decrease in the amount drawn on the
Corporation's accounts receivable securitization facility.
Investing Activities
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Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands) 2008 2007 2008 2007
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Acquisition of Verdict $ (28) $ - $ (4,268) $ -
Purchase of capital
assets (4,444) (6,504) (18,769) (22,968)
Proceeds of disposals
of capital assets 732 545 3,540 2,240
Decrease (increase) in
other assets 2,080 (1,724) (3,768) 1,279
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Cash used in investing
activities $ (1,660) $ (7,683) $ (23,265) $ (19,449)
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In the fourth quarter of 2008, the Corporation invested $4.4 million in
capital assets to upgrade and enhance its capabilities for current and future
programs.
Financing Activities
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Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands) 2008 2007 2008 2007
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(Decrease) increase in
bank indebtedness $ (10,170) $ (6,684) $ 19,065 $ 11,695
Decrease in loan payable - - (15,000) -
Increase in loan payable - - 15,000 -
Increase (decrease) in
long-term debt 23 (367) (16,841) 13,190
Increase in long-term debt - - 50,000 -
Decrease in convertible
debentures - - (69,985) -
Increase in convertible
debentures - - 20,778 -
Increase (decrease) in
long-term liabilities 441 343 (392) (9,780)
Issue of Common Shares 11 11 71 76
Dividends on Preference
Shares (400) (400) (1,600) (1,600)
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Cash (used in) provided
by financing activities $ (10,095) $ (7,097) $ 1,096 $ 13,581
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The Corporation amended its operating credit facility with its existing
lenders on June 24, 2008. Under the terms of the amended agreement, the
maximum amount available under the operating credit facility was increased by
$20.0 million to a Canadian dollar limit of $95.0 million plus a US dollar
limit of $90.0 million, with a maturity date of May 23, 2009. The facility is
extendable for unlimited one-year renewal periods by the agreement of the
Corporation and the lenders and continues to be guaranteed by the Chairman of
the Corporation. An annual standby guarantee fee in 2008 of 1.0% (2007 - 0.1%)
of the guaranteed amount was provided by the Corporation in consideration for
this guarantee. This standby fee was increased to 1.35% on June 24, 2008 in
consideration for providing additional security for the Corporation's
obligations. Due to this guarantee, interest is charged at the bankers'
acceptance or LIBOR rates plus 1.0%, compared to the rate of bankers'
acceptance or LIBOR rates plus 4.5% that was charged in 2005 prior to the
guarantee being provided. The net annual savings to the Corporation is
approximately $4.1 million assuming an average of $190.0 million borrowed
under the operating capacity.
On March 30, 2007, the Corporation borrowed $15.0 million by way of a
promissory note from a corporation wholly owned by a common director. This
loan was due July 1, 2008 and bore interest at a rate of 9% per annum. This
loan was repaid on January 30, 2008.
On January 30, 2008, the Corporation closed a private placement of an
aggregate of $21.0 million of the New Debentures, due January 31, 2010 the
proceeds of which were used to fund, in part, the repayment of the $70.0
million principal amount of outstanding 8.5% unsecured subordinated debentures
(the "Existing Debentures") which matured on January 31, 2008.
On January 30, 2008, in order to fund the remaining balance of
approximately $50.0 million on the maturity of the Existing Debentures, a
corporation controlled by the Chairman of the Board, provided an Original Loan
of $50.0 million and a $15.0 million bridge loan (the "Bridge Loan") to the
Corporation. All of the funds from the Bridge Loan and approximately $35.0
million of the funds from the Original Loan were used to repay the balance of
the Existing Debentures and the $15.0 million additional funds from the
Original Loan was provided to the Corporation to retire $15.0 million of
subordinated debt due to a company with a common director, who is also the
owner of all of the shares of such lender. Both the Original Loan and the
Bridge Loan bear interest at a rate of 10% per annum calculated and payable
monthly and are collateralized and subordinated to the Corporation's existing
bank credit facility. The Original Loan is repayable on July 1, 2009 and the
Bridge Loan that was repayable on July 31, 2008 was repaid on June 24, 2008.
Share Data and Share Consolidation
----------------------------------
As at March 24, 2009, the Corporation had 18,209,001 common shares
outstanding and 2,000,000 outstanding First Preference Shares Series A.
At the Corporation's Annual General and Special Meeting on May 13, 2008,
the Corporation's shareholders approved a consolidation of Magellan's issued
and outstanding common shares on the basis of one new common share for each
five common shares presently issued and outstanding, which was effective May
21, 2008.
Risks and Uncertainties
-----------------------
The Corporation manages a number of risks in each of its businesses in
order to achieve an acceptable level of risk without hindering the ability to
maximize returns. Management has procedures to identify and manage significant
operational and financial risks.
For more information in relation to the risks inherent in Magellan's
business, reference is made to the information under "Company Overview" in
Management's Discussion and Analysis for the year ended December 31, 2008 and
to the information under "Risks Inherent in Magellan's Business" in the Annual
Information Form , which will be filed on SEDAR at www.sedar.com.
Changes in Accounting Policies
------------------------------
Effective January 1, 2008, the Corporation was required to adopt Canadian
Institute of Chartered Accounts ("CICA"): Handbook Section 3031 "Inventories",
which replaces Section 3030 "Inventories". The Corporation adopted this new
section retrospectively, without restatement of prior periods. This new
section provides revised guidance on the determination of cost and its
subsequent recognition as an expense, including any write-down to net
realizable value. It also provides revised guidance on the cost methodologies
that are to be used to assign costs to inventories and expands the disclosure
requirements to increase transparency.
As a result of these required changes in accounting policies, the
Corporation was required to adopt the unit cost method for inventory related
to its long-term contracts in replacement of the long-term average cost
method. The unit cost method is the prescribed cost method under which the
actual production costs are charged to each unit produced and recognized to
income as the unit is sold. The Corporation previously accounted for the cost
of production inventory using the long-term average cost which reflected
higher unit costs at the early phase of a program and lower unit costs at the
end of the program (the learning curve concept).
As at January 1, 2008, the effect of these accounting changes, required
under Section 3031, on the Corporation's consolidated balance sheet is as
follows:
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Reported, Restated,
as at Impact of as at
December 31, accounting January 1,
(Expressed in thousands) 2007 changes 2008
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Assets
Inventories $ 274,011 $(121,462) $ 152,549
Capital assets 245,727 10,852 256,579
Deferred development costs 8,143 67,471 75,614
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$ 527,881 $ (43,139) $ 484,742
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Liabilities
Future income tax liabilities $ 16,799 $ (8,844) $ 7,955
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Shareholders' equity $ 265,927 $ (34,295) $ 231,632
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Learning curve balances of $43.1 million, net of a future income tax
recovery of $8.8 million were charged to retained earnings on adoption of
Section 3031, both effective January 1, 2008. This new section also prescribed
that certain development costs and program tooling costs may no longer be
classified as inventory. As a result, $67.5 million of deferred development
costs related to long-term contracts have been reclassified to other assets
and $10.9 million of program tooling costs have been reclassified to capital
assets, both effective January 1, 2008.
Cost of revenue for the three and twelve month period ended December 31,
2008 increased by $0.4 million and $1.9 million, respectively on the adoption
of this new section.
On January 1, 2008, the Corporation adopted three new presentation and
disclosure standards that were issued by the CICA: Handbook Section 1535,
Capital Disclosures ("Section 1535"), Handbook Section 3862, Financial
Instruments - Disclosures ("Section 3862") and Handbook Section 3863,
Financial Instruments - Presentation ("Section 3863").
Section 1535 requires the disclosure of both qualitative and quantitative
information that enables users of financial statements to evaluate (i) an
entity's objectives, policies and processes for managing capital; (ii)
quantitative data about what the entity regards as capital; (iii) whether the
entity has complied with any capital requirements; and (iv) if it has not
complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial
Instruments - Disclosure and Presentation, revising and enhancing its
disclosure requirements and carrying forward unchanged its presentation
requirements for financial instruments. Sections 3862 and 3863 place increased
emphasis on disclosures about the nature and extent of risks arising from
financial instruments and how the entity manages those risks.
CICA Handbook Section 1400, General Accounting was amended to include the
requirement to assess and disclose uncertainties about the Corporation's
ability to continue as a going concern. The new requirements came into effect
for the Corporation's fiscal year beginning January 1, 2008. The amended
standard did not have an impact on the valuation or classification of the
Corporation's unaudited interim consolidated financial statements.
Future Changes in Accounting Policies
-------------------------------------
Future changes in accounting policies are described in detail in Note 1
of the audited consolidated financial statements for the period ended December
31, 2008. The reader is referred to this note for further details regarding
the adoption of these standards.
Outlook
-------
The positive sales trend in 2008 is expected to be tempered in the
aerospace industry in 2009. It is anticipated that business aircraft may
experience a continued decline in use and orders through 2009, bringing its
extended growth period to an end. Air transportation deliveries are forecasted
to be stable in 2009, with potential downward pressure in the second half of
2009 if credit availability is not maintained, or if oil prices rise sharply
again.
Defence spending is forecasted to be stable in both new aerospace
equipment and in the aftermarket. While historically independent of the
overall economy, defence spending could be pressured by high government
stimulus spending in 2009 and 2010. However, most defence development and
procurement budgets are in place for 2009-2010, and defence sales growth
should continue through 2010 as legacy programs are replaced with new programs
reaching production.
Magellan has exposure to the anticipated growth sectors of the global
aerospace industry. It has captured opportunities on new civil and defence
programs, has continued to modernize its facilities and updated its
capabilities, and has taken measures to address contingencies that may arise
during the economic uncertainty of 2009.
Magellan Aerospace Corporation is one of the world's most integrated and
comprehensive aerospace industry suppliers. Magellan designs, engineers, and
manufactures aeroengine and aerostructure assemblies and components for
aerospace markets, advanced products for military and space markets, and
complementary specialty products. Magellan is a public company whose shares
trade on the Toronto Stock Exchange (TSX:MAL), with operating units throughout
Canada, the United States and the United Kingdom.
This release should be read in conjunction with the Corporation's audited
financial statements and accompanying notes, Management's Discussion and
Analysis contained in the Corporation's Annual Report, the Annual Information
Form and with the Corporation's unaudited quarterly financial statements and
accompanying notes and the quarterly Management's Discussion and Analysis
which will be filed with SEDAR (www.sedar.com).
-------------------------------------------------------------------------
MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands of
dollars, except per share
amounts) 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenues $ 180,145 $ 155,544 $ 686,436 $ 597,808
Cost of revenues 160,399 142,648 608,977 538,894
-------------------------------------------------------------------------
Gross Profit 19,746 12,896 77,459 58,914
-------------------------------------------------------------------------
Administrative and general
expenses 13,072 10,725 40,990 46,765
Interest 4,844 6,616 21,949 24,583
-------------------------------------------------------------------------
17,916 17,341 62,939 71,348
-------------------------------------------------------------------------
Income (loss) before
income taxes 1,830 (4,445) 14,520 (12,434)
Provision for (recovery of)
income taxes
Current (578) (1,210) (194) 207
Future (5,003) 1,714 1,814 (1,300)
-------------------------------------------------------------------------
(5,581) 504 1,620 (1,093)
-------------------------------------------------------------------------
Net income (loss) 7,411 (4,949) 12,900 (11,341)
-------------------------------------------------------------------------
Net income (loss) per share
-------------------------------------------------------------------------
Basic and Diluted 0.39 (0.29) 0.62 (0.71)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited) Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands of
dollars) 2008 2007 2008 2007
-------------------------------------------------------------------------
Retained earnings,
beginning of the period 52,741 88,096 82,747 95,688
Effect of change in
accounting policy - - (34,295) -
-------------------------------------------------------------------------
Adjusted retained earnings,
beginning of period 52,741 88,096 48,452 95,688
Dividends (400) (400) (1,600) (1,600)
Net income (loss) 7,411 (4,949) 12,900 (11,341)
-------------------------------------------------------------------------
Retained earnings,
end of the period $ 59,752 $ 82,747 $ 59,752 $ 82,747
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(unaudited) Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands of
dollars) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net income (loss) $ 7,411 $ (4,949) $ 12,900 $ (11,341)
Other comprehensive
income (loss):
Unrealized gain (loss) on
translation of financial 13,886 (2,917) 19,518 (25,264)
-------------------------------------------------------------------------
Comprehensive
income (loss) $ 21,297 $ (7,866) $ 32,418 $ (36,605)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited) As at As at
December 31 December 31
(Expressed in thousands of dollars) 2008 2007
-------------------------------------------------------------------------
ASSETS
Current
Cash $ 5,362 $ 4,884
Accounts receivable 67,435 35,659
Inventories 178,474 274,011
Prepaid expenses and other 10,717 13,127
Future income tax assets 5,097 6,264
-------------------------------------------------------------------------
Total current assets 267,085 333,945
Capital assets 277,207 245,727
Technology rights 32,567 34,491
Other assets 69,225 8,143
Other assets 15,970 13,073
Future income tax assets 8,643 14,064
-------------------------------------------------------------------------
Total assets $ 670,697 $ 649,443
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ 177,766 $ 139,748
Accounts payable and accrued charges 125,116 119,881
Convertible debentures - 13,834
Current portion of long-term debt 52,321 2,099
-------------------------------------------------------------------------
Total current liabilities 355,203 275,562
Long-term debt 11,803 27,839
Future income tax liabilities 11,392 16,799
Convertible debentures 20,544 55,950
Other long-term liabilities 7,947 7,366
-------------------------------------------------------------------------
Total liabilities 406,889 383,516
-------------------------------------------------------------------------
Shareholders' equity
Capital stock 234,381 234,310
Contributed surplus 3,991 3,249
Other paid in capital 11,645 11,100
Retained earnings (restated) 59,752 82,747
Accumulated other comprehensive loss (45,961) (65,479)
-------------------------------------------------------------------------
Total shareholders' equity 263,808 265,927
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 670,697 $ 649,443
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Three-months Twelve-months
ended ended
December 31 December 31
-----------------------------------------------
(Expressed in thousands of
dollars) 2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 7,411 $ (4,949) $ 12,900 $ (11,341)
Add (deduct) items not
affecting cash
Depreciation and
amortization 15,481 5,481 40,218 22,799
Net gain on sale of
capital asset 288 5 (1,355) (1,257)
Employee future benefits 2,789 (1,745) (1,277) (6,977)
Write down of assets 312 206 2,184 206
Deferred revenue 60 1,155 313 3,544
Stock based compensation (166) 400 742 1,450
Issuance of common
shares to the Directors - 63 - 63
Accretion of convertible
debentures 66 600 437 2,354
Future income tax
expense (recovery) (5,003) 1,714 1,814 (1,300)
-------------------------------------------------------------------------
21,238 2,930 55,976 9,541
-------------------------------------------------------------------------
Net change in non-cash
working capital
items relating to
operating activities (7,287) 14,399 (32,821) (6,491)
-------------------------------------------------------------------------
Cash provided by (used in)
operating activities 13,951 17,329 23,155 3,050
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of Verdict (28) - (4,268) -
Purchase of capital assets (4,444) (6,504) (18,769) (22,968)
Proceeds from disposal
of capital assets 732 545 3,540 2,240
Decrease (increase) in
other assets 2,080 (1,724) (3,768) 1,279
-------------------------------------------------------------------------
Cash used in investing
activities (1,660) (7,683) (23,265) (19,449)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in
bank indebtedness (10,170) (6,684) 19,065 11,695
Decrease in loan payable - - (15,000) -
Increase in loan payable - - 15,000 13,190
Increase (decrease) in
long-term debt 23 (367) (16,841) -
Increase in long-term debt - - 50,000 -
Decrease in convertible
debentures - - (69,985) -
Increase in convertible
debentures - - 20,778 -
Increase (decrease) in
long-term liabilities 441 343 (392) (9,780)
Issuance of common shares 11 11 71 76
Dividends on preference
shares (400) (400) (1,600) (1,600)
-------------------------------------------------------------------------
Cash (used in) provided
by financing activities (10,095) (7,097) 1,096 13,581
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash (204) (1,451) (508) (2,194)
-------------------------------------------------------------------------
Net increase (decrease)
in cash during the period 1,992 1,098 478 (5,012)
Cash, beginning of period 3,370 3,786 4,884 9,896
-------------------------------------------------------------------------
Cash, end of period $ 5,362 $ 4,884 $ 5,362 $ 4,884
-------------------------------------------------------------------------
-------------------------------------------------------------------------
%SEDAR: 00002367E
For further information: James S. Butyniec, President and Chief
Executive Officer, T: (905) 677-1889 ext. 233, E: jim.butyniec@magellan.aero;
John B. Dekker, Vice President Finance & Corporate Secretary, T: (905)
677-1889 ext. 224, E: john.dekker@magellan.aero
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