Magellan Aerospace Corporation - Fourth Quarter Report - December 31, 2006



    TORONTO, April 2 /CNW/ - Magellan Aerospace Corporation (the
"Corporation" or "Magellan") is listed on the Toronto Stock Exchange under the
symbol MAL. The Corporation is a diversified supplier of components to the
aerospace industry. Through its network of facilities throughout North America
and the United Kingdom, Magellan supplies leading aircraft manufacturers,
airlines and defence agencies throughout the world.

    Financial Results
    -----------------

    On April 2, 2007, the Corporation released its financial results for the
fourth quarter of 2006. The results are summarized as follows:

    
    -------------------------------------------------------------------------
    (Expressed in       Three-months ended           Twelve-months ended
     thousands,            December 31                   December 31
     except per    ----------------------------------------------------------
     share amounts)  2006       2005    Change     2006       2005    Change
    -------------------------------------------------------------------------
    Revenues      $ 144,677  $ 142,764    1.4%  $ 575,223  $ 568,483    1.2%
    -------------------------------------------------------------------------
    Net loss      $  (1,276) $  (3,494)      -  $  (7,380) $  (6,076)      -
    -------------------------------------------------------------------------
    Net loss per
     share        $   (0.02) $   (0.05)      -  $   (0.10) $   (0.08)      -
    -------------------------------------------------------------------------
    EBITDA(*)     $  10,181  $   8,886   14.6%  $  40,869  $  38,068    7.4%
    -------------------------------------------------------------------------
    EBITDA(*)
     per share    $    0.11  $    0.10     10%  $    0.45  $    0.42    7.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    This quarterly statement 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 quarterly
        statement, 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 are unlikely to be comparable to
        similarly titled measures used by other companies.
    -------------------------------------------------------------------------



                     Management's Discussion and Analysis
                     ------------------------------------
    

    During the fourth quarter of 2006, trends in the aerospace industry
continued to show strong demand for aircrafts and increased profitability for
many airline companies and airplane producers. These positive trends in the
industry have contributed to Magellan's increased sales volume as production
rates increase for programs currently in production, and increased activity on
other programs will result in revenues in the future from original equipment
manufactures (OEMs) for both aerostructure and aeroengine components.
    The A380 program suffered well-publicized delays at Airbus in 2006,
continuing into 2007. Magellan has exposure to the program and the impact in
2006 was primarily delayed revenue, with the cumulative reduction in 2006
revenue to these delays being approximately $20 million. Magellan expects that
these revenues will be restored over the next few years.
    While results for the fourth quarter of 2006 were disappointing, Magellan
continues its effort to improve efficiencies in operations through the
implementation of cost reduction initiatives, improvement of manufacturing
techniques and the reorganization and rejuvenation of its facilities. Work on
these initiatives has been ongoing through the fourth quarter of 2006 and the
Corporation expects to see the benefit of these improvements in 2007 and
beyond.
    The unsatisfactory financial results combined with added investment in
programs that are not yet in full production have put strain on the
Corporation's working capital in the period. On March 30, 2007, the
Corporation renewed its operating credit facility and the maximum amount
available under the operating credit facility was increased by $20 million to
$175 million. In addition, the Corporation borrowed $15 million by way of a
secured promissory note from a corporation with a common director.
    For additional information please refer to the "Management's Discussion
and Analysis" section of the Annual report available on www.sedar.com.

    Revenues
    --------

    
    -------------------------------------------------------------------------
                        Three-months ended           Twelve-months ended
                           December 31                   December 31
    (Expressed in  ----------------------------------------------------------
     thousands)      2006       2005    Change     2006       2005    Change
    -------------------------------------------------------------------------
    Canada        $  68,962  $  70,445   -2.1%  $ 273,305  $ 277,530   -1.5%
    United States    45,638     48,581   -6.1%    186,597    183,811    1.5%
    United Kingdom   30,077     23,738   26.7%    115,321    107,142    7.6%
    -------------------------------------------------------------------------
    Total Revenue $ 144,677  $ 142,764    1.4%  $ 575,223  $ 568,483    1.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Consolidated revenues for the fourth quarter of 2006 were $144.7 million,
an increase of $1.9 million or 1.4% over the same period in 2005. The decline
in the value of the US dollar versus the Canadian dollar continued to have a
negative impact on revenue of $0.9 million during the fourth quarter and a
2006 yearly impact of $31.5 million. If the average exchange rate experienced
in 2005 had remained constant in 2006 revenues for the fourth quarter of 2006
and the year ended December 31, 2006 would have been $145.6 million and
$606.7 million, respectively.

    Gross Profit
    ------------

    
    -------------------------------------------------------------------------
                        Three-months ended           Twelve-months ended
                           December 31                   December 31
    (Expressed in  ----------------------------------------------------------
     thousands)      2006       2005    Change     2006       2005    Change
    -------------------------------------------------------------------------
    Gross profit  $  10,792  $  13,577  -20.5%  $  51,271  $  56,450   -9.2%
    -------------------------------------------------------------------------
    Percentage of
     revenue           7.5%       9.5%               8.9%       9.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Gross profit for the fourth quarter of 2006 was $10.8 million or 7.5% of
revenues, compared to $13.6 million or 9.5% of revenues in the same period of
last year. Gross margins for the quarter did not achieve expected levels of
improvement. During the second half of 2006 the Corporation rationalized and
modernized four of its manufacturing facilities in order to streamline
production and increase capacity. The benefit of these efforts combined with
further steps taken to improve manufacturing techniques and implement other
cost reduction initiatives should have a positive impact on results commencing
in 2007.

    Administrative and General Expenses
    -----------------------------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Administrative and
     general expenses             $  10,598  $  12,347  $  40,856  $  46,110
    Net loss (gain) on sale
     of capital assets                  539          -        238     (1,442)
    Foreign exchange gain            (3,851)      (288)    (4,429)    (1,624)
    -------------------------------------------------------------------------
    Total administrative and
     general expenses             $   7,286  $  12,059  $  36,665  $  43,044
    -------------------------------------------------------------------------
    Percentage of revenue              5.0%       8.5%       6.4%       7.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Total administrative and general expenses were $7.3 million in the fourth
quarter of 2006. Included in total administration and general expenses are a
foreign exchange gain of $3.9 million and a loss on the sale of assets of
$0.5 million. Without these two items, administrative and general expenses
were $10.6 million or 7.3% of revenues in the fourth quarter of 2006 compared
to $12.3 million or 8.6% of revenues in the same period in 2005. This
represents a decrease of $1.7 million from the fourth quarter of 2006 to 2005.

    Interest Expense
    ----------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Interest on bank indebtedness
     and long-term debt           $   3,408  $   2,894  $  10,442  $  11,172
    Convertible debenture interest    1,488      1,488      5,950      5,950
    Accretion charge for
     convertible debt                   570        831      2,289      2,211
    Discount on sale of accounts
     receivable                         643        388      3,693      2,201
    -------------------------------------------------------------------------
    Total interest expense        $   6,109  $   5,601  $  22,374  $  21,534
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Interest expense in the fourth quarter of 2006 was $6.1 million,
$0.5 million higher than in the fourth quarter of 2005. The higher expense is
due to higher discounts on the sale of accounts receivable resulting from
higher amounts of accounts receivable sold and is also due to higher interest
on bank indebtedness and long term debt. In addition, there were higher
amounts of long term debt and bank indebtedness in the fourth quarter of 2006
as compared to the fourth quarter of 2005.

    Provision for (Recovery of) Income Taxes
    ----------------------------------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Provision for current
     income taxes                 $     181  $     268  $     264  $     688
    Recovery of future income
     taxes                             (757)      (857)    (3,107)    (2,740)
    -------------------------------------------------------------------------
    Total recovery of income
     taxes                        $    (576) $    (589) $  (2,843) $  (2,052)
    -------------------------------------------------------------------------
    Effective Tax Rate                31.1%      14.4%      27.8%      25.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    A recovery of income taxes of $0.6 million was recorded in the fourth
quarter of 2006 and 2005. The overall tax rate is a blended rate across the
three countries in which the Corporation operates. At lower levels of income,
non-deductible expenses such as accretion on convertible debenture and stock
option charges have larger effects on the effective tax rate.

    EBITDA
    ------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Net loss for the period       $  (1,276) $  (3,494) $  (7,380) $  (6,076)
    Interest                          6,109      5,601     22,374     21,534
    Taxes                              (576)      (589)    (2,843)    (2,052)
    Stock based compensation            255        180        945        620
    Amortization charge (note 2)          -          -      5,301          -
    Depreciation and amortization     5,669      7,188     22,472     24,042
    -------------------------------------------------------------------------
    EBITDA                        $  10,181  $   8,886  $  40,869  $  38,068
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    EBITDA for the fourth quarter of 2006 improved by $1.3 million from the
fourth quarter of 2005 despite a number of factors affecting results such as
the decline of the US dollar versus the Canadian dollar and the facility
rationalization charges.

    Cash Flow from Operating Activities
    -----------------------------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    (Increase) decrease in
     accounts receivable          $  (3,161) $   6,090  $   6,206  $   5,009
    Decrease (increase) in
     inventories                      5,166      9,874     (9,991)      (559)
    Increase in prepaid expenses
     and other                       (1,997)      (681)      (606)    (1,756)
    Increase (decrease) in
     accounts payable                 2,853     11,013     (8,170)       436
    -------------------------------------------------------------------------
    Net change in non-cash
     working capital items        $   2,861  $  26,296  $ (12,561) $   3,130
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                   $   4,057  $  30,144  $   2,599  $  19,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In the fourth quarter of 2006, the Corporation generated $4.0 million of
cash from operations, compared to $30 million of cash generated in the same
period of 2005. Lower cash amounts were generated in the fourth quarter of
2006 compared to the same period in 2005 because of increases in accounts
receivable, prepaid expenses and other, and lower increases in accounts
payable.

    Cash Flow from Investing Activities
    -----------------------------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Purchase of capital assets      (10,782)    (7,597)   (30,972)   (19,185)
    Proceeds from disposals of
     capital assets                   5,739          -      9,708      3,746
    (Increase) decrease in
     other assets                      (359)    (3,853)    (1,999)   (12,612)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   $  (5,402) $ (11,450) $ (23,263) $ (28,051)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In the fourth quarter of 2006, the Corporation invested $11.0 million in
capital assets to upgrade its facilities and enhance its capabilities. This
was partially funded by proceeds from the sale of capital assets of
$5.7 million.

    Cash Flow from Financing Activities
    -----------------------------------

    
    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                  -------------------------------------------
    (Expressed in thousands)         2006       2005       2006       2005
    -------------------------------------------------------------------------
    Increase (decrease) in bank
     indebtedness                 $     609  $ (10,898) $  28,138  $  50,826
    Advance (repayment) of
     long-term debt                     506       (537)     5,456    (50,276)
    Decrease in long-term
     liabilities                     (2,285)    (7,225)    (9,982)   (12,480)
    Dividends on Preference Shares     (400)    (1,080)    (1,600)    (1,080)
    Issue of Common Shares               10         57         50         84
    Issue of Preference Shares            -          -          -     19,949
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities         $  (1,560) $ (19,683) $  22,062  $   7,023
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporation renewed its operating credit facility, on March 30, 2007,
with its existing lenders. Under the terms of the renewed agreement, the
maximum amount available under the operating credit facility was increased by
$20 million to $175 million with a maturity date of May 24, 2008. The facility
is extendable for unlimited one-year renewal periods and continues to be fully
guaranteed by the Chairman of the Board of the Corporation.
    On March 30, 2007, the Corporation borrowed $15 million by way of a
secured promissory note from a corporation with a common director. This note
is due July 1, 2008 and bears interest at a rate of 9% per annum. The note is
collateralized and subordinated to the bank credit facility.
    In 2004, the Corporation entered into a five-year accounts receivable
securitization program with a securitization trust (the "Trust"). Subsequent
to December 31, 2006, the Trust suspended its securitization program with the
Corporation. The Corporation does not expect to incur any costs to extinguish
this program and is actively pursuing other opportunities for accounts
receivable securitization.

    Outlook
    -------

    Magellan is looking forward to a series of positive milestones in 2007 as
new programs move from engineering and develop to production. The F35 Joint
Strike Fighter program will enter low rate production, and this will include
the delivery of key components on the airframe, engine and vertical lift
assemblies. In addition, 2007 will see Magellan convert current Letters of
Intent and Memoranda of Understanding commitments into contracts for major
composite assemblies on the F35 airframe. The Boeing B787 will enter into
production in the third quarter, with Magellan supplying landing gear
component assemblies. It is also hoped that deliveries of A380 components will
resume as Airbus prepares for deliveries of the aircraft in 2008. All
indications are that the strength of the business aircraft sector, where
Magellan is a key supplier to many of the engine programs, will continue to
grow.
    In the first half of 2007, Magellan will complete its remaining
rejuvenation projects at the plants, and will continue to grow its Strategic
Sourcing. By taking advantage of efficiencies generated and lower costs from
outsourcing, Magellan strives to remain globally competitive.
    It has been a long, tough and grinding five years. We thank our
shareholders for their infinite patience during this period and thank our
employees for their unfailing attention to the job at hand. We are hopeful
that 2007 will show that the effort was worthwhile.


    
    (signed)                           (signed)

    Richard A. Neill                   James S. Butyniec
    Vice Chairman                      President and Chief Operating Officer
    April 2, 2007




    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
    (unaudited)

                                   Three-months ended    Twelve-months ended
    (Expressed in thousands            December 31           December 31
     of dollars, except           -------------------------------------------
     per share amounts)              2006       2005       2006       2005
    -------------------------------------------------------------------------
    Revenues                      $ 144,677  $ 142,764  $ 575,223  $ 568,483
    Cost of revenues                133,885    129,187    523,952    512,033
    -------------------------------------------------------------------------
    Gross profit                     10,792     13,577     51,271     56,450
    -------------------------------------------------------------------------

    Administrative and general
     expenses                         7,286     12,059     36,665     43,044
    Facility rationalization
     (note 2)                          (751)         -      2,455          -
    Interest                          6,109      5,601     22,374     21,534
    -------------------------------------------------------------------------
                                     12,644     17,660     61,494     64,578
    -------------------------------------------------------------------------
    Loss before income taxes         (1,852)    (4,083)   (10,223)    (8,128)

    Provision for (recovery of)
     income taxes
      - Current                         181        268        264        688
      - Future                         (757)      (857)    (3,107)    (2,740)
    -------------------------------------------------------------------------
                                       (576)      (589)    (2,843)    (2,052)
    -------------------------------------------------------------------------
    Net loss for the period          (1,276)    (3,494)    (7,380)    (6,076)
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of period                       99,715    111,593    107,019    114,175
    Dividends on Preference
     Shares                            (400)    (1,080)    (1,600)    (1,080)
    Net loss for the period          (1,276)    (3,494)    (7,380)    (6,076)
    Retained earnings, end
     of period                    $  98,039  $ 107,019  $  98,039  $ 107,019
    -------------------------------------------------------------------------
    Earnings per share
    -------------------------------------------------------------------------
      Basic                       $   (0.02) $   (0.05) $   (0.10) $   (0.08)
    -------------------------------------------------------------------------
      Diluted                     $   (0.02) $   (0.05) $   (0.10) $   (0.08)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
    (unaudited)

    (Expressed in thousands of dollars)                    2006       2005
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash                                                $   9,896  $   7,426
    Accounts receivable                                    58,066     62,862
    Inventories                                           276,462    263,413
    Prepaid expenses and other                             10,396      9,343
    Future income tax assets                                5,914      3,518
    -------------------------------------------------------------------------
    Total current assets                                  360,734    346,562

    Capital assets                                        265,078    264,899
    Other                                                  52,680     51,644
    Future income tax assets                                5,829      2,004
    -------------------------------------------------------------------------
    Total assets                                        $ 684,321  $ 665,109
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness (note 4)                          $ 142,457  $ 113,824
    Accounts payable and accrued charges                  128,066    122,978
    Current portion of long-term debt                       2,039      2,201
    -------------------------------------------------------------------------
    Total current liabilities                             272,562    239,003

    Long-term debt                                         15,902      9,608
    Future income tax liabilities                          20,785     28,553
    Convertible debentures                                 67,430     65,141
    Other long-term liabilities                             2,748     15,061
    -------------------------------------------------------------------------
    Total liabilities                                     379,427    357,366
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 5)                                234,171    234,058
    Contributed surplus                                     1,799        854
    Other paid-in capital                                  11,100     11,100
    Retained earnings                                      98,039    107,019
    Foreign exchange translation (note 8)                 (40,215)   (45,288)
    -------------------------------------------------------------------------
    Total shareholders' equity                            304,894    307,743
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity          $ 684,321  $ 665,109
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
    (Expressed in thousands       -------------------------------------------
     of dollars)                     2006       2005       2006       2005
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss for the period       $  (1,276) $  (3,494) $  (7,380) $  (6,076)
    Add (deduct) items not
     affecting cash
      Depreciation and
       amortization                   5,669      7,188     22,472     24,042
      Gain on sale of capital
       assets                        (3,328)         -     (5,423)    (1,442)
      Amortization charge (note 2)        -          -      5,301          -
      Stock based compensation          255        180        945        620
      Issuance of Common Shares
       to the directors                  63          -         63         63
      Accretion of convertible
       debentures                       570        831      2,289      2,211
      Future income taxes
       recoveries                      (757)      (857)    (3,107)    (2,740)
    -------------------------------------------------------------------------
                                      1,196      3,848     15,160     16,678
    -------------------------------------------------------------------------
    Net change in non-cash working
     capital items relating to
     operating activities             2,861     26,296    (12,561)     3,130
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                       4,057     30,144      2,599     19,808
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets      (10,782)    (7,597)   (30,972)   (19,185)
    Proceeds from disposal of
     capital assets                   5,739          -      9,708      3,746
    (Increase) decrease in
     other assets                      (359)    (3,853)    (1,999)   (12,612)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                      (5,402)   (11,450)   (23,263)   (28,051)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Increase (decrease) increase
     in bank indebtedness               609    (10,898)    28,138     50,826
    Increase (decrease) of
     long-term debt                     506       (537)     5,456    (50,276)
    Decrease in long-term
     liabilities                     (2,285)    (7,225)    (9,982)   (12,480)
    Dividends on Preference Shares     (400)    (1,080)    (1,600)    (1,080)
    Issue of Common Shares               10         57         50         84
    Issue of Preference Shares            -          -          -     19,949
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities            (1,560)   (19,683)    22,062      7,023
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash                    981       (197)     1,072       (402)
    -------------------------------------------------------------------------

    (Decrease) increase in cash      (1,924)    (1,186)     2,470     (1,622)
    Cash, beginning of period        11,820      8,612      7,426      9,048
    -------------------------------------------------------------------------
    Cash, end of period           $   9,896  $   7,426  $   9,896  $   7,426
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in thousands of dollars except share and per share data)


    1. ACCOUNTING POLICIES

    Basis of presentation

    The accompanying un-audited consolidated financial statements have been
    prepared by the Corporation in accordance with accounting principles
    generally accepted in Canada on a basis consistent with those followed in
    the most recent audited consolidated financial statements. These
    un-audited consolidated financial statements do not include all the
    information and footnotes required by generally accepted accounting
    principles for annual financial statements and therefore should be read
    in conjunction with the audited consolidated financial statements and
    notes included in the Corporation's Annual Report for the year ended
    December 31, 2006. The Corporation's external auditors have not reviewed
    these financial statements.

    2.  FACILITY RATIONALIZATION

    During 2006, the Corporation undertook a program to rationalize and
    modernize four of its facilities. As part of this rationalization
    program, the Corporation sold portions of its surplus real estate and
    realized gains on the sales. To prepare this real estate for sale,
    machinery and equipment was disposed of for minimal proceeds.
    Accordingly, a non-cash amortization charge was recorded in the
    consolidated financial statements.

    Costs were also incurred to relocate machinery and equipment either to
    within the same facility or to new locations. As these are one-time
    amounts, and significantly large, they have been disclosed separately in
    the Consolidated Statements of Operations.

    -------------------------------------------------------------------------
                                                                        2006

    Amortization charge                                               $5,301
    Equipment relocation costs                                         2,815
    Less gain on sale of surplus real estate                          (5,661)
    -------------------------------------------------------------------------
    Facility rationalization costs                                     2,455
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    3.  INVENTORIES

    Due to the long-term contractual periods of the Corporation's contracts,
    the Corporation may be in negotiation with its customers over amendments
    to pricing or other terms. Management's assessment of the recoverability
    of amounts capitalized in inventory may be based on judgements with
    respect to the outcome of these negotiations. If the negotiations are not
    successful or the final terms differ from what the Corporation expects,
    the Corporation may be required to record a loss provision on this
    contract. The amount of such provision, if any, cannot be reasonably
    estimated until such amendments are finalized.

    4.  BANK INDEBTEDNESS

    The Corporation has an operating credit facility of $155,000 with a
    syndicate of banks. Bank indebtedness as at December 31, 2006 of $142,457
    (December 31, 2005 - $113,824) is payable on demand and bears interest at
    the bankers' acceptance or LIBOR rates, plus 0.875% (5.9% at December 31,
    2006). Included in the amount outstanding at December 31, 2006 is
    US$82,325 (December 31, 2005 - US$71,000). At December 31, 2006, the
    Corporation had drawn $142,457 under the operating credit and had issued
    letters of credit totalling $1,967 such that $10,576 was unused and
    available. A fixed and floating charge debenture on certain of the
    Corporation's assets is pledged as collateral for the operating loan. The
    credit facility is fully guaranteed by the Chairman of the Board of
    Directors. An annual fee of $155 (2005 - $155) is paid in consideration
    for the guarantee.

    The Corporation renewed its operating credit facility on March 30, 2007
    as described in note 10.

    5.  CAPITAL STOCK

    The following table summarizes information on share capital and related
    matters as at December 31, 2006:

    -------------------------------------------------------------------------
                                                   Outstanding   Exercisable
    -------------------------------------------------------------------------
    Common Shares                                   90,833,556
    -------------------------------------------------------------------------
    Common Share stock options                       3,919,600       753,050
    -------------------------------------------------------------------------
    Preference Shares                                2,000,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average number of Common Shares outstanding during the
    three-month and twelve-month periods ended December 31, 2006 was
    90,814,518 and 90,803,403 respectively.

    6.  STOCK-BASED COMPENSATION PLAN

    The Corporation has an incentive stock option plan, which provides for
    the granting of options for the benefit of employees and directors. The
    maximum number of options for Common Shares that remain to be granted
    under this plan is 1,431,103. Options are granted at an exercise price
    that will be the market price of the Corporation's Common Shares at the
    time of granting. Options normally have a life of five years with vesting
    at 20% at the end of the first, second, third, fourth and fifth years
    from the date of the grant. In addition, certain business unit income
    tests must be met in order for the option holder's entitlement to fully
    vest.

    The Corporation accounts for stock options issued after January 1, 2003
    using the fair value method. Compensation expense recorded during the
    three-month and twelve-month periods ended December 31, 2006 was $255 and
    $945 respectively (2005 - $180 and $620 respectively). In the
    twelve-month period ended December 31, 2006, there were 1,514,000 stock
    options issued at an exercise price of $3.08. The fair value of these
    options was $1.40.

    The fair value of stock options is estimated at the date of grant using
    the Black-Scholes option pricing model with the following weighted
    average assumptions:

    -------------------------------------------------------------------------
    Risk-free interest rate                                             4.0%
    -------------------------------------------------------------------------
    Expected volatility                                                  46%
    -------------------------------------------------------------------------
    Expected life of the options                                     5 years
    -------------------------------------------------------------------------
    Expected dividend yield                                               0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Black-Scholes option pricing model used by the Corporation to
    determine fair values was developed for use in estimating the fair value
    of freely traded options, which are fully transferable and have no
    vesting restrictions. The Corporation's employee stock options are not
    transferable, cannot be traded and are subject to vesting restrictions
    and exercise restrictions under the Corporation's blackout policy, which
    would tend to reduce the fair value of the Corporation's stock options.
    Changes to the subjective input assumptions used in the model can cause a
    significant variation in the estimate of the fair value of the options.

    For the stock options issued prior to January 1, 2003 the Corporation
    follows the intrinsic value method, which does not give rise to
    compensation expense. Under Canadian generally accepted accounting
    principles, the Corporation is required to disclose compensation expense
    as if the Corporation had elected to follow the fair value method for
    such options.

    7.  SEGMENTED INFORMATION

    The Corporation is organized and managed as a single business segment,
    being aerospace, and the Corporation is viewed as a single operating
    segment by the chief operating decision maker for the purposes of
    resource allocations and assessing performance.

    Capital assets are based on the country in which they are located.
    Domestic and foreign capital assets consist of:

    -------------------------------------------------------------------------
                                          As at December 31, 2006
                              -----------------------------------------------
                                 Canada        US          UK        Total
                              -----------------------------------------------
    Capital assets             $ 122,082   $ 120,553   $  22,443   $ 265,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                          As at December 31, 2005
                              -----------------------------------------------
                                 Canada        US          UK        Total
                              -----------------------------------------------
    Capital assets             $ 126,181   $ 125,783   $  12,935   $ 264,899
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Revenue is attributable to countries based on the location of the
    customers. Domestic and foreign revenues consist of:

    -------------------------------------------------------------------------
                                      Twelve-months ended December 31
                              -----------------------------------------------
                                                   2006
                              -----------------------------------------------
                                 Canada        US          UK        Total
                              -----------------------------------------------
    Revenue
    Domestic                   $  96,496   $ 153,176   $ 109,998   $ 359,670
    Export                       176,809      33,421       5,323   $ 215,553
    -------------------------------------------------------------------------
    Total revenue              $ 273,305   $ 186,597   $ 115,321   $ 575,223
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                      Twelve-months ended December 31
                              -----------------------------------------------
                                                   2005
                              -----------------------------------------------
                                 Canada        US          UK        Total
                              -----------------------------------------------
    Revenue
    Domestic                   $  96,100   $ 148,693   $ 101,493   $ 346,286
    Export                       181,430      35,118       5,649     222,197
    -------------------------------------------------------------------------
    Total revenue              $ 277,530   $ 183,811   $ 107,142   $ 568,483
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The major customers for the Corporation for the three-month and
    twelve-month periods ended December 31 are as follows:

    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                       December 31           December 31
                                 --------------------------------------------
                                    2006        2005       2006        2005
    -------------------------------------------------------------------------
    Major Customers
    Canadian operations
      - Number of customers            3           4           3           4
      - Percentage of total
         Canadian revenue            32%         46%         35%         41%
    US operations
      - Number of customers            3           4           3           3
      - Percentage of total
         US revenue                  54%         57%         58%         57%
    UK operations
      - Number of customers            1           1           1           1
      - Percentage of total
         UK revenue                  73%         84%         80%         80%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  FOREIGN EXCHANGE TRANSLATION

    Unrealized translation adjustments, which arise on the translation to
    Canadian dollars of assets and liabilities of the Corporation's
    self-sustaining foreign operations, resulted in unrealized currency
    translation gain of $8,523 and $5,073 for the three-month and
    twelve-month periods ended December 31, 2006 respectively (2005 - losses
    of $(1,338) and $(9,460)), which is reflected as foreign exchange
    translation on the consolidated balance sheets and has no impact on net
    income.

    9.  SUPPLEMENTARY INFORMATION

    Foreign exchange gain on the conversion of foreign currency denominated
    working capital balances and debt for the three-month and twelve-month
    periods ended December 31, 2006 was $3,850 and $4,429 respectively
    (2005 - gain of $288 and $1,624).

    10. SUBSEQUENT EVENTS

    In 2004, the Corporation entered into a five-year accounts receivable
    securitization program with the Trust. Subsequent to December 31, 2006,
    the Trust suspended its securitization program with the Corporation. The
    Corporation does not expect to incur any costs to extinguish this program
    and is actively pursuing other opportunities for accounts receivable
    securitization.

    The Corporation renewed its operating credit facility, on March 30, 2007,
    with its existing lenders. Under the terms of the renewed agreement, the
    maximum amount available under the operating credit facility was
    increased by $20,000 to $175,000 with a maturity date of May 24, 2008.
    The facility is extendable for unlimited one-year renewal periods and
    continues to be fully guaranteed by the Chairman of the Board of the
    Corporation.

    On March 30, 2007, the Corporation borrowed $15,000 by way of a secured
    promissory note from a corporation with a common director. This note is
    due July 1, 2008 and bears interest at a rate of 9% per annum. The note
    is collateralized and subordinated to the bank credit facility.

    




For further information:

For further information: Richard A. Neill, (905) 677-1889 ext. 230, Vice
Chairman; John B. Dekker, (905) 677-1889 ext 224, Vice President Finance &
Corporate Secretary


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