Magellan Aerospace Corporation - Fourth Quarter Report and Announced Proposed Share Consolidation December 31, 2007



    TORONTO, March 31 /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 March 31, 2008, the Corporation released its financial results for the
fourth quarter of 2007. 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,       2007       2006    Change    2007       2006    Change
     except per               (restated                    (restated
     share amounts)             note 3)                      note 3)
    -------------------------------------------------------------------------
    Revenues      $ 155,544  $ 144,677    7.5%  $ 597,808  $ 575,223    3.9%
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    Gross Profit  $  12,896  $  10,543   22.3%  $  58,914  $  51,022   15.5%
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    Net loss      $  (4,949) $  (2,035)      -  $ (11,341) $  (8,139)      -
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    Net loss per
     share        $   (0.06) $   (0.03)      -  $   (0.14) $   (0.11)      -
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    EBITDA(*)     $   8,052  $   9,022 (10.8)%  $  36,398  $  39,710  (8.3)%
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    EBITDA(*) per
     share        $    0.09  $    0.10          $    0.40  $    0.44
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    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 may not be comparable to
    similarly titled measures used by other companies.
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    Management's Discussion and Analysis
    ------------------------------------
    In 2007, the aerospace industry continued to grow, establishing record
orders for civil aircraft, increased growth in demand for business jets and
civil helicopters, and a strong, steady supply to the global defence market in
aerospace. The industry continued its globalization, with growing
participation in Brazil and Mexico, Eastern Europe and Russia, China, India
and much of South East Asia.
    During 2007, work on A380 landing gear, wing structures and engine
exhaust systems restarted following some integration issues at Airbus, and
initial customer deliveries were made in December 2007. Delivery by Magellan
of B787 landing gear assemblies and machined wing structures commenced during
2007. Some initial challenges are being experienced by Boeing with deliveries
with-in the overall supply-base. The first production Joint Strike Fighter
F35B Short Take Off and Vertical Landing (STOVL) variant was rolled out in
2007, and will join the earlier F35A Conventional Take Off and Landing (CTOL)
variant in flight tests in 2008. This major international defence program is
expected to deliver in excess of 3,000 aircraft over the next 20-30 years.
Magellan has secured major participation on this program in the manufacture of
aircraft machined structures, composite structures, and various engine and
auxiliary sub-assemblies.
    Foreign exchange continued to have a significant negative impact on
Magellan's results and have masked the higher volumes of production, the
increased efficiencies and higher gross margins achieved in the quarter.
    For additional information, please refer to the "Management's Discussion
and Analysis" section of the Annual Report available on www.sedar.com.

    
    Revenues
    --------

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                         Three-months ended          Twelve-months ended
                             December 31                 December 31
    (Expressed in  ----------------------------------------------------------
     thousands)       2007       2006    Change    2007       2006    Change
    -------------------------------------------------------------------------
    Canada        $  78,876  $  68,962   14.4%  $ 289,904  $ 273,305    6.1%
    United States    48,285     45,638    5.8%    188,330    186,597    0.9%
    United Kingdom   28,383     30,077  (5.6)%    119,574    115,321    3.7%
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    Total Revenue   155,544  $ 144,677    7.5%  $ 597,808  $ 575,223    3.9%
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    Consolidated revenues for the fourth quarter of 2007 were $155.5 million,
an increase of $10.9 million or 7.5% from the fourth quarter of 2006. This was
achieved despite the decline in the value of the U.S. dollar versus the
Canadian dollar experienced during the fourth quarter which had a negative
impact on revenue. If the average exchange rates experienced in the comparable
period in 2006 remained constant in 2007, revenues for the fourth quarter
would have been $161.3 million ($5.8 million higher) and would have
represented an increase of 11.5% over 2006. Sales in Canada increased by 14.4%
as Magellan recorded increased sales in its proprietary products. Magellan's
increased production on a number of parts for the Boeing B737 aircraft family
has attributed to the increased sales in both Canada and the United States.
Sales in the United Kingdom decreased by 5.6% due to the foreign exchange
impact on translation. Sales in the United Kingdom in native currency for the
fourth quarter have increased 2.8% over prior year quarter as the production
of parts for the A380 aircraft increased in the quarter with the first
aircraft delivered in December 2007.

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

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                         Three-months ended          Twelve-months ended
                             December 31                 December 31
                   ----------------------------------------------------------
                      2007       2006    Change    2007       2006    Change
    (Expressed in             (restated                    (restated
     thousands)                 note 3)                      note 3)
    -------------------------------------------------------------------------
    Gross profit  $  12,896  $  10,543   22.3%  $  58,914  $  51,022   15.5%
    -------------------------------------------------------------------------
    Percentage of
     revenue           8.3%       7.3%               9.9%       8.9%
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    Gross profits of $12.9 million (8.3% of revenues) were reported for the
fourth quarter of 2007 compared to $10.5 million (7.3% of revenues) during the
same period in 2006. Gross profit, as a percentage of sales, has improved over
2006. Benefits from the Corporation's ongoing rejuvenation of four of its
facilities continue to materialize in the quarter with respect to improved
efficiencies and also better control of scrap in the castings business.
However, the decline in the value of the U.S. dollar versus the Canadian
dollar during the fourth quarter of 2007 had a negative impact on gross
margin. Had exchange rates remained the same as in the fourth quarter of 2006,
gross margin would have been approximately $3.0 million higher for the fourth
quarter of 2007.

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

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                                    Three-months            Twelve-months
                                       ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
                                  2007        2006        2007        2006
                                           (restated               (restated
    (Expressed in thousands)                 note 3)                 note 3)
    -------------------------------------------------------------------------
    Administrative and general
     expenses                  $  10,774   $  11,508   $  42,446   $  41,766
    Loss (Gain) on sale of
     capital assets                    5         539      (1,257)        238
    Foreign exchange (gain) loss     (54)     (3,851)      5,576      (4,429)
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    Total administrative and
     general expenses          $  10,725   $   8,196   $  46,765   $  37,575
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    Percentage of revenue           6.9%        5.7%        7.8%        6.5%
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    Administrative and general expenses were $10.7 million (6.9% of revenues)
in the fourth quarter of 2007 compared to $8.2 million (5.7% of revenues) in
the same period of 2006. The administrative and general expenses before
foreign exchange and the sale of capital assets were $10.8 million (6.9% of
revenues) in the fourth quarter of 2007 compared to $11.5 million (8.0% of
revenues) in the fourth quarter of 2006.

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

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                                    Three-months            Twelve-months
                                       ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
    (Expressed in thousands)      2007        2006        2007        2006
    -------------------------------------------------------------------------
    Interest on bank
     indebtedness and other
     long-term debt            $   3,015   $   3,408   $  12,068   $  10,442
    Convertible debenture
     interest                      1,488       1,488       5,950       5,950
    Accretion charge for
     convertible debt                585         570       2,354       2,289
    Discount on sale of
     accounts receivable           1,528         643       4,211       3,693
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    Total interest expense     $   6,616   $   6,109   $  24,583   $  22,374
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    Interest expense in the fourth quarter of 2007 was $6.6 million,
$0.5 million higher than the fourth quarter of 2006 as a result an increase in
the amount of accounts receivable sold in the quarter in support of the
increased production demand.

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

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                                    Three-months            Twelve-months
                                       ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
                                  2007        2006        2007        2006
                                           (restated               (restated
    (Expressed in thousands)                 note 3)                 note 3)
    -------------------------------------------------------------------------
    (Recovery of) provision for
     current income taxes      $  (1,210)  $     181   $     207   $     264
    Provision for (recovery of)
     future income taxes           1,714      (1,157)     (1,300)     (3,507)
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    Total Provision for
     (recovery of) income
     taxes                     $     504  $     (976)  $  (1,093)  $  (3,243)
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    Effective Tax Rate           (11.3)%       32.4%        8.8%       28.5%
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    During the fourth quarter of 2007 the Corporation recorded a valuation
allowance of $2.7 million against its future tax assets in Canada as the
recovery of the future tax assets were not "more likely than not". In
addition, the valuation allowance of $1.6 million previously recorded with
respect to the tax losses in the United Kingdom was no longer required and as
such, the benefit of these losses was recorded in the current period.

    Amended and Restated Results
    ----------------------------
    Accounting errors and misstatements in accounts receivable were uncovered
at one of the Corporation's divisions during the course of an ongoing process
to collect outstanding accounts receivable on a timely basis. This prompted an
internal investigation that uncovered the overstatement of various assets on
the balance sheet resulting from improper accounting and also discovered
unsupported and unrecorded transactions. As a result of the accounting
irregularities that occurred from 2003 to 2007, the Corporation suffered a
pre-tax loss of $5.8 million, net of anticipated insurance proceeds, as the
overstated carrying values of the assets were written down to their
appropriate values. Currently, the Corporation is engaged in a process to
recover a portion of the loss through its $1.5 million all risk crime
insurance policy. Although the amounts of the restatements relating to the
individual years prior to 2007 were not likely material, the Corporation has
restated those periods, as the cumulative effect of the accounting
irregularities was material in 2007. See note 3 to the unaudited interim
consolidated financial statements.

    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
    -----------------------------------------------------------------------
    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
                               ----------------------------------------------
                                  2007        2006        2007        2006
                                           (restated               (restated
    (Expressed in thousands)                 note 3)                 note 3)
    -------------------------------------------------------------------------
    Net loss                   $  (4,949)  $  (2,035)  $ (11,341)  $  (8,139)
    Interest                       6,616       6,109      24,583      22,374
    Taxes                            504        (976)     (1,093)     (3,243)
    Stock based compensation         400         255       1,450         945
    Amortization charge(note 4)        -           -           -       5,301
    Depreciation and
     amortization                  5,481       5,669      22,799      22,472
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    EBITDA                     $   8,052   $   9,022   $  36,398   $  39,710
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    -------------------------------------------------------------------------

    EBITDA for the fourth quarter of 2007 was $8.1 million, compared to
$9.0 million in the fourth quarter of 2006. It should be noted that EBITDA for
the fourth quarter includes a loss of $2.1 million relating to the accounting
errors and misstatements that were uncovered at one of the Corporation's
divisions.

    Liquidity and Capital Resources
    -------------------------------

    Cash Flow from Operations
    -------------------------

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                                    Three-months            Twelve-months
                                       ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
                                  2007        2006        2007        2006
                                           (restated               (restated
    (Expressed in thousands)                 note 3)                 note 3)
    -------------------------------------------------------------------------
    Decrease (increase) in
     accounts receivable       $  17,958   $  (2,279)  $  16,148   $   7,088
    Decrease (increase) in
     inventories                   4,831       5,166     (16,112)     (9,991)
    Decrease (increase) in
     prepaid expenses and other    2,887      (1,997)     (5,064)       (606)
    (Decrease) increase in
     accounts payable            (11,277)       (658)     (1,463)    (10,257)
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    Changes to non-cash working
     capital balances          $  14,399   $     232   $  (6,491)  $ (13,766)
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    Cash provided by operating
     activities                $  17,329   $   1,062   $   3,050   $   2,576
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the quarter ended December 31, 2007, the Corporation generated
$17.3 million of cash in its operations, compared to $1.1 million in the
fourth quarter of 2006. Cash was generated primarily due to lower accounts
receivable and lower inventories partially offset by lower accounts payable.

    Investing Activities
    --------------------

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                                    Three-months            Twelve-months
                                       ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
    (Expressed in thousands)      2007        2006        2007        2006
    -------------------------------------------------------------------------
    Purchase of capital assets $  (6,504)  $ (10,782)  $ (22,968)  $ (30,972)
    Proceeds from disposals of
     capital assets                  545       5,739       2,240       9,708
    Increase in other assets      (1,724)       (875)      1,279      (4,063)
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    Cash used in investing
     activities                $  (7,683)  $  (5,918)  $ (19,449)  $ (25,327)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the fourth quarter of 2007, the Corporation invested $6.5 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)      2007        2006        2007        2006
    -------------------------------------------------------------------------
    (Decrease) increase in
     bank indebtedness         $  (6,684)  $     609   $  11,695   $  28,138
    (Decrease) increase of
     long-term debt                 (367)        506      13,190       5,456
    Increase (decrease) in
     long-term liabilities           343       1,226      (9,780)     (7,895)
    Issue of Common Shares            11          10          76          50
    Dividends on Preference
     Shares                         (400)       (400)     (1,600)     (1,600)
    -------------------------------------------------------------------------
    Cash (used in) provided
     by financing activities   $  (7,097)  $   1,951   $  13,581  $   24,149
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporation amended its operating credit facility with its existing
lenders on March 30, 2007. Under the terms of the amended agreement, the
maximum amount available under the operating credit facility is a Canadian
dollar limit of $75 million plus a US dollar limit of $90 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. An annual fee of 0.10% of the guaranteed
amount or $0.2 million was paid in 2007 and 2006 in consideration for this
guarantee.
    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 is due July 1, 2008 and bears interest at a rate of 9% per annum, which
was lower than rates provided by the Corporation's financial advisors for
similar instruments. The loan is collateralized and subordinated to the bank
credit facility, thereby assisting the Corporation to remain in compliance
with its senior debt arrangement. Subsequent to year end, the loan was repaid.
    The Corporation's ability to continue as a going concern is contingent
upon its ability to obtain additional sources of funding to finance future
operations. Efforts will be required to obtain these additional funds, but
there is no assurance that additional financing will be available on
acceptable terms, if at all. In the event that the Corporation is not able to
successfully obtain additional financing as required, management will be
required to re-evaluate the Corporation's business operations and to reduce
expenditures. See "Risks and Uncertainties".
    As at December 31, 2007, the Corporation was not in compliance with
respect to the financial covenant ratio of current assets to current
liabilities. Subsequent to the year end, the Corporation amended the operating
credit facility with respect to this covenant.
    As described in Note 1, management of the Corporation is evaluating the
new accounting standard Section 3031, Inventories and believes the manner in
which costs are allocated to inventory will be impacted but the extent of the
impact will not be determined until the evaluation is complete. As a result of
the application of the new standards, the Corporation may be unable to meet
the minimum coverage levels prescribed in the financial covenants in the
operating credit facility for the period ended March 31, 2008. If required,
Management will request a waiver of these covenants.
    On January 30, 2008 the Corporation closed a private placement of an
aggregate of $21.0 million 8.5% convertible unsecured subordinated debentures,
due January 31, 2010 (the "New Debentures") 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 (Note 15 - Subsequent events).
    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 a loan of
$50.0 million (the "Original Loan") 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 is repayable on July 31, 2008. In addition,
in consideration for the provision of additional security for the
Corporation's obligations under its existing secured credit facility, the
Corporation has increased the standby guarantee fee payable to the Chairman of
the Board from 0.1% per annum to 1% per annum of the principal amount
guaranteed (Note 15 - Subsequent events).

    Share Data and Proposed Share Consolidation
    -------------------------------------------
    As at March 28, 2008, the Corporation had 90,892,828 common shares
outstanding and 2,000,000 outstanding First Preference Shares Series A.
    The Board of Directors of Magellan has resolved to propose a
consolidation of Magellan's issued and outstanding Common Shares on the basis
of one new Common Share for each ten Common Shares presently issued and
outstanding. The Board of Directors believes that the anticipated higher share
price resulting from the consolidation may assist in generating investor
interest.

    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.

    Fluctuations in the value of foreign currencies could result in currency
    ------------------------------------------------------------------------
    exchange losses.
    ----------------
    A portion of the Corporation's revenues and expenses are currently
denominated in U.S. dollars and Great British Pounds (GBP), and it is expected
that some revenues and expenses will continue to be based in currencies other
than the Canadian dollar. Therefore, fluctuations in the Canadian dollar
exchange rate relative to these other currencies will impact the Corporation's
results of operations and financial condition from period to period. In
addition, the Corporation is subject to currency fluctuations from the
translation of revenues, expenses, assets and liabilities of its
self-sustaining foreign operations using a functional currency other than the
Canadian dollar. The following table demonstrates the change in the Canadian
dollar in the fourth quarter of 2007 in comparison to the U.S dollar and the
GBP.

    
    ------------------------------------------------------------
                     Beginning of        End of
                        Quarter          Quarter       % Change
    ------------------------------------------------------------
    USD/CAD                0.9948         0.9913         (0.3)%
    GBP/CAD                2.0313         1.9600         (3.5)%
    ------------------------------------------------------------
    ------------------------------------------------------------
    

    The resulting foreign exchange losses are included in net income in the
period. We cannot predict the effect of foreign exchange losses in the future;
however, if significant foreign exchange losses are experienced, they could
have a material adverse effect on our business, results of operations, and
financial condition.

    The agreements with labour unions representing certain of the
    -------------------------------------------------------------
    Corporation's employees are subject to renewal.
    -----------------------------------------------
    If the Corporation is unable to renew all agreements as they become
subject to renegotiation from time to time, it could result in work stoppages
and other labour disturbances which could have a material adverse effect on
its business. This risk may be mitigated by the ability of the Corporation to
transfer work from one location to another.

    The Corporation's debt is significant and may need to be refinanced and
    -----------------------------------------------------------------------
    such refinancing may not be available.
    --------------------------------------
    The Corporation and its subsidiaries have significant debt obligations.
If the Corporation is unable to meet its debt obligations, it may need to
consider refinancing or adopting alternative strategies to reduce or delay
capital expenditures, selling assets or seeking additional equity capital.
    The Corporation renewed its bank credit agreement with its existing
lender on May 25, 2005, as amended from time to time (the "Bank Facility
Agreement"). Under the terms of the Bank Facility Agreement, the Corporation
has an operating credit facility, expiring on May 25, 2007, and extendable for
unlimited one-year periods by agreement of the Corporation and the lenders. On
March 30, 2007, the Bank Facility Agreement was extended to May 24, 2008. The
Corporation's Bank Facility Agreement also requires the Corporation to
maintain specified financial ratios. The Corporation's ability to meet these
financial ratios can be affected by events beyond the Corporation's control,
and there can be no assurance that the Corporation will be able to meet these
ratios. There is no assurance that the Bank Facility Agreement will be renewed
every year or that the terms of renewal will not be materially adverse to the
Corporation. This credit facility is fully guaranteed by Mr. Edwards, a
director and Chairman of the Board of the Corporation. There is also no
assurance that Mr. Edward's guarantee, if required, will be available beyond
the term of the current commitment which ends on May 25, 2008. There is no
assurance that Magellan will be in compliance with all of its bank covenants
at all times during the upcoming twelve months due to unforeseen events or
circumstances, some of which are outlined in the Annual Information Form -
"Risks Inherent in Magellan's Business".

    The Corporation may need additional financing for acquisitions and
    ------------------------------------------------------------------
    capital expenditures and additional financing may not be available on
    ---------------------------------------------------------------------
    acceptable terms.
    -----------------
    The Corporation's ability to grow is dependent upon, and may be limited
by, among other things, availability under the credit facilities and by
particular restrictions contained therein and the Corporation's other
financing arrangements. In that case, additional funding sources may be
needed, and the Corporation may not be able to obtain the additional capital
necessary to pursue its internal growth and acquisition strategy or, if the
Corporation can obtain additional financing, the additional financing may not
be on financial terms, which are satisfactory to it.

    Cancellations, reductions or delays in customer orders may adversely
    --------------------------------------------------------------------
    affect the Corporation's results of operations.
    -----------------------------------------------
    The Corporation's overall operating results are affected by many factors,
including the timing of orders from large customers and the timing of
expenditures to manufacture parts and purchase inventory in anticipation of
future sales of products and services. A large portion of the Corporation's
operating expenses is relatively fixed. Because several of the Corporation's
operating locations typically do not obtain long-term purchase orders or
commitments from customers, the Corporation must anticipate the future volume
of orders based upon the historic purchasing patterns of customers and upon
discussions with customers as to their anticipated future requirements. These
historic patterns may be disrupted by many factors, including changing
economic conditions, inventory adjustments, work stoppages or labour
disruptions, cancellations, reductions or delays in orders by a customer or
group of customers could have a material adverse effect on the Corporation's
business, financial condition and results of operations.

    Critical Accounting Estimates
    -----------------------------
    The preparation of financial statements requires the Corporation to
estimate the effect of various matters that are inherently uncertain as of the
date of the financial statements. Each of these required estimates varies with
respect to the level of judgment involved and the potential impact on the
Corporation's reported financial results. Estimates are deemed critical when
the Corporation's financial condition, change in financial condition or
results of operations would be materially impacted by a different estimate or
a change in estimate from period to period.

    Cost of Sales

    Average unit cost for products produced under long-term contracts is
determined based on the estimated total production costs for a predetermined
program quantity. Program quantities are established based on management's
assessment of market conditions and foreseeable demand at the beginning of the
production stage for each program, taking into consideration both customer
supplied and independent data. The average unit cost is recorded to cost of
sales as products are completed. Under the learning curve concept, which
anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition and management action,
excess over-average production costs during the early stages of a program are
deferred and recovered from sales of products anticipated to be produced later
at lower-than-average costs.
    Estimates of average unit costs and of program quantities are an integral
component of average cost accounting. Management conducts regular reviews as
well as a detailed annual review in the fourth quarter, as part of its annual
budget process, of its cost estimates and program quantities, and the effect
of any revisions are accounted for by way of a cumulative catch-up adjustment
to income in the period in which the revision takes place.

    Inventories

    Raw materials, materials in process and finished products are valued at
the lower of average cost and net realizable value. 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.

    Asset Impairment

    The Corporation evaluates long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. A long-lived asset is considered to be impaired if the total
undiscounted estimated future cash flows are less than the carrying value of
the asset. The amount of the impairment is determined based on discounted
estimated future cash flows. Future cash flows are determined based on
management's estimates of future results relating to the long-lived assets.
These estimates include various assumptions, which are updated on a regular
basis as part of the internal planning process.
    The Corporation regularly reviews its investments to determine whether a
permanent decline in the fair value below the carrying value has occurred. In
determining whether a permanent decline has occurred, management considers a
number of factors that would be indicative of a permanent decline including
(i) a prolonged decrease in the fair value below the carrying value, (ii)
severe or continued losses in the investment and (iii) various other factors
such as a decline or restriction in financial liquidity of an entity in which
the Corporation has an investment, which may be indicative of a decline in
value of the investment. The consideration of these factors requires
management to make assumptions and estimates about future financial results of
the investment. These assumptions and estimates are updated by management on a
regular basis.

    Income Taxes

    The Corporation operates in several tax jurisdictions. As such, its
income is subject to various rates and rules of taxation. The breadth of the
Corporation's operations and the complexity of the taxing legislation and
practices require the Corporation to apply judgment in estimating its ultimate
tax liability. The final taxes paid will depend on many factors, including the
Corporation's interpretation of the legislation and the outcomes of audits by
and negotiations with tax authorities. Ultimately, the final taxes may be
adjusted based on the resolution of these uncertainties.
    The Corporation estimates future income taxes based upon temporary
differences between the assets and liabilities that are reported in its
consolidated financial statements and their tax basis as determined under
applicable tax legislation. The Corporation records a valuation allowance
against its future income tax assets when it believes that it is not "more
likely than not" that such assets will be realized. This valuation allowance
can either be increased or decreased where, in the view of Management, such
change is warranted.

    Foreign Currency Translation

    The functional currency of the Corporation is Canadian dollars. Many of
the Corporation's business undertake transactions in currencies other than the
Canadian dollar. As part of its ongoing review of critical accounting policies
and estimates, the Corporation reviews the foreign currency translation method
of its foreign operations to determine if there are significant changes to
economic facts and circumstances that may indicate that the foreign operations
are largely self-sufficient and the economic exposure is more closely tied to
their respective domestic currencies. Any change, if any, in translation
method resulting from this review will be accounted for prospectively. The
Corporation accounts for its US and UK subsidiaries as self-sustaining foreign
operations.

    Changes in Accounting Policies
    ------------------------------
    Effective January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Sections 1530 Comprehensive Income,
Section 3855 Financial Instruments - Recognition and Measurement and Section
3865 Hedges. The adoption of these new standards resulted in changes in the
accounting for financial instruments and hedges, as well as the recognition of
certain transition adjustments. As provided under the standards, the
comparative interim consolidated financial statements have not been restated,
except for the presentation of translation gains or losses on self-sustaining
foreign operations as part of comprehensive loss.
    The adoption of these Sections is done retroactively without restatement
of the consolidated financial statements of prior periods. The effect of these
changes in accounting policies on net income for the fourth quarter of fiscal
2007 is not significant.
    The reader is referred to Note 2 in the accompanying unaudited interim
consolidated financial statements for the period ended December 31, 2007 for
further details regarding the adoption of these standards.

    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, 2007. The reader is referred to this note for further details
regarding the adoption of these standards.

    Controls and Procedures
    -----------------------
    Based on the current Canadian Securities Administrators ("CSA") rules
under Multilateral Instrument 52-109, the Chief Executive Officer and Chief
Financial Officer (or individuals performing similar functions as a chief
executive officer or chief financial officer) are required to certify as at
December 31, 2007 that they are responsible for establishing and maintaining
disclosure controls and procedures and internal control over financial
reporting, and have assessed the effectiveness of disclosure controls and
procedures.
    Management does not expect disclosure controls and procedures to prevent
all errors, misstatements or fraud. In addition, internal control over
financial reporting that management has designed and established may be
circumvented and rendered ineffective as a result of unauthorized acts of
individuals through collusion or management override. A system of control, no
matter how well conceived and operated, can provide only reasonable, but not
absolute, assurance that control objectives are met. Due to the inherent
limitations in a system of control, there is no absolute assurance that all
control issues, which may result in errors, misstatements, or fraud, can be
prevented or detected. The inherent limitations include, amongst other things:
(i) management's assumptions and judgments could ultimately prove to be
incorrect under varying conditions and circumstances; (ii) the impact of
isolated errors; (ii) assumptions about the likelihood of future events.
    In preparation for the annual certification, the Corporation had
dedicated resources to document disclosure controls and procedures and
internal control over financial reporting, and evaluate the effectiveness of
disclosure controls and procedures. An evaluation was carried out, under the
supervision of and with participation of management, including the President
and Chief Operating Officer (President and Chief Executive Officer effective
as of January 28, 2008) and Vice President, Finance and Corporate Secretary,
of the effectiveness of the Corporation's disclosure controls, as defined in
the rules of the CSA. Based on that evaluation, management concluded that the
Corporation's disclosure controls and procedures were effective as of
December 31, 2007 as the established disclosure controls and procedures
provide a reasonable level of assurance that information required to be
disclosed by the Corporation in its filings is accumulated, communicated, and
reported on a timely basis.
    No changes were made in the Corporation's internal control over financial
reporting during the Corporation's most recent interim period, that have
materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.

    Outlook
    -------
    In 2008, the civil aerospace market continues to show strong demand for
new and replacement aircraft and engines in the airliner, business jet and
helicopter market sectors. This strength is seen globally through both orders
and deliveries. Constraining factors include the high price of fuel, and fears
that increased fares may temper the growth in passenger traffic. The civil
airline industry is experiencing some consolidation in the mainline airlines,
and some restructuring in the low-cost sector. These measures aim to
strengthen the profitability of the carriers, enabling continued fleet
replacement with new, fuel-efficient aircraft. Business jets and helicopters
continue to show strong sales in all sectors in ever-widening global markets.
Finally, defence aerospace markets remain solid, with several new programs
moving forward towards production ramp-up. The Joint Strike Fighter F35
aircraft, a number of new military transport aircraft, and a broad range of
helicopters are amongst those programs with the most potential impact.
    Magellan advanced its position on targeted new programs during 2007, and
hopes to see positive results in 2008 through increased production and
delivery. Magellan also concluded a number of initiatives in 2007 to modernize
four of its operating facilities, to further develop a robust supply chain in
both domestic and emerging markets, and to renew commercial arrangements with
customers that reflect current and expected financial conditions. The
successful retooling, supply base strengthening and commercial updates put
Magellan in a more competitive position in 2008.
    Magellan entered 2008 with current participation in both high-volume
single-aisle programs (Airbus A320 family and Boeing 737 family), the leading
military aircraft programs in the U.S.A. and Europe (F15, F18E/F, AH64D and
the Eurofighter/Typhoon), a broad range of engine participation on airliners,
business jets, helicopters and military aircraft. Participation in the key new
programs (A380, B787, F35, A350) is at various stages from in-production to
initial design and development. Magellan has been able to maintain its
targeted 60:40 revenue split between civil and defence work, strong
participation with both Airbus and Boeing, engine participation with four of
five targeted engine primes, and full access to the global helicopter market.
    Magellan continues to face the investment challenges associated with the
launch of multiple new generation programs, competitive pressures of the
global distribution of aerospace manufacturing activities, and in the short
term, the headwinds of unfavourable foreign exchange rates. These challenges
are being offset to some degree by natural hedging through U.S. dollar
purchasing, the advancement to production of the A380 and B787 aircraft, and
the increased velocity of the F35 program. Magellan has addressed start-up
investments for the new programs over the past three years, and has put a plan
in place to meet the production ramp-up costs to be faced over the next 2-5
years. Magellan is also well advanced on achieving the cost advantages of the
global emerging markets.

    
    On behalf of the Board

    (signed)                           (signed)

    Richard A. Neill                   James S. Butyniec
    Vice Chairman                      President and Chief Executive Officer

    March 31, 2008

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

    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

    (unaudited)                     Three-months            Twelve-months
                                        ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
    (Expressed in thousands of    2007        2006        2007        2006
     dollars, except per share             (restated               (restated
     amounts)                                note 3)                 note 3)
    -------------------------------------------------------------------------
    Revenues                   $ 155,544   $ 144,677   $ 597,808   $ 575,223
    Cost of revenues             142,648     134,134     538,894     524,201
    -------------------------------------------------------------------------
    Gross profit                  12,896      10,543      58,914      51,022
    -------------------------------------------------------------------------

    Administrative and general
     expenses                     10,725       8,196      46,765      37,575
    Facility rationalization
     (note 4)                          -        (751)          -       2,455
    Interest                       6,616       6,109      24,583      22,374
    -------------------------------------------------------------------------
                                  17,341      13,554      71,348      62,404
    -------------------------------------------------------------------------
    (Loss) income before
     income taxes                 (4,445)     (3,011)    (12,434)    (11,382)
    Provision for (recovery of)
     income taxes
      - Current                   (1,210)        181         207         264
      - Future                     1,714      (1,157)     (1,300)     (3,507)
    -------------------------------------------------------------------------
                                     504        (976)     (1,093)     (3,243)
    -------------------------------------------------------------------------
    (Loss) net income for
     the period                   (4,949)     (2,035)    (11,341)     (8,139)
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of the period      88,096      98,123      95,688     105,427
    Dividends on preference
     shares                         (400)       (400)     (1,600)     (1,600)
    Net income (loss) for
     the period                   (4,949)     (2,035)    (11,341)     (8,139)
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                 $  82,747   $  95,688   $  82,747   $  95,688

    -------------------------------------------------------------------------
    Loss per common share
    -------------------------------------------------------------------------
    Basic and diluted          $   (0.06)  $   (0.03)  $   (0.14)  $   (0.11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

    (unaudited)                     Three-months            Twelve-months
                                        ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
                                  2007        2006        2007        2006
    (Expressed in thousands of             (restated               (restated
     dollars)                                note 3)                 note 3)
    -------------------------------------------------------------------------
    Net loss for the period    $  (4,949)  $  (2,035)  $ (11,341)  $  (8,139)
    Other comprehensive loss:
    Net unrealized gain (loss)
     on translation of net
     investment in foreign
     operations (Note 10)         (2,917)      8,523     (25,264)      5,073
    -------------------------------------------------------------------------
    Comprehensive (loss)
     income                    $  (7,866)  $   6,488   $ (36,605)  $  (3,066)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



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

    CONSOLIDATED BALANCE SHEETS

    (unaudited)                                      As at          As at
                                                  December 31    December 31
                                                      2007           2006
                                                                  (restated
    (Expressed in thousands of dollars)                             note 3)
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash                                          $     4,884    $     9,896
    Accounts receivable                                35,659         56,232
    Inventories (note 5)                              274,011        275,751
    Prepaid expenses and other                         13,127          9,628
    Future income tax assets                            6,264          5,914
    -------------------------------------------------------------------------
    Total current assets                              333,945        357,421

    Capital assets, net                               245,727        264,801
    Other                                              55,707         52,680
    Future income tax assets                           14,064          7,068
    -------------------------------------------------------------------------
    Total assets                                  $   649,443    $   681,970
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness (note 6)                    $   139,748    $   142,457
    Accounts payable and accrued charges              119,881        128,066
    Convertible debentures                             13,834              -
    Current portion of long-term debt                   2,099          2,039
    -------------------------------------------------------------------------
    Total current liabilities                         275,562        272,562

    Long-term debt                                     27,839         15,902
    Future income tax liabilities                      16,799         20,785
    Convertible debentures                             55,950         67,430
    Other long-term liabilities                         7,366          2,748
    -------------------------------------------------------------------------
    Total liabilities                                 383,516        379,427
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 7)                            234,310        234,171
    Contributed surplus                                 3,249          1,799
    Other paid in capital                              11,100         11,100
    Retained earnings                                  82,747         95,688
    Accumulated other comprehensive loss (note 10)    (65,479)       (40,215)
    -------------------------------------------------------------------------
    Total shareholders' equity                        265,927        302,543
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity    $   649,443    $   681,970
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



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

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)                     Three-months            Twelve-months
                                        ended                   ended
                                     December 31             December 31
                               ----------------------------------------------
                                  2007        2006        2007        2006
    (Expressed in thousands of             (restated               (restated
     dollars)                                note 3)                 note 3)
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    (Loss) net income for the
     period                    $  (4,949)  $  (2,035)  $ (11,341)  $  (8,139)
    Add (deduct) items not
     affecting cash
      Depreciation and
       amortization                5,481       5,669      22,799      22,472
      Loss (gain) on sale of
       capital assets                  5      (3,328)     (1,257)     (5,423)
      Write-down of assets           206         277         206         277
      Change in deferred
       revenue                     1,155           -       3,544           -
      Employee future benefits    (1,745)        516      (6,977)      2,064
      Facility rationalization
       charge (note 4)                 -           -           -       5,301
      Stock based
       compensation (note 8)         400         255       1,450         945
      Issuance of common shares
       to the Directors               63          63          63          63
      Accretion of convertible
       debentures                    600         570       2,354       2,289
      Future income tax
       (recoveries) provision      1,714      (1,157)     (1,300)     (3,507)
    -------------------------------------------------------------------------
                                   2,930         830       9,541      16,342
    -------------------------------------------------------------------------
    Net change in non-cash
     working capital items
     relating to operating
     activities                   14,399         232      (6,491)    (13,766)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities         17,329       1,062       3,050       2,576
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets    (6,504)    (10,782)    (22,968)    (30,972)
    Proceeds from disposal of
     capital assets                  545       5,739       2,240       9,708
    (Decrease) increase in
     other assets                 (1,724)       (875)      1,279      (4,063)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   (7,683)     (5,918)    (19,449)    (25,327)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    (Decrease) increase in bank
     indebtedness                 (6,684)        609      11,695      28,138
    (Decrease) increase of
     long-term debt                 (367)        506      13,190       5,456
    Increase (decrease) in
     long-term liabilities           343       1,226      (9,780)     (7,895)
    Issue of Common Shares            11          10          76          50
    Dividends on Preference
     Shares                         (400)       (400)     (1,600)     (1,600)
    -------------------------------------------------------------------------
    Cash (used in) provided
     by financing activities      (7,097)      1,951      13,581      24,149
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash              (1,451)        981      (2,194)      1,072
    -------------------------------------------------------------------------

    Net (decrease) increase
     in cash                       1,098      (1,924)     (5,012)      2,470
    Cash, beginning of period      3,786      11,820       9,896       7,426
    -------------------------------------------------------------------------
    Cash, end of period        $   4,884   $   9,896   $   4,884   $   9,896
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    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 unaudited interim consolidated financial statements have
    been prepared by Magellan Aerospace Corporation ("the Corporation") in
    accordance with generally accepted accounting principles in Canada with
    respect to preparation of interim financial statements on a basis
    consistent with those followed in the most recent audited consolidated
    financial statements. Accordingly, these unaudited interim 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, 2007.

    In the opinion of management, the unaudited interim consolidated
    financial statements reflect all adjustments, which consist only of
    normal and recurring adjustments, necessary to present fairly the
    financial position at December 31, 2007 and the results of operations and
    cash flows for the three and nine month periods ended December 31, 2007
    and 2006.

    2.  CHANGE IN ACCOUNTING POLICY

    Financial instruments

    On January 1, 2007, the Corporation adopted the CICA Handbook Sections
    3855, Financial Instruments - Recognition and Measurement, 3865, Hedges,
    1530, Comprehensive Income and 3861, Financial Instruments - Disclosure
    and Presentation. All derivative instruments, including embedded
    derivatives, are recorded in the statement of financial position at fair
    value unless exempted from derivative treatment as a normal purchase and
    sale. All changes in their fair value are recorded in income unless cash
    flow hedge accounting is used, in which case changes in fair value are
    recorded in other comprehensive income.

    Embedded derivatives are required to be separated and measured at fair
    values if certain criteria are met. Embedded derivatives include elements
    of contracts whose cash flows move independently from the host contract.

    The impact of the change in the accounting policy was not material, as at
    January 1, 2007.

    Section 3855 Financial Instruments - Recognition and Measurement

    Under the new standards, all financial instruments are classified into
    one of the following five categories: held for trading, held to maturity
    investments, loans and receivables, available-for-sale financial assets,
    or other financial liabilities. All financial instruments, including
    derivatives, are included on the consolidated statement of financial
    liabilities, which are measured at fair value except for loans and
    receivables, held-to-maturity investments and other financial
    liabilities, which are measured at amortized costs. Held for trading
    financial investments are subsequently measured at fair value and all
    gains and losses are included in net income in the period in which they
    arise. Available-for-sale financial instruments are subsequently measured
    at fair value with revaluation gains and losses included in other
    comprehensive income until the instruments is derecognized or impaired.

    The Corporation has classified its cash and cash equivalents and
    investments, which are classified as other assets, as held for trading.
    Accounts receivable are classified as loans and receivables. Accounts
    payable and long-term debt have been classified as other financial
    liabilities, all of which are measured at amortized cost.

    Section 3865 Hedges

    Under the previous standards, derivatives that met the requirements for
    hedge accounting were generally accounted for on an accrual basis. Under
    the new standards, in a cash flow hedge relationship, the effective
    portion of the change in the fair value of the hedging derivative is
    recognized in accumulated other comprehensive income. The ineffective
    portion is recognized in net income.

    As at January 1, 2007 the Corporation's derivative contracts were not
    designated as hedges and as a result are recorded on the Consolidated
    Balance Sheets at their fair value. Any change in the fair value during
    the period are reported in foreign exchange in the Consolidated Statement
    of Operations.

    Section 1530 Comprehensive Income

    Accumulated other comprehensive incomes is included on the consolidated
    balance sheets as a separate component of shareholders' equity (net of
    tax), and includes unrealized foreign currency translation gains and
    losses on self-sustaining foreign operations net of the gains or losses
    on related hedges. The Corporation now presents a consolidated statement
    of comprehensive income as part of the consolidated financial statements.
    As required, comparative consolidated financial statements provided for
    earlier periods relating to foreign currency translation of self-
    sustaining foreign operations have been restated to reflect application
    of this section. All other changes resulting from the adoption of the new
    standards are recorded on January 1, 2007 without restatement of
    comparative figures.

    3.  AMENDED AND RESTATED 2006

    Accounting errors and misstatements in accounts receivable were uncovered
    at one of the Corporation's divisions during the course of an ongoing
    process to collect outstanding accounts receivable on a timely basis.
    This prompted an internal investigation that uncovered the overstatement
    of various assets on the balance sheet resulting from improper accounting
    and also discovered unsupported and unrecorded transactions. As a result
    of the accounting irregularities that occurred from 2003 to 2007, the
    Corporation suffered a pre-tax loss of $5.8 million, net of anticipated
    insurance proceeds, as the overstated carrying values of the assets were
    written down to their appropriate values. Currently, the Corporation is
    engaged in a process to recover a portion of the loss through its
    $1.5 million all risk crime insurance policy. Although the amounts of the
    restatements relating to the individual years prior to 2007 were not
    material in management's opinion, the Corporation has restated those
    periods, as the cumulative effect of the accounting irregularities was
    material in 2007.

    A loss of $2,158 was recorded in 2007 (2006 - loss $1,159) in relation to
    the accounting irregularities. The impacts on the Statements of
    Operations for 2007 and 2006 were an increase of cost of revenues by
    $1,588 and $249, respectively, and an increase of administrative and
    general expenses by $570 and $910, respectively. Included in
    administrative and general expenses is a write-down of assets of $206 and
    $277, in 2007 and 2006 respectively. The 2006 opening retained earnings
    balance was also reduced by $1,592.

    As a portion of the loss relates to prior year's financial results, the
    Corporation has restated its 2006 fourth quarter results as follows:

    -------------------------------------------------------------------------
                                                                  Originally
    December 31, 2006                                Restated       Reported
    -------------------------------------------------------------------------
    Consolidated Statement of Operation
    -------------------------------------------------------------------------
      Cost of revenues                                134,134        133,885
      Administrative and general expenses               8,196          7,286
      Recovery of income taxes                           (976)          (576)
      Net loss for the period                          (2,035)        (1,276)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Consolidated Balance Sheet
    -------------------------------------------------------------------------
      Accounts receivable                              56,232         58,066
      Inventories                                     275,751        276,462
      Prepaid expenses and other                        9,628         10,396
      Future income tax assets                          7,068          5,829
      Retained Earnings                                95,688         98,039
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4.  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 in the
    third and fourth quarter of 2006 and realized gains on the sales of
    $2,095 and $3,566, respectively. To prepare this real estate for sale,
    machinery and equipment was disposed of for minimal proceeds.
    Accordingly, a non-cash charge of $5,301 ($0.04 per share on an after tax
    basis) was recorded in the financial statements in the second quarter of
    2006.

    5.  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.

    6.  BANK INDEBTEDNESS

    The Corporation has an operating credit facility, with a syndicate of
    banks, with a Canadian limit of $75,000 plus a US limit of US$90,000
    ($164,217 at December 31, 2007). Bank indebtedness of $139,748 (2006 -
    $142,457) is payable on demand and bears interest at the bankers'
    acceptance or LIBOR rates, plus 0.875% (5.7% at December 31, 2007 (2006 -
    5.9%)). Included in the amount outstanding at December 31, 2007 is
    US$84,171 (2006 - US$82,325). At December 31, 2007, the Corporation had
    drawn $139,748 under the operating credit and had issued letters of
    credit totalling $1,912 such that $22,557 was unused and available. A
    fixed and floating charge debenture on accounts receivable, inventories
    and capital assets is pledged as collateral for the operating loans. The
    Chairman of the Board of the Corporation has provided a guarantee for the
    full amount of the operating credit facility.

    7.  CAPITAL STOCK

    The following table summarizes information on share capital and related
    matters as at December 31, 2007:

    -------------------------------------------------------------------------
                                                  Outstanding    Exercisable
    -------------------------------------------------------------------------
    Common shares                                  90,884,719
    -------------------------------------------------------------------------
    Common shares stock options                     4,367,850        899,450
    -------------------------------------------------------------------------
    Preferred shares                                2,000,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average number of common shares outstanding during the
    three-month and twelve-month periods ended December 31, 2007 was
    90,864,302 and 90,849,253, respectively.

    8.  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 3,001,103. Options are granted at an exercise price
    equal to 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
    20.0% 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, 2007 was $400 and
    $1,450, respectively (December 31, 2006 - $255 and $945). In the twelve-
    month period ended December 31, 2007, there were 1,430,250 stock options
    issued at an exercise price of $3.20. The fair value of these options was
    $1.57.

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

    -------------------------------------------------------------------------
                                                         2007           2006
    -------------------------------------------------------------------------
    Risk-free interest rate                             4.08%          4.00%
    Expected volatility                                   46%            46%
    Expected average life of options                  5 years        5 years
    Expected dividend yield                                0%             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 black-out 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.

    9.  SEGMENTED INFORMATION

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

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

    -------------------------------------------------------------------------
                                          As at December 31, 2007
                              -----------------------------------------------
                                   Canada          US          UK      Total
                              -----------------------------------------------
    Capital assets             $ 117,945   $ 107,254   $  20,528   $ 245,727
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                 As at December 31, 2006 Restated (note 3)
                              -----------------------------------------------
                                  Canada          US          UK       Total
                              -----------------------------------------------
    Capital assets             $ 121,805   $ 120,553   $  22,443   $ 264,801
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                       Three-months ended December 31
                              -----------------------------------------------
                                                   2007
                              -----------------------------------------------
                                  Canada          US          UK       Total
                              -----------------------------------------------
    Revenue
    Domestic                   $  24,065   $  39,020   $  25,598   $  88,683
    Export                        54,811       9,265       2,785      66,861
    -------------------------------------------------------------------------
    Total revenue              $  78,876   $  48,285   $  28,383   $ 155,544
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       Three-months ended December 31
                              -----------------------------------------------
                                                   2006
                              -----------------------------------------------
                                  Canada          US          UK       Total
                              -----------------------------------------------
    Revenue
    Domestic                   $  25,957   $  37,500   $  29,578   $  93,035
    Export                        43,005       8,138         499      51,642
    -------------------------------------------------------------------------
    Total revenue              $  68,962   $  45,638   $  30,077   $ 144,677
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                      Twelve-months ended December 31
                              -----------------------------------------------
                                                   2007
                              -----------------------------------------------
                                  Canada          US          UK       Total
                              -----------------------------------------------
    Revenue
    Domestic                   $  94,269   $ 160,191   $ 113,829   $ 368,289
    Export                       195,635      28,139       5,745     229,519
    -------------------------------------------------------------------------
    Total revenue              $ 289,904   $ 188,330   $ 119,574   $ 597,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                      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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The major customers for the Corporation for the three-month and nine-
    month periods ended December 31, 2007 are as follows:

    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                      December 31             December 31
                                   ------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Major Customers
    Canadian operations
      - Number of customers            3           3           3           3
      - Percentage of total
         Canadian revenue            36%         32%         37%         35%
    US operations
      - Number of customers            1           3           1           3
      - Percentage of total US
         revenue                     42%         54%         39%         58%
    UK operations
      - Number of customers            1           1           1           1
      - Percentage of total
         UK revenue                  66%         73%         81%         80%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. ACCUMULATED OTHER COMPREHENSIVE LOSS

    Other comprehensive loss includes unrealized foreign currency translation
    gains and losses, which arise on the translation to Canadian dollars of
    assets and liabilities of the Corporation's self-sustaining foreign
    operations. The unrealized currency translation loss for the three-month
    and twelve-month periods ended December 31, 2007 was $2,917 and $25,264,
    respectively (2006 - gain of $8,523 and $5,073). This loss is reflected
    in the consolidated balance sheets and has no impact on the net loss for
    the period.

    11. FINANCIAL INSTRUMENTS

    The Corporation's policy is not to utilize derivative financials
    instruments for trading or speculative purposes. The Corporation may
    utilize derivative instruments in the management of its foreign currency
    and interest rate exposures.

    (a) Fair Value

    The Corporation has determined the estimated fair values of its financial
    instruments based on appropriate valuation methodologies, however, with
    the exception of the convertible debentures, considerable judgment is
    required to develop these estimates. Accordingly, these estimated fair
    values are not necessarily indicative of the amounts the Corporation
    could realize in a current market exchange. The estimated fair value
    amounts can be materially affected by the use of different assumptions or
    methodologies. The methods and assumptions used to estimate the fair
    value of financial instruments are described below:

    Cash, accounts receivable, bank indebtedness and accounts payable and
    accrued charges

    Due to the short period to maturity of these instruments, the carrying
    values as presented in the consolidated balance sheets are reasonable
    estimates of their fair values.

    Long-term debt

    The fair value of the Corporation's long-term debt, based on current
    rates for debt with similar terms and maturities, is $28,579 at
    December 31, 2007.

    Convertible Debentures

    The fair market value of the Corporation's Convertible Debentures,
    calculated based on available market data at December 31, 2007 was
    $69,649.

    (b) Credit risk

    The Corporation's financial assets that are exposed to credit risk
    consist primarily of cash and accounts receivable.

    The Corporation, in the normal course of business, is exposed to credit
    risk from its customers, substantially all of which are in the aerospace
    industry. These accounts receivable are subject to normal industry credit
    risks.

    (c) Interest rate risk

    The Corporation is exposed to significant interest rate cash flow risk in
    its bank indebtedness As any market change will have an immediate, or
    almost immediate, impact in the interest paid.

    (d) Forward foreign exchange contracts

    The Corporation has entered into forward foreign exchange contracts to
    mitigate future cash flow exposures in U.S. dollars and Norwegian Kroners
    (NOK). Under these contracts the Corporation is obliged to purchase or
    sell specific amounts of U.S. dollars and NOK at predetermined dates and
    exchange rates. These contracts are matched with anticipated operational
    cash flows in U.S. dollars and Norwegian Kroners.

    The Corporation has a foreign exchange contract outstanding at
    December 31, 2007 as follows:

    -------------------------------------------------------------------------
                                                                    Exchange
                                                       Amount           rate
    -------------------------------------------------------------------------
    Maturity - less than 1 year - NOK                  26,096         0.1811
    Maturity - less than 1 year - U.S. Dollar         $52,100         1.0075
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    These foreign exchange contracts are recorded in other liabilities at
    their fair value of $817.

    12. EMPLOYEE FUTURE BENEFITS

    The total benefit cost in the registered plans for the three-month and
    nine-month periods ended December 31 includes the following components:

    -------------------------------------------------------------------------
                                   Three-months ended    Twelve-months ended
                                      December 31             December 31
                                  -------------------------------------------
    (Expressed in thousands)        2007        2006        2007        2006
    -------------------------------------------------------------------------
    Current service cost       $     467   $     577   $   1,868   $   2,310
    Interest cost on projected
     benefit obligations           1,549       1,614       6,280       6,454
    Expected returns on plan
     assets                           86      (1,363)     (5,226)     (5,452)
    Amortization of net
     actuarial loss                 (445)          -           -           -
    Amortization of past
     service costs                (1,141)         70        (781)        281
    -------------------------------------------------------------------------
    Net benefit cost
     recognized                $     516   $     898   $   2,141   $   3,593
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. RELATED PARTY TRANSACTIONS

    During the three-month and twelve-month periods ended December 31, 2007,
    the Corporation sold receivables to a corporation wholly owned by a
    common director in the amount of $83,810 and $228,143, respectively (2006
    - $15,549 and $62,455), for a discount of $716 and $2,484, respectively
    (2006 - $61 and $580) representing an annualized interest rate of 7.5%
    and 7.5%, respectively (2006 - 7.0% and 8.1%). Included in this balance,
    as at December 31, 2007, is a reserve of $5,924 (2006 - $895).

    14. SUPPLEMENTARY INFORMATION

    Foreign exchange gain or loss on the conversion of foreign currency
    denominated working capital balances and debt for the three-month and
    twelve-month periods ended December 31, 2007 was a gain of $54 and a loss
    of $5,576, respectively (2006 - gain of $3,851 and $4,429).

    15. SUBSEQUENT EVENTS

    (a) New financing

    On January 30, 2008 the Corporation closed a private placement of an
    aggregate of $20,950 8.5% convertible unsecured subordinated debentures,
    due January 31, 2010 (the "New Debentures") the proceeds of which were
    used to fund, in part, the repayment of the $69,985 principal amount of
    outstanding 8.5% unsecured subordinated debentures (the "Existing
    Debentures) which matured on January 31, 2008.

    The New Debentures are redeemable by Magellan for the first six months of
    the term at 102.5% of principal value and the holders have no conversion
    rights. After the first six months of the term, the New Debentures are
    convertible, at the option of the holder, at any time prior to maturity
    into common shares of Magellan at a conversion price of $2.00 per share,
    which is equal to a conversion rate of 500 common shares per $1,000
    principal amount of debentures or the issuance on conversion of
    approximately 10,475,000 common shares in total.

    On January 30, 2008, in order to fund the remaining balance of
    approximately $50,000 on the maturity of the Existing Debentures, a
    corporation controlled by the Chairman of the Board, provided a loan of
    $50,000 (the "Original Loan") and a $15,000 bridge loan (the "Bridge
    Loan") to the Corporation. All of the funds from the Bridge Loan and
    approximately $35,000 of the funds from the Original Loan were used to
    repay the balance of the Existing Debentures and the $15,000 additional
    funds from the Original Loan was provided to the Corporation to retire
    $15,000 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 is repayable on July 31,
    2008. In addition, in consideration for the provision of additional
    security for the Corporation's obligations under its existing secured
    credit facility, the Corporation has increased the standby guarantee fee
    payable to the Chairman of the Board from 0.1% per annum to 1% per annum
    of the principal amount guaranteed.

    (b) New acquisition

    On February 13, 2008 the Corporation acquired 100% of the outstanding
    common shares of Verdict Aerospace Components Ltd. ("Verdict"), a UK
    corporation, for a cash purchase price of $4,240. The results of
    operations will be included in the consolidated financial statements as
    of January 1, 2008, the effective date of purchase. Verdict is a high
    precision manufacturer of make to print components and assemblies for the
    global aerospace industry. Verdict specializes in precision airframe
    components and assemblies for aerostructures, orbit payloads and missile
    seeker systems. Management is in the process of finalizing the purchase
    price allocation.

    16. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

    The comparative consolidated financial statements have been reclassified
    from statements previously presented to conform to the presentation of
    the 2007 consolidated financial statements.
    





For further information:

For further information: James S. Butyniec, (905) 677-1889 ext. 233,
President and Chief Executive Officer; John B. Dekker, (905) 677-1889 ext 224,
Vice President Finance & Corporate Secretary


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