Magellan Aerospace Corporation Announces Financial Results

TORONTO, Nov. 14, 2011 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the third quarter of 2011.  All amounts are expressed in Canadian Dollars unless otherwise indicated. The results are summarized as follows:

                                         
          Three month period ended
September 30
      Nine month period ended
September 30
        2011     2010     Change       2011     2010     Change
Expressed in thousands of dollars, except per share amounts       $     $     %       $     $     %
Revenues       161,643     184,704     (12.5)%       518,120     543,752     (4.7)%
Gross Profit       22,449     23,763     (5.5)%       67,304     68,191     (1.3)%
Net Income       8,649     7,983     8.3%       20,766     18,938     9.7%
Net Income per Share - Diluted       0.17     0.16     6.3%       0.42     0.38     10.5%

This news release contains certain forward-looking statements that reflect the current views and/or expectations of the Corporation with respect to its performance, business and future events.  Such statements are subject to a number of risks, uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied.  The Corporation assumes no future obligation to update these forward-looking statements except as required by law.

The Corporation has included certain measures in this news release, including EBITDA, the terms for which are not defined under International Financial Reporting Standards.  The Corporation defines EBITDA as earnings before interest, dividends on preference shares, 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.

OVERVIEW

Magellan is a diversified supplier of components to the aerospace industry and in certain circumstances for power generation projects. Through its wholly owned subsidiaries, Magellan designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for military and space markets, and complementary specialty products.  The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services and supplies in certain circumstances parts and equipment for power generation projects.

The Corporation's strategy has been to focus on several core competencies within the aerospace industry.  These include precision machining of a wide variety of aerospace material, composites, complex high technology magnesium and aluminum alloy castings, repair and overhaul technologies and design of structures.  The Corporation is now seeking to leverage these core competencies by achieving growth in applications where these abilities are critical in meeting customer needs.

BUSINESS UPDATE

During the third quarter of 2011, economic uncertainty affected much of the world. Conflicts in the Middle East and the debt crisis in Europe as well as concerns about the US economy continued to dominate the headlines.  Notwithstanding this environment, demand from the commercial airline sector for products supplied by the Corporation remains robust. Despite the fact that profit reporting by many airlines has declined from previous reporting periods, to date this has not manifested itself in a softening of demand.  In the third quarter of 2011, the Original Equipment Manufacturers ("OEM") (namely Boeing and Airbus) increased their production rates on both single aisle and twin aisle aircraft platforms in line with rates anticipated in previous forecasts. At the same time,  a negative cloud on the horizon is the fact that there are strong indicators that defence spending in both Europe and North America will likely be curtailed to some degree and those programs approved for expenditures will likely be closely scrutinized going forward. It is expected that any increase in either commercial or defence aerospace spending will be in support of emerging markets, primarily Asia and India.

The Corporation remains well positioned with existing contracts and the anticipated growth in the single aisle A320 and B737 programs. The Corporation should also benefit from opportunities to increase support to both Airbus and Boeing in their re-engineering initiatives in this single aisle market.  The Corporation has been fully engaged in supporting the entry into service and the production ramp up of Boeing's B787 and the development and launch of production on Airbus's A350 twin aisle aircraft, further solidifying our position on commercial airline programs. However, to date both the B787 and A350 programs have experienced delays which has caused the Corporation shortfalls in revenues.  In the defence sector, Magellan continues to benefit from the investment made in technology, equipment and facilities in support of the F-35 Program, with the program now moving forward in support of production rate increases. The Corporation recently completed a 140,000 square foot addition to its Winnipeg location in support of the JSF program which was partially funded through a $14.9 million mortgage. The facility provides a state-of-the-art environment for the manufacture of the advanced composite components required for the JSF program. In the fourth quarter of 2011, the Corporation will continue to invest in machinery and equipment for the new facility. Any delays in these new programs will impact the amount of revenue and corresponding profits earned by the Corporation.

In the aero engine marketplace, Magellan's agreement with Rolls-Royce to support their engine shaft business through investment in the Corporation's Haverhill shaft facility is progressing well and is on plan. It is expected that the additional investment during the fourth quarter of 2011 and first quarter of 2012 in shaft technology in this facility will be fully operational by mid-2012.

The global space market is growing in segments that include science and space exploration, defence, and media, which affect earth observation, communication, navigation, and entertainment.  The Corporation has been involved in various space activities for over four decades and has more recently established itself as a satellite developer, obtaining an important role within the Canadian space program over the past decade.  With two complete satellites delivered, Magellan is presently under contract to design the satellite bus for Canada's RADARSAT Constellation Mission (RCM), with manufacturing and assembly of the three-satellite RCM constellation to commence in 2012.

The Corporation's focus on achieving operational excellence through standardized business processes across all divisions has continued unabated and has generated positive reactions by our customer base and has also positively impacted our financial performance. Non-core work continues to be out-sourced to local and emerging markets, which successfully frees up capacity for new core programs as they ramp up. Business development activities remain focused on increasing the level and complexity of core activity within the operating sites and adding value to the Corporation's key customers.

During the second quarter of 2011, the Corporation's Winnipeg location was affected by a work stoppage of union employees, which while now resolved, has had a negative impact on the Corporation's third quarter financial results. It is expected that full revenue recovery will not be achieved until the first quarter of 2012.

For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2010 Annual Report available on www.sedar.com.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

Effective January 1, 2011, the Corporation began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"). Accordingly, these IFRS results and all future results will be reported under IFRS and prior period comparative amounts, including the opening statement of financial position at January 1, 2010, have been conformed to reflect results as if the Corporation had always prepared its financial statements using IFRS.

ANALYSIS OF OPERATING RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2011

The Corporation reported lower revenue in the third quarter of 2011 than the third quarter of 2010, primarily as a result of lower revenues in the power generation project segment. Gross profit and net income for the third quarter of 2011 were $22.4 million and $8.6 million, respectively, a decrease from the third quarter of 2010 gross profit of $23.8 million and an increase from the third quarter of 2010 net income of $8.0 million.

Consolidated Revenue

Overall, the Corporation's revenues decreased when compared to the third quarter of 2010.

                                                               
               Three month period
ended September 30
        Nine month period
ended September 30
Expressed in thousands of dollars               2011         2010       Change         2011         2010       Change
Aerospace           $   149,033     $   147,788       0.8%     $   447,359     $   467,135       (4.2)%
Power Generation Project               12,610         36,916       (65.8)%         70,761         76,617       (7.6)%
Total revenues               161,643         184,704       (12.5)%         518,120         543,752       (4.7)%

Consolidated sales for the third quarter ended September 30, 2011 decreased 12.5% to $161.6 million from $184.7 million in the third quarter of 2010, due mainly to decreased revenues earned in the Power Generation Project segment partially offset a slight increase in revenues earned in the Aerospace segment.   As the Corporation moves into late 2011 and 2012, revenue from the Power Generation Project will decrease on a year over year basis unless the Corporation receives further contracts in this area.  Overall consolidated sales in the third quarter of 2011 where at the lowest level of quarterly sales since the first quarter of 2008.

Aerospace Segment

Revenues for the Aerospace segment were as follows:
 
            Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars               2011         2010       Change         2011         2010       Change
Canada           $   67,878     $   72,772       (6.7)%     $   204,540     $   235,294       (13.1)%
United States               46,197         45,635       1.2%         140,224         140,351       (0.1)%
United Kingdom               34,958         29,381       19.0%         102,595         91,490       12.1%
Total revenues               149,033         147,788       0.8%         447,359         467,135       (4.2)%

Consolidated aerospace revenues for the third quarter of 2011 of $149.0 million were 0.8% higher than revenues of $147.8 million in the third quarter of 2010.  Revenues in Canada in the third quarter of 2011 decreased 6.7% from the same period in 2010 as the Corporation experienced lower volumes on certain product lines and the delay in shipments in the first month of the quarter as one of the Corporations locations resumes shipments after a work stoppage.  In addition US denominated sales in Canada were negatively impacted by the decline of the US dollar against the Canadian dollar.  Increased revenues in the United States in the third quarter of 2011 in comparison to the third quarter of 2010 resulted from increased volumes experienced on both new and existing programs.  Revenues in the United Kingdom in the third quarter of 2011 increased over revenues in the same period in 2010 as the Airbus statement of work continues to increase in volume.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:
 
            Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                 2011           2010       Change           2011           2010       Change
Power Generation Project           $     12,610     $     36,916       (65.8)%     $     70,761     $     76,617       (7.6)%
Total revenues                 12,610           36,916       (65.8)%           70,761           76,617       (7.6)%

Decreased revenues in the third quarter of 2011 over the same period in 2010 represents the Corporation's progress made on the Ghana electric power generation project in the period in comparison to the progress made in the previous quarter.  As the Corporation moves into late 2011 and 2012, revenue from the Power Generation Project will decrease on a year over year basis unless the Corporation receives further contracts in this area.

Gross Profit                                                                      
           
Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                 2011           2010       Change           2011           2010       Change
Gross profit           $     22,449     $     23,763       (5.5)%     $     67,304     $     68,191       (1.3)%
Percentage of revenues                 13.9%           12.9%                   13.0%           12.5%        

Gross profit of $22.4 million (13.9% of revenues) was reported for the third quarter of 2011 compared to $23.8 million (12.9% of revenues) during the same period in 2010.  Gross profit in the most recent quarter of 2011, as a percentage of revenues, increased over the same period in 2010 due in large part to additional investment tax credits (ITC's) of $1.1 million recognized in the third quarter of 2011 when compared to the same quarter in the prior year.  Had the Corporation not recorded the additional benefits from the ITC's in the quarter, gross profit, as a percentage of revenue would have been consistent with the prior year percentage of 12.9%. Overall margins also increased as a result of change in the mix of revenues between the Aerospace segment and the Power Generation Project segment.

Administrative and General Expenses
            Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                 2011             2010       Change           2011           2010       Change
Administrative and general expenses         $       8,811     $       9,387       (6.1)%     $     27,647     $     28,848       (4.2)%
Percentage of revenues                 5.4%             5.1%                   5.3%           5.3%        

Administrative and general expenses were $8.8 million (5.4% of revenues) in the third quarter of 2011 compared to $9.4 million (5.1% of revenues) in the third quarter of 2010.

Other                                                                        
                     
Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                             2011             2010             2011             2010
Foreign exchange (gain) loss                     $       (355)     $       243     $       38     $       863
Plant and program closure recoveries                                                                 (820)
Loss on sale of PP&E                             87             34             117             152
Total other                             (268)             277             155             195

Other income of $0.3 million in the third quarter of 2011 consisted of realized and unrealized foreign exchange gains offset by losses on the sale of property, plant and equipment. Other expense in the third quarter of 2010 resulted from unrealized foreign exchange losses and losses on the sale of property, plant and equipment.

Interest Expense                                                  
          Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars             2011           2010           2011           2010
Interest on bank indebtedness and long-term debt       $     1,949     $     3,567     $     7,359     $     11,214
Convertible debenture interest             1,006           1,008           2,992           2,997
Accretion charge for convertible debt, borrowings and long-term debt             389           207           779           617
Discount on sale of accounts receivable             145           75           489           297
Total interest expense             3,489           4,857           11,619           15,125

Interest expense of $3.5 million in the third quarter of 2011 was lower than the third quarter of 2010 amount of $4.9 million.  Interest on bank indebtedness and long-term debt decreased as principal amounts outstanding during the third quarter of 2011 were lower than those in the third quarter of 2010.  Reduced interest rates on the long-term debt and lower interest rate spreads on bank indebtedness also contributed to the reduction in interest expense in the current quarter when compared to the third quarter of 2010.

Provision for Income Taxes                                                          
                  Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                     2011           2010           2011           2010
Expense (recovery) of current income taxes               $     1,111     $     (417)     $     1,136     $     575
Expense of deferred income taxes                     657           1,356           5,671           3,870
Total expense of income taxes                     1,768           939           6,807           4,445
Effective tax rate                     17.0%           10.5%           24.7%           19.0%

The Corporation recorded an income tax expense of $1.8 million for the third quarter of 2011, compared to an income tax expense of $0.9 million for the third quarter of 2010.  The change in effective tax rates is a result of a changing mix of income across the different jurisdictions in which the Corporation operates.

SELECTED QUARTERLY FINANCIAL INFORMATION
              International Financial Reporting Standards     Previous
Canadian
GAAP
            2011                 2010                       2009
Expressed in millions of dollars           Sep 30     Jun 30     Mar 31     Dec 31     Sep 30     Jun 30     Mar 31     Dec 31
Revenues           $ 161.6     $ 186.0     $  170.5     $  187.9     $ 184.7     $  181.4     $  177.6     $  165.8
Net Income           8.6     4.9     7.2     15.4     8.0     7.1     3.8     2.0
Net Income per Share                                                      
  Basic           0.47     0.27     0.40     0.85     0.44     0.39     0.21     0.09
  Diluted           0.17     0.10     0.15     0.29     0.16     0.14     0.07     0.05

Revenues and net income reported in the quarterly information was impacted by the fluctuations in the Canadian dollar exchange rate in comparison to the US dollar and British Pound.  The US dollar/Canadian dollar exchange rate in the third quarter of 2011 fluctuated reaching a low of 0.9440 and a high of 1.0326.  During the third quarter of 2011, the British Pound relative to the Canadian dollar fluctuated reaching a low of 1.5302 and a high of 1.6328. Had exchange rates remained at levels experienced in the third quarter of 2010, reported revenues in the third quarter of 2011 would have been higher by $6.5 million. Net income was higher in the third quarter of 2011 than the same quarter in 2010 in large part due to $1.7 million less depreciation and amortization charged in the 2011 third quarter than the same period in 2010.  Net income for the fourth quarter of 2010 of $15.4 million was higher than other quarterly net income disclosed in the table above as in the fourth quarter of 2010 the Corporation recognized a reversal of previous impairment losses of $7.6 million against intangible assets relating to various civil aircraft programs.  As at September 30, 2011 the Corporation does not estimate that a reversal of previous impairment losses will be recorded in the fourth quarter of 2011.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes certain measures in this news release, including EBITDA (earnings before interest expense, dividends on preference shares, 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 IFRS, but EBITDA is not a recognized measure under IFRS, and the Corporation's 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 IFRS or as an alternative to cash provided by or used in operations.

                                                             
                    Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                       2011           2010           2011           2010
Net income                 $     8,649     $     7,983     $     20,766     $     18,938
Interest                       3,489           4,857           11,619           15,125
Dividends on preference shares                                 320           310           640
Taxes                       1,768           939           6,807           4,445
Stock-based compensation                       (7)           55           50           215
Depreciation and amortization                       6,891           8,195           22,424           26,375
EBITDA                       20,790           22,349           61,976           65,738

EBITDA for the third quarter of 2011 was $20.8 million, compared to $22.3 million in the third quarter of 2010.  As previously discussed, decreased gross profit resulted in decreased EBITDA for the current quarter.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow from Operations                                                  
                  Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                   2011         2010         2011         2010
Decrease (increase) in accounts receivable               $   10,055     $   5,998     $   (8,448)     $   3,332
(Increase) decrease in inventories                   (2,132)         (12,931)         26,456         (2,828)
Decrease in prepaid expenses and other                   8,399         18,393         2,747         27,994
Decrease in accounts payable                   (26,579)         (18,565)         (31,607)         (27,040)
Changes to non-cash working capital balances                   (10,257)         (7,105)         (10,852)         1,458
Cash provided by operating activities                   1,062         8,471         29,586         45,354

In the quarter ended September 30, 2011, the Corporation generated $1.1 million of cash from its operations, compared to cash generated by operations of $8.5 million in the third quarter of 2010.  Cash was generated mainly by a decrease in accounts receivable and prepaid expenses and other, offset by decreases in accounts payable and inventories.

Investing Activities                                              
              Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars               2011         2010         2011         2010
Purchase of property, plant & equipment           $   (11,567)     $   (7,928)     $   (25,837)     $   (13,102)
Proceeds of disposals of property plant & equipment               210                 346         136
Increase in other assets               (89)         (3,443)         (7,012)         (11,759)
Cash used in investing activities               (11,446)         (11,371)         (32,503)         (24,725)

In the third quarter of 2011, the Corporation invested $26.1 million in property, plant and equipment of which $20.8 million represented the Corporation's investment in an advanced composite manufacturing centre in Manitoba to support the Joint Strike Fighter program.  A portion of the costs of the advanced composite manufacturing centre was financing through a mortgage in the amount of $14.9 million.  The remaining investments in property, plant and equipment was to upgrade and enhance capabilities for current and future programs.

Financing Activities                                                      
                  Three month period
ended September 30
      Nine month period
ended September 30
Expressed in thousands of dollars                     2011           2010         2011         2010
Increase (decrease) in bank indebtedness               $     986     $     4,587     $   9,796     $   (8,933)
Increase (decrease) in debt due within one year                     2,327           (6,089)         9,108         (13,071)
Decrease in long-term debt                     (5,916)           (5,569)         (14,284)         (11,253)
Increase in long-term debt                     3,220           889         5,209         6,086
Increase (decrease) in long-term liabilities                     1,340           (183)         (317)         (485)
(Decrease) increase in provisions                     (137)                   62        
Increase in borrowings                     1,420           1,766         3,038         3,295
Dividends on preference shares                                               (400)
Redemption of preference shares                                       (12,000)         (4,000)
Cash provided by (used in) financing activities                     3,240           (4,599)         612         (28,761)

On April 29, 2011 the Corporation amended its credit agreement with its existing lenders and extended the loan [originally $65.0 million, $34.5 million as at September 30, 2011] due on July 1, 2011 (the "Original Loan") due to Edco Capital Corporation ("Edco") in order to provide loan facilities for a two year period. Under the terms of the amended operating credit agreement, the Corporation and the lenders have agreed that the maximum available under the operating credit facility was amended to a Canadian dollar limit of $125.0 million plus a US dollar limit of $50.0 million [previously a Canadian dollar limit of $105.0 million plus a US dollar limit of $70.0 million] and the maturity date has been extended to April 29, 2013 and will continue to be fully guaranteed until April 29, 2013 by the Chairman of the Board of the Corporation, in consideration of the continued payment by the Corporation of an annual fee payable monthly equal to 0.63% [previously 1.15%] of the gross amount of the operating credit facility. The operating credit facility is extendible for unlimited future one year renewal periods, subject to mutual consent of the syndicate of lenders and the Corporation.

The terms of the amended operating credit facility permit the Corporation to (i) repay, in whole or in part, the Original Loan outstanding from Edco and (ii) retract all [approximately $12.0 million as at April 30, 2011] of the Corporation's 8.0% Cumulative Redeemable First Preference Shares Series A (the "Preference Shares) on or after April 30, 2011, together with payment of all accrued and unpaid dividends on the shares to be retracted provided there is no current default or event of default under the operating credit facility and after the repayment of the loan and the payment of the retraction amount the Corporation has at least $25.0 million in availability under the operating credit facility. As a result, the Corporation retracted all the remaining Preference Shares during the second quarter of 2011 in the amount of $12.0 million.

In addition, the extension and restatement of the Original Loan (outstanding as at September 30, 2011 in the principal amount of $34.5 million) from Edco, which is wholly owned by the Chairman of the Board of the Corporation, was completed in the third quarter of 2011.  The Corporation has the right to repay the secured subordinated loan at any time without penalty.  The interest rate was decreased from 11% per annum to 7.5% per annum commencing July 1, 2011 and the loan extended to July 1, 2013 in consideration of the payment on July 1, 2011 of a fee to Edco equal to 1% of the principal amount outstanding on such date.  During the three and nine month periods ended September 30, 2011, the Corporation repaid $5.1 million and $11.5 million, respectively, of the Original Loan.

The Corporation's 10% convertible debentures, which are due on April 30, 2012, were reclassified from a long term liability to a short term liability during the quarter. The debentures are convertible, at the option of the holder at any time prior to April 30, 2012, in whole or in multiples of $1,000, into fully paid and non-assessable common shares of the Corporation at the conversion price of $1.00 per common share which is equal to the issuance on conversion of approximately 40,000,000 common shares in total.  Given the conversion price of the convertible debentures are in the money, it is likely that these will be converted into common shares of the Corporation on or before their maturity.

During the quarter the Corporation entered into a 5 year variable rate term mortgage in the amount of $14.9 million, under which interest is charged at a margin of 1.75% over the lender's prime lending rate of 3.0% at September 30, 2011. The mortgage is secured by certain land and building.  Due to the large capital expenditure the Corporation incurred in the third quarter of 2011 (relative to previous quarters) and to be incurred in the fourth quarter of 2011, the Corporation's long term debt levels will be increasing somewhat.

DERIVATIVE CONTRACTS

The Corporation has entered into foreign forward exchange contracts to mitigate future cash flow exposures in US dollars.  Under these contracts the Corporation is obliged to purchase specific amounts at predetermined dates and exchange rates.  These contracts are matched with anticipated operational cash flows in US dollars.  As at September 30, the Corporation has foreign exchange contracts outstanding as follows:

                                                           
                                  Amount           Floor           Ceiling
Maturity - less than 1 year - US dollar                                 4,500           1.0354           1.1111

The fair values of the Corporation's forward foreign exchange contracts are based on the current market values of similar contracts with the same remaining duration as if the contract had been entered into on September 30, 2011.

SHARE DATA

As at October 31, 2011, the Corporation had 18,209,001 common shares outstanding and $40.0 million convertible debentures convertible into 40,000,000 common shares. The dilutive weighted average number of common shares outstanding, resulting from the potential common shares issuable on the conversion of the convertible debentures, for the three month period ending September 30, 2011 was 58,209,001.

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 help identify and manage significant operational and financial risks.

For more information in relation to the risks inherent in Magellan's business, reference is made to the information under "Risk Factors" in the Corporation's Management's Discussion and Analysis for the year ended December 31, 2010 and to the information under "Risks Inherent in Magellan's Business" in the Corporation's Annual Information Form for the year ended December 31, 2010, which has been filed with SEDAR (www.sedar.com).

OUTLOOK

The Corporation continues to monitor and analyze key indicators of the global economy for signs that solutions adopted by governments globally are successfully implemented so as to ensure that economic stability continues to support what is currently a strong civil aerospace market. Large economies, such as Europe, United States, India and China will need to continue to deal effectively with the current economic challenges in order to sustain prudent and necessary military and defence spending. The global commercial markets will be heavily influenced by the Asian and Emerging markets while the defence market, still dominated by the United States and Europe, will continue to be under budget duress and fiscal restraints.

The Corporation is focused on the active transition to the future state of aerospace industry technology in support of its strategic core capabilities to ensure that its investment strategy is properly matched to our customers' expressed needs. The Corporation's current efforts are now concentrated on supporting the Boeing 787 and Airbus A350 commercial airliner programs and the Joint Strike Fighter defence program, all of which programs are currently experiencing delays.

Increased global demand for commercial airliners has resulted in both Airbus and Boeing implementing production rate increases and launching engine enhancements programs in support of their current single aisle platforms. These increases and planned improvements apply primarily to the A320 (neo) and B737 families of aircraft, but also to the current twin-aisle A330 and B777 models.

The Corporation's industrial power generation project in Ghana is proceeding on schedule and the Corporation continues to assess additional opportunities that emerge and will respond accordingly.

The Corporation's strategy to participate in new aircraft and engine programs during the development phase has been effective in capturing work packages, with the appropriate technology and complexity to move us up the global supply chain. The Corporation has focused its marketing initiatives on communication at senior levels with key customers to assess their needs and thereby position itself to provide solutions to these customers. As new programs are initiated by the prime contractors, Magellan will evaluate each opportunity and pursue those best suited for the Corporation.

ADDITIONAL INFORMATION

Additional information relating to Magellan Aerospace Corporation, including the Corporation's annual information form, can be found on the SEDAR web site at www.sedar.com.

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking statements that reflect the current views and/or expectations of the Corporation with respect to its performance, business and future events.  Such statements are subject to a number of uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied. These forward looking statements can be identified by the words such as "anticipate", "continue", "estimate", "forecast", "may", "project", "could", "plan", "intend", "should", "believe" and similar words suggesting future events or future performance. In particular there are forward looking statements contained under the headings: "Overview" which outlines certain expectations for future operations and "Outlook" which outlines certain expectations for the future. These statements assume the continuation of the current regulatory and legal environment; the continuation of trends for passenger airliner and defence production and are subject to the risks contained herein and outlined in our annual information form.  The Corporation assumes no future obligation to update these forward-looking statements except as required by law.

 
MAGELLAN AEROSPACE CORPORATION
IINTERIM CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                         
                    Three month period
ended September 30
      Nine month period
ended September 30
(unaudited)
(expressed in thousands of dollars, except per share amounts)
              2011
$
      2010
$
      2011
$
      2010
$
Revenues               161,643       184,704       518,120       543,752
Cost of revenues               139,194       160,941       450,816       475,561
Gross profit               22,449       23,763       67,304       68,191
                                         
Administrative and general expenses               8,811       9,387       27,647       28,848
Other               (268)       277       155       195
Dividends on preference shares                     320       310       640
                13,906       13,779       39,192       38,508
                                         
Interest               3,489       4,857       11,619       15,125
Income before income taxes               10,417       8,922       27,573       23,383
                                         
Income taxes                                        
  Current               1,111       (417)       1,136       575
  Deferred               657       1,356       5,671       3,870
                1,768       939       6,807       4,445
Net income               8,649       7,983       20,766       18,938
                                         
Other comprehensive income(loss)                                        
  Foreign currency translation               13,137       (2,676)       9,750       (4,253)
Comprehensive income               21,786       5,307       30,516       14,685
                                         
Net income per share                                        
  Basic               0.47       0.44       1.14       1.04
  Diluted               0.17       0.16       0.42       0.38
                                       

 
MAGELLAN AEROSPACE CORPORATION  
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  
                                     
(unaudited)
(expressed in thousands of dollars)
                    September 30
2011
$
    December 31
2010
$
      January 1
2010
$
Current assets                                              
Cash                     23,898     24,952       22,641
Trade and other receivables                     110,717     94,222       97,553
Inventories                     127,646     150,798       147,248
Prepaid expenses and other                     9,282     11,838       38,458
                      271,543     281,810       305,900
Non-current assets                                              
Property, plant and equipment                     270,912     239,119       254,256
Investment properties                     3,091     3,192       3,369
Intangible assets                     69,584     71,949       71,840
Other assets                     28,858     22,593       6,732
Deferred tax assets                     23,720     19,836       19,861
                      396,165     356,689       356,058
Total assets                     667,708     638,499       661,958
                                     
Current liabilities                                                  
Bank indebtedness                         117,046       140,590
Accounts payable and accrued liabilities                     108,166     130,563       131,196
Provisions                     5,353     5,324       4,441
Preference shares                         8,000      
Debt due within one year                     62,502     58,541       17,213
                      176,021     319,474       293,440
Non-current liabilities                                                  
Bank indebtedness                     128,614          
Long-term debt                     70,114     17,843       74,408
Convertible debentures                         38,901       38,182
Deferred tax liabilities                     12,501     7,961       4,781
Preference shares                         4,000      
Provisions                     2,151     2,079       2,148
Borrowings subject to specific conditions                     16,410     13,372       9,096
Other long-term liabilities                     10,736     14,274       19,756
                      240,526     98,430       148,371
                                     
Equity                                              
Share capital                     214,440     214,440       234,389
Contributed surplus                     2,023     1,973       1,707
Other paid in capital                     13,565     13,565       13,565
Retained earnings                     21,775     1,009       (29,514)
Accumulated other comprehensive loss                     (642)     (10,392)      
                      251,161     220,595       220,147
Total liabilities and equity                     667,708     638,499       661,958
                                     

                                       
MAGELLAN AEROSPACE CORPORATION  
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW  
                                       
                Three month period
ended September 30
      Nine month period
ended September 30
(unaudited)
(expressed in thousands of dollars)
            2011
$
      2010
$
      2011
$
      2010
$
Cash flow from operating activities                                      
  Net income             8,649       7,983       20,766       18,938
  Amortization/depreciation of intangible assets and property,
plant and equipment
            6,891       8,195       22,424       26,375
  Net loss on disposal of assets             129       34       159       152
  Decrease in defined benefit plans             (2,183)       (1,430)       (3,415)       (3,801)
  Deferred revenue                   94             210
  Stock-based compensation             (7)       55       50       215
  Accretion of convertible debentures             198       207       589       616
  Deferred taxes             (2,358)       438       (135)       1,191
  (Increase) decrease in working capital             (10,257)       (7,105)       (10,852)       1,458
Net cash from operating activities             1,062       8,471       29,586       45,354
                                       
Cash flow from investing activities                                      
  Purchase of property, plant and equipment             (11,567)       (7,928)       (25,837)       (13,102)
  Proceeds from disposal of property, plant and equipment             210             346       136
  Increase in other assets             (89)       (3,443)       (7,012)       (11,759)
Net cash used in investing activities             (11,446)       (11,371)       (32,503)       (24,725)
                                       
Cash flow from financing activities                                      
  Increase (decrease) in bank indebtedness             986       4,587       9,796       (8,933)
  Increase (decrease) in debt due within one year             2,327       (6,089)       9,108       (13,071)
  Decrease in long-term debt             (5,916)       (5,569)       (14,284)       (11,253)
  Increase in long-term debt             3,220       889       5,209       6,086
  Increase (decrease) in long-term liabilities             1,340       (183)       (317)       (485)
  (Decrease) increase in provisions             (137)             62      
  Increase in borrowings             1,420       1,766       3,038       3,295
  Dividends on preference shares                               (400)
  Redemption of preference shares                         (12,000)       (4,000)
Net cash from (used in) financing activities             3,240       (4,599)       612       (28,761)
                                       
Decrease in cash during the period             (7,144)       (7,499)       (2,305)       (8,132)
Cash at beginning of the period             29,207       21,657       24,952       22,641
Effect of exchange rate differences             1,835       (329)       1,251       (680)
Cash at end of the period             23,898       13,829       23,898       13,829

 

For further information:

James S. Butyniec 
President and Chief Executive Officer 
T: (905) 677-1889 ext. 233 
E: jim.butyniec@magellan.aero  
                    John B. Dekker
Vice President Finance & Corporate Secretary
T: (905) 677-1889 ext. 224
E: john.dekker@magellan.aero

 


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