Magellan Aerospace Corporation - Second Quarter Report - June 30, 2007



    TORONTO, Aug. 13 /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 August 13, 2007, the Corporation released its financial results for
the second 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              Six-months ended
                               June 30                       June 30
                  -----------------------------------------------------------
    (Expressed in
     thousands,
     except per
     share amounts)    2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Revenues      $ 150,283  $ 149,977    0.2%  $ 294,338  $ 286,999    2.6%
    -------------------------------------------------------------------------
    Gross Profit  $  16,213  $  13,132   23.5%  $  31,462  $  27,428   14.7%
    -------------------------------------------------------------------------
    Net loss      $  (1,734) $  (5,666)      -  $  (3,481) $  (6,324)      -
    -------------------------------------------------------------------------
    Net loss per
     share        $   (0.02) $   (0.07)      -  $   (0.05) $   (0.08)      -
    -------------------------------------------------------------------------
    EBITDA(*)     $   9,230  $   9,595   -3.8%  $  18,743  $  19,494   -3.9%
    -------------------------------------------------------------------------
    EBITDA(*)
     per share    $    0.10  $    0.11   -9.1%  $    0.21  $    0.21    0.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    -------------------------------------------------------------------------
    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.
    -------------------------------------------------------------------------

    Management's Discussion and Analysis
    ------------------------------------
    During the second quarter of 2007, the aerospace industry continued to
expand in all major sectors. Magellan benefited from growth in the civil
airliner, business jet and helicopter sectors. In the airliner sector,
production rates for single aisle, and selected twin aisle aircraft, continued
the strong growth of the previous quarter and this trend is expected to
continue throughout 2007. Business jet and helicopter growth remains very
strong, and the resulting growth in small and mid-sized turbofan engines has
tested Magellan's increased capacity to support these products. The more
stable defence sector is highlighted by the launch of low rate initial
production of the F35 Joint Strike Fighter aircraft and associated engines.
    However, Magellan was negatively impacted in the quarter by the
continuing halt in A380 large aircraft program due to unresolved design and
manufacturing issues. The aircraft is expected to resume deliveries by fourth
quarter 2007. The value of Magellan sales delayed in the second quarter was
approximately $8 million, bringing the total value to $15 million for the
first half of 2007.
    Operationally, Magellan continues to ramp up production for initial
testing and flight units of landing gear components for the Boeing B787
aircraft, and for low rate initial production of various elements of the F35
and engines of the multi-national Joint Strike Fighter program. Demand for the
B787 continues to grow rapidly, with over 600 aircraft now on firm order for
deliveries commencing in 2008. The F35 is also benefiting from strong American
and international political support, and the current demand for approximately
2,500 aircraft over the next 25 years appears likely to increase.
    The effects of the Magellan transition from the ramp-down of mature and
discontinued programs of previous years to the ramp-up of new programs over
the next several reporting periods is reflected in the modest increase in
revenue quarter over quarter. The return to production of the A380 aircraft,
forecast to occur in the fourth quarter of 2007, and continuing growth in
existing in-house programs will help to restore revenues to plan.

    Revenues
    --------

    
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                          Three-months ended              Six-months ended
                               June 30                       June 30
                  -----------------------------------------------------------
    (Expressed in
     thousands)        2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Canada        $  73,139  $  71,937    1.7%  $ 137,781  $ 137,203    0.4%
    United States    47,251     49,333  (4.2)%     95,314     93,229    2.2%
    United Kingdom   29,893     28,707    4.1%     61,243     56,567    8.3%
    -------------------------------------------------------------------------
    Total Revenue $ 150,283  $ 149,977    0.2%  $ 294,338  $ 286,999    2.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Consolidated revenues for the second quarter of 2007 were $150.3 million,
an increase of $0.3 million from the second quarter of 2006. If the average
exchange rates experienced in the comparable period in 2006 remained constant
in 2007, revenues for the second quarter would have been $152.4 million, an
increase of $2.1 million. The decline in the value of the US dollar versus the
Canadian dollar during the second quarter had a negative impact on revenue. If
average exchange rates experienced in the first quarter of 2007 remained
constant in the second quarter of 2007, consolidated revenues for the second
quarter of 2007 would have been approximately $157.0 million, or approximately
$6.7 million higher.

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

    
    -------------------------------------------------------------------------
                          Three-months ended              Six-months ended
                               June 30                       June 30
                  -----------------------------------------------------------
    (Expressed in
     thousands)        2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Gross profit  $  16,213  $  13,132   23.5%  $  31,462  $  27,428   14.7%
    -------------------------------------------------------------------------
    Percentage
     of revenue       10.8%       8.8%              10.7%       9.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Gross profits of $16.2 million (10.8% of revenues) were reported for the
second quarter of 2007 compared to $13.1 million (8.8% of revenues) during the
same period in 2006. Gross profit, as a percentage of sales, has been
consistent in 2007 and has improved over 2006. Benefits from the Corporation's
ongoing rejuvenation of four of its facilities have started to materialize in
the quarter with respect to improved efficiencies and also better control of
scrap in the castings business. The decline in the value of the US dollar
versus the Canadian dollar during the second quarter of 2007 also had a
negative impact on gross margin. Had exchange rates remained the same as in
the first quarter of 2007, gross margin would have been approximately
$1.4 million higher for the second quarter of 2007.

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

    
    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                            June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Administrative and general
     expenses                     $  11,007  $  10,007  $  22,555  $  20,256
    -------------------------------------------------------------------------
    Foreign exchange loss/(gain)      2,154          -      2,523       (282)
    -------------------------------------------------------------------------
    Total administrative and
     general expenses             $  13,161  $  10,007  $  25,078  $  19,974
    -------------------------------------------------------------------------
    Percentage of revenue              8.8%       6.7%       8.5%       7.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Administrative and general expenses were $13.2 million, or 8.8% of
revenues in the second quarter of 2007 compared to $10.0 million, or 6.7% of
revenues in the same period of 2006. Included in total administration and
general expenses for the second quarter of 2007, is a foreign exchange loss of
$2.2 million which had a negative impact on administrative and general
expenses in the quarter. Without this item, administrative and general
expenses were $11.0 million (or 7.3% of revenues) in the second quarter of
2007 compared to $10.0 million (or 6.7% of revenues) in the second quarter of
2006.

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

    
    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                            June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Interest on bank indebtedness
     and other long-term debt     $   3,074  $   3,015  $   5,862  $   5,040
    Convertible debenture interest    1,487      1,462      2,975      2,950
    Accretion charge for
     convertible debt                   590        573      1,174      1,146
    Discount on sale of accounts
     receivable                       1,021      1,027      1,835      1,937
    -------------------------------------------------------------------------
    Total interest expense        $   6,172  $   6,077  $  11,846  $  11,073
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest expense in the second quarter of 2007 was $6.2 million,
$0.1 million higher than the second quarter of 2006.

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

    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                            June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Provision for current income
     taxes                        $     844  $      90  $     933  $     182
    Recovery of future income
     taxes                           (2,230)    (2,677)    (2,914)    (2,778)
    -------------------------------------------------------------------------
    Total recovery of income
     taxes                        $  (1,386) $  (2,587) $  (1,981) $  (2,596)
    -------------------------------------------------------------------------
    Effective Tax Rate                44.4%      31.3%      36.3%      29.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There was a recovery of income taxes of $1.4 million for the second
quarter of 2007, compared to an income tax recovery of $2.6 million for the
second quarter of 2006. The change in effective tax rates is a result of a
changing mix of income across the different jurisdictions in which Magellan
operates.

    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
    -----------------------------------------------------------------------

    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                            June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Net loss                      $  (1,734) $  (5,666) $  (3,481) $  (6,324)
    Interest                          6,172      6,077     11,846     11,073
    Taxes                            (1,386)    (2,587)    (1,981)    (2,596)
    Facility rationalization
     charge                               -      5,301          -      5,301
    Stock based compensation            395        255        650        435
    Depreciation and amortization     5,783      6,215     11,709     11,605
    -------------------------------------------------------------------------
    EBITDA                        $   9,230  $   9,595  $  18,743  $  19,494
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EBITDA for the second quarter of 2007 was $9.2 million, a decrease of $0.4
million from the second quarter of 2006. Higher gross profit in the second
quarter of 2007 compared to 2006 was offset by the higher administrative and
general expenses.

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

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

    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                            June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Decrease (increase) in
     accounts receivable          $   7,599  $   5,099  $  (5,010) $     536
    Increase in inventories          (5,995)    (3,429)   (23,335)   (19,386)
    (Increase) decrease in
     prepaid expenses and other      (7,627)       898     (8,441)    (1,829)
    Increase (decrease) in
     accounts payable                 6,307     (2,932)     3,116      8,178
    -------------------------------------------------------------------------
    Changes to non-cash working
     capital balances             $     284  $    (364) $ (33,670) $ (12,501)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities         $   3,084  $   3,637  $ (26,513) $  (3,116)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the quarter ended June 30, 2007, the Corporation generated $3.1 million
of cash in its operations, compared to $3.6 million in the second quarter of
2006. Cash was generated due to lower accounts receivable and higher accounts
payable, offset by increases to inventory and prepaid expenses. Inventories
rose in response to increasing demand from the Corporation's customers.

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

    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                          June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Purchase of capital assets    $  (3,259) $ (11,084) $ (10,345) $ (14,143)
    Proceeds of disposals of
     capital assets                      79        239        353        335
    Increase in other assets           (643)    (1,711)    (1,665)    (2,589)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   $  (3,823) $ (12,556) $ (11,657) $ (16,397)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the second quarter of 2007, the Corporation invested $3.3 million in
capital assets to upgrade and enhance its capabilities for current and future
programs. In 2006 the Corporation rationalized and modernized four of its
facilities. These programs were essentially completed by the end of 2006.

    Financing Activities
    --------------------

    -------------------------------------------------------------------------
                                    Three-months ended      Six-months ended
                                          June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Increase in bank indebtedness $   1,149  $  11,758  $  20,957  $  20,478
    (Decrease) increase of
     long-term debt                    (580)     4,689     13,826      4,572
    (Decrease) increase in
     long-term liabilities             (340)    (8,112)       347     (8,037)
    Issue of Common Shares               21         12         39         26
    Dividends on Preference Shares     (400)      (400)      (800)      (800)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities         $    (150) $   7,947  $  34,369  $  16,239
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporation renewed its operating credit facility, on March 30, 2007,
with its existing lenders. Under the terms of the renewed agreement, the
maximum amount available under the operating credit facility was increased by
$20 million to $175 million with a maturity date of May 24, 2008. The facility
is extendable for unlimited one-year renewal periods and continues to be fully
guaranteed by the Chairman of the Board of the Corporation. An annual fee of
0.10% of the guaranteed amount or $175 (2006 - $155) is paid in consideration
for this guarantee. Due to this guarantee, interest is charged at the bankers'
acceptance or LIBOR rates, plus 0.875% compared to the rate charged prior to
the guarantee of bankers' acceptance or LIBOR rates, plus 4.5%. The net annual
savings to the Corporation is approximately $5.3 million assuming an average
of $150 million borrowed under the operating facility.
    On March 30, 2007, the Corporation borrowed $15 million by way of a
secured promissory note from a corporation with a common director. This note
is due July 1, 2008 and bears interest at a rate of 9% per annum, which was
lower than rates provided by the Corporation's financial advisors for similar
instruments. The note is collateralized and subordinated to the bank credit
facility, thereby assisting the Corporation to remain in compliance with its
senior debt arrangement.
    The Corporation's 8.5% convertible unsecured subordinated debentures
currently outstanding are due January 31, 2008. The Corporation is reviewing a
number of options with respect to refinancing these debentures including
replacement with another form of debt or conversion into common shares.

    Outstanding Share Data
    ----------------------
    As at August 13, 2007, the Corporation had 90,847,533 common shares
outstanding and 2,000,000 outstanding First Preference Shares Series A.

    Risks and Uncertainties
    -----------------------
    The Corporation manages a number of risks in each of its businesses in
order to achieve an acceptable level of risk without hindering the ability to
maximize returns. Management has procedures to identify and manage significant
operational and financial risks. For a more detailed discussion of these
potential business risks, readers should review the "Risk Factors" section of
the 2006 Annual MD&A filed by the Corporation with the Canadian securities
regulatory authorities, which are hereby incorporated by reference.

    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 production 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 cost and net realizable value, with cost determined on a moving
weighted average basis. 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 second 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 June 30, 2007 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
June 30, 2007 that they are responsible for establishing and maintaining
disclosure controls and procedures and internal control over financial
reporting.
    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
    -------
    Magellan continues to experience improved gross margins achieved through
completed rejuvenation efforts at several operating divisions, greater pricing
power, and resolution of a number of program issues with its customers. The
market continues to be strong, with both Airbus and Boeing showing increased
order and production growth, and the business jet and helicopter sectors also
showing very robust demand. In addition, strategic sourcing initiatives with
suppliers in both local and emerging markets, should continue to reduce
Magellan's average costs, and attract more business to Magellan facilities
from key customers.
    As part of this strategic sourcing initiative, the Corporation is working
closely with a partner to establish a low-cost aerospace processing facility
in India. This facility will initially satisfy requirements for final
processing of parts currently manufactured for the Corporation by
subcontractors in India. Discussions are also underway with major customers to
use this facility to provide processing for components they are sourcing in
India.
    The Boeing 787 is continuing its outstanding success in the marketplace.
The first aircraft was rolled out in July, and production rates are scheduled
to continue to ramp up over the next two years. The F35 Joint Strike Fighter
program, gaining increasingly strong international political support, is
projected to experience year-on-year increases in production rates through the
next several years. Magellan's successful participation in landing gear,
airframe and engine development and production activities on these new
programs provides an opportunity to refresh and upgrade the Corporation's
manufacturing technology, and generate annual increases in revenue through the
foreseeable future. Concurrently, continued growth and strength in the
business jet and helicopter sectors provide Magellan with increased business
opportunities for components ranging from castings to engine modules,
structural elements and specialty equipment.
    The Corporation has been modernizing its facilities in preparation for
the increased technology and manufacturing capacity required to meet the
demands of three major programs: the Boeing 787, the Airbus A380 and the Joint
Strike Fighter. Magellan's current level of participation on these programs is
approximately $500,000 per aircraft on the B787, $1,200,000 per aircraft on
the A380 and $200,000 to $1,300,000 per aircraft, depending on the model, on
the Joint Strike Fighter. Based on currently anticipated production rates of
the various programs and models, these programs are targeted to generate
additional annual revenues to the Corporation of approximately $40 million in
2008, $70 million in 2009 and $110 million in 2010. Costs to support initial
efforts on these programs have been invested by Magellan over the past several
years and have positioned it to be an important participant.

    
    On behalf of the Board

    (signed)                       (signed)

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

    August 13, 2007



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    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF
     OPERATIONS AND RETAINED EARNINGS

    (unaudited)                     Three-months ended      Six-months ended
                                          June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands of
     dollars, except per share
     amounts)                          2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenues                      $ 150,283  $ 149,977  $ 294,338  $ 286,999
    Cost of revenues                134,070    136,845    262,876    259,571
    -------------------------------------------------------------------------
    Gross profit                     16,213     13,132     31,462     27,428
    -------------------------------------------------------------------------

    Administrative and general
     expenses                        13,161     10,007     25,078     19,974
    Facility rationalization
     (note 3)                             -      5,301          -      5,301
    Interest                          6,172      6,077     11,846     11,073
    -------------------------------------------------------------------------
                                     19,333     21,385     36,924     36,348
    -------------------------------------------------------------------------
    Loss before income taxes         (3,120)    (8,253)    (5,462)    (8,920)

    Provision for (recovery of)
     income taxes
      - Current                         844         90        933        182
      - Future                       (2,230)    (2,677)    (2,914)    (2,778)
    -------------------------------------------------------------------------
                                     (1,386)    (2,587)    (1,981)    (2,596)
    -------------------------------------------------------------------------
    Net loss for the period          (1,734)    (5,666)    (3,481)    (6,324)
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of the period                   95,892    105,961     98,039    107,019
    Dividends                          (400)      (400)      (800)      (800)
    Net loss for the period          (1,734)    (5,666)    (3,481)    (6,324)
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                       $  93,758  $  99,895  $  93,758  $  99,895
    -------------------------------------------------------------------------
    Loss per share
    -------------------------------------------------------------------------
      Basic                       $   (0.02) $   (0.07) $   (0.05) $   (0.08)
    -------------------------------------------------------------------------
      Diluted                     $   (0.02) $   (0.07) $   (0.05) $   (0.08)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    CONSOLIDATED STATEMENTS OF
     COMPREHENSIVE LOSS

    (unaudited)                     Three-months ended      Six-months ended
                                          June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands of
     dollars)                          2007       2006       2007       2006
    -------------------------------------------------------------------------
    Net loss                      $  (1,734) $  (5,666) $  (3,481) $  (6,324)
    Other comprehensive loss:
    Unrealized loss on
     translation of financial
     statements of self-sustaining
     foreign operations             (12,115)    (5,240)   (13,266)    (4,370)
    -------------------------------------------------------------------------
    Comprehensive loss            $ (13,849) $ (10,906) $ (16,747) $ (10,694)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



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

    CONSOLIDATED BALANCE SHEETS

                                                        June 30  December 31
    (Expressed in thousands of dollars)                    2007         2006
    -------------------------------------------------------------------------
    ASSETS (note 5)
    Current
    Cash                                              $   5,419    $   9,896
    Accounts receivable                                  60,120       58,066
    Inventories (note 4)                                291,715      276,462
    Prepaid expenses and other                           18,079       10,396
    Future income tax assets                              5,745        5,914
    -------------------------------------------------------------------------
    Total current assets                                381,078      360,734

    Capital assets                                      252,773      265,078
    Other                                                53,813       52,680
    Future income tax assets                              6,985        5,829
    -------------------------------------------------------------------------
    Total assets                                      $ 694,649    $ 684,321
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness (note 5)                        $ 154,794    $ 142,457
    Accounts payable and accrued charges                132,127      128,066
    Convertible debentures                               68,604            -
    Current portion of long-term debt                     1,738        2,039
    -------------------------------------------------------------------------
    Total current liabilities                           357,263      272,562

    Long-term debt                                       29,425       15,902
    Future income tax liabilities                        16,944       20,785
    Convertible debentures                                    -       67,430
    Other long-term liabilities                           2,981        2,748
    -------------------------------------------------------------------------
    Total liabilities                                   406,613      379,427
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 6)                              234,210      234,171
    Contributed surplus                                   2,449        1,799
    Other paid in capital                                11,100       11,100
    Retained earnings                                    93,758       98,039
    Accumulated other comprehensive loss (note 9)       (53,481)     (40,215)
    -------------------------------------------------------------------------
    Total shareholders' equity                          288,036      304,894
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        $ 694,649    $ 684,321
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



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

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)                     Three-months ended      Six-months ended
                                          June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands
     of dollars)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Loss for the period           $  (1,734) $  (5,666) $  (3,481) $  (6,324)
    Add (deduct) items not
     affecting cash
      Depreciation and
       amortization                   5,783      6,215     11,709     11,605
      (Gain) loss on sale of
       capital assets                    (4)         -         19          -
      Facility rationalization
       charge (note 3)                    -      5,301          -      5,301
      Stock option charge               395        255        650        435
      Accretion of convertible
       debentures                       590        573      1,174      1,146
      Future income taxes
       recoveries                    (2,230)    (2,677)    (2,914)    (2,778)
    -------------------------------------------------------------------------
                                      2,800      4,001      7,157      9,385
    -------------------------------------------------------------------------
    Net change in non-cash working
     capital items relating to
     operating activities               284       (364)   (33,670)   (12,501)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities             3,084      3,637    (26,513)    (3,116)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets       (3,259)   (11,084)   (10,345)   (14,143)
    Proceeds from disposal of
     capital assets                      79        239        353        335
    Increase in other assets           (643)    (1,711)    (1,665)    (2,589)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                      (3,823)   (12,556)   (11,657)   (16,397)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Increase in bank indebtedness     1,149     11,758     20,957     20,478
    (Decrease) increase of
     long-term debt                    (580)     4,689     13,826      4,572
    (Decrease) increase in
     long-term liabilities             (340)    (8,112)       347     (8,037)
    Issue of Common Shares               21         12         39         26
    Dividends on Preference Shares     (400)      (400)      (800)      (800)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities              (150)     7,947     34,369     16,239
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash                   (907)      (337)      (676)      (359)
    -------------------------------------------------------------------------

    Net decrease in cash             (1,796)    (1,309)    (4,477)    (3,633)
    Cash, beginning of period         7,215      5,102      9,896      7,426
    -------------------------------------------------------------------------
    Cash, end of period           $   5,419  $   3,793  $   5,419  $   3,793
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 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, 2006.

    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 June 30, 2007 and the results of operations and
    cash flows for the three and six month periods ended June 30, 2007 and
    2006.

    2.  CHANGE IN ACCOUNTING POLICY

    The Corporation adopted the Canadian Institute of Chartered Accountants
    (CICA) Handbook Section 3855, Financial instruments - Recognition and
    Measurement: Section 3865, Hedges: Section 1530, Comprehensive Income and
    Section 3861, Financial Instruments - Disclosure and Presentation on
    January 1, 2007. The adoption of these new standards resulted in changes
    in the accounting for financial instruments and hedges. The comparative
    interim consolidated financial statements have not been restated, except
    for the presentation of translation gains or losses on self-sustaining
    foreign operations. The principal changes in the accounting for financial
    instruments and hedges due to the adoption of these accounting standards
    are described below.

    a)  Comprehensive Income

    Comprehensive income includes the Company's net income and other
    comprehensive income. Other comprehensive income includes unrealized
    exchange gains and losses on translation of self-sustaining foreign
    operations.

    b)  Financial Assets and Financial Liabilities

    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
    position and are measured at fair value except for loans and receivables,
    held-to-maturity investments and other financial liabilities, which are
    measured at amortized cost. 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 instrument is derecognized or impaired.

    As a result of the adoption of these standards, the Company has
    classified its cash and cash equivalents 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.

    c)  Derivatives and Hedges

    Derivatives
    -----------
    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. The impact of the change in the accounting policy
    related to embedded derivatives was not material, as at January 1, 2007.

    Hedge Accounting
    ----------------
    At the inception of a hedging relationship, the Company documents the
    relationship between the hedging instrument and the hedged item, as well
    as the risk management objectives and strategy for undertaking various
    hedge transactions. This process includes linking all derivatives to
    specific assets and liabilities on the consolidated statement of
    financial position or to specific firm commitments or forecasted
    transactions. The Company also assesses, both at the inception of the
    hedge and on an ongoing basis, whether the derivatives that are used are
    effective in offsetting changes in fair values or cash flows of hedged
    items.

    Under the previous standards, derivatives that met the requirements for
    hedge accounting were generally accounted for on an accrual basis. Under
    the new standards, all derivatives are recorded at fair value.

    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.

    The adoption of these new standards was done retroactively without
    restatement of the consolidated financial statements of prior periods.
    The effect of these changes in accounting policies on during 2007 was not
    significant.

    3.  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 of $5.7 million on
    the sales. To prepare this real estate for sale, machinery and equipment
    was disposed of for minimal proceeds. Accordingly, a non-cash charge of
    $5.3 million ($0.04 per share on an after tax basis) was recorded in the
    financial statements in the second quarter of 2006.

    4.  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.

    5.  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
    ($170,886 at June 30, 2007). Bank indebtedness as at June 30, 2007 of
    $154,794 (December 31, 2006 - $142,457) is payable on demand and bears
    interest at the bankers' acceptance or LIBOR rates, plus 0.875% (5.8% at
    June 30, 2007). Included in the amount outstanding at June 30, 2007 is
    US$87,764 (December 31, 2006 - US$82,325). At June 30, 2007, the
    Corporation had drawn $154,794 under the operating credit and had issued
    letters of credit totalling $1,925 such that $18,281 was unused and
    available. A fixed and floating charge debenture on certain of the
    Corporation's assets is pledged as collateral for the operating loan. The
    Chairman of the Board has provided a guarantee for the full amount of the
    credit facility. An annual fee of 0.10% of the guaranteed amount or $175
    (2006 - $155) is paid in consideration for the guarantee.

    6.  CAPITAL STOCK

    The following table summarizes information on share capital and related
    matters as at June 30, 2007:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   Outstanding   Exercisable
    -------------------------------------------------------------------------
    Common shares                                   90,846,405
    -------------------------------------------------------------------------
    Common shares stock options                      5,004,050     1,497,010
    -------------------------------------------------------------------------
    Preferred shares                                 2,000,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average number of common shares outstanding during the
    three-month and six-month periods ended June 30, 2007 was 90,844,495 and
    90,840,493 respectively.

    7.  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 3,342,653. 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 six-month periods ended June 30, 2007 was $395 and $650
    respectively (June 30, 2006 - $255 and $435). In the six-month period
    ended June 30, 2007, there were 1,430,000 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:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Risk-free interest rate                                   4.0%
    -------------------------------------------------------------------------
    Expected volatility                                      46.0%
    -------------------------------------------------------------------------
    Expected average life of options                       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.

    8.  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 June 30, 2007
                                 --------------------------------------------
                                    Canada        US         UK       Total
                                 --------------------------------------------
    Capital assets                $ 119,127  $ 112,998  $  20,648  $ 252,773
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                            Three-months ended June 30
                                 --------------------------------------------
                                                       2007
                                 --------------------------------------------
                                    Canada        US         UK       Total
                                 --------------------------------------------
    Revenue
    Domestic                      $  23,626  $  41,367  $  29,261  $  94,254
    Export                           49,513      5,884        632     56,029
    -------------------------------------------------------------------------
    Total revenue                 $  73,139  $  47,251  $  29,893  $ 150,283
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                            Three-months ended June 30
                                 --------------------------------------------
                                                       2006
                                 --------------------------------------------
                                    Canada        US         UK       Total
                                 --------------------------------------------
    Revenue
    Domestic                      $  26,002  $  40,705  $  26,126  $  92,833
    Export                           45,935      8,628      2,581     57,144
    -------------------------------------------------------------------------
    Total revenue                 $  71,937  $  49,333  $  28,707  $ 149,977
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             Six-months ended June 30
                                 --------------------------------------------
                                                       2007
                                 --------------------------------------------
                                    Canada        US         UK       Total
                                 --------------------------------------------
    Revenue
    Domestic                      $  47,073  $  83,199  $  60,016  $ 190,288
    Export                           90,708     12,115      1,227    104,050
    -------------------------------------------------------------------------
    Total revenue                 $ 137,781  $  95,314  $  61,243  $ 294,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             Six-months ended June 30
                                 --------------------------------------------
                                                       2006
                                 --------------------------------------------
                                    Canada        US         UK       Total
                                 --------------------------------------------
    Revenue
    Domestic                      $  49,335  $  75,985  $  52,921  $ 178,241
    Export                           87,868     17,244      3,646    108,758
    -------------------------------------------------------------------------
    Total revenue                 $ 137,203  $  93,229  $  56,567  $ 286,999
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The major customers for the Corporation for the three-month and six-month
    periods ended June 30, 2007 are as follows:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     Three-months ended     Six-months ended
                                           June 30               June 30
                                  -------------------------------------------
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Major Customers
    Canadian operations
      - Number of customers               3          3          3          4
      - Percentage of total
         Canadian revenue               36%        36%        35%        45%
    US operations
      - Number of customers               2          3          2          3
      - Percentage of total
         US revenue                     51%        56%        51%        59%
    UK operations
      - Number of customers               1          1          1          1
      - Percentage of total
         UK revenue                     89%        67%        84%        76%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  ACCUMULATED OTHER COMPREHENSIVE LOSS

    Other comprehensive loss includes 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 six-month
    periods ended June 30, 2007 was $12,115 and $13,266 respectively (2006 -
    losses of $5,240 and $4,370). This is reflected in the consolidated
    balance sheets and has no impact on net loss.

    10. 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 $29,351 at June 30,
    2007.

    Convertible Debentures

    The fair market value of the Corporation's Convertible Debentures,
    calculated based on available market data at June 30, 2007 was $69,839.

    (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 risk due to its
    bank indebtedness being at variable rates. For the six months ended
    June 30, 2007, the Company made interest payments on long-term debt and
    convertible debentures of $3,319 (2006 - $2,950).

    (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 Great Britain
    Pound Sterling. Under these contracts the Corporation is obliged to
    purchase specific amounts of U.S. dollars and Great Britain Pound
    Sterling at predetermined dates and exchange rates. These contracts are
    matched with anticipated operational cash flows in U.S. dollars and Great
    Britain Pound Sterling.

    The Corporation has foreign exchange contracts outstanding at June 30,
    2007 as follows:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                      Amount   Exchange rate
    -------------------------------------------------------------------------
    Maturity - less than 1 year - U.S. Dollar        $42,300      1.06943
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of these foreign exchange contracts is $170 favourable as
    at June 30, 2007.

    11. EMPLOYEE FUTURE BENEFITS

    The total benefit cost in the registered plans for the three-month and
    six-month periods ended June 30 includes the following components:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     Three-months ended     Six-months ended
                                           June 30               June 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Current service cost          $     467  $     578  $     934  $   1,155
    Interest cost on projected
     benefit obligations              1,577      1,614      3,154      3,227
    Expected returns on plan
     assets                          (1,771)    (1,363)    (3,541)    (2,726)
    Amortization of net
     actuarial loss                     148          -        297          -
    Amortization of past
     service costs                      120         70        240        141
    -------------------------------------------------------------------------
    Net benefit cost recognized   $     541  $     899  $   1,084  $   1,797
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. RELATED PARTY TRANSACTIONS

    During the three-month and six-month periods ended June 30, 2007, the
    Corporation sold receivables to a corporation with a common director in
    the amount of $48,555 and $74,572 respectively (June 30, 2006 - $18,268
    and $34,663), for a discount of $682 and $943 respectively (June 30, 2006
    - $156 and $301) representing an annualized interest rate of 7.5% and
    7.5% respectively (June 30, 2006 - 8.5% and 8.3%). Included in this
    balance, as at June 30, 2007, is a reserve of $4,281 (2006 - $591).

    13. SUPPLEMENTARY INFORMATION

    Foreign exchange loss on the conversion of foreign currency denominated
    working capital balances and debt for the three-month and six-month
    periods ended June 30, 2007 was $2,154 and $2,523 respectively (June 30,
    2006 - gain of nil and $282).
    




For further information:

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


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