Magellan Aerospace Corporation (“Magellan” or the “Corporation”) released its financial results for the third quarter of 2014. 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
Expressed in thousands of Canadian dollars, except per share amounts       2014     2013     Change     2014     2013     Change
Revenues       202,542     181,010     11.9%     634,094     556,166     14.0%
Gross Profit       31,651     26,080     21.4%     95,624     79,662     20.0%
Net Income       13,032     9,553     36.4%     38,717     28,731     34.8%
Net Income per Share       0.22     0.16     37.5%     0.67     0.49     36.7%
EBITDA       28,277     22,847     23.8%     85,598     69,710     22.8%
EBITDA per Share       0.49     0.39     25.6%     1.47     1.20     22.5%

Overview

A summary of Magellan’s business and significant updates

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 engineers and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for defence 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

Magellan participated, as it does every two years, with an exhibit at the Farnborough International Air Show from July 14th – 20th in Farnborough, UK.  This event, which is held on alternate years to the Paris Air Show, is one of the key venues during the year where Magellan is able to meet with key customers to discuss the alignment of its business strategies.   The Magellan exhibit theme was “Integrated Solutions For Future Platforms” emphasising the alignment of the Corporation’s strategies through its centres of excellence with those of its customers on major new programs.

On July 30th, 2014, the Corporation announced that it had been selected to provide landing gear kits to Boeing Commercial Airplanes for the new 737 MAX aircraft. The program is expected to generate revenues up to $50 million USD annually over the contract period with the manufacture and integration of the kits to be carried out at Magellan’sNew York facilities.

On September 30th, 2014, Magellan also announced the successful launch of a Black Brant IX rocket from the NASA Wallops Flight Facility in Wallops Island, Virginia.  The launch mission was a test of a new sub-payload deployment method for suborbital rockets and the release of vapor tracers to help measure the wind in the transition region between the Earth’s atmosphere and space.  Magellan’s Winnipeg, Manitoba facility has been designing and manufacturing Black Brant rockets for more than 50 years.

The Power Generation Project segment is a specialty product complimentary to the Corporation’s principal business.  The Corporation’s sole product in the Power Generation Project segment is an electric power generation project in the Republic of Ghana that was substantially completed in 2013.  A number of power generation project opportunities are being considered as follow-on business.

For additional information, please refer to the “Management’s Discussion and Analysis” section of the Corporation’s 2013 Annual Report available on www.sedar.com.

Results of Operations
A discussion of Magellan’s operating results for third quarter ended September 30, 2014

The Corporation reported higher revenue in both its Aerospace segment and its Power Generation Project segment in the third quarter of 2014 when compared to the third quarter of 2013. Gross profit and net income for the third quarter of 2014 were $31.7 million and $13.0 million, respectively, an increase from the third quarter of 2013 gross profit and net income of $26.1 million and $9.6 million, respectively.

Consolidated Revenue

Overall, the Corporation’s consolidated revenues in the third quarter of 2014 increased by 11.9% when compared to the third quarter of 2013.

                                           
            Three month period     Nine month period
            ended September 30     ended September 30
Expressed in thousands of dollars           2014     2013     Change     2014     2013     Change
Aerospace           202,297     181,010     11.8%     632,125     552,688     14.4%
Power Generation Project           245     ?     ?     1,969     3,478     (43.4)%
Revenues           202,542     181,010     11.9%     634,094     556,166     14.0%

 

Consolidated revenues of $202.5 million for the third quarter ended September 30, 2014 were higher than the $181.0 million of revenue in the third quarter of 2013.  Higher volumes of production on both new and legacy commercial aircraft platforms and the appreciation of the United States dollar and the British Pound against the Canadian dollar, when compared to the prior year quarter, increased revenues by 11.8% year over year in the Aerospace segment.  The increase in the Power Generation Project segment represents revenue earned on the additional scope of work package signed in the second quarter of 2014 with the Republic of Ghana.

Aerospace Segment

Revenues for the Aerospace segment were as follows:

                                           
            Three month period     Nine month period
            ended September 30     ended September 30
Expressed in thousands of dollars           2014     2013     Change     2014     2013     Change
Canada           73,549     68,933     6.7%     241,627     215,706     12.0%
United States           67,589     56,484     19.7%     203,385     174,533     16.5%
Europe           61,159     55,593     10.0%     187,113     162,449     15.2%
Total revenues           202,297     181,010     11.8%     632,125     552,688     14.4%

 

Consolidated Aerospace revenues for the third quarter of 2014 of $202.3 million were 11.8% higher than revenues of$181.0 million in the third quarter of 2013.  Revenues in Canada in the third quarter of 2014 increased 6.7% from the same period in 2013 primarily due to higher revenue earned on the Corporation’s space programs, offset in part by reduced revenues earned on defence programs.  The favourable movement in the United States dollar in comparison to the Canadian dollar also contributed to the increased revenues in Canada in the third quarter of 2014 when compared to the same period in 2013.  Revenues increased by 19.7% in the United States in the third quarter of 2014 in comparison to the third quarter of 2013.  The Corporation’s continued participation on a number of single aisle and wide body commercial aircraft programs, that have increased in build rates when compared to the prior year and the strength in the United States dollar in comparison to the Canadian dollar during the same periods in 2014 versus 2013 were the primary contributors to the increased revenues quarter over quarter.  European revenues in the third quarter of 2014 increased 10% over revenues in the same period in 2013 primarily due to the strength of the British Pound in comparison to the Canadian dollar.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:

                                           
            Three month period     Nine month period
            ended September 30     ended September 30
Expressed in thousands of dollars           2014     2013     Change     2014     2013     Change
Power Generation Project           245     ?     ?     1,969     3,478     (43.4)%
Total revenues           245     ?           1,969     3,478      

 

The original statement of work on the Ghana Power Generation Project (the “Project”) was substantially completed and all revenue related to the original statement of work was recognized as at March 31, 2013.  In the second quarter of 2014, the Corporation signed an amendment to the original Project contract which increased the statement of work for the Project. Revenues recorded in the quarter represent the progress made to date on the additional statement of work.

Gross Profit

                                           
            Three month period     Nine month period
            ended September 30     ended September 30
Expressed in thousands of dollars           2014     2013     Change     2014     2013     Change
Gross profit           31,651     26,080     21.4%     95,624     79,662     20.0%
Percentage of revenues           15.6%     14.4%           15.1%     14.3%      

 

Gross profit of $31.7 million (15.6% of revenues) was reported for the third quarter of 2014 compared to $26.1 million(14.4% of revenues) during the same period in 2013.  Increased gross profit in the third quarter of 2014 over the same period in 2013 resulted from a favourable mix of products, production efficiency gains, offset, in part, by new product introduction costs.  The strengthening year over year of the United States dollar and British Pound against the Canadian dollar also contributed, in part, to increased margins quarter over quarter.

Administrative and General Expenses

                                         
          Three month period     Nine month period
          ended September 30     ended September 30
Expressed in thousands of dollars         2014     2013     Change     2014     2013     Change
Administrative and general expenses         12,608     11,544     9.2%     35,880     33,608     6.8%
Percentage of revenues         6.2%     6.4%           5.7%     6.0%      

 

As a percentage of revenues, administrative and general expenses decreased to 6.2% of revenues for the quarter ended September 30, 2014 from 6.4% for the quarter ended September 30, 2013.  In absolute terms, administrative and general expenses increased during the current quarter relative to the same quarter of the prior year as a result of a one-time charge of $0.8 million incurred in the current quarter for a bad debt provision and the effect on translation of the strengthening United States dollar and British Pound exchange rates against the Canadian dollar.

Other

                             
            Three month period       Nine month period
            ended September 30       ended September 30
Expressed in thousands of dollars           2014   2013       2014   2013
Foreign exchange (gain) loss           (397)   (538)       (83)   388
Loss on disposal of property, plant and equipment           39   48       803   262
Total other           (358)   (490)       720   650

 

Other income of $0.4 million in the third quarter of 2014 consisted of realized and unrealized foreign exchange losses and losses recorded on the retirement and disposal of property, plant and equipment.

Interest Expense

                         
        Three month period       Nine month period
        ended September 30       ended September 30
Expressed in thousands of dollars       2014   2013       2014   2013
Interest on bank indebtedness and long-term debt       1,273   1,695       3,704   5,242
Accretion charge for  borrowings and long-term debt       203   (95)       1,563   (117)
Discount on sale of accounts receivable       183   182       558   513
Total interest expense       1,659   1,782       5,825   5,638

 

Interest expense of $1.7 million in the third quarter of 2014 was slightly lower than the third quarter of 2013 amount of$1.8 million primarily as a result of a decrease in interest on bank indebtedness and long-term debt, offset in part by an increase in non-cash accretion expense in the current quarter due to changes in the long-term bond rate.  The decrease in interest on bank indebtedness and long-term debt quarter over quarter is mainly due to the Corporation repaying a significant portion of its long-term debt in the last quarter of 2013.

Provision for Income Taxes

                                 
                Three month period       Nine month period
                ended September 30       ended September 30
Expressed in thousands of dollars               2014   2013       2014   2013
Expense of current income taxes               1,355   1,009       3,593   3,550
Expense of deferred income taxes               3,355   2,682       10,889   7,485
Total expense of income taxes               4,710   3,691       14,482   11,035
Effective tax rate               26.6%   27.9%       27.2%   27.7%

 

The Corporation recorded an income tax expense of $4.7 million in the third quarter of 2014 compared to an income tax expense of $3.7 million in the third quarter of 2013.  Current income taxes for the third quarter of 2014 consisted primarily of the tax expense in jurisdictions with current taxes payable. Deferred income taxes for the third quarter of 2014 consisted primarily of net deferred income tax expense for changes in temporary differences in various jurisdictions.

Selected Quarterly Financial Information
A summary view of Magellan’s quarterly financial performance

                                                   
        2014                 2013                       20121
Expressed in millions of dollars,
except per share amounts		       Sep 30     Jun 30     Mar 31     Dec 31     Sep 30     Jun 30     Mar 31     Dec 31
Revenues       202.5     221.0     210.5     195.9     181.0     189.9     185.3     186.4
Income before taxes       17.7     18.8     16.7     21.0     13.2     15.5     11.0     18.0
Net Income       13.0     13.6     12.1     16.8     9.5     11.2     8.0     21.8
Net Income per share                                                  
  Basic and diluted       0.22     0.23     0.21     0.29     0.16     0.19     0.14     0.37
EBITDA       28.3     30.2     27.1     31.0     22.9     25.6     21.3     28.9
1 Certain 2012 figures have been restated due to the implementation of IFRS 11, Joint Arrangements and revised
IAS 19, Employee Benefits in 2013. Please refer to note 2 to the 2013 audited consolidated financial statements.

 

The Corporation reported its highest quarterly revenues in its history in the second quarter of 2014.  Revenues and net income reported in the third quarter of 2014 were impacted positively by the weakness in the Canadian dollar exchange rate in comparison to the United States dollar and British Pound.  The United States dollar/Canadian dollar exchange rate in the third quarter of 2014 fluctuated reaching a low of 1.0640 and a high of 1.1156.  During the third quarter of 2014, the British Pound relative to the Canadian dollar fluctuated reaching a low of 1.7637 and a high of 1.8461.  Had the foreign exchange rates remained at levels experienced in the third quarter of 2013, reported revenues in the third quarter of 2014 would have been lower by $11.9 million.

Net income for the fourth quarter of 2013 and 2012 of $16.8 million and $21.8 million, respectively, was higher than all other quarterly net income disclosed in the table above. In the fourth quarter of 2013 and 2012 the Corporation recognized partial reversals of previous impairment losses against intangible assets relating to various commercial aircraft programs and in the fourth quarter of 2012 the Corporation recognized previously unrecognized investment tax credits and other deferred tax assets as the Corporation determined that it will be able to benefit from these assets.  Continued improvements in gross margin have contributed to higher net income in each of the quarters of 2014.

Reconciliation of Net Income to EBITDA
A description and reconciliation of certain non-IFRS measures used by management

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes EBITDA (earnings before interest expense, income taxes, depreciation and amortization) in this quarterly statement. The Corporation has provided this measure because it believes this information is used by certain investors to assess financial performance and that 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 income as determined in accordance with IFRS or as an alternative to cash provided by or used in operations.

                                   
                  Three month period       Nine month period
                  ended September 30       ended September 30
Expressed in thousands of dollars                 2014   2013       2014   2013
Net income                 13,032   9,553       38,717   28,731
Interest                 1,659   1,782       5,825   5,638
Taxes                 4,710   3,691       14,482   11,035
Depreciation and amortization                 8,876   7,821       26,574   24,306
EBITDA                 28,277   22,847       85,598   69,710

 

EBITDA for the third quarter of 2014 was $28.3 million, compared to $22.8 million in the third quarter of 2013, an increase of 23.8% on a year-over-year basis.  Increased revenue and gross profit for the third quarter of 2014 relative to the same quarter of 2013 is the primary cause for the current increase in EBITDA.

Liquidity and Capital Resources
A discussion of Magellan’s cash flow, liquidity, credit facilities and other disclosures

The Corporation’s liquidity needs can be met through a variety of sources including cash on hand, cash provided by operations, short-term borrowings from its credit facility and accounts receivable securitization program, and long-term debt and equity capacity.  Principal uses of cash are for operational requirements and capital expenditures.  Based on current funds available and expected cash flow from operating activities, management believes that the Corporation has sufficient funds available to meet its liquidity requirements at any point in time.  However, if cash from operating activities is lower than expected or capital projects exceed current estimates, or if the Corporation incurs major unanticipated expenses, it may be required to seek additional capital in the form of debt or equity or a combination of both.

Cash Flow from Operations

                         
        Three month period       Nine month period
        ended September 30       ended September 30
Expressed in thousands of dollars       2014   2013       2014   2013
Decrease (increase) in accounts receivable       299   6,280       (16,385)   (16,367)
Increase in inventories       (5,314)   (5,011)       (9,060)   (12,475)
Increase in prepaid expenses and other       (1,831)   (925)       (2,198)   (3,188)
Increase (decrease) in accounts payable, accrued liabilities
    and provisions		       4,044   1,659       (1,194)   7,677
Changes to non-cash working capital balances       (2,802)   2,003       (28,837)   (24,353)
Cash provided by operating activities       20,284   19,940       43,943   31,689

 

In the third quarter ended September 30, 2014, the Corporation generated $20.3 million in cash from operations, compared to $19.9 million generated in the third quarter of 2013.  The increase in cash generated from operations was primarily due to increased gross profit in the third quarter of 2014 compared to the same period in 2013. Change in accounts payable and accrued liabilities was primarily driven by the timing of purchases and payments, and the change in inventories reflects increased inventory levels primarily to support forecasted customer volume increases.

Investing Activities

                         
        Three month period       Nine month period
        ended September 30       ended September 30
Expressed in thousands of dollars       2014   2013       2014   2013
Investment in joint venture       ?   (3,994)       ?   (3,994)
Purchase of property, plant and equipment       (7,252)   (5,153)       (18,782)   (13,471)
Proceeds of disposals of property plant and equipment       115   237       445   364
Decrease (increase) in intangibles and other assets       3,907   (6,262)       (4,864)   (10,705)
Cash used in investing activities       (3,230)   (15,172)       (23,201)   (27,806)

 

The Corporation’s capital expenditures for the third quarter of 2014 were $7.3 million compared to $5.2 million in the third quarter of 2013. The Corporation continues to invest in capital expenditures to enhance its manufacturing capabilities in various geographies and to support new customer programs.  Lower deposits on property, plant and equipment plus a reduction in long-term receivables accounted for the majority of the decrease in intangibles and other assets.

Financing Activities

                         
        Three month period       Nine month period
        ended September 30       ended September 30
Expressed in thousands of dollars       2014   2013       2014   2013
Decrease in bank indebtedness       (10,030)   (5,790)       (14,157)   (10,651)
Increase (decrease) in debt due within one year       1,154   (659)       7,299   120
Decrease in long-term debt       (1,194)   (1,430)       (3,709)   (6,779)
Increase (decrease) in long-term liabilities and provisions       87   (225)       (342)   (344)
Increase (decrease) in borrowings       524   210       (10)   796
Common share dividends       (2,329)   (1,746)       (6,985)   (1,746)
Cash used by financing activities       (11,788)   (9,640)       (17,904)   (18,604)

 

On September 30, 2014, the Corporation amended its operating credit agreement with its existing lenders. Under the terms of the amended agreement, the maximum amount available under the operating credit facility was amended to a Canadian dollar limit of $95.0 million (down from $115.0 million) plus a United States dollar limit of $35.0 million, and the addition of an £9,000 limit with a maturity date of September 30, 2018. The operating credit agreement also includes a Canadian $50.0 million uncommitted accordion provision which will provide Magellan with the option to increase the size of the operating credit facility to $200.0 million.  Extensions of the facility are subject to mutual consent of the syndicate of lenders and the Corporation. The guarantee of the facility by the Chairman of the Board of the Corporation, which has supported the Corporation since 2005, has now been released.

As at September 30, 2014 the Corporation has made contractual commitments to purchase $22.2 million of capital assets.

Dividends
During the third quarter of 2014, the Corporation declared and paid quarterly cash dividends of $0.04 per common share representing an aggregating dividend payment of $2.3 million.

On November 7th, 2014, the Corporation announced that its Board of Directors had declared a quarterly cash dividend on its common shares of $0.055 per common share. The dividend will be payable on December 31, 2014 to shareholders of record at the close of business on December 12, 2014.

Outstanding Share Information
The authorized capital of the Corporation consists of an unlimited number of Preference Shares, issuable in series, and an unlimited number of common shares. As at October 31, 2014, 58,209,001 common shares were outstanding.

Financial Instruments
A summary of Magellan’s financial instruments

Derivative Contracts
The Corporation operates internationally, which gives rise to a risk that its income, cash flows and shareholders’ equity may be adversely impacted by fluctuations in foreign exchange rates.  Currency risk arises because the amount of the local currency receivable or payable for transactions denominated in foreign currencies may vary due to changes in exchange rates and because the non-Canadian dollar denominated financial statements of the Corporation’s subsidiaries may vary on consolidation into the reporting currency of Canadian dollars.  The Corporation from time to time may use derivative financial instruments to help manage foreign exchange risk with the objective of reducing transaction exposures and the resulting volatility of the Corporation’s earnings. The Corporation does not trade in derivatives for speculative purposes.  Under these contracts the Corporation is obligated to purchase specified amounts at predetermined dates and exchange rates.  These contracts are matched with anticipated cash flows in United States dollars. The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings.  The Corporation had no foreign exchange contracts outstanding as at September 30, 2014.

Off Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements that have or reasonably are likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, the Corporation is not exposed materially to any financing, liquidity, market or credit risk that could arise if it had engaged in these arrangements.

Related Party Transactions
A summary of Magellan’s transactions with related parties

During the three month period ended September 30, 2014, the Corporation paid guarantee fees, in respect to a guarantee of the Corporation’s operating credit facility, in the amount of $0.2 million to the Chairman of the Board of the Corporation.  Upon the renewal of the operating credit agreement on September 30, 2014, this guarantee provided by the Chairman of the Board of the Corporation was removed.

Risk Factors
A summary of risks and uncertainties facing Magellan

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, 2013 and to the information under “Risks Inherent in Magellan’s Business” in the Corporation’s Annual Information Form for the year ended December 31, 2013, which have been filed with SEDAR at www.sedar.com.

Outlook
The outlook for Magellan’s business in 2014

The strength of the commercial aircraft market is holding.  Boeing and Airbus maintain their positions that future demand for these aircraft is real.  Boeing announced that it will increase 737 build rates to 52 per month in 2018 in response to strong global market demand.  This is up from 42 per month currently and a planned rate of 47 per month in 2017.  Comparatively, Airbus reaffirms its A320 production rate will increase to 46 per month from 42 per month by 2016 and, although it is considering potentially higher rates, there are presently no firm plans to move beyond this rate.

The engine manufacturers powering these new engine options, narrow-body aircraft are Pratt & Whitney with their PW1000G and CFM International with their LEAP X.  The PW1000G engine holds a 34% market share while CFM’s LEAP X holds 66%.  Both organizations have targeted aggressive ramp ups in new engine build rates over the next 5 years to support this market.

In the wide-body market, Airbus is studying a planned rate increase on their A350 to 13 per month in 2018, while A380 rates remain at 30 per year.  Boeing is ramping 787 rates to a planned 14 aircraft per month from the current 10 per month rate.  Boeing’s 777 build rate remains at 8.3 per month.  Preparing for the A330NEO transition, Airbus announced it will reduce the rate for its A330 family from 10 to 9 per month in the fourth quarter of 2015.

In the business jet market, despite indicators suggesting that demand should be stronger, a lack of confidence in potential economic growth has been weighing on new aircraft purchases.  Confidence now seems to be building as recent forecasts released by Textron and Honeywell suggest that operators plan to replace 23% of their fleets with new jets over the next five years.  Recovery is now apparent in all segments of the market instead of just the large jets.  The General Aviation Manufacturers Association reported that mid-year 2014 deliveries over mid-year 2013 were up 27% in the light segment, 17% in the medium segment and 3% in the large segment.  Forecast International predicts a steady increase through 2020, but notes that it does not expect that previous peak 2008 production levels will be achieved in the period.

In the regional aircraft market, Mitsubishi recently rolled out its MRJ aircraft to begin its flight test program.  It is powered by one of Pratt & Whitney’s PW1000G models.  To expand the market for its Q400 aircraft, Bombardier announced the building of an 86 passenger Q400 NextGen turboprop for Thailands’s Nok Air.  China’s AVIC announced it was entering the regional turboprop market with its MA700 aircraft, designed to stretch to 90 passengers.  This was an area of the market that both Bombardier and ATR have been considering but hesitating to enter.

The current rise in military activity in the Middle East to defeat Islamic State militants is not expected to have a near-term impact on defence programs.  Of course, prolonged deployments of existing aircraft fleets can have an effect on spares and R&O activities.  Of more specific interest will be the potential effect on extended service life and prolonged production of platforms due to be replaced in the near term horizon.  While US forces await deliveries of new fifth generation F-35 aircraft, production of US-destined F-15 aircraft has ended and is scheduled to be ending for F-18 and F-16 platforms.  Regardless of some negative sentiment expressed in the media over the Joint Strike Fighter program, the F-35 remains crucial to the United States’ future air superiority, as well as allied international forces.  Short term decisions will be driven by immediate operational needs and current budget constraints.

The F-35 program continues to advance towards achieving major program milestones, despite the setback of an engine fire in June.  A permanent solution to address the problem has been developed and is being tested prior to incorporation into the fleet of delivered aircraft.  Some flight testing, necessary to further validate software, has been delayed.  International support remains strong with Korea announcing their intention to finalize a formal agreement with the United States Government to purchase 40 F-35As.  The 8th Low Rate Initial Production contract did not get issued within the third quarter.  It is expected to be issued at any time.

Defence helicopter manufacturers are battling for foreign market share as domestic budget constraints leave them with smaller order books.  One current competition has Airbus, Sikorsky and AgustaWestland vying for a piece ofPoland’s increasing defence budget with their EC725, S-70i Black Hawk and AW149 rotorcraft respectively.  This is one of Europe’s largest procurement programs since the economic crisis with an estimated value of $3.0 billion.  Further market expansion is forecast to come from China, India and Malaysia where “buy and make in-country” strategies are expected to influence final decisions.  The civil rotorcraft market remains flat at this time.

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 heading “Overview” which outlines certain expectations for future operations. 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
CONSOLIDATED INTERIM STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                               
(unaudited)             Three month period
ended September 30		     Nine month period
 ended September 30
(expressed in thousands of Canadian dollars, except per share amounts)           2014     2013     2014     2013
                               
Revenues           202,542     181,010     634,094     556,166
Cost of revenues           170,891     154,930     538,470     476,504
Gross profit           31,651     26,080     95,624     79,662
                               
Administrative and general expenses           12,608     11,544     35,880     33,608
Other           (358)     (490)     720     650
Income before interest and income taxes           19,401     15,026     59,024     45,404
                               
Interest           1,659     1,782     5,825     5,638
Income before income taxes           17,742     13,244     53,199     39,766
                               
Income taxes                              
  Current           1,355     1,009     3,593     3,550
  Deferred           3,355     2,682     10,889     7,485
            4,710     3,691     14,482     11,035
Net income           13,032     9,553     38,717     28,731
                               
Net income per share                              
Basic and diluted           0.22     0.16     0.67     0.49
                               
                               
                               
Net Income           13,032     9,553     38,717     28,731
Other comprehensive income that may be                              
reclassified to profit and loss in subsequent periods:                              
  Foreign currency translation gain           6,398     443     9,620     6,863
Other comprehensive (loss) income that will not be                              
reclassified to profit and loss in subsequent periods:                              
  Actuarial (loss) gain on defined benefit pension plans, net of tax           ?     ?     (4,376)     9,498
Total comprehensive income, net of tax           19,430     9,996     43,961     45,092
                               

 

                               
MAGELLAN AEROSPACE CORPORATION                              
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION                              
                               
(unaudited)                     September 30       December 31
(expressed in thousands of Canadian dollars)                       2014       2013
                                  
Current assets                              
Cash                     10,880       7,760
Trade and other receivables                     166,734       146,969
Inventories                     173,486       160,269
Prepaid expenses and other                     14,953       12,461
                      366,053       327,459
Non-current assets                                  
Property, plant and equipment                     337,655       331,940
Investment properties                     4,361       4,663
Intangible assets                     59,318       60,365
Other assets                     24,713       24,472
Deferred tax assets                     41,777       43,011
                      467,824       464,451
Total assets                     833,877       791,910
                               
Current liabilities                                        
Bank indebtedness                     ?       115,930
Accounts payable and accrued liabilities and provisions                     139,673       137,625
Debt due within one year                     38,329       30,932
                      178,002       284,487
Non-current liabilities                                        
Bank indebtedness                     102,875       ?
Long-term debt                     44,429       46,154
Borrowings subject to specific conditions                     18,514       17,637
Other long-term liabilities and provisions                     19,393       15,713
Deferred tax liabilities                     25,530       19,761
                      210,741       99,265
                               
Equity                                        
Share capital                     254,440       254,440
Contributed surplus                     2,044       2,044
Other paid in capital                     13,565       13,565
Retained earnings                     156,820       129,464
Accumulated other comprehensive income                     18,265       8,645
                      445,134       408,158
Total liabilities and equity                     833,877       791,910
                               

 

                               
MAGELLAN AEROSPACE CORPORATION                              
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW                              
                               
(unaudited)             Three month period
ended September 30		     Nine month period
ended September 30
(expressed in thousands of Canadian dollars)           2014     2013     2014     2013
                               
Cash flow from operating activities                              
  Net income           13,032     9,553     38,717     28,731
  Amortization/depreciation of intangible assets and property, plant and equipment           8,876     7,821     26,574     24,306
  Loss on disposal of property, plant and equipment           39     74     803     288
  Increase (decrease) in defined benefit plans           336     (945)     849     (1,246)
  Accretion           205     (93)     1,527     (116)
  Deferred taxes           682     1,541     4,510     4,063
  (Gain) loss on investment in joint venture           (84)     (14)     (200)     16
  (Increase) decrease in non-cash working capital           (2,802)     2,003     (28,837)     (24,353)
Net cash provided by operating activities           20,284     19,940     43,943     31,689
                               
Cash flow from investing activities                              
  Investment in joint venture           ?     (3,994)     ?     (3,994)
  Purchase of property, plant and equipment           (7,252)     (5,153)     (18,782)     (13,471)
  Proceeds from disposal of property, plant and equipment           115     237     445     364
  Decrease (increase) in other assets           3,907     (6,262)     (4,864)     (10,705)
Net cash used in investing activities           (3,230)     (15,172)     (23,201)     (27,806)
                               
Cash flow from financing activities                              
  Decrease in bank indebtedness           (10,030)     (5,790)     (14,157)     (10,651)
  Increase (decrease) in debt due within one year           1,154     (659)     7,299     120
  Decrease in long-term debt           (1,194)     (1,430)     (3,709)     (6,779)
  Increase (decrease) in long-term liabilities and provisions           87     (225)     (342)     (344)
  Increase (decrease) in borrowings           524     210     (10)     796
  Common share dividend           (2,329)     (1,746)     (6,985)     (1,746)
Net cash used in financing activities           (11,788)     (9,640)     (17,904)     (18,604)
                               
Increase (decrease) in cash during the period           5,266     (4,872)     2,838     (14,721)
Cash at beginning of the period           5,521     12,770     7,760     22,423
Effect of exchange rate differences           93     314     282     510
Cash at end of the period           10,880     8,212     10,880     8,212
                               

 

SOURCE Magellan Aerospace Corporation

 For further information:

 

James S. Butyniec
Chief Executive Officer
T: (905) 677-1889 ext. 233
E: jim.butyniec@magellan.aero

John B. Dekker
Chief Financial Officer & Corporate Secretary
T: (905) 677-1889 ext. 224
E: john.dekker@magellan.aero