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Press release from CNW Group

Magellan Aerospace Corporation Announces Financial Results

Monday, August 12, 2013

Magellan Aerospace Corporation Announces Financial Results

17:30 EDT Monday, August 12, 2013

TORONTO, Aug. 12, 2013 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the second quarter of 2013.  All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

         
      Three month period ended
June 30
  Six month period ended
June 30
Expressed in thousands of Canadian dollars, except per share amounts   2013   2012   Change   2013   2012   Change
                         
Revenues     189,863   169,339   12.1%   375,156   356,186   5.3%
                         
Gross Profit     28,770   22,536   27.7%   53,582   48,073   11.5%
                         
Net Income     11,163   8,893   25.5%   19,178   20,404   (6.0)%
                         
Net Income per Share - Diluted     0.19   0.15   26.7%   0.33   0.35   (5.7)%

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

This news release presents certain non-IFRS financial measures to assist readers in understanding the Corporation's performance. Non-IFRS financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). Throughout this news release, reference is made to EBITDA (defined as net income before interest, income taxes, depreciation and amortization), which the Corporation considers to be an indicative measure of operating performance and a metric to evaluate profitability. EBITDA is not generally accepted earnings measures and should not be considered as an alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized method of calculating this measure, the Corporation's EBITDA may not be directly comparable with similarly titled measures used by other companies.

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 designs, 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

In the second quarter of 2013 Magellan once again attended the Paris Air Show.  Attendance at major air shows such as this enables Magellan to refine its strategies based on meetings with senior executives of major customers and suppliers and to benchmark itself against its global competition.

During this show, Magellan announced the signing of a Memorandum of Agreement ("MOA") with BAE systems for horizontal tail assemblies on the F-35 Lightening II program.  This MOA contractually confirms previous announcements that Magellan will be eligible to produce more than 1,000 sets of horizontal tails for the Conventional Take Off and Landing variant of the F-35 program over the next twenty years.

The commercial aerospace market growth continues in contrast to a reduction of activity in the defence aerospace market due to the decline in global defence spending.  Also Magellan is experiencing a reduction in defence revenue as a result of sequestration in the United States; however, its growing commercial aerospace business is helping to offset any overall negative effect on the Corporation's business.

New entries in the commercial aircraft market and demands from low-cost airlines on their aircraft suppliers are causing major aircraft manufacturers to aggressively approach suppliers such as Magellan for concessions to help them reduce their suppliers' costs.  Magellan is responding to these requests by leveraging its demonstrated successes in the Corporation's overall performance to customer requirements, driven largely by the implementation of the Magellan Operating System™.  Complementing these efforts, the Corporation is reducing costs by improving efficiencies supported by investments in new technologies and by developing a supply base in emerging markets.  In that regard, in July 2013, the Corporation closed an investment of 50% in a parts supplier based in India.  This investment provides the Corporation with access to a lower cost parts supplier and is the second aerospace contractor in which the Corporation has invested in India.

Additionally, in this quarter, Magellan continued its dialogue with key customers to explore new business opportunities in space and communications, Wire Strike and the Power Generation business.

Results of Operations
A discussion of Magellan's operating results for second quarter ended June 30, 2013

The Corporation reported higher revenue in its Aerospace segment and lower revenue in its Power Generation Project segment in the second quarter of 2013 when compared to the second quarter of 2012. Gross profit and net income for the second quarter of 2013 were $28.8 million and $11.2 million, respectively, an increase from the second quarter of 2012 gross profit of $22.5 million and net income of $8.9 million.

Consolidated Revenue

Overall, the Corporation's consolidated revenues grew by 12.1% when compared to the second quarter of 2012.

     
  Three month period
ended June 30
Six month period
ended June 30
Expressed in thousands of dollars   2013   2012   Change   2013   2012   Change
Aerospace   189,863   162,834   16.6%   371,678   328,826   13.0%
Power Generation Project     6,505   (100.0)%   3,478   27,360   (87.3)%
Total revenues   189,863   169,339   12.1%   375,156   356,186   5.3%

Consolidated revenues of $189.9 million for the second quarter ended June 30, 2013 were higher than $169.3 million in the second quarter of 2012.  Higher volumes of production contributed to increased revenues in the Aerospace segment offset by the lower revenues earned in the Power Generation Project segment.   As the Corporation moves through 2013, revenues earned from the Power Generation Project will continue to decrease on a year over year basis and are expected to be significantly lower than 2012 unless the Corporation receives further contracts in this area.

Aerospace Segment

Revenues for the Aerospace segment were as follows:

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   Change   2013   2012   Change
Canada   73,388   71,790   2.2%   146,774   147,512   (0.1)%
United States   60,395   51,162   18.0%   118,048   100,692   17.2%
Europe   56,080   39,882   40.6%   106,856   80,622   32.5%
Total revenues   189,863   162,834   16.6%   371,678   328,826   13.0%

Consolidated Aerospace revenues for the second quarter of 2013 of $189.9 million were 16.6% higher than revenues of $162.8 million in the second quarter of 2012.   Revenues in Canada in the second quarter of 2013 increased 2.2% from the same period in 2012.  The increase was mainly attributed to increased volumes on proprietary products, partially offset by the decline in volumes in the defence market.  Revenues increased by 18.0% in the United States in the second quarter of 2013 in comparison to the second quarter of 2012 primarily due to increased volumes on several of the Corporation's commercial aircraft programs and the movement of the stronger US dollar in comparison to the CDN dollar during the same periods in 2013 and 2012.  The business acquisition of John Huddleston Engineering Limited ("JHE") in the third quarter of 2012 and higher volumes of production on the Airbus statement of work contributed to a healthy 40.6% quarter-over-quarter increase in revenues in Europe in the second quarter of 2013 over revenues in the same period in 2012.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   Change   2013   2012   Change
Power Generation Project     6,505   (100.0)%   3,478   27,360   (87.3)%
Total revenues     6,505   (100.0)%   3,478   27,360   (87.3)%

The Ghana Power Generation Project (the "Project") was substantially completed as at March 31, 2013.  Additional revenues may be recorded as the Corporation continues to support the commercial operation of the Project; however, it is expected that revenues from the Power Generation Project segment will decrease on a year over year basis unless the Corporation receives further contracts in this area.

Gross Profit

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   Change   2013   2012   Change
Gross profit   28,770   22,536   27.7%   53,582   48,073   11.5%
Percentage of revenues   15.2%   13.3%       14.3%   13.5%    

Gross profit of $28.8 million (15.2% of revenues) was reported for the second quarter of 2013 compared to $22.5 million (13.3% of revenues) during the same period in 2012.  Gross profit in the second quarter of 2013 increased over the same period in 2012 as gross profit in the second quarter of 2012 was affected by a work stoppage at the Corporation's Haley location, and in the second quarter of 2013 the Corporation experienced positive changes in its product mix.

Administrative and General Expenses

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012 Change   2013   2012 Change
Administrative and general expenses   11,329   9,231 22.7%   22,064   19,092 15.6%
Percentage of revenues   6.0%   5.5%     5.9%   5.4%  

Administrative and general expenses were $11.3 million (6.0% of revenues) in the second quarter of 2013 compared to $9.2 million (5.5% of revenues) in the second quarter of 2012.  The increase is partially a result of the acquisition of JHE in August 2012, which increased general and administrative expenses by approximately $0.5 million for the three months ended June 30, 2013 versus the same period in 2012 and partially due to a growth in the Corporation's administrative support services.

Other

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
Foreign exchange (gain) loss   (22)   100   926   (46)
Loss on disposal of property, plant and equipment   182   8   214   11
Total other   160   108   1,140   (35)

Other expense of $0.2 million in the second quarter of 2013 consisted of realized and unrealized foreign exchange gains and losses on the disposal of property, plant and equipment.

Interest Expense

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
Interest on bank indebtedness and long-term debt   1,737   1,938   3,547   3,894
Accretion charge for borrowings and long-term debt   (176)   206   (22)   406
Discount on sale of accounts receivable   171   156   331   295
Total interest expense   1,732   2,300   3,856   4,595

Interest expense of $1.7 million in the second quarter of 2013 was lower than the second quarter of 2012 amount of $2.3 million, as interest on bank indebtedness and long-term debt decreased mainly due to lower principal amounts outstanding during the second quarter of 2013 than those in the second quarter of 2012.  Increased long-term bond rates resulted in a recovery of previously recorded accretion expense in the second quarter of 2013 when compared to the same quarter in the prior year.

Provision for Income Taxes

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
Expense of current income taxes   1,337   872   2,541   1,785
Expense of deferred income taxes   3,049   1,132   4,803   2,232
Total expense of income taxes   4,386   2,004   7,344   4,017
Effective tax rate   28.2%   18.4%   27.7%   16.4%

The Corporation recorded an income tax expense of $4.4 million in the second quarter of 2013 as compared to an income tax expense of $2.0 million in the second quarter of 2012.  The change in effective tax rates quarter over quarter is a result of a changing mix of income across the different jurisdictions in which the Corporation operates and the reduction in deferred income tax in the second quarter of 2012, due to the recognition of previously unrecognized deferred tax assets, which did not recur in the second quarter of 2013.

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

                               
  2013       20121               2011    
Expressed in millions of dollars,
except per share amounts
Jun 30   Mar 31   Dec 31   Sep 30   Jun 30   Mar 31   Dec 31   Sep 30
Revenues 189.9   185.3   186.4   161.4   169.3   186.8   173.3   161.6
Income before taxes 15.5   11.0   18.0   18.0   10.9   13.5   13.8   10.4
Net Income 11.2   8.0   21.8   14.9   8.9   11.5   16.6   8.6
Net Income per share                              
  Basic 0.19   0.14   0.37   0.26   0.15   0.20   0.90   0.47
  Diluted 0.19   0.14   0.37   0.26   0.15   0.20   0.31   0.17
                               
EBITDA 25.6   21.3   28.6   27.7   21.2   23.0   29.6   20.8
1Certain 2012 figures have been restated due to the implementation of IFRS 11, Joint Arrangements and revised IAS 19, Employee Benefits. See the "Changes in Accounting Policies" section on page 9 of this report.

The Corporation reported its highest quarterly revenues in the second quarter of 2013.  Revenues and net income reported in the quarterly information was impacted by the fluctuations in the Canadian dollar exchange rate in comparison to the US dollar and British Pound.  The US dollar/Canadian dollar exchange rate in the second quarter of 2013 fluctuated reaching a low of 1.0030 and a high of 1.0515.  During the second quarter of 2013, the British Pound relative to the Canadian dollar fluctuated reaching a low of 1.5328 and a high of 1.6209. The movement of exchange rates between the second quarter of 2013 and the second quarter of 2012 had minimal impact on revenues in the second quarter of 2013.   Net income in the third quarter of 2012 was higher than the first two quarters of 2012 as the Corporation recognized an after tax gain on bargain purchase of $7.4 million on the acquisition of JHE as the consideration paid was lower than the fair value of the identifiable tangible assets acquired at the time of purchase.   Net income for the fourth quarter of 2012 and 2011 of $21.8 million and $16.6 million respectively was higher than other quarterly net income disclosed in the table above. In the fourth quarter of 2011 the Corporation recognized a reversal of previous impairment losses against intangible assets relating to various commercial aircraft programs.  In addition, in both the fourth quarter of 2011 and 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.

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 certain measures in this quarterly statement, including EBITDA (earnings before interest expense, income taxes and depreciation and amortization). 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 Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
Net income   11,163   8,893   19,178   20,404
Interest   1,732   2,300   3,856   4,595
Taxes   4,386   2,004   7,344   4,017
Depreciation and amortization   8,311   7,996   16,485   15,185
EBITDA   25,592   21,193   46,863   44,201

EBITDA for the second quarter of 2013 was $25.6 million, compared to $21.2 million in the second quarter of 2012, an increase of 20.8% on a year-over-year basis.  Increased revenues and gross profits resulted in increased EBITDA for the current quarter when compared to the same period in 2012.

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 Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
(Increase) decrease in accounts receivable   (1,113)   1,462   (22,647)   (22,432)
Increase in inventories   (6,624)   (5,321)   (7,464)   (15,616)
(Increase) decrease in prepaid expenses and other   (231)   279   (2,263)   (962)
Increase (decrease) in accounts payable, accrued liabilities and provisions   4,366   (7,538)   6,018   14,613
Changes to non-cash working capital balances   (3,602)   (11,118)   (26,356)   (24,397)
Cash provided by operating activities   17,747   3,706   11,749   8,791

In the quarter ended June 30, 2013, the Corporation generated $17.7 million in cash in its operations, compared to $3.7 million generated in the second quarter of 2012.  Cash was generated mainly by an increase in net income and in accounts payable, accrued liabilities and provisions, offset by increases in accounts receivable and inventories.

Investing Activities

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
Purchase of property, plant and equipment   (4,217)   (8,481)   (8,318)   (12,463)
Proceeds of disposals of property plant and equipment   81   39   127   42
Increase in intangibles and other assets   (1,731)   (3,025)   (4,443)   (8,191)
Cash used in investing activities   (5,867)   (11,467)   (12,634)   (20,612)

In the second quarter of 2013, the Corporation invested $4.2 million in property, plant and equipment to upgrade and enhance capabilities for current and future programs and $1.7 million in intangibles and other assets, largely related to deposits placed on new property, plant and equipment to be acquired.

Financing Activities

     
  Three month period Six month period
  ended June 30 ended June 30
Expressed in thousands of dollars   2013   2012   2013   2012
(Decrease) increase in bank indebtedness   (11,342)   1,788   (4,861)   (3,903)
Increase in debt due within one year   280      1,751   779   17,502
Decrease in long-term debt   (2,914)   (3,675)   (5,349)   (5,799)
(Decrease) increase in long-term liabilities and provisions   (78)   10   (119)   158
Increase in borrowings   268   820   586   1,002
Cash provided by financing activities   (13,786)   694   (8,964)   8,960

On December 21, 2012, 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 decreased to a Canadian dollar limit of $115.0 million (down from $125.0 million) plus a US dollar limit of $35.0 million (down from US $50.0 million), with a maturity date of December 21, 2014. The Bank Facility Agreement also includes a Cdn$50 million uncommitted accordion provision which will provide Magellan with the option to increase the size of the operating credit facility to $200 million.  The facility is extendible for unlimited future one year renewal periods, subject to mutual consent of the syndicate of lenders and the Corporation. The operating credit facility continues to be fully guaranteed until December 21, 2014 by the Chairman of the Board of the Corporation in consideration of the continued payment by the Corporation of an annual fee, payable monthly, equal to 0.50% (down from 0.63%) of the loan amount.

On December 21, 2012, the Corporation also extended the 7.5% loan payable ("Original Loan") to Edco Capital Corporation ("Edco"), a corporation controlled by the Chairman of the Board of the Corporation to January 1, 2015 in consideration of the payment of a fee to Edco equal to 0.75% of the principal amount outstanding at the time of extension.  The Corporation has the right to repay the Original Loan at any time without penalty.

The terms of the amended operating credit agreement continue to permit the Corporation to repay, in whole or in part, the Original Loan from Edco provided there is no current default or event of default under the operating credit facility and after the repayment of the loan the Corporation has at least $25.0 million in availability under the operating credit facility.

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 May 8, 2013, 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 uses 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 US dollars.

The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings.     As at June 30, 2013 the Corporation had foreign exchange contracts outstanding as follows:

         
Foreign exchange forward contracts   Amount   Rate
Maturity - less than 1 year - US Dollar   18,750   1.0150
Maturity - less than 1 year - US Dollar   7,500   1.0425

The fair values of the Corporation's foreign exchange forward contracts are based on the current market values of similar contracts with the same remaining duration as if the contract had been entered into on June 30, 2013.

The mark-to-market on these financial instruments as at June 30, 2013 was an unrecognized loss of $0.8 million which has been recorded in other expenses in the period.

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.

Dividend

On August 8th 2013, the Corporation announced that its Board of Directors had declared an initial quarterly cash dividend on its common shares of $0.03 (three cents) per common share. The dividend will be payable September 30, 2013 to shareholders of record at the close of business on September 12, 2013.

This is the first dividend paid by Magellan Aerospace on its common shares and is reflective of the Board of Directors confidence in Magellan's current business operations.

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, 2012 and to the information under "Risks Inherent in Magellan's Business" in the Corporation's Annual Information Form for the year ended December 31, 2012, which have been filed with SEDAR at www.sedar.com.

Outlook
The outlook for Magellan's business in 2013

During the recent Paris Air Show held in June, both Boeing and Airbus confirmed the continuing strength of the commercial aerospace market.  They released their twenty-year aircraft market forecasts which predict approximately 34,000 new airplanes to be delivered between 2012 and 2031.  Of these, 68% are narrow-bodies, and 24% twin aisle aircraft.  Boeing suggests that 41% will be replacement aircraft with 59% growth aircraft.  Supporting the strength in narrow-bodies, Boeing increased its 737 build rate to 38 per month (from 35 per month) as planned in the second quarter of 2013 and Airbus is sustaining its A320 rate at 42 aircraft per month.  With an approved battery resolution in place, Boeing continues a 7 aircraft per month 787 build rate and maintains it will reach 10 per month by the end of 2013.  Airbus is planning to increase A330 production rates to 11 per month (from 9 per month) in the second quarter of 2014 with the A380 production rates returning to 2.7 per month.  The A350XWB is currently at 0.8 per month with a plan to reach 13 per month in 2017 when in full production.

Global competition within the commercial aircraft market is causing major OEM's to apply pressure on the supply chain to cut costs. This message is reverberating down from air-frame manufacturers, through major aerostructures suppliers to engine manufacturers.  Magellan anticipates increased leverage being applied by OEM's as they take a "One Company" consolidated approach to their supply chain partners.   This consolidated company view, combined with cost pressures in the market place, continues to present challenges to the supply chain.

The business jet market is currently experiencing a modest growth in the large cabin segment while the small and medium cabin segments have experienced declines in both 2012 and 2013.  The current aggregate forecast from various sources indicates that even with flat economic indicators in 2013, the market could see 10% growth in 2014, which would be the first overall growth in this sector since 2008.

A decade of growth in defence spending combined with an unprecedented positive trend in the commercial aerospace market resulted in 2012 being a strong year for top aerospace and defence OEM's.  Now as defence budgets are being reduced, industry results may be more challenging going forward.  In Europe, industry experts say that consolidation will be necessary to eliminate the inevitable higher costs that the industry historically incurs as a result of underutilized capacity.  However, given the positive financial performance to date, there doesn't seem to be any urgency yet to make such moves.

On the defence side, the industry is facing a multi-year downturn in United States defence spending, the extent of which has yet to be quantified.  Defence OEM's have already cut production rates on certain programs for the fiscal year 2013.  If Congress does not change the existing laws, sequestration is expected to precipitate an across the board cut of 15% to 20% in fiscal year 2014.  If a cap reduction is agreed then certain programs may be affected disproportionately.  The industry is looking to see if Congress will pass a deficit reduction package prior to the beginning of fiscal year 2014, which would be in the October 2013 timeframe.

The Corporation remains confident that the aircraft program and content balance it has in place will help to insulate Magellan from the continuing downturn in defence spending.

Magellan anticipates positive results going forward from their ongoing discussions with key customers in the space and communications segment of its business and its current activities in its proprietary products division, specifically in the future opportunities being developed in the Wire Strike market.

Additional Information

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

Forward Looking Statements

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

MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(unaudited)   Three month period
ended June 30
   Six month period
 ended June 30
(expressed in thousands of Canadian dollars, except per share amounts)   2013   2012   2013   2012
                 
Revenues   189,863   169,339   375,156   356,186
Cost of revenues   161,093   146,803   321,574   308,113
Gross profit   28,770   22,536   53,582   48,073
                 
Administrative and general expenses   11,329   9,231   22,064   19,092
Other   160   108   1,140   (35)
    17,281   13,197   30,378   29,016
                 
Interest   1,732   2,300   3,856   4,595
Income before income taxes   15,549   10,897   26,522   24,421
                 
Income taxes                
  Current   1,337   872   2,541   1,785
  Deferred   3,049   1,132   4,803   2,232
    4,386   2,004   7,344   4,017
Net income   11,163   8,893   19,178   20,404
                 
Other comprehensive income                
  Other comprehensive income to be reclassified to                
  profit and loss in subsequent periods:                
  Foreign currency translation   6,804   2,489   6,420   674
  Items not to be reclassified to profit and loss in                
  subsequent periods:                
  Actuarial gain on defined benefit pension plan, net of tax   9,498     9,498  
Total comprehensive income, net of tax   27,465   11,382   35,096   21,078
                 
Net income per share                
  Basic   0.19   0.15   0.33   0.36
  Diluted   0.19   0.15   0.33   0.35

MAGELLAN AEROSPACE CORPORATION            
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
             
(unaudited)     June 30   December 31   January 1
(expressed in thousands of Canadian dollars)       2013     2012   2012
                    
Current assets              
Cash     12,770   22,423   26,502
Trade and other receivables     159,984   134,214   106,392
Inventories     157,549   147,329   127,434
Prepaid expenses and other     10,113   7,843   5,297
      340,416   311,809   265,625
Non-current assets                    
Property, plant and equipment     316,565   315,484   288,763
Investment properties     2,815   2,875   3,041
Intangible assets     57,412   60,701   66,134
Other assets     17,499   13,097   8,783
Deferred tax assets     47,263   51,040   28,360
      441,554   443,197   395,081
Total assets     781,970   755,006   660,706
               
Current liabilities                        
Accounts payable and accrued liabilities and provisions     129,698   121,161   105,551
Debt due within one year     33,569   32,256   12,297
      163,267   153,417   117,848
Non-current liabilities                        
Bank indebtedness     108,964   112,666   120,674
Long-term debt     75,966   79,857   81,423
Borrowings subject to specific conditions     20,493   20,768   18,847
Other long-term liabilities and provisions     26,325   39,003   29,131
Deferred tax liabilities     17,325   14,761   10,088
      249,073   267,055   260,163
               
Equity                        
Share capital     254,440   254,440   252,440
Contributed surplus     2,044   2,044   2,041
Other paid in capital     13,565   13,565   13,565
Retained earnings     100,358   71,682   20,747
Accumulated other comprehensive loss     (777)   (7,197)   (6,098)
      369,630   334,534   282,695
Total liabilities and equity     781,970   755,006   660,706

MAGELLAN AEROSPACE CORPORATION        
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW
 
    Three month period
ended June 30
  Six month period
ended June 30
(unaudited)
(expressed in thousands of Canadian dollars)
  2013   2012   2013   2012
                 
Cash flow from operating activities                
  Net income   11,163   8,893   19,178   20,404
  Amortization/depreciation of intangible assets and property, plant and equipment   8,311   7,996   16,485   15,185
  Loss on disposal of property, plant and equipment   182   8   214   11
  Impairment reversal     (1,543)     (1,543)
  (Decrease) increase in defined benefit plans   (283)   20   (301)   (683)
  Stock-based compensation     (3)     3
  Accretion   (176)   190   (23)   340
  Deferred taxes   2,122   (737)   2,522   (529)
  Loss on investment in joint venture   30     30  
  Decrease in working capital   (3,602)   (11,118)   (26,356)   (24,397)
Net cash provided by operating activities   17,747   3,706   11,749   8,791
                 
Cash flow from investing activities                
  Purchase of property, plant and equipment   (4,217)   (8,481)   (8,318)   (12,463)
  Proceeds from disposal of property, plant and equipment   81   39   127   42
  Increase in other assets   (1,731)   (3,025)   (4,443)   (8,191)
Net cash used in investing activities   (5,867)   (11,467)   (12,634)   (20,612)
                 
Cash flow from financing activities                
  (Decrease) increase in bank indebtedness   (11,342)   1,788   (4,861)   (3,903)
  Increase in debt due within one year   280   1,751   779   17,502
  Decrease in long-term debt   (2,914)   (3,675)   (5,349)   (5,799)
  (Decrease) increase in long-term liabilities and provisions   (78)   10   (119)   158
  Increase in borrowings   268   820   586   1,002
Net cash (used in) provided by financing activities   (13,786)   694   (8,964)   8,960
                 
Decrease in cash during the period   (1,906)   (7,067)   (9,849)   (2,861)
Cash at beginning of the period   14,346   30,483   22,423   26,502
Effect of exchange rate differences   330   336   196   111
Cash at end of the period   12,770   23,752   12,770   23,752
               
             

 

SOURCE: Magellan Aerospace Corporation

For further information:

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

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

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