The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Magellan Aerospace Corporation Announces Financial Results

Tuesday, August 12, 2014

Magellan Aerospace Corporation Announces Financial Results

22:00 EDT Tuesday, August 12, 2014

TORONTO, Aug. 12, 2014 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the second quarter of 2014.  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

2014

2013

Change

2014

2013

Change

Revenues

221,050

189,863

16.4%

431,552

375,156

15.0%

Gross Profit

34,497

28,770

19.9%

63,973

53,582

19.4%

Net Income

13,606

11,163

21.9%

25,685

19,178

33.9%

Net Income per Share

0.23

0.19

21.0%

0.44

0.33

33.3%

EBITDA

30,191

25,592

18.0%

57,321

46,863

22.3%

EBITDA per Share

0.52

0.44

18.2%

0.99

0.81

22.2%

 


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 a generally accepted earnings measure 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 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

During the second quarter of 2014, the Corporation announced that it had been awarded a contract for the repair and overhaul of the F404 engine that powers Canada's fleet of CF18 Hornet aircraft. The estimated revenues include $16 million for the initial one-year term, an additional estimated $16 million for a one-year option period and include material content of $23 million over the contracted term and the option period.  The work will be carried out at Magellan's Mississauga, Ontario facility.

On 20 May 2014, Magellan also announced that in partnership with the University of Manitoba, it will establish an advanced satellite integration facility at its location in Winnipeg, Manitoba.  The facility will accommodate the simultaneous assembly, integration and testing of three satellite buses and will enhance the training opportunities for engineering students at the University.  Magellan will invest approximately $2 million in the project.

In the Power Generation Segment, Magellan is working closely with Ghana on the existing power generation project and is supplying on-going operational and maintenance support.  The Corporation continues to pursue additional opportunities for similar projects.

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 second quarter ended June 30, 2014

The Corporation reported higher revenue in both its Aerospace segment and its Power Generation Project segment in the second quarter of 2014 when compared to the second quarter of 2013. Gross profit and net income for the second quarter of 2014 were $34.5 million and $13.6 million, respectively, an increase from the second quarter of 2013 gross profit of $28.8 million and from the second quarter of 2013 net income of $11.2 million. 

Consolidated Revenue

Overall, the Corporation's consolidated revenues in the second quarter of 2014 increased by 16.4% when compared to the second quarter of 2013. 





Three month period

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013

Change


2014


2013

Change

Aerospace


219,461


189,863

15.6%


429,827


371,678

15.6%

Power Generation Project


1,589


100.0%


1,725


3,478

(50.4)%

Revenues


221,050


189,863

16.4%


431,552


375,156

15.0%

 

Consolidated revenues of $221.1 million for the second quarter ended June 30, 2014 were higher than the $189.9 million of revenue in the second quarter of 2013.  Increased revenues of 15.6% year over year in the Aerospace segment were due to higher volumes of production on several commercial aircraft platforms and the appreciation of the United States dollar and the British Pound over the Canadian dollar when compared to the prior year quarter.  The increase in the Power Generation Project segment represents revenue earned on an 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

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013

Change


2014


2013

Change

Canada


90,615


73,388

23.5%


168,078


146,774

14.5%

United States


68,109


60,395

12.8%


135,796


118,048

15.0%

Europe


60,737


56,080

8.3%


125,953


106,856

17.9%

Total revenues


219,461


189,863

15.6%


429,827


371,678

15.6%

 

Consolidated Aerospace revenues for the second quarter of 2014 of $219.5 million were 15.6% higher than revenues of $189.9 million in the second quarter of 2013.   Revenues in Canada in the second quarter of 2014 increased 23.5% from the same period in 2013 primarily due to higher revenue earned on the Corporation's space 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 second quarter of 2014 when compared to the same period in 2013.  Revenues increased by 12.8% in the United States in the second quarter of 2014 in comparison to the second quarter of 2013.  Increased shipments on several of the Corporation's single aisle and wide body commercial aircraft programs, in particular the Boeing 787 and 737 programs and 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.  Higher production volume on new and existing Airbus statements of work and favourable movements of the British Pound in comparison to the Canadian dollar contributed to the increase of 8.3% in European revenues in the second quarter of 2014 over revenues in the same period in 2013.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:





Three month period

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013

Change


2014


2013

Change

Power Generation Project


1,589


100.0%


1,725


3,478

(50.4)%

Total revenues


1,589




1,725


3,478


 

The original statement of work on the Ghana Power Generation Project (the "Project") was substantially completed and all revenue 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

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013

Change


2014


2013

Change

Gross profit


34,497


28,770

19.9%


63,973


53,582

19.4%

Percentage of revenues


15.6%


15.2%



14.8%


14.3%


 

Gross profit of $34.5 million (15.6% of revenues) was reported for the second quarter of 2014 compared to $28.8 million (15.2% of revenues) during the same period in 2013.  Increased gross profit in the second quarter of 2014 over the same period in 2013 was primarily due to higher volumes, favourable product mix and the strengthening year over year of the United States dollar and British Pound against the Canadian dollar, offset somewhat by higher costs experienced on the introduction of new programs.

Administrative and General Expenses





Three month period

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013

Change


2014


2013

Change

Administrative and general expenses


11,802


11,329

4.2%


23,272


22,064

5.5%

Percentage of revenues


5.3%


6.0%



5.4%


5.9%


 

As a percentage of revenues, administrative and general expenses decreased to 5.3% of revenues for the quarter ended June 30, 2014 from 6.0% for the quarter ended June 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 the impact upon translation of the weaker Canadian dollar in the second quarter of 2014 when compared to the same period of 2013. 

Other





Three month period

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013


2014


2013

Foreign exchange loss (gain)


610


(22)


314


926

Loss on disposal of property, plant and equipment


811


182


764


214

Total other


1,421


160


1,078


1,140











Other expense of $1.4 million in the second 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

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013


2014


2013

Interest on bank indebtedness and long-term debt


1,212


1,737


2,431


3,547

Accretion charge for  borrowings and long-term debt


1,050


(176)


1,360


(22)

Discount on sale of accounts receivable


206


171


375


331

Total interest expense


2,468


1,732


4,166


3,856











 

Interest expense of $2.5 million in the second quarter of 2014 was higher than the second quarter of 2013 amount of $1.7 million primarily as a result of 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

ended June 30

Six month period

ended June 30


Expressed in thousands of dollars


2014


2013


2014


2013

Expense of current income taxes


1,014


1,337


2,238


2,541

Expense of deferred income taxes


4,186


3,049


7,534


4,803

Total expense of income taxes


5,200


4,386


9,772


7,344

Effective tax rate


27.7%


28.2%


27.6%


27.7%











The Corporation recorded an income tax expense of $5.2 million in the second quarter of 2014 compared to an income tax expense of $4.4 million in the second quarter of 2013.  Current income taxes for the second quarter of 2014 consisted primarily of the tax expense in jurisdictions with current taxes payable. Deferred income taxes for the second 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




2012 1


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

221.0

210.5

195.9

181.0

189.9

185.3

186.4

161.4

Income before taxes

18.8

16.7

21.0

13.2

15.5

11.0

18.0

18.0

Net Income

13.6

12.1

16.8

9.5

11.2

8.0

21.8

14.9

Net Income per share









  Basic and diluted

0.23

0.21

0.29

0.16

0.19

0.14

0.37

0.26

EBITDA

30.2

27.1

31.0

22.9

25.6

21.3

28.9

27.7

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 quarterly information were impacted positively by the fluctuations 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 second quarter of 2014 fluctuated reaching a low of 1.0661 and a high of 1.1048.  During the second quarter of 2014, the British Pound relative to the Canadian dollar fluctuated reaching a low of 1.8146 and a high of 1.8542.  Had the foreign exchange rates remained at levels experienced in the second quarter of 2013, reported revenues in the second quarter of 2014 would have been lower by $15.7 million.

Net income in the third quarter of 2012 included the recognition of an after tax gain on bargain purchase of $7.4 million on an acquisition 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 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 the current quarter 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

ended June 30


Six month period

ended June 30



Expressed in thousands of dollars

2014


2013


2014


2013

Net income

13,606


11,163


25,685


19,178

Interest

2,468


1,732


4,166


3,856

Taxes

5,200


4,386


9,772


7,344

Depreciation and amortization

8,917


8,311


17,698


16,485

EBITDA

30,191


25,592


57,321


46,863









 

EBITDA for the second quarter of 2014 was $30.2 million, compared to $25.6 million in the second quarter of 2013, an increase of 18.0% on a year-over-year basis.  Increased revenue for the second 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

ended June 30

Six month period

ended June 30



Expressed in thousands of dollars


2014


2013


2014


2013

Increase in accounts receivable


(3,206)


(1,113)


(16,684)


(22,647)

Decrease (increase) in inventories


256


(6,624)


(3,746)


(7,464)

Increase in prepaid expenses and other


(660)


(231)


(367)


(2,263)

(Decrease) increase in accounts payable, accrued liabilities

    and provisions


(1,563)


4,366


(5,238)


6,018

Changes to non-cash working capital balances


(5,173)


(3,602)


(26,035)


(26,356)

Cash provided by operating activities


21,709


17,747


23,659


11,749










 

In the second quarter ended June 30, 2014, the Corporation generated $21.7 million in cash from operations, compared to $17.7 million generated in the second quarter of 2013.  The increase in cash generated from operations was primarily due to increased net income in the second quarter of 2014 compared to the same period in 2013. Changes in accounts receivable reflects increased volumes and the change in accounts payable and accrued liabilities was primarily driven by the timing of purchases and payments.

Investing Activities






Three month period

ended June 30


Six month period

ended June 30


Expressed in thousands of dollars


2014


2013


2014


2013

Purchase of property, plant and equipment


(4,966)


(4,217)


(11,530)


(8,318)

Proceeds of disposals of property plant and equipment


259


81


330


127

Increase in intangibles and other assets


(5,672)


(1,731)


(8,771)


(4,443)

Cash used in investing activities


(10,379)


(5,867)


(19,971)


(12,634)










The Corporation's capital expenditures for the second quarter of 2014 were $5.0 million compared to $4.2 million in the second 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.  Higher deposits on property, plant and equipment and increased long-term receivables accounted for the majority of the increase in intangible assets and other assets.

Financing Activities








Three month period

ended June 30


Six month period

ended June 30




Expressed in thousands of dollars


2014


2013


2014


2013

Decrease in bank indebtedness


(9,624)


(11,342)


(4,127)


(4,861)

Increase in debt due within one year


402


280


6,145


779

Decrease in long-term debt


(1,170)


(2,914)


(2,515)


(5,349)

Decrease in long-term liabilities and provisions


(536)


(78)


(429)


(119)

(Decrease) increase in borrowings


(534)


268


(534)


586

Common share dividends


(2,328)



(4,656)


Cash used by financing activities


(13,790)


(13,786)


(6,116)


(8,964)

 

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 United States dollar limit of $35.0 million (down from United States $50.0 million), with a maturity date of December 21, 2014. The Bank Facility 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.  The facility is extendible for unlimited 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.

As at June 30, 2014 the Corporation has made contractual commitments to purchase $17.3 million of capital assets.

Dividends
During the second 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 August 12th 2014, the Corporation announced that its Board of Directors had declared a quarterly cash dividend on its common shares of $0.04 per common share. The dividend will be payable on September 30, 2014 to shareholders of record at the close of business on September 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 August 1, 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 June 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 June 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. 

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

In the commercial aircraft market, Boeing and Airbus are focusing on managing the ramp-up of their  new programs and improving efficiencies to free up capacity and stave off competition from new players in the market such as Bombardier, Mitsubishi and COMAC.  With combined single and twin aisle aircraft build rates forecast at 150 per month for 2018, if achieved, both Boeing and Airbus will be delivering an unprecedented 1,800 aircraft per year.   While some industry opinions suggest that the OEM's may be overbuilding and setting up for an inevitable downturn, others have suggested that depending upon fuel prices and interest rates, the net aircraft forecast to be delivered is in line with expected growth in seat demand and accelerated worldwide aircraft replacement with more fuel efficient platforms.

The single aisle Boeing B737 production rate is currently at 42 aircraft per month with announced plans to increase to 47 aircraft per month in 2017.  Airbus' A320 is similarly forecasted to reach 46 aircraft per month by 2016 from a current rate of 42 aircraft per month.  Both companies have aggressive ramp up plans to transition from legacy model production to the new models (Boeing B737MAX and Airbus A320NEO) over the next several years.  

Airbus' A350XWB continues on plan despite a recent cancellation of 70 aircraft orders by Emirates Airline.  The current A350 backlog stands at 742 firm orders, one half year before the expected aircraft's entry into service.  Boeing's B777 is in steady state production at 8.3 aircraft per month with the B777X in development.  The Boeing B787 is at 10 aircraft per month projecting possible rate increases to 14 aircraft per month as the B787-9 variant launches into production.  Airbus' A380 is also in steady-state production at 30 aircraft annually.

A new competitor has entered the regional turboprop market, with China's AVIC announcing the MA700 powered by Pratt & Whitney Canada's PW127 engine.  This aircraft will join Bombardier's Q400 and ATR's ATR-72 in 2019 as a third propeller-driven option for customers and it is said to be designed for stretching to a 90-seat configuration.  Meanwhile, Bombardier had hoped to finalize a tentative deal with Russian conglomerate ROSTEC for 100 (Q400) aircraft including a joint venture production facility in Russia.  This deal has not yet been finalized.  Fortunately, other orders for Q400 are being secured by Bombardier to sustain production rates of approximately 35 aircraft per year.   ATR meanwhile is increasing its current production rates as their ATR-72 backlog grows.

In the US defense market, certain programs such as F-18, MH-60 and C130 may see more protection from budget cuts than initially thought as the US Senate Appropriations subcommittee is recommending bolstering funds on a range of legacy priority programs.  As a part of this decision, they are requesting an independent cost analysis of the Army Aviation restructuring plan to ensure full fiscal implications of divesting certain programs is considered.  The subcommittee is recommending $11.7 billion in cuts to shift money to higher priority programs.  The reprieve is temporary as sequestration is still a fiscal reality for fiscal 2016 and beyond.  Besides looking to foreign military sales options to help mitigate the effects of future cuts, some OEM's like Lockheed Martin are commercializing platforms such as C130, thereby extending their production life.

Specifically on the F-35 Lightening II program ("F-35"), Lockheed Martin remains confident that the program is on track despite declining military budgets, development delays and a recent engine fire.  This was demonstrated during the second quarter with Australia committing to purchase an additional 58 aircraft and Turkey finalizing their commitment to purchase the aircraft.  An agreement between the US Department of Defense and the principals producing the aircraft (Lockheed Martin, Pratt and Whitney, Northrop Grumman, and BAE Systems) was signed during the quarter to focus on reducing the cost of the F-35.  Known as the Blueprint for Affordability, this agreement is designed to reduce the price of a new F-35 to under $80 million in then-year dollars by 2019, which is at or below the price of the current fourth generation fighters.

Following a series of new commercial helicopter launches in recent years, the rotorcraft market is slow again.  Manufacturers are now focused on program execution.  Oil and gas markets are expected to be the main driver for new commercial helicopters going forward according to Sikorsky Aircraft, with search and rescue, parapublic and VIP applications becoming secondary drivers.  On the defense side, volume contraction due to budget constraints remains a headwind causing OEM's to seek more volumes through foreign military sales. 

Finally, the current climate is changing with regard to the way OEM's are contracting with the aerospace supply base.  They are (i) seeking longer contract terms of up to 10+ years versus the traditional 3 – 5 years contract periods; (ii) looking to secure their share of manufacturing capacity in order to protect their programs in the face of across the board market demands on capacity; and (iii) looking to secure surety of cost by requesting that suppliers commit to certain levels of cost reduction as a ticket-to-entry into new programs.  Boeing's "Partnering for Success" and United Technologies Corporation's "Value X Velocity" programs are typical examples of these initiatives.  Magellan is presently well positioned to participate in this competitive 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 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 June 30

Six month period
ended June 30

(expressed in thousands of Canadian dollars,
except per share amounts)


2014

2013

2014

2013







Revenues


221,050

189,863

431,552

375,156

Cost of revenues


186,553

161,093

367,579

321,574

Gross profit


34,497

28,770

63,973

53,582







Administrative and general expenses


11,802

11,329

23,272

22,064

Other


1,421

160

1,078

1,140

Income before interest and income taxes


21,274

17,281

39,623

30,378







Interest


2,468

1,732

4,166

3,856

Income before income taxes


18,806

15,549

35,457

26,522







Income taxes







Current


1,014

1,337

2,238

2,541


Deferred


4,186

3,049

7,534

4,803



5,200

4,386

9,772

7,344

Net income


13,606

11,163

25,685

19,178







Net income per share






Basic and diluted


0.23

0.19

0.44

0.33



















Net income


13,606

11,163

25,685

19,178

Other comprehensive (loss) income that may be






reclassified to profit and loss in subsequent periods:







Foreign currency translation (loss) gain


(6,079)

6,804

3,222

6,420

Other comprehensive (loss) income that may be






reclassified to profit and loss in subsequent periods:







Actuarial (loss) gain on defined benefit pension
plans, net of tax


(1,173)

9,498

(4,376)

9,498

Total comprehensive income, net of tax


6,354

27,465

24,531

35,096







 

 


MAGELLAN AEROSPACE CORPORATION

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION













(unaudited)




June 30

December 31

(expressed in thousands of Canadian dollars)




2014

2013







Current assets






Cash




5,521

7,760

Trade and other receivables




163,452

146,969

Inventories




165,179

160,269

Prepaid expenses and other




13,115

12,461





347,267

327,459

Non-current assets






Property, plant and equipment




331,694

331,940

Investment properties




4,401

4,663

Intangible assets




59,233

60,365

Other assets




31,140

24,472

Deferred tax assets




42,480

43,011





468,948

464,451

Total assets




816,215

791,910







Current liabilities






Bank indebtedness




112,085

115,930

Accounts payable and accrued liabilities and provisions




134,301

137,625

Debt due within one year




36,378

30,932





282,764

284,487

Non-current liabilities






Long-term debt




44,627

46,154

Borrowings subject to specific conditions




18,087

17,637

Other long-term liabilities and provisions




19,533

15,713

Deferred tax liabilities




23,171

19,761





105,418

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




146,117

129,464

Accumulated other comprehensive income




11,867

8,645





428,033

408,158

Total liabilities and equity




816,215

791,910







 

 





MAGELLAN AEROSPACE CORPORATION

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW








(unaudited)


Three month period

ended June 30

Six month period

ended June 30

(expressed in thousands of Canadian dollars)


2014

2013

2014

2013







Cash flow from operating activities






Net income


13,606

11,163

25,685

19,178


Amortization/depreciation of intangible assets and property,
plant and equipment


8,917

8,311

17,698

16,485


Loss on disposal of property, plant and equipment


811

182

764

214


Increase (decrease) in defined benefit plans


934

(283)

513

(301)


Accretion


1,032

(176)

1,322

(23)


Deferred taxes


1,618

2,122

3,828

2,522


(Gain) loss on investment in joint venture


(36)

30

(116)

30


Increase in non-cash working capital


(5,173)

(3,602)

(26,035)

(26,356)

Net cash provided by operating activities


21,709

17,747

23,659

11,749







Cash flow from investing activities







Purchase of property, plant and equipment


(4,966)

(4,217)

(11,530)

(8,318)


Proceeds from disposal of property, plant and equipment


259

81

330

127


Increase in other assets


(5,672)

(1,731)

(8,771)

(4,443)

Net cash used in investing activities


(10,379)

(5,867)

(19,971)

(12,634)







Cash flow from financing activities







Decrease in bank indebtedness


(9,624)

(11,342)

(4,127)

(4,861)


Increase in debt due within one year


402

280

6,145

779


Decrease in long-term debt


(1,170)

(2,914)

(2,515)

(5,349)


Decrease in long-term liabilities and provisions


(536)

(78)

(429)

(119)


(Decrease) increase in borrowings


(534)

268

(534)

586


Common share dividend


(2,328)

(4,656)

Net cash used in financing activities


(13,790)

(13,786)

(6,116)

(8,964)







Decrease in cash during the period


(2,460)

(1,906)

(2,428)

(9,849)

Cash at beginning of the period


8,124

14,346

7,760

22,423

Effect of exchange rate differences


(143)

330

189

196

Cash at end of the period


5,521

12,770

5,521

12,770

 

 

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

Products
  • Globe Unlimited

    Digital all access pass across devices. subscribe

  • The Globe and Mail Newspaper

    Newspaper delivered to your doorstep. subscribe

  • Globe2Go

    The digital replica of our newspaper. subscribe

  • Globe eBooks

    A collection of articles by the Globe. subscribe

See all Globe Products

Advertise with us

GlobeLink.ca

Your number one partner for reaching Canada's Influential Achievers. learn more

The Globe at your Workplace
Our Company
Customer Service
Globe Recognition
Mobile Apps
NEWS APP
INVESTING APP
Other Sections