Magellan Aerospace Corporation Announces Financial Results

TORONTO, May 10, 2012 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the first quarter of 2012.  All amounts are expressed in Canadian Dollars unless otherwise indicated. The results are summarized as follows:

		Three month period ended March 31
Expressed in thousands of dollars, except per share amounts		2012	2011	Change
Revenues		186,992	170,487	9.7%
Gross Profit		26,007	23,759	9.5%
Net Income		11,824	7,222	63.7%
Net Income per Share - Diluted		0.20	0.14	42.9%
EBITDA		23,472	22,737	3.2%
EBITDA per Share - Diluted		0.40	0.39	2.6%

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

The Corporation has included certain measures in this news release, including EBITDA, the terms for which are not defined under International Financial Reporting Standards.  The Corporation defines EBITDA as earnings before interest, dividends on preference shares, taxes, depreciation and amortization and non-cash charges.  The Corporation has included these measures, including EBITDA, because it believes this information is used by certain investors to assess financial performance and EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed and how the results are taxed in various jurisdictions.  Although the Corporation believes these measures are used by certain investors (and the Corporation has included them for this reason), these measures may not be comparable to similarly titled measures used by other companies.

OVERVIEW

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

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

BUSINESS UPDATE

The first quarter 2012 results are indicative of both the Corporation's sustained focus on improving operational efficiencies and the maturing of new products into their initial production rates.

Revenues and net income for 2012 when compared to the first quarter 2011 both showed increases and improvement.  The results were also positively impacted by the recovery of lost revenues experienced at our Winnipeg division due to the work stoppage experienced in 2011.  Overall, the financial indicators for the first quarter 2012 compared favourably to those experienced in the first quarter 2011.

The activity the Corporation experienced in the first quarter 2012 continues to reflect the sustained demand for products in the commercial aerospace sector where both fixed wing and rotary markets continued to demand product in line with previous forecasts.  New products being introduced into this sector, to which Magellan is a supplier, include the B787 and the B747-8 both of which have now matured into their initial production rates with minimal non-recurring efforts remaining to support these programs.  Non-recurring efforts continue in support of the A350 and B787-9 platforms.  Magellan is confident that it remains well positioned and balanced in respect to the commercial aerospace market.  The Corporation has noted and is prudently monitoring the financial results for the airline sector which is experiencing dampened results due primarily to escalating fuel costs.

While there remains obvious pressure on defence spending in general and more specifically, in the North American and European markets, demand for Magellan products in support of legacy programs such as F15, F18 and Blackhawk remained stable.   Additionally Magellan continued both non-recurring and recurring efforts through the first quarter of 2012 in support of the F-35 Global Lightning II program.  Magellan's statement of work on this program involves five divisions providing product to six main global customers.

The Corporation focused specific attention in the first quarter on supporting the Haverhill/Middleton division where strategic investments have been made to expand and upgrade its facility as well as applied technologies in its engine shaft business.  These efforts will benefit the full suite of aeroengine customers at this facility including the Rolls Royce programs which are currently in the development stage.

Magellan's space activities continued in primary support to the Canadian Space Agency's Radarsat Constellation Missions.  Despite somewhat significant cutbacks in the Canadian Federal budget this year, the funding for these programs appear to remain intact.

Magellan's electric power generation project underway in The Republic of Ghana continued to progress towards completion in the first quarter of 2012 with commissioning of the electric power generation plant targeted for later in 2012.

For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2011 Annual Report available on www.sedar.com.

ANALYSIS OF OPERATING RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2012

The Corporation reported higher revenue in both its aerospace and power generation project segments in the first quarter of 2012 compared to the first quarter of 2011. Gross profit and net income for the first quarter of 2012 were $26.0 million and $11.8 million, respectively, an increase from the first quarter of 2011 gross profit of $23.8 million and from the first quarter of 2011 net income of $7.2 million.

Consolidated Revenue

Overall, the Corporation's revenues increased when compared to the first quarter of 2011.

	Three month period ended March 31
Expressed in thousands of dollars		2012		2011	Change
Aerospace		166,136		154,615	7.5%
Power Generation Project		20,856		15,872	31.4%
Total revenues		186,992		170,487	9.7%

Consolidated revenues for the first quarter ended March 31, 2012 increased 9.7% to $187.0 million from $170.5 million in the first quarter of 2011 due mainly to higher volumes in the aerospace segment and also higher revenues earned in the power generation project segment.   As the Corporation moves into 2012, revenue from the power generation project will decrease on a year over year basis unless the Corporation receives further contracts in this area.

Aerospace Segment

Revenues for the Aerospace segment were as follows:

	Three month period ended March 31
Expressed in thousands of dollars		2012		2011	Change
Canada		75,866		72,369	4.8%
United States		49,530		47,022	5.3%
United Kingdom		40,740		35,224	15.7%
Total revenues		166,136		154,615	7.5%

Consolidated aerospace revenues for the first quarter of 2012 of $166.1 million were 7.5% higher than revenues of $154.6 million in the first quarter of 2011.   Revenues in Canada in the first quarter of 2012 increased 4.8% from the same period in 2011 as the Corporation experienced higher volumes as production rates on certain programs increased during the first quarter of 2012.     Revenues increased by 5.3% in the United States in the first quarter of 2012 in comparison to the first quarter of 2011, mainly due to volume increases on several of the Corporation's single aisle aircraft programs.  Revenues in the United Kingdom in the first quarter of 2012 increased by 15.7% over revenues in the same period in 2011 as the Airbus statement of work continues to increase in volume on both new and existing programs.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:

	Three month period ended March 31
Expressed in thousands of dollars		2012		2011	Change
Power Generation Project		20,856		15,872	31.4%
Total revenues		20,856		15,872	31.4%

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

Gross Profit

	Three month period ended March 31
Expressed in thousands of dollars		2012		2011	Change
Gross profit		26,007		23,759	9.5%
Percentage of revenues		13.9%		13.9%

Gross profit of $26.0 million (13.9% of revenues) was reported for the first quarter of 2012 compared to $23.8 million (13.9% of revenues) during the same period in 2011.  Gross profit in the most recent quarter of 2012 increased over the same period in 2011 due mainly to increased volumes during the first quarter of 2012.

Administrative and General Expenses

	Three month period ended March 31
Expressed in thousands of dollars				2012	2011
Administrative and general expenses				9,928	9,243
Percentage of revenues				5.3%	5.4%

Administrative and general expenses were $9.9 million (5.3% of revenues) in the first quarter of 2012 compared to $9.2 million (5.4% of revenues) in the first quarter of 2011.

Other

	Three month period ended March 31
Expressed in thousands of dollars		2012		2011
Foreign exchange gain		(179)		(121)
Loss on disposal of property, plant and equipment		3		22
Total other		(176)		(99)

Other income of $0.2 million and $0.1 million in the first quarter of 2012 and 2011 respectively, consisted of realized and unrealized foreign exchange gains offset by losses on the sale of property, plant and equipment.

Interest Expense

	Three month period
	ended March 31
Expressed in thousands of dollars		2012		2011
Interest on bank indebtedness and long-term debt		1,970		2,953
Convertible debenture interest		50		986
Accretion charge for convertible debt, borrowings and long-term debt		150		203
Discount on sale of accounts receivable		139		120
Total interest expense		2,309		4,262

Interest expense of $2.3 million in the first quarter of 2012 was lower than the first quarter of 2011 amount of $4.3 million, as interest on bank indebtedness and long-term debt decreased as principal amounts outstanding during the first quarter of 2012 were lower than those in the first quarter of 2011.  Also reduced interest rates on the long-term debt and lower interest rate spreads on bank indebtedness contributed to the reduction in interest expense in the current quarter when compared to the first quarter of 2011.  Interest expense on convertible debentures decreased as $38,000 of the $40,000 principal amount outstanding at the end of the first quarter of 2011 was converted as at December 31, 2011.

Provision for Income Taxes

	Three month period
	ended March 31
Expressed in thousands of dollars		2012		2011
Expense of current income taxes		913		23
Expense of deferred income taxes		1,209		2,868
Total expense of income taxes		2,122		2,891
Effective tax rate		15.2%		28.6%

The Corporation recorded an income tax expense of $2.1 million for the first quarter of 2012, compared to an income tax expense of $2.9 million for the first quarter of 2011.  The change in effective tax rates is a result of a changing mix of income across the different jurisdictions in which the Corporation operates and the inclusion of $1.3 million as a reduction in deferred income tax, due to the recognition of previously unrecognized deferred tax assets, which will not be a recurring event in all future periods.

SELECTED QUARTERLY FINANCIAL INFORMATION

		2012	2011				2010
Expressed in millions of dollars, except per share amounts		Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
Revenues		187.0	173.3	161.6	186.0	170.5	187.9	184.7	181.4
Income before income taxes		13.9	13.8	10.4	7.0	10.1	19.0	8.9	9.7
Net Income		11.8	16.7	8.6	4.9	7.2	15.4	8.0	7.1
Net Income per share
	Basic	0.21	0.90	0.47	0.27	0.40	0.85	0.44	0.39
	Diluted	0.20	0.31	0.17	0.10	0.14	0.29	0.16	0.14
EBITDA		23.5	29.6	20.8	18.5	22.7	32.5	22.3	24.2

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 first quarter of 2012 fluctuated reaching a low of 0.9872 and a high of 1.0290.  During the first quarter of 2012, the British Pound relative to the Canadian dollar fluctuated reaching a low of 1.5523 and a high of 1.5946. Had exchange rates remained at levels experienced in the first quarter of 2011, reported revenues in the first quarter of 2012 would have been lower by $1.2 million. Income before income taxes was higher in the first quarter of 2012 than the same quarter in 2011 in large part due to $2.0 million less interest expense in the first quarter of 2012 than in the same period in 2011.   Net income for the fourth quarter of 2010 and 2011 of $15.4 million and $16.7 million respectively was higher than other quarterly net income disclosed in the table above. In the fourth quarter of each year the Corporation recognized a reversal of previous impairment losses against intangible assets relating to various civil aircraft programs.  In addition a portion of previously unrecognized deferred tax assets were recognized in the fourth quarter of each year as the Corporation determined that it will be able to benefit from these assets.

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

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes certain measures in this quarterly statement, including EBITDA (earnings before interest expense, dividends on preference shares, income taxes, depreciation, amortization and certain non-cash charges). The Corporation has provided these measures because it believes this information is used by certain investors to assess financial performance and EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed and how the results are taxed in the various jurisdictions.  Each of the components of this measure are calculated in accordance with IFRS, but EBITDA is not a recognized measure under IFRS, and the Corporation's method of calculation may not be comparable with that of other companies. Accordingly, EBITDA should not be used as an alternative to net earnings as determined in accordance with IFRS or as an alternative to cash provided by or used in operations.

	Three month period
	ended March 31
Expressed in thousands of dollars		2012		2011
Net income		11,824		7,222
Interest		2,309		4,262
Dividends on preference shares		−		240
Taxes		2,122		2,891
Stock-based compensation		6		38
Depreciation and amortization		7,211		8,084
EBITDA		23,472		22,737

EBITDA for the first quarter of 2012 was $23.5 million, compared to $22.7 million in the first quarter of 2011.  As previously discussed, increased gross profit resulted in increased EBITDA for the current quarter.

LIQUIDITY AND CAPITAL RESOURCES

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 March 31
Expressed in thousands of dollars		2012		2011
Increase in accounts receivable		(23,921)		(11,207)
Increase in inventories		(10,293)		(5,227)
Increase in prepaid expenses and other		(1,245)		(2,519)
Increase in accounts payable, accrued liabilities and provisions		22,135		12,100
Changes to non-cash working capital balances		(13,324)		(6,853)
Cash provided by operating activities		5,062		9,889

In the quarter ended March 31, 2012, the Corporation generated $5.1 million of cash from its operations, compared to cash generated by operations of $9.9 million in the first quarter of 2011.  Cash was generated mainly by an increase in net income and accounts payable, accrued liabilities and provisions, offset by increases in accounts receivable, inventories and prepaid expenses.

Investing Activities

	Three month period
	ended March 31
Expressed in thousands of dollars		2012		2011
Purchase of property, plant and equipment		(3,984)		(5,430)
Proceeds of disposals of property plant and equipment		3		136
Increase in intangibles and other assets		(5,037)		(3,817)
Cash used in investing activities		(9,018)		(9,111)

In the first quarter of 2012, the Corporation invested $4.0 million in property, plant and equipment to upgrade and enhance capabilities for current and future programs and $5.0 million in intangibles and other assets, largely related to deposits placed on new property, plant and equipment to be acquired over the next two years.

Financing Activities

	Three month period
	ended March 31
Expressed in thousands of dollars		2012		2011
Decrease in bank indebtedness		(5,691)		(423)
Increase in debt due within one year		15,751		3,758
Decrease in long-term debt		(2,196)		(2,182)
Increase in long-term debt		─		1,167
Increase (decrease) in long-term liabilities and provisions		148		(337)
Increase in borrowings		182		716
Cash provided by financing activities		8,194		2,699

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

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

The extension and restatement of the Original Loan [outstanding as at March 31, 2012 in the principal amount of $32.5 million] resulted in a decrease in the interest rate on the Original Loan from 11% per annum to 7.5% per annum commencing July 1, 2011 and the extension of the loan to July 1, 2013 in consideration of the payment on July 1, 2011 of a fee to Edco equal to 1% of the principal amount outstanding on such date.  The Corporation has the right to repay the secured subordinated loan at any time without penalty.  During the three month period ended March 31, 2012, the Corporation repaid $1.0 million of the Original Loan.

On December 31, 2011, the Chairman of the Board exercised his conversion rights under the debenture agreement and $38.0 million principal amount of the 10% convertible debentures ("Convertible Debentures"), the entire amount then held by the Chairman, were converted into 38,000,000 common shares of the Corporation.  On April 30, 2012, the remaining $2.0 million principal amount of the Convertible Debentures were exercised and converted into 2,000,000 common shares.  Interest incurred during the three month period ended March 31, 2012 and March 31, 2011 was $0.1 million and $1.0 million, respectively.

DERIVATIVE CONTRACTS

The Corporation has entered into foreign forward exchange contracts to mitigate future cash flow exposures in US dollars.  Under these contracts the Corporation is obliged to purchase specific amounts at predetermined dates and exchange rates.  These contracts are matched with anticipated operational cash flows in US dollars.  As at March 31, 2012 the Corporation had foreign exchange contracts outstanding as follows:

Forward exchange collars	Amount	Floor	Ceiling
Maturity - less than 1 year - US dollar	11,900	1.0354	1.1111
Foreign exchange forward contracts		Amount	Ceiling
Maturity - less than 1 year - US dollar		13,600	1.0400
Maturity - less than 1 year - Euros		954	1.3400

The fair values of the Corporation's forward foreign exchange contracts are based on the current market values of similar contracts with the same remaining duration as if the contract had been entered into on March 31, 2012.

The mark-to-market on these financial instruments as at March 31, 2012 was an unrecognized gain of $0.7 million which has been recorded in other expenses in the period.

SHARE DATA

As at April 30, 2012, the Corporation had 58,209,001 common shares outstanding. The dilutive weighted average number of common shares outstanding, resulting from the potential common shares issuable on the conversion of the convertible debentures, for the three month period ending March 31, 2012 was 58,209,001.

RISKS AND UNCERTAINTIES

The Corporation manages a number of risks in each of its businesses in order to achieve an acceptable level of risk without hindering the ability to maximize returns. Management has procedures to help identify and manage significant operational and financial risks.

For more information in relation to the risks inherent in Magellan's business, reference is made to the information under "Risk Factors" in the Corporation's Management's Discussion and Analysis for the year ended December 31, 2011 and to the information under "Risks Inherent in Magellan's Business" in the Corporation's Annual Information Form for the year ended December 31, 2011, which has been filed with SEDAR (www.sedar.com).

CHANGES IN ACCOUNTING POLICIES

On January 1, 2012, the Corporation adopted revised IAS 12, Income Taxes.  The revised standard was amended in December 2010 to remove subjectivity in determining on which basis an entity measures the deferred tax relating to an asset. The amendment introduces a presumption that an entity will assess whether the carrying value of an asset will be recovered through the sale of the asset. The adoption of the standard did not have a material impact on the condensed consolidated interim financial statements.

Recent accounting pronouncements

A number of new standards, and amendments to standards and interpretations, are not yet effective for the quarter ended March 31, 2012, and have not been applied in preparing these unaudited interim consolidated financial statements. The following standards and interpretations have been issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committees with effective dates relating to the annual accounting periods starting on or after the effective dates as follows:

International Accounting Standards		Effective Date
IFRS 9 - Financial Instruments	In November 2009, as part of the International Accounting Standards Board's (IASB) project to replace International Accounting Standard (IAS) 39 Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9 Financial Instruments, that introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities.	January 1, 2015
IFRS 10 - Consolidation	IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation—Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.	January 1, 2013
IFRS 11 - Joint Arrangements	IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions.	January 1, 2013
IFRS 12 - Disclosure of Interests in Other Entities	IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity's interests in other entities.	January 1, 2013
IFRS 13 - Fair Value Measurement	IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.	January 1, 2013
IAS 27 - Separate Financial Statements	As a result of the issue of the new consolidation suite of standards, IAS 27 Separate Financial Statements has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.	January 1, 2013
IAS 28 - Investments in Associates and Joint Ventures	As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will provide the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.	January 1, 2013
International Accounting Standards		Effective Date
	The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee.	January 1, 2013
IAS 1 - Presentation of Financial Statements	The IASB amended IAS 1 with a new requirement for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss.	January 1, 2013
IAS 19 - Employee Benefits	A number of amendments have been made to IAS 19, which included eliminating the use of the "corridor" approach and requiring remeasurements to be presented in OCI.  The standard also includes amendments related to termination benefits as well as enhanced disclosures.	January 1, 2013

The extent of the impact of adoption of these standards and interpretations on the consolidated financial statements of the Corporation has not been determined.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In the 2011 annual audited consolidated financial statements and management's discussion and analysis, the Corporation identified the accounting policies and estimates that are critical to the understanding of the business and results of operations. Please refer to note 2 to the unaudited interim condensed consolidated financial statements for the three month period ended March 31, 2012 for a discussion regarding the adoption of new accounting standards.

CONTROLS AND PROCEDURES

Based on the current Canadian Securities Administrators (the "CSA") rules under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, the Chief Executive Officer and Chief Financial Officer (or individuals performing similar functions as a chief executive officer or chief financial officer) are required to certify as at March 31, 2012 that they are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting.

Management does not expect disclosure controls and procedures and internal control over financial reporting to prevent all errors, misstatements or fraud.  In addition, internal control over financial reporting that management has designed and established may be circumvented and rendered ineffective as a result of unauthorized acts of individuals through collusion or management override.  A system of control, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that control objectives are met.  Due to the inherent limitations in a system of control, there is no absolute assurance that all controls issues, which may result in errors, misstatements, or fraud, can be prevented or detected.  The inherent limitations include, amongst other things:  (i) management's assumptions and judgements could ultimately prove to be incorrect under varying conditions and circumstances; (ii) the impact of isolated errors; (iii) assumptions about the likelihood of future events.

No changes were made in the Corporation's internal control over financial reporting during the Corporation's most recent interim period, that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

OUTLOOK

Over the last couple of years the Corporation has developed and implemented MOS™ ("Magellan Operating System™"), a system of standardized activities and essential services, initially developed to improve operational execution.  The Corporation is expanding the scope of MOS to finance, costing, business development, contracting and quality with a goal to eliminate inefficiencies and to maximize resource utilization within the Corporation.  While these efforts are focused on improving financial results they should also enhance the Corporation's ability to attract and secure long term business opportunities that are complementary to its core capabilities and in line with its strategic direction.

Opportunities adding capabilities that enable and attract business that is core to the Corporation will be the primary focus of our new business initiatives.

The Corporation recognizes that with its current complement of commercial and defence contracts, it is imperative that it continues to monitor the state of world economic conditions. Any changes in these conditions may impact the current outlook for the commercial and defence aerospace industries.

While commercial aircraft production rates are projected to increase over the near term, escalating fuel prices and adverse changes in the financial markets could result in a dampening of demand. Notwithstanding these factors the Corporation is currently benefiting from increasing production rates on single isle programs as well as the new wide body programs now successfully entering into service.  The Corporation continues its support for the A350 program as Airbus prepares for its first flight.

On the defence side, the Corporation believes that government spending in support of legacy fighter programs will be sustained as life spans of existing aircraft are extended.  These extensions will be a result of production changes that are expected to occur in new defence platforms.  Magellan has made a significant investment in the F-35 program and remains hopeful in the future demand for its services and products as it fulfills its contract obligations with global customers in support of this F-35 program.  To date, the F-35 program has successfully met and exceeded critical path development milestones as it matures into production.

In 2012 the Corporation expects to complete and fully commission its newly facilitized shaft centre of excellence at its Haverhill/Middleton facility and its electric power generation plant project in The Republic of Ghana.

Overall the Corporation believes that its current business base of commercial, defence, space, power generation and proprietary products is well positioned for the future.  It is Magellan's intent to continue its practice of strategically matching its customer requirements to its core strengths.  In doing so future investments will be consistent with the Corporation's objectives.

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

			Three month period ended March 31
(unaudited) (expressed in thousands of Canadian dollars, except per share amounts)			2012	2011
Revenues			186,992	170,487
Cost of revenues			160,985	146,728
Gross profit			26,007	23,759
Administrative and general expenses			9,928	9,243
Other			(176)	(99)
Dividends on preference shares			─	240
			16,255	14,375
Interest			2,309	4,262
Income before income taxes			13,946	10,113
Income taxes
	Current		913	23
	Deferred		1,209	2,868
			2,122	2,891
Net income			11,824	7,222
Other comprehensive loss
	Foreign currency translation		(1,814)	(3,380)
Comprehensive income			10,010	3,842
Net income per share
	Basic		0.21	0.40
	Diluted		0.20	0.14
See accompanying notes to the condensed consolidated interim financial statements

MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(unaudited) (expressed in thousands of Canadian dollars)				March 31  2012		December 31 2011
Cash				30,533		26,520
Trade and other receivables				130,048		106,480
Inventories				137,127		127,473
Prepaid expenses and other				6,603		5,326
				304,311		265,799
Non-current assets
Property, plant and equipment				286,734		289,744
Investment properties				2,995		3,041
Intangible assets				64,550		66,134
Other assets				13,324		8,660
Deferred tax assets				29,261		28,360
				396,864		395,939
Total assets				701,175		661,738
Current liabilities
Accounts payable and accrued liabilities and provisions				127,837		106,022
Debt due within one year				28,000		12,513
				155,837		118,535
Non-current liabilities
Bank indebtedness				114,589		120,674
Long-term debt				79,641		81,768
Borrowings subject to specific conditions				19,087		18,847
Other long-term liabilities and provisions				28,143		29,131
Deferred tax liabilities				11,167		10,088
				252,627		260,508
Equity
Share capital				252,440		252,440
Contributed surplus				2,047		2,041
Other paid in capital				13,565		13,565
Retained earnings				32,716		20,892
Accumulated other comprehensive loss				(8,057)		(6,243)
				292,711		282,695
Total liabilities and equity				701,175		661,738
See accompanying notes to the condensed consolidated interim financial statements

MAGELLAN AEROSPACE CORPORATION
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW

			Three month period ended March 31
(unaudited) (expressed in thousands of Canadian dollars)			2012		2011
Cash flow from operating activities
	Net income		11,824		7,222
	Amortization/depreciation of intangible assets and property, plant and equipment		7,211		8,084
	Loss on disposal of property, plant and equipment		3		22
	Decrease in defined benefit plans		(1,125)		(692)
	Stock-based compensation		6		38
	Accretion		150		204
	Deferred taxes		317		1,864
	Increase in working capital		(13,324)		(6,853)
Net cash provided by operating activities			5,062		9,889
Cash flow from investing activities
	Purchase of property, plant and equipment		(3,984)		(5,430)
	Proceeds from disposal of property, plant and equipment		3		136
	Increase in other assets		(5,037)		(3,817)
Net cash used in investing activities			(9,018)		(9,111)
Cash flow from financing activities
	Decrease in bank indebtedness		(5,691)		(423)
	Increase in debt due within one year		15,751		3,758
	Decrease in long-term debt		(2,196)		(2,182)
	Increase in long-term debt		−		1,167
	Increase (decrease) in long-term liabilities and provisions		148		(337)
	Increase in borrowings		182		716
Net cash provided by financing activities			8,194		2,699
Increase in cash during the period			4,238		3,477
Cash at beginning of the period			26,520		24,952
Effect of exchange rate differences			(225)		(455)
Cash at end of the period			30,533		27,974
See accompanying notes to the condensed consolidated interim financial statements

 

James S. Butyniec 
President and Chief Executive Officer 
T: [phone] ext. 233 
E: [email protected]

John B. Dekker
Vice President Finance & Corporate Secretary
T: [phone] ext. 224
E: [email protected]