Magellan Aerospace Corporation - Morningstar, Inc

Magellan Aerospace Corporation1997 annual report

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table of contents

1 financial highlights 2 message to shareholders 4 our products/our divisions 6 operating report13 management’s discussion and analysis 18 auditors’ report 19 consolidated financial statements22 notes to consolidated financial statements 36 corporate directory

Magellan Aerospace Corporation (“Magellan” or the “Corporation”) is a diversified supplier of prod-ucts and services to commercial and defence aircraft manufacturers and operators world-wide.Magellan manufactures high quality aerostructure and aeroengine components, as well as providingrepair and overhaul services, from ten operating facilities in Canada and the United States. These facil-ities are Bristol Aerospace Limited of Winnipeg and Rockwood, Manitoba and Medicine Hat, Alberta;Fleet Industries Ltd. of Fort Erie, Ontario; Orenda Aerospace Corporation of Mississauga, Ontario;Orenda Recip Inc. of Debert (Truro), Nova Scotia; A-R Technologies of Richmond, British Columbia;Aeronca, Inc. of Middletown, Ohio; Middleton Aerospace Corporation of Middleton, Massachusettsand Langley Aerospace of San Diego, California.

Manufactured products include high performance composite and metal structures, critical rotating andnon-rotating engine components, space and defence rocket systems and unmanned target systems.Magellan applies its engineering expertise in the design and development of aircraft structures,engines, advanced materials, energy and space systems. Services provided include complex repair andoverhaul of jet and industrial engines, engine components and aircraft structures.

Customers served include Boeing, NASA, General Electric, Bombardier, Rolls-Royce, Pratt & Whitney,AlliedSignal, Southwest Airlines and Bell Helicopter Textron, as well as defence organizations inCanada, the United States and throughout the world. Each operating facility is dedicated to continuedimprovement in delivery, quality and cost performance as well as growth and diversification of its prod-ucts and services.

Magellan is a publicly traded company listed on The Toronto Stock Exchange under the tradingsymbol “MAL”. The Corporation is committed to the continued development of shareholder value.

corporate profile

cover Boeing 737 aircraft with many Magellanproducts including numerous fuselage and wingcomponents, and engine cowl doors


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in thousands of dollars, except income per share figures 1997 1996

Revenues 256,276 136,657Operating Income (Loss) 16,064 (810)Income for the Year 15,536 19,024Income per Share $ 0.32 $ 0.48Working Capital 100,663 49,722Capital Expenditures 18,621 3,968Acquisition Expenditures 70,353 28,007Shareholders’ Equity 137,902 64,639

financial highlights

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We are proud to report that during 1997 Magellan attained a rate of growth unprecedented in itshistory. This was significant in terms of revenue, profits, shareholders’ equity and order backlog. Theprimary drivers were the acquisition of Bristol Aerospace Limited (“Bristol”) and Magellan’s organicgrowth within a rapidly expanding aerospace market. Magellan is well positioned to continue to expandin 1998 and beyond.

financial

Magellan is pleased to report a profit from operations of $16.1 million for 1997 – a substantial improvementfrom a $0.8 million operating loss for the 1996 fiscal year. In 1996 the Corporation earned $20.2 millionprimarily from restructuring of its debt and minority ownership levels. For 1997 revenues grew to$256.3 million, an increase of 87.5% over 1996 revenue of $136.7 million. This remarkable increase wasa result of the growth of new products within a vibrant aerospace industry and through the acquisitionof Bristol.

Bristol acquisition

On July 14, 1997 Magellan was successful in completing the purchase of the Bristol operations basedin Winnipeg and Rockwood, Manitoba and Medicine Hat, Alberta. The Bristol operations added adiverse range of products and services to the Magellan group of companies. These include aircraftstructures, engine components and assemblies, space and defence rocket systems, unmanned targetsystems, and a wide range of aerospace repair and overhaul services.

The Bristol acquisition provides a significant international base of business on which Magellan cangrow and expand each of its operations. The Bristol products and services provide further revenuediversification for Magellan and in particular proprietary products such as space and defence rocketsystems and the wire strike protection system used in most helicopters throughout the world.

message to shareholders

revenue by sector(in thousands)

commercial 61%defence 36%space 3%

revenue by product(in thousands)

structures 40%engine components 35%repair and overhaul 22%space 3%


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business development

Nineteen ninety-seven was a year of significant product growth, development and diversification forMagellan. Backlog of sales orders reached record levels and Magellan continued to diversify its productbase both through the acquisition of Bristol and the expansion of its previous operations.

The most significant new program was the award by Boeing Canada Technology Ltd. of a multi-yearcontract for the manufacture of composite panels for wing and tail sections on the Boeing 737 NextGeneration and Boeing Classic aircraft. The order has an initial value of $98.9 million for deliveries overtwo years beginning in fiscal 1998. To accommodate this new program a high technology composite bond-ing facility has been developed at Bristol, Winnipeg and initial assemblies were manufactured andshipped beginning in February 1998.

At our Middleton Aerospace Corporation operations, a new shaft cell facility was constructed in 1997to allow Middleton to manufacture engine shafts for the major aeroengine suppliers. This new cell wasoperating at full capacity within one month of opening with orders from General Electric, AlliedSignalEngines and Allison Engine Co.

cost focus

While a portion of Magellan’s success in reaching record levels of operating profits was attributable toits increased business base, the most significant factor in the improvement was a strong focus on costsavings initiatives and efficiency improvements. Each of our operating units continue to concentrateon the challenge and discipline of product cost reductions that must by met in parallel with improve-ment in capabilities and product quality. Reductions have been achieved to some extent with newtechnologies, but to a greater extent by the establishment of improved methods and processes andemphasis on employee training.

External costs have been reduced by combining the greater procurement power of our combined facil-ities. Savings have been achieved in the cost of purchased materials and overhead services at the plantoperating level, as well as overall administration costs. Magellan will continue to examine all facets ofcosts to seek the maximum value.

The progress made to date reflects the dedication of the more than 2,500 employees of MagellanAerospace Corporation. Within a short time span we have assembled a talented workforce that is com-mitted to develop Magellan as a major contributor to the international aerospace industry. We thankour employees and are pleased that many of them are also shareholders and as such have enjoyed thebenefits of success along with all of the shareholders of Magellan.

N. Murray Edwards Richard A. Neill

Chairman and Chief Executive Officer President and Chief Operating Officer

March 27, 1998


Aeronca, Inc.middletown, ohioAeronca, Inc. manufactures compo-nents primarily for the commercialand military aerospace industriesusing its brazing and conventionalassembly techniques for high-tem-perature and stress applications.

products• variable exhaust nozzles• engine fairings• speed brakes• wing ribs• propeller ducts• cowl doors• stabilators

Langley Aerospacesan diego, californiaLangley is a precision machiningfacility that caters specifically tothe space industry.

products• engine thrust gimbals• cryogenic seals

A-R Technologiesrichmond, british colombiaA-R Technologies is a TransportCanada approved maintenancecentre for the repair and overhaulof jet engine turbine components.

services• vacuum brazing• heat treatment and cleaning• high velocity plasma/thermo spray• calibration and non-destructive

testing• repair development• precision machining

Bristol Aerospace Limitedwinnipeg and rockwood, manitobaand medicine hat, albertaBristol manufactures engine compo-nents and aerospace structuresand provides services to a broad baseof commercial and defence customersthroughout the world. Bristol providesa diverse range of manufacturingskills used both in the manufacture ofnew components and in the repairand overhaul of aircraft.

products• composite and metal aerostructures

and assemblies• engine components• space and defence rocket systems• unmanned target systems• wire strike protection systems• aircraft repair and overhaul services

left Dash 8 Series 400 tail coneproduced at Bristol Aerospace

far left Turbine nozzle beingrepaired at A-R Technologies

left Engine thrust gimbalmanufactured at Langley forRocketdyne and NASA

far left Boeing 737 cowl doorbeing manufactured at Aeronca

Magellan Aerospace Corporation


Orenda Recip Inc.debert (truro), nova scotiaOrenda has developed a new line ofliquid-cooled eight cylinder aluminumengines for the general aviation market.The manufacturing and assemblyoperations are planned to be fullyoperational in 1998.

products and servicesOE600 engines and conversionpackages for general aviationaircraft initially including:• King Air• Beaver• Otter• Aerocommander• Lancair

Orenda AerospaceCorporationmississauga, ontarioOrenda manufactures componentsfor aeroengines for all the majorengine suppliers to the defence andcommercial aircraft industry. Orendaspecializes in the repair and overhaulof jet and industrial turbine engines.

products and services• J85 and F404 engine

overhaul and repair• rotating and non-rotating

aeroengine components• industrial turbine power

systems and overhaul• materials technology and

specialized repair

Fleet Industries Ltd.fort erie, ontarioFleet Industries manufactures struc-tures for commercial and militaryaircraft. Fleet specializes in metal-to-metal bonding and high performancecomposite bonded components.

products• flaps and ailerons• fuselage panels• wing panels• fin and rudders• engine nacelles• helicopter fuselage structures

Middleton AerospaceCorporationmiddleton, massachusettsMiddleton is a state-of-the-artmachining facility that operates fromtwo locations. These facilities special-ize in production of complex enginecomponents for all of the major aero-engine manufacturers.

products• shafts for turbine engines• engine structural frames• complex engine cases

right Technician operatingcomputerized controls forplasma spray equipment atOrenda Aerospace

far right Orenda Recip enginebeing tested on a King Air

right Boeing 717 aileron compo-nent produced at Fleet Industries

far right New machining centreand fan shafts for GE CF34engine at the new shaft cellfacility of Middleton Aerospace

our products/our divisions


operating report(continued)

Magellan Aerospace Corporation

The strength of Magellan is the combined skills, talents and resources of its operating divisions. Thegrowth in revenue and operating profits for the Corporation is directly due to the efforts and resultsattained from our divisions. The following report describes the challenges and achievements of each unit.

Bristol Aerospace Limited

Bristol Aerospace Limited, a pioneer in the aerospace industry for more than 65 years, is one ofCanada’s largest aerospace companies. Bristol’s main facility is a 700,000 square foot plant located atWinnipeg International Airport. Bristol also owns and operates Canada’s only solid fuel rocket propel-lant manufacturing and test facility on a 2,400 hectare site at Rockwood Manitoba, 30 km north ofWinnipeg, and operates a small aerial target support facility in Medicine Hat, Alberta.

Over the past number of years, Bristol’s marketing focus has increasingly shifted to the commercial sec-tor both in engine and structural components, and in areas where Bristol has competitive advantages –space, defence rockets and Wire Strike Protection System (WSPS®). The underpinning of Bristol’sstrategy and product direction is its widely recognized strength in aerospace material technologies –propellants, high strength/temperature alloys and composite structures. These technologies, whendeployed in fabrication, machining, forming and processing, provide customers with assurance thatBristol will deliver a turn-key product that meets all requirements.

The defence sector has undergone major restructuring. Increased government focus on deficit reductionhas resulted in extensive cutbacks in defence spending. Bristol has moved from government cost basedprojects to competitive commercial programs and from a domestic to an international market base,thereby maintaining profitability.

Bristol met customer demands for lower prices, improved quality and delivery, and increased “risksharing” from their suppliers by improving operating efficiencies, reducing costs and improving pro-ductivity. Specifically, Bristol has implemented process engineering improvements through Kaizaninitiatives, operating a Manufacturing Resource Planning System (MRPII), and implementing a state-of-the-art Integrated Business Information System (IBIS). This system is a complete business solutionproviding automation and integration throughout the organization. Users benefit from faster responsetime, better system reliability and enhanced reporting capabilities.

left Blade grinding of GE F404engine compressor at OrendaAerospace

far left The new composite facilityat Bristol that began production inFebruary 1998


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Magellan completed the purchase of Bristol on July 14, 1997, and customer reaction has been very pos-itive. Since then, Bristol has taken in orders of $142 million, including $101 million in commercialmanufacturing and $41 million in defence and space manufacturing. Major orders for space anddefence rockets were also secured, providing work load for Rockwood, and new opportunities withRaytheon Aircraft as offset for the NATO Flying Training in Canada project. Bristol is a member ofTeam Cormorant and will benefit from the recent decision by the Canadian government to orderCormorant helicopters for search and rescue duties. Bristol has delivered the first tailcone forBombardier’s new Dash 8 Series 400 aircraft. This titanium constructed tailcone was designed, engi-neered and manufactured by Bristol.

In 1998, Bristol will commence production of Boeing 737 composite panels in a fully upgraded anddedicated composite facility, reaching full scale production by mid-year. Bristol will expand the manu-facturing of engine components and rockets for space and defence applications, and the machining ofitems for structural assemblies. Engineering efforts will focus on aircraft repair and overhaul, selecteddefence products, major space science payload and small satellite activity.

Orenda Aerospace Corporation

During 1997 Orenda Aerospace Corporation completed a number of significant activities that reflectedgrowth and improved operating margins.

The component manufacturing sector was extremely busy showing extensive growth, with plans todouble output in 1998. Key contracts were signed with General Electric for the production of spareparts for a number of engines, and with AlliedSignal Aerospace for engines used in regional jets, mili-tary aircraft and new industrial applications.

In the turbine engine repair and overhaul business, work continued on the defence contracts held forCanadian Armed Forces, U.S. Navy and other foreign militaries. The industrial sector was also activewith contracts completed for Lagoven, Nigas, British Gas and other key customers. The repair andoverhaul business will continue to operate at approximately the same level in 1998. Growth opportuntiesexist with the continued development of repair processes for commercial engine components as wellas further export contracts for key military users.

Associated with the repair and overhaul activities was the work completed by the Advanced Materials andEnergy Systems Group (AMES Group) finalizing a number of new repair techniques for the GE F404engine parts. The repaired F404 parts will be certified for an engine test which began in 1997 and will becompleted in early 1998. Once approved, it will be marketed heavily to other F404 engine users. Someof the techniques developed will also be applied to commercial engine parts. The Biofuel applicationscontinued to be developed.

Orenda Recip Inc.

Orenda Recip Inc. was incorporated in 1997 as a separate entity dedicated to the design, manufacture,and marketing of a line of reciprocating engines. Certification of the first model, the OE600, a 600 hpV8 engine for general aviation applications was attained in March 1998. Agreements have beenreached with both the Canadian and Nova Scotia governments for joint participation in this program.


Steady progress was made on the development of the first engine in the family of reciprocatingengines and production startup at the Nova Scotia facility is targeted for mid 1998. The modificationsto the new facility in Nova Scotia are complete and preparations are underway to set up the manu-facturing and assembly operations.

The lead aircraft conversion program advanced in 1997, with the first flight of a King Air C90B poweredby two OE600 engines being successfully completed on July 11, 1997. Conversion programs for theAerocommander, Beaver and Otter aircraft were also initiated in 1997. Marketing efforts in the year con-firmed the projections made at the beginning of this program, with continuing interest being expressedby aircraft owners, rebuilders, and now new aircraft manufacturers. During 1997 Lancair displayed atwo-seat kitplane powered by the Orenda OE600 engine at the Oshkosh Airshow and expect to launchthis aircraft in 1998.

A-R Technologies

A-R Technologies had a challenging 1997 since its primary market – helicopter engine repairs – wasdepressed as helicopter usage decreased year over year. A-R Technologies’ personnel, working in con-junction with the Orenda AMES Group at Ottawa, and the Orenda turbine repair operations atMississauga, are pursuing a number of new repair technologies for their customer base which shouldenhance the range of products and services for the future. The plant also spent time working with itscustomer base on improved quality and delivery performance, and on developing new repair schemesfor a range of Allison engine components.

Langley Aerospace

Langley Aerospace has been a significant participant in United States space missions for many years.Langley manufactures engine thrust gimbals which are part of the steering mechanism for each of thethree main engines of the space shuttle. A variety of cryogenic seals are produced each year for use inmanned and unmanned space missions.

The customers of Langley include Lockheed Martin, the Rocketdyne division of the Boeing Companyand the United Space Alliance. Recently Lockheed Martin awarded Langley a new contract to manu-facture seals for external tanks for use in future space missions.


right Trent industrial outercombustion case manufacturedby Orenda Aerospace for Rolls-Royce

far right Orenda Recip Inc. OE600engine-certified March 1998

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Middleton Aerospace Corporation

Middleton Aerospace Corporation manufactures aircraft engine components for most of the world’smajor engine producers. The niche products manufactured by Middleton include complex engine cases,structural frames, and fan/turbine shafts – all manufactured from super alloy forgings and castings. Dueto an unprecedented number of new aircraft orders and aggressive upgrade programs for military appli-cations, turbine engine manufacturers are having to rely heavily on suppliers such as Middleton forcritical engine components.

Sales in 1997 were more than double the 1994 level as a result of production rate increases. This trendwill continue in 1998 with current orders reflecting a thirty percent increase from the 1997 level.Business levels are projected to remain strong for the next three years followed by steady productionthrough 2005.

In 1998 over 60% of Middleton’s business is planned for commercial programs. Middleton producesshafts and cases for three of the highest volume commercial regional jet engine programs in the industry– the General Electric CF34 engine (Canadair RJ), the Allison Engine’s AE3007(EMB 145 RJ), and theAlliedSignal’s LF507 (AVRO RJ). The combined rate on these three programs is fifty engine sets permonth with an anticipated growth to sixty-five engine sets per month by 1999.

Middleton’s military programs continue to be focused on GE’s F404 engine which powers aircraft suchas the U.S. Navy’s F18 Hornet and the Canadian Forces CF18. The F404 and its growth version – theF414, are projected for continued production well into the next decade. The compressor and fan caseshave been in production at Middleton for four years.

Middleton opened its new state-of-the-art “shaft manufacturing cell” in June, 1997. Its success inreducing manufacturing cycle and cost is magnified by positive customer reactions. This commitmentto be an industry leader has strengthened Middleton’s position with customers who desire to developlong-term partnerships.

Continued focus on strengthening core competencies and strategic initiatives will expand Middleton’sposition as a leader in turbine engine component manufacturing.

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left Engine exhaust nozzlesmanufactured at Aeronca forBoeing 747 and 767 aircraft

far left Engine compressor shaftfor Rolls-Royce Olympus engine produced at Middleton Aerospace


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Aeronca, Inc.

Aeronca, Inc. located in Middletown, Ohio manufactures airframe structures and exhaust nozzle com-ponents for commercial and defence aerospace industries. Aeronca has developed significant expertisein brazed and sheet metal aircraft structures. This has enabled Aeronca to create a niche market areain high temperature brazed structures. This will be a key area for growth through 1998 and beyond.

Several challenges were presented to Aeronca in 1997. The ramp-up in the aerospace business and sig-nificant raw material shortages delayed key production programs, including the Standard Missile and theF-4 Stabilator programs. Initial deliveries on these programs were made in 1997, however, the bulk of theproduction will occur in 1998. Certification of the Boeing 737 fan cowl door was received in March 1998and deliveries to Southwest Airlines have now commenced. During 1997 significant additional orderswere placed with Aeronca on all of its product lines. The overall backlog remains strong, and the futureoutlook shows increased revenues. Orders for existing Boeing programs have been secured through theyear 2000 and additional orders were received for the Standard Missile control surface from Raytheon.

With the strength of the current aerospace market and anticipated rate increases at major airframe man-ufacturing, Aeronca is positioned to participate in the overall aerospace industry’s revival. This isevident in existing programs – the Boeing 747 exhaust nozzle and plug for the GE CF6-80C2 engines,missile control surfaces for the Standard Missile, the premier Navy AEGIS Defence System, and directsales of the Boeing 737 fan cowl doors to the airlines.

Fleet Industries Ltd.

Fleet Industries Ltd. of Fort Erie, Ontario has been a leading aerostructure supplier for more than60 years. Fleet provides high quality structured components to the commercial and military aircraftbuilders and specializes in metal-to-metal and high performance composite bonded components.

Significant investments were made in the new Boeing 717 aircraft (previously the MD95) during thepast year. Fleet, in partnership with Hyundai Space and Aircraft Co. Ltd., is contracted to supply fourmajor wing components for this airplane with production deliveries beginning in the later half of fiscal1998. In addition to production on the Bombardier Dash 8–100, 200, and 300 aircraft, deliveries on theMD80/90 and MD11 programs continue. Fleet was also awarded components on the new BombardierDash 8-400 aircraft.

A key focus for Fleet Industries has been the pursuit of advanced quality designations from major air-craft manufacturers. During 1997 Fleet Industries was awarded Boeing’s D1-9000A Advanced QualitySystem accreditation and Douglas Products Division’s Preferred Supplier designation status.

Operations continue to focus on the product and process cost level. Investment in new technologies in1997 included the installation of a continuous flow paint system, an ultra efficient infra-red curingprocess and an upgrade of NC machine controllers to provide a direct link to the engineering designwork stations. Internal cost improvement initiatives saw the establishment of three additional workcells resulting in reduction of product flow time and cumulative set-up times for machining and metalfabrication products, as well as improved product quality.


right New Boeing 717 – four majorwing components are manufactured

at Fleet Industries for this aircraft


Magellan Aerospace Corporationis dedicated to the expansion

of its product base for each operationthrough innovation, and the creation

of opportunities by using its combinedskills and resources.


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in order to effectivelymanage the growth it was necessary

to expand the financial resourcesof the corporation

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management’s discussion and analysis offinancial condition and results of operations

overview

Magellan Aerospace Corporation (“Magellan” or the “Corporation”) has experienced significantgrowth in revenue, income, working capital and shareholders’ equity during the past two years. Theseincreases are the result of a growing product base within an expanding aerospace market and the acqui-sition of Orenda Aerospace Corporation (“Orenda”) and Middleton Aerospace Corporation(“Middleton”) in May 1996, and the purchase of Bristol Aerospace Limited (“Bristol”) in July, 1997.Each of these operations brought diverse and profitable product lines to the Corporation. In connec-tion with each of the acquisitions the Corporation successfully raised the new financial resourcesnecessary to effectively manage the growth of operations.

With the new operating units, expanded financial resources and capacity for increased volume, theCorporation has been able to benefit from the expansion of the world airline market. At the same time,the aerospace industry remains extremely competitive. Customers demand increased levels of qualityand service at a lower cost. The Corporation through its expanded units and resources has been suc-cessful in meeting these demands, while at the same time improving its financial fundamentals.

year ended december 31, 1997 (“Fiscal 1997”) compared withyear ended december 31, 1996 (“Fiscal 1996”)

The Corporation recorded operating income in Fiscal 1997 of $16,064,000, a significant improvementfrom the net operating loss of $810,000 in Fiscal 1996. This improvement was due primarily toincreased revenues at higher profit margins. Net income of $19,024,000 in Fiscal 1996 included non-recurring gains of $20,209,000 realized on the repurchase/forgiveness of debt.

Revenue for Fiscal 1997 of $256,276,000 was 88% higher than Fiscal 1996 revenue of $136,657,000.The inclusion of Orenda and Middleton for a full year, compared to eight months in Fiscal 1996, andthe addition of Bristol for five months accounted for the majority of the higher revenue in Fiscal 1997.Fleet Industries Ltd. (“Fleet”) and Aeronca, Inc. (“Aeronca”) also reported revenue improvementsdue primarily to customer production rate increases. During Fiscal 1997, activity continued on newstart-up programs for which deliveries had not yet commenced and hence no revenue was recorded.These start-up programs will produce significant revenues in 1998 and beyond as deliveries commence.

Cost of revenues increased from $122,165,000 in Fiscal 1996 to $213,957,000 in Fiscal 1997. The inclusionof Orenda and Middleton for a full year and the addition of Bristol for five months accounted for themajority of this increase.

Overall gross profit was 16.5% for Fiscal 1997 compared to 10.6% for Fiscal 1996. The improvement isattributed to higher margins achieved throughout different operating units, as well as continued man-ufacturing efficiencies and overhead cost control attained at all locations.


management’s discussion and analysis offinancial condition and results of operations

(continued)

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Management continues to administer a policy of strict cost control and prudent risk management inrespect of administrative costs. While revenues in the two comparable periods increased 88%, generaland administrative expenses increased by only 66%.

Interest expense increased by 87% to $4,702,000 from $2,510,000 reflecting the impact of higher debtlevels that existed during Fiscal 1997 when compared to Fiscal 1996.

For Fiscal 1996, other income includes a gain related to the purchase of the Corporation’s indebted-ness and a gain related to the purchase of the remaining outstanding minority interest of our UnitedStates subsidiary, Fleet Aerospace, Inc. No such similar items were recorded in Fiscal 1997.

year ended december 31, 1996 (“Fiscal 1996”) compared withyear ended september 30, 1995 (“Fiscal 1995”)

The Corporation recorded net income in Fiscal 1996 of $19,024,000, a significant improvement fromthe net loss of $9,343,000 in Fiscal 1995. This improvement was due primarily to increased revenuesat higher profit margins as well as gains realized on the repurchase/forgiveness of debt.

Revenue for Fiscal 1996 of $136,657,000 was 113% higher than Fiscal 1995 revenue of $64,165,000.The addition of the Orenda Group provided revenue of $73,983,000. Fleet recorded a revenueimprovement of $6,112,000 due primarily to customer production rate increases, while Aeronca’s rev-enues fell by $7,603,000 primarily due to the termination of one contract. During Fiscal 1996,considerable activity was concentrated on new start-up programs for which deliveries had not yet com-menced and hence no revenue was recorded.

Cost of revenues increased from $63,858,000 in Fiscal 1995 to $122,165,000 in Fiscal 1996. The addi-tion of the Orenda Group in Fiscal 1996 accounted for the majority of this increase.

Overall gross profit was 10.6% for Fiscal 1996 compared to 0.5% in Fiscal 1995. This improvement wasdue primarily to manufacturing efficiencies and overhead cost control. The majority of the improve-ment is attributed to the addition of the Orenda Group during Fiscal 1996.

While revenues in the two comparable periods increased 113%, general and administrative expensesincreased by only 79%. Management continues to administer a policy of strict cost control and prudentrisk management in respect of administrative costs.

Interest expense remained relatively constant over the two periods. The impact of higher debt levelsthat existed during Fiscal 1996 when compared to Fiscal 1995 was offset by lower interest rates inFiscal 1996 when compared to Fiscal 1995.

For Fiscal 1996, other income includes a gain related to the purchase of the Corporation’s indebted-ness and a gain related to the purchase of the remaining outstanding minority interest of our UnitedStates subsidiary, Fleet Aerospace, Inc.


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liquidity and capital resources

Income for Fiscal 1997, when adjusted for items not affecting cash, produced cash of $20,365,000, thelargest contributing factor being the profit for the year. Depreciation and amortization of $4,997,000 inthis period was $1,282,000 higher than Fiscal 1996, due primarily to the inclusion of Bristol.

Non-cash working capital items relating to operating activities, excluding the effect of the acquisitionof Bristol, used $43,897,000 during Fiscal 1997. Contributing to this amount was an increase in inven-tory of $28,748,000, primarily the result of increased levels of production activity and investment innew programs, as well as an increase in accounts receivable of $11,816,000 due primarily to increasedrevenue activity.

Cash used in investing activities included $70,353,000 spent on the acquisition of Bristol. In addition,the Corporation invested $18,621,000 in modern production equipment in order to meet the currentand anticipated demands of the increasing customer requirements.

During the year ended December 31, 1997, the Corporation arranged long-term financing in theamount of $35,463,000, primarily for the purpose of the Bristol acquisition. Cash generated from theissuance of common shares totaled $59,277,000, of which $55,000,000 related to a share issuance, a por-tion of which was used to acquire Bristol.

Management believes adequate cash is available through internally generated liquidity to meet theCorporation’s working capital, program and capital investment requirements. In addition, at December31, 1997, anticipated proceeds over the period to December 31, 2000 from warrants outstanding total$19,548,000. At December 31, 1997 these warrants were exercisable at well below the market value ofthe underlying shares and approximately $5 million were exercised before February 3, 1998.

For purposes of funding new programs such as the Boeing 717 and the development of the Orendareciprocating engine, the Corporation has arranged financing, including long-term financing availablethrough government investment programs.


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right Black Brant rocket produced byBristol Aerospace for the Canadian Space

Agency and NASA used in high altitudemicrogravity and environmental experiments

year 2000 century change

During the past year Magellan embarked on an aggressive process of evaluating the business systemsat each of our operating units to ensure that each facility will not be impacted adversely with the Year2000 century change.

Our review to date indicates that all of our facilities, with one exception, will not be affected adverselyby the Year 2000 century change. We are also reviewing all secondary systems in use at each facility toensure that the various programs in place are capable of handling the change. As further assurance, weare in the process of having each facility test every system in place before the end of fiscal 1998 toensure that each system in use does in fact deal correctly and without failure with the century change.

With respect to the facility requiring a major change to its business system, a committee was formed inearly 1997 and given the task of recommending to management the most efficient method of dealingwith the deficient software. The committee has recommended that during 1998 new software andhardware that is able to deal with the century change be procured. Their recommendation concludedthat the new business systems will provide advances and enhancements that will in fact lead to costsavings in excess of the cost of the necessary investment.

The Corporation is also in the process of ensuring that the key suppliers for each facility have adequatesystems in place to deal with the century change. As the aerospace industry has always been highly reg-ulated, it is believed that the supplier base will not present Year 2000 problems; however, we intend tovigorously ensure that our suppliers demonstrate capability of dealing with the issue.



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to the shareholders of magellan aerospace corporation

We have audited the consolidated balance sheets of Magellan Aerospace Corporation as atDecember 31, 1997 and 1996 and the consolidated statements of income, retained earnings and cashflows for the years then ended. These financial statements are the responsibility of the Company’s man-agement. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standardsrequire that we plan and perform an audit to obtain reasonable assurance whether the financial state-ments are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financialposition of the Company as at December 31, 1997 and 1996 and the results of its operations and thechanges in its financial position for the years then ended in accordance with generally acceptedaccounting principles.

Hamilton, Canada,March 5, 1998.

Chartered Accountants

auditors’ report


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as at december 31 1997 1996

assetsCurrent

Cash and short term investments $ 6,567 $ 3,380Accounts receivable 58,945 25,080Inventories (note 3) 125,075 66,434Prepaid expenses and other 10,328 1,469

Total current assets 200,915 96,363

Capital assets (note 4) 83,998 24,794Goodwill (note 5) 13,383 13,885Other (note 6) 1,514 6,431

299,810 141,473

liabilities and shareholders’ equityCurrent

Bank indebtedness (note 7) 26,794 9,208Accounts payable and accrued charges 53,515 32,262Deferred revenue 7,196 –Current portion of long-term debt (note 8) 12,747 5,171

Total current liabilities 100,252 46,641

Long-term debt (note 8) 61,656 30,025Deferred income taxes – 168Shareholders’ equity

Capital stock (notes 10 and 11) 122,366 64,639Retained earnings 15,536 –

Total shareholders’ equity 137,902 64,639

$299,810 $141,473

see accompanying notes

On behalf of the Board:

N. Murray Edwards, director Bruce W. Gowan, director

Magellan Aerospace Corporat ion

consolidated balance sheetsincorporated under the laws of ontar io

expressed in thousands of dol lars except per share data


20

for the years ended december 31 1997 1996

Revenues $256,276 $136,657Cost of revenues 213,957 122,165

Gross profit 42,319 14,492

Administrative and general expenses 20,087 12,117Research and development 2,759 1,292Less government investment in research and development (1,795) (1,119)Amortization 502 502Interest expense (note 12) 4,702 2,510

26,255 15,302

Operating income (loss) 16,064 (810)Non-recurring items – 20,209

Income before income taxes 16,064 19,399Income taxes (note 13) 528 375

Income for the year $ 15,536 $ 19,024

Income per common share

Basic $,,,,,,0.32 $,,,,,,0.48Fully diluted $,,,,,,0.30 $,,,,,,0.41


Retained earnings (deficit) at beginning of year $,,,,,,,,,– $(19,519)Share issue costs – (1,551)Capital reorganization (note 10) – 2,046Income for the year 15,536 19,024

Retained earnings at end of year $15,536 $,,,,,,,,,,–



consolidated statements of retained earningsexpressed in thousands of dol lars except per share data


consolidated statements of incomeexpressed in thousands of dol lars except per share data


21


operating activitiesIncome for the year $ 15,536 $ 19,024Add (deduct) items not affecting cash

Depreciation and amortization 4,997 3,715Deferred taxes (168) 168Gain on purchase of minority interest – (1,788)Gain on repurchase/forgiveness of debt – (20,923)

20,365 196

Net change in non-cash working capital itemsrelating to operating activities (43,897) (14,452)

Cash used in operating activities (23,532) (14,256)

investing activitiesAcquisition of Bristol (70,353) –Purchase of capital assets (18,621) (3,968)Decrease in other assets 5,771 94Acquisition of Orenda assets and Middleton shares – (28,007)Purchase of minority interest – (2,345)

Cash used in investing activities (83,203) (34,226)

financing activitiesIncrease in long-term debt 35,463 21,505Issue of common shares 59,277 19,505Share issue costs (2,404) (1,551)Bank debt purchased – 30,145Cost of bank debt purchased – (10,184)

Cash provided by financing activities 92,336 59,420

Cash provided (used) during year (14,399) 10,938Bank indebtedness, beginning of year (5,828) (16,766)

Bank indebtedness, net of cash, end of year $(20,227) $ (5,828)



consolidated statements of cash flowsexpressed in thousands of dol lars except per share data


22

1. accounting policies

basis of consolidation

The consolidated financial statements have been prepared by management in accordance with gener-ally accepted accounting principles within the framework of the accounting policies summarized below.The consolidated financial statements of the Company include the accounts of its wholly-owned sub-sidiaries, Bristol Aerospace Limited (“Bristol”), Orenda Aerospace Corporation (“Orenda”), OrendaRecip Inc., Fleet Industries Ltd. (“Fleet”), Magellan Aerospace USA, Inc., Middleton AerospaceCorporation (“Middleton”) and Aeronca, Inc. (“Aeronca”).

management’s estimates

The preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the amounts reported in the finan-cial statements and accompanying notes. Management believes that the estimates utilized in preparingits consolidated financial statements are reasonable and prudent; however, actual results could differfrom these estimates.

revenue recognition

Revenue includes sales from units delivered during the year and estimates of revenue earned on long-term contracts using the percentage of completion method. Where it is expected that a loss will beincurred on completion of a contract, a provision is made for the total estimated loss. In the case of con-tracts extending over one year, revisions in cost and profit estimates are reflected in the accountingperiod in which the relevant facts become known.

inventories

Inventories are stated at the lower of cost and estimated net realizable value. Inventories are primarilyattributable to long-term contracts on which the related operating cycles are longer than one year. Inaccordance with industry practice, these inventories are included in current assets. Inventoried costs onlong-term contracts include pre-production costs consisting primarily of tooling and production costs,including applicable finance and overhead. Inventoried costs are charged to cost of revenues by theestimated average cost of deliveries under contracts using the learning curve concept, which anticipatesa predictable decrease in unit costs as tasks and production techniques become more efficient throughrepetition and management action.

capital assets

Capital assets are recorded at cost less related government grants and investment tax credits and aredepreciated over their estimated useful lives (with 10% residual value) as follows:

Buildings 40 years

Machinery and equipment 20 years


notes to consolidated financial statementsexpressed in thousands of dol lars except share and per share data


23

research and development

Research and development costs are charged to operations as incurred, due to the nature of the projects.Where government incentives in the form of investment tax credits and grants are received for research anddevelopment projects initiated by the Company for its own purposes, these incentives are deducted fromthe research and development costs.

government investment

The Company makes periodic applications for government investment under available government pro-grams, including investment tax credits. Government investment relating to capital expenditures is reflectedas a reduction of the related costs of such assets. Government investment relating to operating expenses isrecorded as a reduction of the related expenses as incurred.

goodwill

Goodwill is recorded at cost and amortized to income on a straight line basis over 40 years. On an ongoingbasis, management reviews the valuation and amortization of goodwill, taking into consideration any eventsor circumstances which might have impaired the carrying value. The amount of goodwill impairment, ifany, is measured based on undiscounted projected future cash flows.

foreign exchange translation

The Company’s U.S. subsidiaries are considered integrated and accordingly, their accounts are translatedto Canadian dollars using current rates of exchange for monetary assets and liabilities, historical rates ofexchange for non-monetary assets and liabilities and average rates for the year for revenues and expenses,except depreciation and amortization which are translated at the rates of exchange applicable to the relatedassets. Gains or losses resulting from these translation adjustments are included in income.

pension and other post-employment benefit plans

Pension costs are determined annually by independent actuaries using the projected benefit method pro-rated on services, based on management’s best estimate of the pension plans’ expected investment yields,salary escalation and other cost factors. Adjustments arising from plan amendments, experience gains andlosses, and changes in assumptions are amortized over the expected average remaining service lives of therespective employee group. Due to the long-term nature of the management estimates and assumptions,it is reasonably possible that changes in future conditions may require a material change in the presentvalue of the accrued benefits.

Other post-employment benefits are expensed as incurred.


24

2. acquisitions

(a) On July 14, 1997, the Company purchased the assets of Bristol, an aerospace division of Rolls-RoyceIndustries Canada Inc., for a total cost of $70,353. This acquisition has been accounted for using the pur-chase method and the accompanying statements include the results of operations from the date ofpurchase.

The purchase price was allocated in the accounts based on the estimated fair value of the assets acquiredless liabilities assumed as follows:

Working capital acquired $29,019Capital assets 45,078Long-term debt (3,744)

Total consideration and net assets acquired $70,353

(b) On May 7, 1996, the Company purchased the assets of Orenda and the shares of Middleton, whichrepresented the aerospace operations of Hawker Siddeley Canada Inc., for a total cost of $28,007. Thisacquisition has been accounted for using the purchase method and the accompanying financial state-ments include the results of operations from the date of purchase.

The purchase price was allocated in the accounts based on the estimated fair value of the assets acquiredless liabilities assumed as follows:

Working capital acquired $17,451Capital assets 12,614Long-term debt (2,058)

Total consideration and net assets acquired $28,007




25

3. inventories

1997 1996

Production costs of contractscurrently in process $127,567 $086,616

Excess of production cost of deliveredunits over the estimated average ofall units expected to be produced 4,993 4,902

Initial tooling and other non-recurring costs 26,403 10,018Unrecovered costs of terminated contracts

subject to future negotiations 179 614

159,142 102,150

Less progress payments 34,067 35,716

$125,075 $066,434


26

4. capital assets

december 31, 1997

accumulated net bookcost depreciation value

Land $ 4,781 $ – $ 4,781Buildings 33,709 7,253 26,456Machinery and equipment 77,994 25,233 52,761

$116,484 $32,486 $83,998

december 31, 1996

accumulated net bookcost depreciation value

Land $ 709 $ – $ 709Buildings 12,194 6,330 5,864Machinery and equipment 40,791 22,570 18,221

$ 53,694 $28,900 $24,794

5. goodwill

During 1996, the Company purchased all of the outstanding 682,835 common and preference sharesof a U.S. public subsidiary not previously owned by the Company. Negative goodwill of $766 on thepurchase of the common shares was applied to reduce goodwill, while the gain of $1,788 on the pur-chase of the preference shares was included in “non-recurring items” in 1996.




27

6. other assets

1997 1996

Real estate held for saleat estimated net realizable value $ 415 $4,630Deferred pension assets – 1,766Other 1,099 35

$1,514 $6,431

The Company has entered into an agreement to sell real estate in the amount of $4,200 which approx-imates its net realizable value. This amount has been reclassified as prepaid expenses and other currentassets.

7. bank indebtedness

Bank indebtedness of $26,794 (1996 - $9,208) is payable on demand and bears interest at the bankprime rate. The prime rate at December 31, 1997 was 6% (1996 - 4.75%). Substantially, all of Bristol’sand Orenda’s assets and the shares of Middleton are pledged as collateral for the operating loans andthe term bank loans (see note 8).

In December 1996, the Company completed a refinancing transaction with respect to a portion of itscurrent and long-term bank indebtedness. Under the terms of the refinancing, the Company obtainednew promissory notes of $9,000, of which $8,000 was provided by a company controlled by a director,at an interest rate of 10%, to which was attached 3,000,000 warrants having an exercise price of $3.00per common share. The Company also obtained a new promissory note in the amount of $4,000 at aninterest rate of prime plus 1%. A portion of these funds ($10,184 including costs associated with thistransaction), plus 1,000,000 warrants having an exercise price of $3.00 per common share, were used topurchase $20,855 of its current bank indebtedness and $7,490 of its long-term bank loans. In addition,$1,800 of its current bank indebtedness was forgiven. The gain on this transaction was included in“non-recurring items” in 1996. The promissory note is personally guaranteed by a director of theCompany. As consideration for this guarantee, the shareholder was granted 600,000 warrants having anexercise price of $3.00 per common share.


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8. long-term debt

1997 1996

Term bank loan bearing interest at prime plus 0.75%per annum. Quarterly principal repayments of $1,000;balance due October 14, 2002 $29,000 $ –

Term bank loan bearing interest at prime plus 0.75%per annum. Quarterly principal repayments of $500;balance due September 28, 2001 12,453 14,475

Promissory notes bearing interest at 10% per annum,secured by certain assets of the Company.Principal to be repaid December 31, 1999 9,000 9,000

Promissory note bearing interest at prime plus 1%per annum, due in three annual installments of $1,333 2,667 4,000

Subordinated 12.50% debentures (December 31, 1997– $1,748 U.S.; December 31, 1996 – $1,748 U.S.),principal payments in the amounts of $201 U.S. and $236U.S. are due in quarterly installments in 1998 and 1999, respectively 2,499 2,419

Loans bearing interest between 8.05% and 9.50% per annum($2,356 U.S.), secured by a first charge on certain capital assets.Blended payments of principal and interest due in quarterlyinstallments of $246 U.S. 3,368 1,408

Loan bearing interest at bankers acceptance rate plus 2% per annum.Monthly repayments are based on scheduled deliveries 1,942 –

Capitalized lease obligations (note 9) 4,276 –

Non interest bearing loan, to be repaid based on forecasted sales.Loan to be repaid by March 31, 2001 3,167 –

Other 6,031 3,894

74,403 35,196Less current portion 12,747 5,171

Long-term portion $61,656 $30,025




29

The fair market value of the long-term debt approximates its carrying value at December 31, 1997.

Long-term debt maturities are as follows:

1998 $12,7471999 21,4622000 10,0242001 7,9262002 15,929

9. capitalized lease obligations

The Company has lease agreements for certain equipment, with lease periods ranging from one tofive years. The obligations relating to the future minimum payments under capital leases as ofDecember 31, 1997 are:

1998 $2,0581999 1,7172000 5372001 4012002 216

4,929Less amounts representing interest at varying rates 653

Present value of net minimum lease payments $4,276


30

10. capital stock

The shareholders approved a resolution, effective December 31, 1996, to eliminate the Company’sdeficit and the balance of the foreign exchange translation account through a reduction in stated capital.

authorized

The authorized capital of the Company consists of an unlimited number of preference shares, issuablein series, and an unlimited number of common shares.

number of statedcommon shares: shares capital

Outstanding at December 31, 1995 30,152,550 $ 43,692Issued upon conversion of Series B preference shares 7,449,394 8,567Issued for cash by private placement 5,000,000 18,750Issued upon exercise of warrants 32,249 63Issued upon exercise of options 293,434 547Issued to employees for cash 43,775 145Capital reorganization – (7,125)

Outstanding at December 31, 1996 42,971,402 64,639

Issued upon exercise of warrants 1,876,764 3,495Issued upon exercise of options 280,000 518Issued to employees and directors 57,004 264Issued for cash by short form prospectus 11,000,000 53,450

Outstanding at December 31, 1997 56,185,170 $122,366

Warrants to purchase common shares outstanding at December 31, 1997 are as follows:

number of exercise pricecommon shares per common share expiry date

2,984,761 $1.75 February 03, 19984,600,000 $3.00 December 31, 1999

240,000 $2.15 December 31, 2000




31

11. stock options

Options are issued to employees and directors and are exercisable on a cumulative basis at 20 percentper year for each of the first five years from the date of the grant. Changes during the year are summa-rized as follows:

exercise price

number ofoptions from to

Balance, December 31, 1996 2,150,000 $1.25 $2.15Granted 1,650,000 3.25 7.35Exercised (280,000) 1.25 2.15Cancelled (276,000) 2.15 3.25

Balance, December 31, 1997 3,244,000 $1.65 $7.35

The options are exercisable on varying dates until 2002.

12. supplementary information

(a) Interest as follows:

interest incurred during the year

long-term other interest interestdebt debt total expensed capitalized

Year endedDecember 31, 1997 $3,577 $1,125 $4,702 $4,702 $ –

Year endedDecember 31, 1996 $1,109 $2,147 $3,256 $2,510 $746

(b) During the year, the Company received $7,308 of government investment, which has been creditedto the related assets. The Company is eligible for an additional $14,736 for the period from January 1,1998 to December 31, 2006 based on approved expenditures. The assistance is repayable as royaltiesranging from 1% to 3% of certain future revenues.

(c) In order to minimize exposure to short-term fluctuations in foreign currency exchange rates, theCompany periodically enters into foreign currency forward exchange contracts with a Canadian char-tered bank. As at December 31, 1997, the Company had entered into a number of such contracts,maturing at the latest on December 31, 1998, for an amount totaling $13,000 U.S. at rates varyingbetween $1.3854 CDN. and $1.4006 CDN. At December 31, 1997, there was no significant unrealizedgain or loss on these foreign exchange contracts.


32

13. income taxes

The following is a reconciliation of the expected tax obtained by applying the combined corporate taxrates to the results of operations before income taxes:

1997 1996

Corporate tax rate for manufacturing companies 35.62)% 35.62)%

Expected tax expense $ 5,722 $ 6,741Permanent differences and other 409 78Utilization of prior years’ losses (5,603) (6,444)

$ 528 $ 375

The tax provision consists of:

1997 1996

Deferred tax expense $(168) $168Current tax expense 696 207

$ 528 $375

At December 31, 1997, the Canadian operations have non-capital losses for income tax purposes ofapproximately $26,694 which may be carried forward to reduce taxable income in future years, expiringas follows:

1998 $ 2581999 11,0002000 6,2002001 4,5002002 2,3252003 5462004 1,865

$26,694

The Canadian operations, as at December 31, 1997, have accumulated capital loss carryforwards ofapproximately $17,860.




33

At December 31, 1997, the U.S. operations have net operating losses for income tax purposes ofapproximately $14,240 U.S. which may be carried forward to reduce taxable income in future years,expiring as follows:

expressed in u.s. dollars

2005 $ 3102009 6,5602010 4,1602011 3,210

$14,240

Although the Canadian and U.S. operations have loss carryforwards, income taxes are currently payablefor Canadian Large Corporations Tax and United States income taxes with respect to certain of theCompany’s subsidiaries.

14. pension costs and obligations

The latest actuarial valuation reports indicate, that on a combined basis, there was no past serviceunfunded liability in the Company’s pension plans.

The total pension expense in 1997 was $2,920 ($1,577 in 1996).

15. segmented information

(a) Domestic sales to foreign customers totalled approximately $81,634 in 1997 ($21,913 in 1996).

(b) Industry segmentsThe Board of Directors has determined that the Company’s principal operation involves the manufac-ture and repair and overhaul of sophisticated equipment and components for the aerospace industry.


34

(c) geographic segments

december 31, 1997 canada united states consolidated

Revenue $185,590 $70,686 $256,276

Gross profit 30,443 11,876 42,319

DeductAdministrative and general expenses 15,822 4,265 20,087Research and development 2,759 – 2,759Less government investment in research and development (1,795) – (1,795)Amortization – 502 502Interest expense 3,252 1,450 4,702

20,038 6,217 26,255

Income from operations before the following 10,405 5,659 16,064

Corporate expensesIncome taxes 528

Income for the year 15,536

Total assets $220,348 $79,462 $299,810

december 31, 1996 canada united states consolidated

Revenue $92,775 $43,882 $136,657

Gross profit 10,083 4,409 14,492

DeductAdministrative and general expenses 6,938 5,179 12,117Research and development 1,292 – 1,292Less government investment in research and development (1,119) – (1,119)Amortization – 502 502Interest expense and other 2,865 (355) 2,510

9,976 5,326 15,302

Income (loss) from operations before the following 107 (917) (810)

Corporate (income) expensesNon-recurring items (20,209)Income taxes 375

Income for the year 19,024

Total assets $84,639 $56,834 $141,473




35

16. major customers

1997 1996

Canadian operations

Number of customers 1 6Percentage of total Canadian revenues 21% 87%

U.S. operations

Number of customers 4 6Percentage of total U.S. revenues 81% 88%


36

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corporate officeMagellan Aerospace Corporation

3160 Derry Road EastMississauga, OntarioCanada L4T 1A9Telephone: (905) 677.1889

(905) 673.3250

Facsimile: (905) 677.5658(905) 673.5300

corporate officersN. Murray Edwards

Chairman of the Boardand Chief Executive Officer

Richard A. Neill

President andChief Operating Officer

Bruce W. Gowan

Chief Financial Officerand Corporate Secretary

John B. Dekker

Vice President Financeand Treasurer

board of directorsN. Murray Edwards 1, 2, 3

Chairman of the Board andChief Executive OfficerMagellan Aerospace CorporationMississauga, OntarioPresidentEdco FinancialHoldings Ltd.Calgary, Alberta

Richard A. Neill 1

President and Chief Operating OfficerMagellan Aerospace CorporationMississauga, Ontario

Bruce W. Gowan 1

Chief Financial Officerand Corporate SecretaryMagellan Aerospace CorporationMississauga, Ontario

Hon. William G. Davis

P.C., C.C., Q.C. 1, 2, 3

CounselTory Tory DesLauriers& BinningtonToronto, Ontario

William A. Dimma 1, 2, 3

Corporate DirectorToronto, Ontario

Donald C. Lowe 4

Corporate DirectorToronto, Ontario

Larry G. Moeller 4

Vice President FinanceEdco FinancialHoldings Ltd.Calgary, Alberta

James S. Palmer

PartnerBurnet, Duckworth& PalmerCalgary, Alberta

Adm. Elmo R. Zumwalt, Jr.

PresidentAdm. E.R. Zumwalt, Jr.& Consultants Inc.Arlington, Virginia

committees of the board1 Executive Committee

ChairmanN. Murray Edwards

2 Audit Committee ChairmanWilliam A. Dimma

3 Human Resources andNominating CommitteeChairmanWilliam G. Davis

4 Environment andSafety CommitteeChairmanDonald C. Lowe

auditorsErnst & YoungHamilton, Ontario

transfer agentMontreal Trust CompanyToronto, Ontario

stock listingToronto Stock ExchangeCommon Shares – MAL

annual meetingThe Annual Meetingof the Shareholders of Magellan Aerospace Corporation will be held onThursday, May 14, 1998at 2:00 pm (EST)at The Board of Trade,First Canadian Place, 4th Floor,Toronto, Ontario, Canada


manufacturing operationsAeronca, Inc.

1712 Germantown RoadMiddletown, OhioUSA 45042James O. Stine

General ManagerTelephone: (513) 422.2751

A-R Technologies

13155 Delf PlaceSuite 220Richmond, British ColumbiaCanada V6V 2A2Stuart W. Davidson


Bristol Aerospace Limited

Winnipeg Plant

660 Berry StreetWinnipeg, ManitobaCanada R3H 0S5James S. Butyniec


Rockwood Propellant Plant

Propellant Plant RoadStony Mountain, ManitobaCanada ROC 3AOTelephone: (204) 344.5545

Medicine Hat Facility

1501 Gershaw Drive S.W.Medicine Hat, AlbertaCanada T1A 7V1Telephone: (403) 529.0353

Fleet Industries Ltd.

1011 Gilmore RoadP.O. Box 400Fort Erie, OntarioCanada L2A 5N3Ernest G. Dueck


Langley Aerospace

310 Euclid AvenueSan Diego, CaliforniaUSA 92114Larry Gerfin


Middleton Aerospace Corporation

206 South Main StreetMiddleton, MassachusettsUSA 01949J. Steve Tosi

Vice PresidentKen McGillivray


Orenda Aerospace Corporation

3160 Derry Road EastMississauga, OntarioCanada L4T 1A9Richard A. Neill

PresidentTelephone: (905) 673.3250

Orenda Recip Inc.

Air Industrial ParkP.O. Box 130Debert (Truro), Nova ScotiaCanada B0M 1G0Peter Jackson




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Magellan Aerospace Corporation - Morningstar, Inc