Magellan Aerospace Corporation Annual Report 2001

FY2001 Annual Report · Magellan Aerospace Corporation

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Strength in
Integration

M a g e l l a n 2 0 01 A n n u a l R e p o r t

Magellan Magellan Aerospace Corporation is a leading, integrated
supplier of innovative products and services to the aero-
space, defence and space industries around the globe.
Magellan enjoys strong relationships with Original
Equipment Manufacturers (OEMs), space, civil and defence
organizations and is recognized by its customers for its
innovative technology, product design, quality manufac-
turing and total program solutions.

1 Corporate Message

Financial Highlights

Strength in Diversity of Capabilities

Strength in Diversity of Products

Strength in Diversity of Markets

10 Message to Shareholders

17 Management’s Discussion and Analysis

20 Management’s Report

20 Auditors’ Report

21 Consolidated Financial Statements

Board of Directors and Officers

36 Operating Facilities Directory

IBC Shareholder Information

A prime supplier of aeroengine products and
services for the world’s leading commercial
aeroengine manufacturers.

A diversified supplier of aerostructure
products and services to a broad
international customer base in the civil,
defence and space markets.

A vital supplier of specialized products to the
global space and defence markets.

A key source of technically advanced
solutions for the specialized requirements of
customers in the aerospace, medical, power
and oil & natural gas industries.

Customers

Products

2001 Achievements

• Aircelle
• Hurel-Hispano
• General Electric
• Honeywell
• Pratt & Whitney
• Rolls-Royce
• DND
• US DoD

• Bell Helicopter
• Goodrich
• Boeing
• Bombardier
• Eurocopter
• Northrup Grumman
• Westland Helicopters
• Southwest Airlines
• Continental Airlines

• Disks, Shafts, Spacers & Rings
• Bypass Ducts & Nacelle

Components

• $60 million F404 engine R&O

contract

• $120 million & $36 million

• Cases, Combustors, Frames &

P&WC Agreements

Fairings

• Nozzle & Plug Assemblies
• Engine Repair & Overhaul

(R&O) & test

• Honeywell LV100-5 engine

components

• Composite and metal

• $15 million Northrop Grumman

assemblies & components
• Flap & Aileron assemblies
• Wing & fuselage panels
• Machined wing & landing gear

components
• Fan cowl doors
• Aircraft bulkheads

contract for F/A –18E/F
structural components

• Shipped first flying test bed
titanium aft nozzle for Airbus
A318 program

• Awarded $400 million contract

for Boeing 717-200 aircraft
structural assemblies

• CSA
• NASA
• Various defence organizations
• Boeing
• Lockheed Martin
• Insys

• Space & defence rocket

systems

• Space hardware, payloads &

small satellites

• Rocket engine thrust gimbals
• Cryogenic seals

• Awarded contract to supply
dorsal fins to Raytheon for
Standard Missile-2 Block IVA
Navy Area Defence Missile

• Siemens Westinghouse
• Rolls-Royce
• General Electric
• Oil & natural gas drilling

companies

• General and Utility Aviation
• Helicopter OEMs & operators

• 0E600 engines & installation

packages

• Wire Strike Protection System

(WSPS™)

• Biomedical and lithography

assemblies

• Industrial turbine power

systems & overhaul

• Commissioned first OGT2500
Industrial Gas Turbine power
generation unit

• Agreement signed with

Siemens Westinghouse to
supply Compressor Diaphragms

• Hongdu, China Agreement for

OE600 engines

• Materials technology & repair
• Oil & natural gas drilling heads

• FAA OE600 Certification (STC)

for Air Tractor 401

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S t r e n g t h i n I n t e g r a t i o n

Magellan Aerospace Corporation

designs, engineers and manufac-

tures aeroengine and aerostructure

assemblies for civil aerospace,

and advanced products for military,

space and power markets, blending

operations, supplier management,

marketing, and product develop-

ment across all operating divisions.

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Financial Highlights

FINANCIAL HIGHLIGHTS

(in thousands of dollars except per share figures)

Revenues
Income for the year
Earnings per share
EBITDA
EBITDA per share
Capital expenditures
Shareholders' equity
Cash provided by operating activities

STRENGTH IN OUR BALANCE SHEET

2001

2000

$ 614,461
40,564
0.62
92,906
1.41
32,369
318,561
65,908

$ 625,393
37,913
0.59
98,237
1.52
28,044
272,260
52,959

Percentage
Change

-1.7%
+7.0%
+5.1%
-5.4%
-7.2%
+15.4%
+17.0%
+24.5%

$ 350,000

300,000

250,000

200,000

8
2
1

5
8
1

0
6
2

2
7
2

6
3
5

8
2
2

150,000

100,000

50,000

$ 250,000

1
6
5

8
1
3

3
0
2

9
3
2

3
0
1

0
2
2

200,000

4
4
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1
5
1

150,000

100,000

50,000

60%

1
4
1

7
9
1

50%

%
6
4

%
1
5

%
5
4

%
8
3

40%

30%

20%

10%

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9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

8
9
9
1

9
9
9
1

0
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2

1
0
0
2

Shareholders' Equity

Total Debt

Debt: Capital

Financial Highlights

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STRENGTH IN OUR INCOME STATEMENT

$ 700,000

600,000

500,000

400,000

300,000

200,000

100,000

3
9
3

5
2
6

1
6
4

4
1
6

9
2
8

1
6
5

2
4
9

6
2
4

8
9
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1

9
9
9
1

0
0
0
2

1
0
0
2

$ 45,000

$ 0.7

4
6
5

0
4

3
1
9

7
3

9
7
8

0
3

9
9
9
1

0
0
0
2

1
0
0
2

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

2
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8

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2

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6

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8
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Revenues

Net Income

Earnings per Share

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Computer Numeric Control
(CNC) 6-Axis Laser Drilling
System for aeroengine and
aerostructure products.

Engineering applies design and manufacturing
expertise to convert customer requirements into
a manufacturing process.

Automated filling of flare canisters with
pyrophoric liquid in vacuum conditions.

In-house processes such as vacuum furnaces for
heat-treat reduce flow time and control quality
and cost.

Aftermarket product support provides value to
our customers and diversity to our product base.

Strength in Diversity of

Capabilities

Magellan has the size, scope and strategically
located facilities to serve a diversity of
specialized markets worldwide. Each of
our operating facilities has developed core
competencies and capabilities in machining,
composite, joining and other materials
technologies that are industry leading;
yet all are completely integrated to gain
maximum enterprise-wide leverage from
our individual strengths.

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OGT 2500 industrial
power generation unit
for conventional and
biofuel applications.

Fan Cowl Doors designed
and developed in-house
for airline aftermarket
applications.

EH101 helicopter carbon
fibre composite Engine
Cowling in production.

CF34-10 Fan Case with
abradable surface
coating for increased
fan blade efficiency.

Strength in Diversity of

Products

Magellan’s strength in product development
and process control – including engines,
structures, rocket systems, space systems
and related products -- brings three substantial
benefits. It makes us the supplier of choice
for Original Equipment Manufacturers and
space and defence organizations worldwide.
It insulates Magellan from aerospace business
fluctuations. It facilitates further diversity and
new market penetration at little cost or risk.

GyroWheel™ multi-function
attitude control device for
satellite applications.

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Strength in Diversity of

Markets

Magellan is an industry leader in a diversity
of markets worldwide. Our global reach and
reputation for delivering products and services
of the highest quality enable Magellan to
fully participate in an expanding aerospace
industry while mitigating the effects of short-
term economic cycles. Diverse market
strength brings assured financial strength –
and Magellan has both.

Business and Regional Jet
markets for aeroengine
and aerostructure products.

Defence Departments
worldwide for products
and aftermarket services.

Domestic and international
Space customers for
small satellites, payloads
and launchers.

Oil, Natural Gas, and
Medical equipment industries
for derivative products.

A machined combustor
assembly for an Industrial
Power Generation customer.

Message to Shareholders

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N. Murray Edwards

Chairman and Chief Executive Officer

Richard A. Neill
President and Chief Operating Officer

Message to Shareholders

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Tough year, solid performance, strong

potential – six simple words that sketch

Magellan’s 2001. But the complete

picture is much more compelling and

clearly reveals a brighter tomorrow.

S t r e n g t h i n I n t e g r a t i o n

Who could have predicted the appalling events of last September? Who could have predicted
the consequent near-catastrophic collapse of the commercial airline industry? In last year’s
message to shareholders, we reported on Magellan’s strong financial foundation, our ability to
identify and integrate key aerospace manufacturing facilities, the diversity of our products, and
our expanding leadership in aerospace markets around the globe. We confidently predicted
that Magellan would grow with our customers in an air travel market with an expected annual
growth rate of 4–5% annually for the next 20 years. And then in one sudden and terrible
moment, the world changed – and everybody’s predictions became so much scrap paper.

Yet, during what was arguably one of the most difficult and depressed years in the history of
the aerospace industry, Magellan’s fundamental strengths insulated us from the precipitous
decline in the commercial airline market and motivated a solid financial performance. These
same strengths will continue to underpin our financial vigour and corporate growth in the near
term and ensure Magellan retains and expands our market leadership well into the future,
regardless of cycles in individual aerospace sectors or the broader economy. These predictions
we can make with confidence because of Magellan’s critical strengths in six key areas.

Message to Shareholders

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1. Strength in Our Financial Foundation

Events in the commercial aerospace sector, caused by the combination of current economic
conditions and the September 11th disaster, impacted the results for the quarter and year
ended December 31, 2001. In the immediate term, widespread logistics and transportation
problems interrupted the supply chain and added costs. From early in 2001 to year-end and
extending into 2002, the general slowdown in the economy and the significant impact on air
travel and the airlines has resulted in reduced demand for certain civil aviation products.
The Corporation has been able to restore efficiencies and replace some of the civil aviation
reductions with defence work, mitigating the impact on revenue and profits.

These 2001 results, although obviously affected by the current economic slowdown, deliver
bottom-line proof that Magellan is a strong, integrated organization capable of sustained
corporate and financial growth, even in difficult markets. In short, Magellan has emerged from the
airline industry slowdown financially strong, well positioned to continue meeting the challenges
that face our industry, and with the resources to grow rapidly as market trends dictate.

2. Strength in Integration

The Corporation’s strategic growth plan and our track record in identifying, acquiring and
rapidly integrating key aerospace industry manufacturing facilities proved its worth during the
recent crises. Integration was quite simply the right strategy at the right time.

S i z e M a t t e r s

New customers in Europe and Asia liked the technology and efficiency of our individual plants.At the same time, they
wanted assurances of financial stability over the long term. Magellan was able to demonstrate that customers could have
the benefits of both small plant efficiencies and large company financial strength in Magellan.We won the orders.

With integration, the sum is greater than its parts. It brings synergies and benefits to our
customers by allowing Magellan to provide a more complete package. It promotes cross-
pollination of core competencies. It combines with market and product diversity to insulate
Magellan from market cycles. And the integration of key activities, such as purchasing and
marketing, continues to improve our gross margins.

3. Strength in Strategic Diversity and Market Leadership

Strategic product diversity allows Magellan to weather expected and unexpected market
cycles. For example, as the commercial airline sector diminished, the defence sector expanded.
As the supplier of choice for many military-oriented products and services, Magellan’s
business also expanded in this sector. And with defence budgets continuing on the upswing –

Message to Shareholders

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Commercial

Defence

64%

36%

especially in the U.S. – we are well positioned to enjoy increased business in this sector over
the next few years. New opportunities in the defence sector will lead to the development of
products and services that can be applied to the commercial sector when it rebounds.

Sales in 2001 were well distributed across commercial and defence markets.

Bus Jet

Turboprop

Reg Jet

Single Aisle

Twin Aisle

Other Commercial

Engine Parts

R&O Services

Rockets & Space

Structural

Other Defence

23%

39%

21%

18%

27%

22%

29%

Our market leadership has brought with it strong relationships with the leading aerospace
manufacturers. Our financial strength also allows us to balance market risk with competitive
risk by entering into long-term contracts like these:

• Boeing – 5 year Long Term Agreement (LTA)
• Honeywell – Risk/Revenue Sharing Agreement (RSA) and LTA’s
• Aircelle/Airbus – RSA, joint product development
• Bombardier – RSA, joint product development
• Pratt & Whitney Canada – 4–10 year LTA’s
• General Electric – Licensed production
• Rolls-Royce – RSA

O u r C u s t o m e r s a r e O u r S a l e s m e n

One of our existing clients recently recommended us to a new customer as an excellent source for specific engine
components.We were praised for our reliability, quality and delivery performance.We bid the program and won on price
and delivery time.

4. Strength in Global Reach

Magellan has the operational scope to service customers around the globe and enhances our
global reach with strong and current knowledge of individual markets. Our traditionally strong
base in the United States and Canada provides a broad range of customers for our products.
Increasingly, these markets are being supplemented by the development of new customers in
the United Kingdom, Europe, Australasia and some emerging countries. This diversity provides
a balance of economic conditions across our customer base.

Message to Shareholders

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5. Strength in Continuous Improvement and Quality

Magellan continues our active program of simplifying operations to achieve improved
effectiveness, while reducing cost through Lean Operations.

For Magellan, Lean encompasses the traditional shop floor Lean Manufacturing focus and
much more. All aspects of our operations, including order entry, purchasing, engineering,
finance and marketing, adhere powerfully to the principles of Lean – and the real business
strength of our dedication to Lean Operations is increasingly evident in both our bottom line
results and high levels of customer satisfaction. Lean will become even more integral to our
operating efficiency and quality improvements as we move into the future.

I n n o v a t i o n a n d E n v i r o n m e n t a l S t e w a r d s h i p

Magellan received the Corporate Innovation Award for 2001 from the Canada Council of the American Society for
Materials (ASM) International, presented in Indianapolis in November 2001. Magellan was also a finalist in the
Flight International Aerospace Industry Awards for Innovation, Propulsion category, presented in Paris in June 2001.

Magellan also earned an award from Canada’s National Action Program on Climate Change for the monitoring
and reduction of green house gases. Ongoing environmental efforts include programs to monitor and restore ground
water quality, development of engines capable of running on biofuel, deployment of energy efficient co-generation
industrial power sets, contribution to the development of low-emission industrial power engines, and development of
environmentally friendly coating technologies for turbine engines.

Magellan’s operating divisions are renowned for their product quality and with the Six Sigma
program of proven quality principles and cost reduction techniques, we strive to consistently
raise the accuracy of our manufacturing and transactional processes to achieve and maintain
total customer satisfaction.

Six Sigma and Lean Operations are only two elements in our strong investment in training,
education and continuous improvement. To date, over 200 of our employees have achieved
Six Sigma green/black belt status or Lean Operations training. On the management side,
43 of our management group have taken advantage of the Rothman’s School of Business
executive MBA program (University of Toronto) or the Canadian Institute of Management
program (University of Manitoba).

Magellan continues to invest to enhance the manufacturing capabilities of our plants.
In 2001, we:

• Invested $30 million in plant and equipment and $15 million in new programs.
• Invested in new program development in Aerostructure and Specialty Products.
• Undertook customer-funded and co-funded program developments in Aeroengine

and Rockets and Space.

Message to Shareholders

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Materials

High Speed
Conventional

S p e e d E q u a l s S u c c e s s

A new program to produce landing gear components was won in 2001 because of our
rapid response to the customer’s requirement, our willingness to meet tight delivery
dates, and our ability to handle all technical information electronically.

Capital investment, product development, technical development and personnel training and
education, plus a firm commitment to prudent financial resource management, keep us competitive
in all our markets and set the stage for growth in returns as the economic recovery broadens.

6. Strength in Core Competencies

Magellan has developed core competencies that are industry leading and have enabled us to
create a breadth of products and services much in demand by our aerospace customers.
During 2001, we continued to leverage these core competencies in some very innovative ways:

• High Velocity Machining (HVM) – a multi-year research and development program, in
conjunction with Technology Partnerships Canada, focussed on the implementation of high
velocity cutting techniques for hard metals such as titanium, stainless steels and super alloys.
• Latest metal processing – Computer Numeric Control (CNC) 6-axis laser drilling and
welding, electronic discharge machining (EDM), metallurgic laboratories for test, and
research and development of metallic coatings.

• Composite – CNC laser ply locating, CNC ply and core cutting, CNC 5-axis trimming and

ultra-sonic inspection.

C u t t i n g C o s t s a n d T i m e

Our High Velocity Machining (HVM) program has achieved impressive results in
increasing the cutting velocity, condensing the overall machining cycle, and developing
high velocity cutting techniques for thin wall monolithic structures for hard metals – thus
reducing production costs and manufacturing time while delivering a superior product.

Our core competencies have also allowed us to diversify and penetrate new markets at little
cost or risk yet with the potential for strong and continuing financial returns – for example:

• Industrial Power/Co-generation.
• Oil and natural gas equipment.
• Space hardware.

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Message to Shareholders

Strength for a Brighter Tomorrow

Even through the recent challenging times faced by the aerospace sector, Magellan stayed
the course to achieve our mission: To deliver assured, long-term growth and returns to our
shareholders and other stakeholders. Because of our essential financial strength, we were able
to sustain our growth and development in ways that enhance our position as one of the
world’s leading aerospace suppliers:

• We are continuing to invest in new technologies such as high velocity machining, composite
structures, exotic materials processing, and environmentally friendly product improvements.
• We are continuing the implementation of state of the art plant equipment and new

information technology.

• Several new product development programs are either underway, or will be launched

in 2002.

Our strategy of constant product and service diversification protects the Corporation against
aerospace business fluctuations. The commercial airline sector is returning to normal at a faster
than expected pace – led by the robust regional and value airlines that are already placing
orders for additional aircraft. Older generation aircraft will be replaced by new generation
aircraft. As this sector emerges from the downturn, we intend to grow with our customers in the
provision of new and replacement aircraft assemblies, engines and related services.

In 2001, we maintained a conservative financial strategy that further strengthened our
balance sheet. As a consequence, Magellan is well positioned to seek strategic acquisitions
that complement and extend our integrated offerings in niche markets – and we will do so in
the near future. We will also continue to grow organically by leveraging our core competencies
to develop a wider range of products and services for the markets we know intimately. There’s
no doubt that 2001 was a tough year. But, even in the face of adversity, Magellan achieved
solid performance and made significant strides toward a brighter tomorrow.

We thank Magellan’s employees for their dedication, professionalism and quality of production.
Individually and collectively they are Magellan’s first in rank strength and the true foundation of
our success.

N. Murray Edwards

Richard A. Neill

Chairman and Chief Executive Officer

President and Chief Operating Officer

March 28, 2002

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MD&A and Financial Statements

18 Management’s Discussion and Analysis

20 Management’s Report

20 Auditors’ Report

21 Consolidated Financial Statements

35 Board of Directors and Officers

36 Operating Facilities Directory

IBC Shareholder Information

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Magellan Aerospace Corporation (“Magellan”) is a diversified supplier of components to the aerospace industry. Through
its network of facilities throughout North America, Magellan supplies the leading aircraft manufacturers, airlines and
defence agencies throughout the world. Magellan’s performance in 2001 showed growth in earnings and shareholders’
equity, strengthening its ability to serve the world aviation market.

Year ended December 31, 2001 compared with the year ended December 31, 2000

Consolidated revenue for the year ended December 31, 2001 was $614.5 million, a decrease of $10.9 million or 1.7%
from 2000 levels. The decrease resulted from a combination of current economic conditions and the aftermath of the
September 11th disaster.

Cost of revenues was $502.7 million for the year ended December 31, 2001, for a gross profit of $111.8 million or
18.2%. This compares to the gross profit of $115.7 million or 18.5% recorded in 2000. Lower sales, uncertain shipping
schedules, and the Corporation’s manpower levels decreasing at a slower rate than sales contributed to lower margins.

Administrative and general expenses were $39.4 million or 6.4% of revenues for the year ended December 31, 2001,
compared to $35.5 million or 5.7% of revenues in 2000. Management continues to focus on minimizing these costs,
however, intensified marketing efforts and increased employee costs have contributed to the increase in administrative
and general expenses over the comparable period in the prior year.

Interest expense of $11.3 million for the year ended December 31, 2001 was $8.4 million or 42.8% lower than 2000
levels. Interest expense was lower in 2001 as Magellan benefited from the significant reductions in borrowing rates and
lower debt levels.

Income tax expense was $19.5 million in 2001, on income before income taxes of $60.0 million for an effective tax rate
of 32.4%. This rate includes an adjustment of $2.5 million recorded in the second quarter to reflect the effect of lower
Canadian tax rates on the Corporation’s net future tax liabilities. In 2000, income tax expense was $21.7 million on pre-
tax income of $59.6 million for an effective rate of 36.4%.

Year ended December 31, 2000 compared with the year ended December 31, 1999

Consolidated revenue for the year ended December 31, 2000 was $625.4 million, an increase of 11.3% or $63.6 million
over 1999 levels. The increase resulted from the inclusion of a full year of sales from Ellanef Manufacturing Corporation,
which was acquired in the second quarter of 1999, and organic growth throughout the balance of the Corporation.

Cost of revenues was $509.7 million for the year ended December 31, 2000, for a gross profit of $115.7 million or 18.5%.
This compares favourably to the gross profit of $102.2 million or 18.2% recorded in 1999 and reflects the impact of
“Six Sigma” and lean manufacturing techniques initiated throughout the Corporation.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Administrative and general expenses were $35.5 million for the year ended December 31, 2000, compared to $36.6 million
in 1999. Management’s focus on minimizing these costs has resulted in a slight decline, in spite of overall business
levels increasing.

Interest expense was $19.7 million, which was an increase of 29.6% or $4.5 million over 1999 levels. The interest
expense was higher in 2000 as this was the first full year of inclusion of the debt associated with the purchase of
Ellanef, as well as the impact of higher interest rates.

Income tax expense was $21.7 million in 2000, on income before income taxes of $59.6 million for an effective tax rate
of 36.4%. In 1999, income tax expense was $19.1 million on pre-tax income of $50.0 million for an effective rate of
38.2%. The income tax rate decreased during 2000 because of reduction of provincial income tax rates as well as the
use of capital loss carry-forwards applied to capital gains realized on the disposition of other assets.

Liquidity and Capital Resources

In 2001, the Corporation continued to generate an increasing amount of cash from operating activities when compared
to 2000. Cash flow from operations was $65.9 million for the year, an increase of $12.9 million from the previous year.

During the year ended December 31, 2001, the Corporation invested $32.4 million in new production equipment to
modernize current facilities and to enhance its capabilities. The Corporation also used a total of $36.3 million of funds
generated to reduce long-term debt.

Management believes that adequate cash is available through internally generated liquidity and undrawn lines of credit
to meet the Corporation’s working capital, program and capital investment, and debt servicing requirements.

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MANAGEMENT’S REPORT

The consolidated financial statements of Magellan Aerospace Corporation were prepared by management in
accordance with accounting principles generally accepted in Canada. The financial and operating information presented
in this report is consistent with that shown in the financial statements.

Management maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded
and to facilitate the preparation of relevant, reliable and timely financial information.

External auditors appointed by the shareholders have examined the consolidated financial statements. The Audit
Committee, consisting of non-management directors, has reviewed these consolidated financial statements with
management and the auditors and has reported to the Board of Directors. The Board approved the consolidated
financial statements.

Richard A. Neill (signed)
President and Chief Operating Officer

March 8, 2002

John B. Dekker (signed)
Vice President Finance
and Corporate Secretary

AUDITORS’ REPORT

To the Shareholders of
Magellan Aerospace Corporation

We have audited the consolidated balance sheets of Magellan Aerospace Corporation as at December 31, 2001
and 2000 and the consolidated statements of income and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of
the Corporation as at December 31, 2001 and 2000 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.

Mississauga, Canada,
March 7, 2002

Ernst & Young (signed)
Chartered Accountants

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CONSOLIDATED BALANCE SHEETS

As at December 31

(Expressed in thousands of dollars)

Assets
Current
Cash and cash equivalents
Accounts receivable
Inventories (note 2)
Prepaid expenses and other
Future income tax assets (note 11)
Total current assets
Capital assets (note 3)
Goodwill
Other
Future income tax assets (note 11)

Liabilities and Shareholders’ Equity
Current
Bank indebtedness (note 4)
Accounts payable and accrued charges (note 6)
Deferred revenue
Current portion of long-term debt (note 5)
Total current liabilities
Long-term debt (note 5)
Future income tax liabilities (note 11)
Other long-term liabilities (note 6)
Shareholders’ equity
Capital stock (notes 7 and 8)
Retained earnings
Foreign exchange translation (note 9)
Total shareholders’ equity

See accompanying notes

On behalf of the Board:

2001

2000

3,638
89,800
230,943
8,218
3,643
336,242
347,801
13,421
11,167
11,265
$ 719,896

57,431
92,067
2,779
41,108
193,385
102,240
95,225
10,485

147,350
166,700
4,511
318,561
$ 719,896

5,684
110,372
204,555
6,771
6,279
333,661
325,442
13,194
12,512
9,542
$ 694,351

53,114
89,194
2,602
32,078
176,988
140,595
90,670
13,838

146,557
126,136
(433)
272,260
$ 694,351

N. Murray Edwards (signed)
Director

Bruce W. Gowan (signed)
Director

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CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

Years ended December 31

(Expressed in thousands of dollars except per share data)

Revenues
Cost of revenues
Gross profit

Administrative and general expenses
Research and development
Interest (note 10a)

Income before income taxes
Income taxes (note 11)

Current
Future

Net income for the year

Retained earnings, beginning of year
Retained earnings, end of year

Income per common share (note 7)
Basic
Diluted

See accompanying notes

2001

2000

$ 614,461
502,701
111,760

$ 625,393
509,669
115,724

39,400
1,066
11,251
51,717
60,043

17,110
2,369
19,479
40,564

35,467
977
19,668
56,112
59,612

15,122
6,577
21,699
37,913

126,136
$ 166,700

88,223
$ 126,136

$
$

0.62
0.61

$
$

0.59
0.58

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31

(Expressed in thousands of dollars)

Operating Activities
Net income for the year
Add items not affecting cash

Depreciation and amortization
Future income taxes

Net change in non-cash working capital balances

relating to operating activities (note 10c)
Cash provided by operating activities

Investing Activities
Purchase of capital assets
Decrease (increase) in other assets
Cash used in investing activities

Financing Activities
Increase (decrease) in bank indebtedness
Repayment of long-term debt
Issuance of common shares
Decrease in other long-term liabilities
Cash used by financing activities

Effect of exchange rate changes on cash

2001

2000

40,564

37,913

21,612
2,369
64,545

1,363
65,908

(32,369)
1,081
(31,288)

2,100
(36,272)
793
(3,502)
(36,881)

215

18,957
6,577
63,447

(10,488)
52,959

(28,044)
(1,785)
(29,829)

(1,978)
(23,751)
2,789
(934)
(23,874)

131

(613)
6,297
5,684

Net decrease in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

(2,046)
5,684
3,638

See accompanying notes

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001 and 2000

(Expressed in thousands of dollars except share and per share data)

1. ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements have been prepared by management in accordance with Canadian generally
accepted accounting principles within the framework of the significant accounting policies summarized below. The
consolidated financial statements of Magellan Aerospace Corporation (the “Corporation”) include the accounts of the
Corporation and its wholly-owned subsidiaries.

Management’s estimates

The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Management believes that the estimates utilized in preparing its consolidated
financial statements are reasonable and prudent; however, actual results could differ from those 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 be incurred on completion of a
contract, a provision is made for the total estimated loss.

Cash and cash equivalents

Cash and cash equivalents includes cash on deposit and term deposits with remaining maturities at the date of
acquisition of less than three months.

Inventories

Inventories are stated at the lower of cost and estimated net realizable value. Inventories are primarily attributable to
long-term contracts on which the related operating cycles are longer than one year. In accordance with industry practice,
these inventories are included in current assets. Inventoried costs on long-term contracts include pre-production costs
consisting primarily of tooling production costs, including applicable finance and overhead and other development costs
provided that their recovery can be regarded as reasonably assured. Inventoried costs are charged to cost of revenues
by the estimated average cost of deliveries under contracts using the learning curve concept, which anticipates a
predictable decrease in unit costs as tasks and production techniques become more efficient through repetition and
management action.

Advances and progress billings received on long-term contracts are deducted from related costs in inventories. Advances
and progress billings in excess of related costs are classified as deferred revenue.

Capital assets

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

Buildings
Machinery and equipment

40 years
20 years

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and development
projects initiated by the Corporation for its own purposes, these incentives are deducted from the research and
development costs.

Government investment

The Corporation makes periodic applications for government investment under available government programs, including
investment tax credits. Government investment relating to capitalized expenditures is reflected as a reduction of the
related costs of such assets. Government investment relating to operating expenses is recorded 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 ongoing basis,
management reviews the valuation and amortization of goodwill, taking into consideration any events or circumstances,
which might have impaired the carrying value. The amount of goodwill impairment, if any, is measured based on
undiscounted projected future cash flows.

In June 2001, The Canadian Institute of Chartered Accountants issued new recommendations with respect to Business
Combinations and Goodwill and Intangible Assets, effective for fiscal years beginning on or after January 1, 2002.
Under the new recommendations, goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the new recommendations. Other intangible
assets will continue to be amortized over their useful lives.

The Corporation will apply the new recommendations on accounting for goodwill and other intangible assets beginning
in its first quarter of 2002. Application of the non-amortization provisions of the new recommendations is expected to
result in an increase in net income of $576 per year. During 2002, the Corporation will perform the first of the required
impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of this test will be on
the income and financial position of the Corporation.

Foreign exchange translation

Monetary assets and liabilities of the Corporation denominated in foreign currencies are translated at the year-end
exchange rates. Revenue and expenses are translated at actual rates of exchange when the transaction occurred.
Exchange gains and losses on these items are recognized in income in the current year except for gains or losses
on monetary assets or liabilities with fixed or ascertainable lives extending beyond one year which are deferred and
amortized over the remaining life of the monetary item.

The Corporation’s operations outside of Canada are considered self-sustaining. Consequently, the assets and liabilities
are translated to Canadian dollars using the year-end exchange rates and revenue and expenses are translated at the
average rates during the year. Exchange gains or losses on translation of the Corporation’s net investment in these
operations are deferred as a separate component of shareholders’ equity.

The appropriate amounts of exchange gains or losses accumulated in the separate component of shareholders’ equity
are reflected in income when there is a reduction in the Corporation’s net investment in the operations that gave rise to
such exchange gains or losses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year, The Canadian Institute of Chartered Accountants amended its recommendations with respect to
Accounting for Foreign Exchange. Under the revised recommendations, effective for fiscal years commencing on or
after January 1, 2002, foreign exchange gains or losses on long-term monetary assets and liabilities with fixed and
ascertainable lives are no longer to be deferred and amortized over the period to maturity.

The Corporation will apply the revised recommendations, on a retroactive basis, effective January 1, 2002. Accordingly,
the balance of the deferred foreign exchange of $2,331 will be charged to opening retained earnings.

Employee benefit plans

The cost of pension and post-employment benefits (including medical benefits and dental care) related to employees’
current service is charged to income annually. The cost is computed on an actuarial basis using the projected benefit
method prorated on services and management’s best estimates of investment yields, salary escalation and other factors.
Pension plan assets are valued at fair value for purposes of calculating the expected return on plan assets. Past service
costs resulting from plan amendments are amortized over the remaining average service life of active employees. The
excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligations and the fair value of plan assets
is amortized over the average remaining service period of active employees.

Stock based compensation plan

The Corporation has an incentive stock option plan as more fully described in note 8. No compensation expense is
recognized for this plan when stock or stock options are issued. Any consideration paid on the exercise of stock options
is credited to share capital.

In December 2001, The Canadian Institute of Chartered Accountants issued new recommendations with respect to
stock based compensation, effective for fiscal years beginning on or after January 1, 2002. Under the recommendations,
companies are required to account for all issuances of stock or stock options to non-employees in exchange for goods
or services and direct awards of stock in exchange for employee services to be accounted for at fair value (using an
option pricing model for stock options). Companies will be permitted to account for all other employee stock based
compensation plans using either the fair value approach (which will give rise to compensation expense) or the intrinsic
value approach which does not. The Corporation does not expect that the new recommendations will have any impact
on its income or financial position.

Income taxes

The Corporation follows the liability method of income tax allocation. Under this method, future tax assets and liabilities
are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured
using the substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Income per common share

Basic income per common share is computed by dividing net income by the weighted average number of common shares
outstanding during the year. Diluted income per share reflects the assumed conversion of all dilutive securities using the
treasury stock method.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVENTORIES

Production costs of contracts currently in process
Excess of production cost of delivered units over the estimated

average of all units expected to be produced (learning curve costs)

Initial tooling and other costs

Less advances and progress payments

3. CAPITAL ASSETS

Land
Buildings
Machinery and equipment

Cost

17,030
85,037
340,044
$ 442,111

Cost

16,325
74,023
308,435
$ 398,783

2001

2000

$ 175,685

$ 181,668

4,606
55,530
235,821
(4,878)
$ 230,943

Accumulated
depreciation

–
16,872
77,438
94,310

Accumulated
depreciation

–
13,768
59,573
73,341

4,007
35,304
220,979
(16,424)
$ 204,555

2001

Net book
value

17,030
68,165
262,606
$ 347,801

2000

Net book
value

16,325
60,255
248,862
$ 325,442

Included in machinery and equipment are construction in progress expenditures of $19,197 (2000 – $17,750).

4. BANK INDEBTEDNESS

Bank indebtedness of $57,431 (2000 – $53,114) is payable on demand and bears interest at the bankers’ acceptance or
LIBOR rates, plus 1.25% to 1.65%. A fixed and floating charge debenture on certain of the Corporation’s assets is
pledged as collateral for the operating loans and the term bank loan (note 5).

LONG-TERM DEBT

Term bank loan
Other non-bank loans

Less current portion

2001

$ 135,100
8,248
143,348
41,108
$ 102,240

2000

$ 161,912
10,761
172,673
32,078
$ 140,595

The term bank loan bears interest at bankers’ acceptance or LIBOR rates, plus 0.80% to 1.25%. Included in the term
bank loan are amounts due in U.S. dollars of $71,315 (2000 – $91,318).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the Corporation’s bank facilities, the Corporation has three financial covenants, namely the ratio of income before
interest, income taxes, depreciation and amortization to debt; minimum tangible net worth; and fixed charge coverage.
Each of the covenants were met throughout 2001. During 2002, the Corporation expects that each covenant will be met
with the possible exception of the fixed charge coverage covenant. Due to increased repayments of the term bank loan
in 2002, the minimum coverage level prescribed in this covenant may not be met. Management is anticipating either a
waiver of this covenant or the renegotiation of the terms of the facility if required. If this is not achieved, the term debt
would be classified as current and related deferred financing costs would be charged to income. Management believes
that a renegotiated facility will be obtained if required.

Long-term debt maturities for the next four years are as follows:

2002
2003
2004
2005

6. OTHER LONG-TERM LIABILITIES

Non-interest bearing amounts owed to third parties
Other

Less current portion included in accounts payable and accrued charges
Other long-term liabilities

2001

12,029
3,274
15,303
4,818
10,485

Amounts owed to third parties for the next five years and thereafter are as follows:

2002
2003
2004
2005
2006 and thereafter

7. CAPITAL STOCK

41,108
60,165
41,161
914

2000

13,954
3,565
17,519
3,681
13,838

4,818
6,893
145
681
2,766

The authorized capital of the Corporation consists of an unlimited number of preference shares, issuable in series, and
an unlimited number of common shares.

Common shares:

Outstanding at December 31, 1999

Issued upon exercise of warrants
Issued upon exercise of options
Issued to employees and directors
Outstanding at December 31, 2000

Issued upon exercise of options
Issued to employees and directors
Outstanding at December 31, 2001

Number of
shares

64,546,068

240,000
1,003,000
45,121
65,834,189

112,500
56,605
66,003,294

Stated
capital

$ 143,768

516
2,009
264
$ 146,557

459
334
$ 147,350

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation of the numerator and denominator for the calculation of basic and diluted income per share is as follows:

Net income

Weighted average shares outstanding
Net effect of dilutive stock options
Diluted weighted average shares outstanding

Income per share
Basic
Diluted

2001

2000

40,564

37,913

65,936,087
401,735
$ 66,337,822

64,777,388
818,068
$ 65,595,456

$
$

0.62
0.61

$
$

0.59
0.58

For the year ended December 31, 2001 options to purchase 459,400 common shares (2000 – 471,400 common shares)
were not included in the computation of the diluted income per share because the option exercise prices were greater
than the average price of the common shares.

8. STOCK BASED COMPENSATION PLAN

The Corporation has an incentive stock option plan, which provides for the granting of options for the benefit of
employees and directors. The maximum number of common shares that may be issued under this plan is 5.2 million.
Options are granted at an exercise price that will be the market price of the Corporation’s common shares at the time
of granting. Options normally have a life of 5 years with vesting of 20% at the end of the first, second, third, fourth and
fifth years from the date of the grant. In addition, certain business unit income tests must be met in order the for the
optionholder’s entitlement to fully vest.

A summary of the plan and changes during each of 2001 and 2000 are as follows:

Outstanding, beginning of year
Granted
Exercised/cancelled
Outstanding, end of year

1,711,702
746,500
(200,502)
2,257,700

2001

Weighted
average
exercise
price

5.42
5.85
4.71
5.63

2000

Weighted
average
exercise
price

4.28
5.50
3.27
5.42

2,540,302
500,000
(1,328,600)
1,711,702

The following table summarizes information about options outstanding and exercisable:

Options outstanding

Options exercisable

Number
outstanding at
December 31,
2001

540,100
1,258,200
459,400
2,257,700

Weighted
average
remaining
contractual
life

Weighted

Number
average exercisable at
December 31,
exercise
2001
price

1.0
4.3
2.6
3.2

3.25
5.76
8.07
5.63

432,080
167,460
218,720
818,260

Weighted
average
exercise
price

3.25
5.87
8.13
5.09

Range of
exercise prices

$ 3.25
$ 5.50–6.30
$ 7.35–10.05

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOREIGN EXCHANGE TRANSLATION

Unrealized translation adjustments, which arise on the translation to Canadian dollars of assets and liabilities of the
Corporation’s self-sustaining foreign operations, resulted in an unrealized currency translation gain of $4,944 for the
year ended December 31, 2001 (2000 – $2,266), which is reflected as foreign exchange translation on the consolidated
balance sheets and had no impact on net income. The unrealized gain resulted from the strengthening of the U.S. dollar
against the Canadian dollar.

10. SUPPLEMENTARY INFORMATION

(a)

Interest expense on long-term debt in 2001 was $8,388 (2000 – $14,059).

(b) During 2001, the Corporation received $2,618 (2000 – $3,475) of a government investment, which has been credited
to the related assets. The Corporation is eligible for an additional $9,954 for the period from January 1, 2002 to
December 31, 2006 based on approved expenditures. The investment is repayable as royalties ranging from 1%
to 3% of certain future revenue.

Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable and accrued charges
Deferred revenue

2001

22,418
(20,421)
(1,344)
533
177
1,363

2000

(18,276)
7,955
(1,170)
3,133
(2,130)
(10,488)

(d) Cash interest paid during 2001 amounted to $11,208 (2000 – $18,746) and cash income taxes paid during 2001

amounted to $10,009 (2000 – $2,673).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. INCOME TAXES

The following is a reconciliation of the expected tax expense obtained by applying the combined corporate tax rates to
income before income taxes:

Corporate tax rate for manufacturing companies

Expected tax expense
Benefit of capital loss carryforwards
Permanent differences and other
Large Corporations Tax
Adjustments for rate changes

Components of future income taxes by jurisdiction are summarized as follows:

2001

37.8%

22,696
(379)
(464)
60
(2,434)
19,479

2000

37.4%

22,296
(655)
135
250
(327)
21,699

2001

2000

Canada
Future income tax asset – current

Accounting provisions not currently deductible for tax purposes

3,159

3,642

Future income tax assets – long-term

Operating loss carryforwards
Accounting provisions not currently deductible for tax purposes

Future income tax liabilities – long-term

Tax depreciation in excess of book depreciation
Deferred employee future benefits

3,611
4,985
8,596

4,051
3,300
7,351

36,453
2,335
38,788

35,652
2,663
38,315

2001

2000

United States
Future income tax asset – current

Accounting provisions not currently deductible for tax purposes

484

2,637

Future income tax assets – long-term

Operating loss carryforwards
Accrued employee future benefits

Future income tax liabilities – long term

Tax depreciation in excess of book depreciation

1,423
1,246
2,669

1,202
989
2,191

56,437

52,355

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. EMPLOYEE FUTURE BENEFITS

The Corporation has a number of defined benefit and defined contribution plans providing pension, other retirement and
post-employment benefits to substantially all of the employees.

Information about the Corporation’s defined benefit plans, in aggregate, is as follows:

Change in benefit obligation
Benefit obligation, beginning of year
Member contributions for the year
Current service cost
Interest cost
Benefits paid
Actuarial loss
Foreign exchange
Actuarial obligation, end of year

Change in plan assets
Market value of plan assets,

beginning of year

Actual return of plan assets
Member contributions during the year
Employer contributions
Benefits paid
Actual plan expenses
Foreign exchange
Market value of plan assets,

2001

73,861
464
1,465
5,423
(6,094)
(221)
1,247
76,145

2001

79,144
(1,195)
493
486
(6,094)
(139)
1,256

Pension

2000

72,495
–
1,498
5,314
(5,536)
90
–
73,861

Pension

2000

81,638
2,263
433
540
(5,536)
(194)
–

end of year

73,951

79,144

Other
benefit plans

2000

2,369
–
–
(448)
–
–
–
1,921

2001

1,921
–
–
451
(747)
–
111
1,736

Other
benefit plans

2001

2000

–
–
–
–
–
–
–

–

–
–
–
–
–
–
–

–

2001

Pension

2000

Other
benefit plans

2001

2000

Reconciliation of funded status
Funded status, surplus (deficit)
Employer contributions after

measurement date

Member contributions after

measurement date

Unamortized net actuarial loss
Accrued benefit asset (liability)
Valuation allowance
Accrued benefit asset (liability)
net of valuation allowance

(2,194)

5,283

(1,736)

(1,921)

35
10,776
8,636
(2,211)

–

65
4,064
9,412
(2,082)

–

–
–
(1,736)
–

–

–
–
(1,921)
–

6,425

7,330

(1,736)

(1,921)

The accrued benefit asset related to pensions is included in other assets and the accrued benefit liability related to
other benefit plans is included in other long-term liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan assets include common shares of the Corporation having a market value of $243 at December 31, 2001 (2000 – $284).

The significant actuarial assumptions adopted in measuring the Corporation’s accrued benefit obligations are as follows
(weighted-average assumptions as of December 31):

Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase

The Corporation’s net benefit plan expense is as follows:

Components of defined benefit plan expense
Current service cost
Interest cost
Expected return on plan assets (income)
Net expense

Pension

2001

7.40%
7.40%
3.70%

Pension

2001

1,465
5,423
(5,810)
1,078

Other
benefit plans

2001

–
–
–

Other
benefit plans

2001

451
–
–
451

The total expense for the Corporation’s defined contribution pension plans was $2,831 (2000 – $2,732).

13. SEGMENTED INFORMATION

The Corporation is organized and managed as a single business segment being aerospace and the Corporation is viewed
as a single operating segment by the chief operating decision maker for the purposes of resource allocations and
assessing performance.

Domestic and foreign operations consist of the following:

Canada

United
States

2001

Total

Canada

United
States

2000

Total

$ 159,284
215,855
$ 375,139

$ 215,223
24,099
$ 239,322

$ 374,507
239,954
$ 614,461

$ 148,677
257,768
$ 406,445

$ 199,881
19,067
$ 218,948

$ 348,558
276,835
$ 625,393

Revenue
Domestic
Export
Total revenue

Capital assets

and goodwill

$ 162,415

$ 198,807

$ 361,222

$ 155,275

$ 183,361

$ 338,636

Revenue is attributed to countries based on the location of the customers and the capital assets and goodwill are based
on the country in which they are located.

Major Customers
Canadian operations

Number of customers
Percentage of total Canadian revenue

U.S. operations

Number of customers
Percentage of total U.S. revenue

2001

2000

2
46%

3
70%

2
34%

3
69%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. FINANCIAL INSTRUMENTS

(a) Fair value

The Corporation has determined the estimated fair values of its financial instruments based on appropriate valuation
methodologies, however considerable judgment is required to develop these estimates. Accordingly, these estimated
fair values are not necessarily indicative of the amounts the Corporation could realize in a current market exchange.
The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.
The methods and assumptions used to estimate the fair value of financial instruments are described below:

Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued liabilities

Due to the short period to maturity of these instruments, the carrying values as presented in the consolidated
balance sheets are reasonable estimates of fair value.

Long-term debt

The fair value of the Corporation’s long-term debt, based on current rates for debt with similar terms and maturities,
is not materially different from its carrying value.

(b) Credit risk

The Corporation’s financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and
accounts receivable.

The Corporation, in the normal course of business, is exposed to credit risk from its customers substantially all of
which are in the aerospace industry. These accounts receivable are subject to normal industry credit risks.

Cash and cash equivalents, which consist of short-term investments, including commercial paper, are only invested
in entities with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is
invested in any one government or corporation.

The Corporation is not exposed to significant interest rate risk due to the short-term maturity of its monetary current
assets and current liabilities and its long-term debt balances being at variable rates.

(d) Foreign exchange contracts

The Corporation occasionally uses derivative financial instruments to manage foreign exchange risk. The
Corporation does not trade in derivatives for speculative purposes.

The Corporation has entered into foreign exchange contracts to hedge future cash flows in U.S. dollars. Under these
contracts the Corporation may be obliged to sell specific amounts of US. dollars at predetermined dates and
exchange rates. These contracts are matched with anticipated operational cash flows in U.S. dollars.

The Corporation has U.S. dollar exchange contracts outstanding at December 31, as follows:

2001

2000

Amount

Exchange rate

Amount

Exchange rate

Maturity – less than 1 year

32,000

1.54–1.61

12,000

1.48–1.51

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BOARD OF DIRECTORS AND OFFICERS

Corporate Officers

Board of Directors

Committees of the Board

N. Murray Edwards
Chairman and Chief Executive Officer

Richard A. Neill
President and Chief Operating Officer

John B. Dekker
Vice President Finance and
Corporate Secretary

William A. Matthews
Vice President Marketing

Jo-Ann C. Ball
Vice President Human Resources

Borys Chartchenko
Corporate Controller

Steven P. Groot
Treasurer

N. Murray Edwards (1, 3)
Chairman and Chief Executive Officer
Magellan Aerospace Corporation
Mississauga, Ontario
President
Edco Financial Holdings Ltd.
Calgary, Alberta

Richard A. Neill (1,4)
President and Chief Operating Officer
Magellan Aerospace Corporation
Mississauga, Ontario

Executive Committee
Chairman: N. Murray Edwards

Audit Committee
Chairman: William A. Dimma

Human Resources and
Nominating Committee
Chairman: William G. Davis

Environment and Safety
Committee
Chairman: Donald C. Lowe

Hon. William G. Davis (1, 2, 3)
P.C., C.C., Q.C.
Counsel
TORYS
Toronto, Ontario

William A. Dimma (1, 2, 3)
Corporate Director
Toronto, Ontario

Bruce W. Gowan (2)
Corporate Director
Huntsville, Ontario

Donald C. Lowe (4)
Corporate Director
Toronto, Ontario

Larry G. Moeller (4)
Vice President Finance
Edco Financial Holdings Ltd.
Calgary, Alberta

James S. Palmer (2)
C.M., Q.C.
Chairman
Burnet, Duckworth & Palmer
Calgary, Alberta

Hon. M. Douglas Young (4)
P.C.
Chairman
Summa Strategies Canada Inc.
Ottawa, Ontario

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Langley Aerospace
6510 Federal Boulevard
Lemon Grove, California
USA 91945
Robert Poteet
General Manage
t: 619 229 2222

Middleton
Aerospace Corporation
Middleton Plant
206 South Main Street
Middleton, Massachusetts
USA 01949

Peabody Plant
4 – 5th Street
Peabody, Massachusetts
USA 01960
Robert A. Segal
Vice President and General Manager
t: 978 774 6000

OPERATING FACILITIES DIRECTORY

Canada

Bristol Aerospace Limited
660 Berry Street
Winnipeg, Manitoba
Canada R3H 0S5
James S. Butyniec
Vice President and General Manager
t: 204 775 8331

Chicopee
Manufacturing Limited
975 Wilson Avenue
Kitchener, Ontario
Canada N2C 1J1
Konrad Hahnelt
Vice President and General Manager
t: 519 893 7575

Fleet Industries Ltd.
1011 Gilmore Road
Fort Erie, Ontario
Canada L2A 5M4
Daniel Zanatta
Director, Fleet Industries Operations
t: 905 871 2100

Orenda Aerospace Corporation
Orenda Plant
3160 Derry Road East
Mississauga, Ontario
Canada L4T 1A9

AeroTech
1491 Tower Street
Abbotsford, British Columbia
Canada V2T 6H5

Orenda National
5170 West Bethany Home Road
Glendale, Arizona
USA 85301
Frank Button
General Manager, Orenda Turbines
David McIntosh
General Manager, Engine
Components
t: 905 673 3250

Orenda Recip Inc.
Air Industrial Park
P.O. Box 130
Debert, Nova Scotia
Canada B0M 1G0
Peter Jackson
General Manager
t: 902 662 2006

United States

Magellan Aerospace USA, Inc.
206 South Main Street
Middleton, Massachusetts
USA 01949
J. Stephen Tosi
President
t: 978 977 6001

Aeronca, Inc.
1712 Germantown Road
Middletown, Ohio
USA 45042
James O. Stine
Vice President and General Manager
t: 513 422 2751

Ambel Precision
Manufacturing Corporation
159 Grassy Plain Street
Route 53
Bethel, Connecticut
USA 06801
Joe Lombardo
Vice President and General Manager
t: 203 798 9373

Ellanef
Manufacturing Corporation
Corona Plant
97 – 11 50th Avenue
New York, New York
USA 11368

Bohemia Plant
25 Aero Road
Bohemia, New York
USA 11716
Henry David
Vice President and General Manager
t: 718 699 4000

SHAREHOLDER INFORMATION

Corporate Office

Auditors

Magellan
Aerospace Corporation
3160 Derry Road East
Mississauga, Ontario
Canada L4T 1A9
t: 905 677 1889
f: 905 677 5658
www.magellanaerospace.com
for investor information:
info@magellanaerospace.com

Ernst & Young LLP
Mississauga, Ontario

Transfer Agent

Computershare
Toronto, Ontario
t: 1 800 663 9097
email:
caregistryinfo@computershare.com
www.computershare.com

Stock Listing

Toronto Stock Exchange
Common Shares – MAL

Annual Meeting

The Annual and Special Meeting
of the Shareholders of Magellan
Aerospace Corporation will be
held on Wednesday, May 15, 2002
at 2:00 p.m. at the Toronto Board
of Trade, 1 First Canadian Place,
Toronto, Ontario, Canada.

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This annual report 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.

3160 Derry Road East, Mississauga, Ontario Canada L4T 1A9