Magellan Aerospace Corporation Annual Report 2011

FY2011 Annual Report · Magellan Aerospace Corporation
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The Corporation’s results in 2011 continued to reﬂect 
our commitment to achieving and sustaining a position 
and a reputation in the industry as an efﬁcient, 
proﬁtable world-class supplier of aerospace and power 
generation products and services.

Letter to Shareholders

Magellan Aerospace Corporation (“Magellan” or the “Corporation”) is pleased to report 

results for 2011. The Corporation’s results in 2011 continued to reﬂect our commitment to 

achieving and sustaining a position and a reputation in the industry as an efﬁcient, prof-

itable world-class supplier of aerospace and power generation products and services.

Sales revenue for 2011 was lower than 2010 primarily due to delayed receipt of revenue 

from our Ghana Power Generation Project and the impact of the work stoppage in our 

Winnipeg division. In the Winnipeg situation, due to the work stoppage, the Corporation 

was unable to fully recover delayed revenue in 2011 and now expects full recovery by mid-

2012. The Corporation’s 2011 results continued to demonstrate improvement in key areas 

of gross margin performance, inventory management and debt retirement .

Industry Status

In 2011 Magellan beneﬁted from the continued growth in the commercial aerospace mar-

ket which was fuelled predominately by the growing travel demands in the Asian market 

and the world-wide need to secure and operate cleaner, more cost efﬁcient aircraft. Pro-

duction rates for both the single and twin aisle platforms for the major OEM’s, Boeing and 

Airbus, continued to increase in 2011 with peak production rates still being forecasted 

into 2013/2014. The introduction of the A320 NEO and the B737MAX are the main driv-

ers behind the single aisle rate increases. The maturing of Boeing’s B787 into production 

and delivery in 2011, to be followed in late 2012 by Airbus’ A350, ﬁts well with Magellan’s 

invested position on these programs.

While the commercial aerospace sector was robust in 2011, the defence sector remained 

somewhat restrained due to the continuing challenges and uncertainties in the world econ-

omy. Pressure to reduce defence spending, speciﬁcally in Europe and North America, has 

had an impact on new programs.  While U.S. budget restraint has delayed activities on this 

program, the F-35 Global Lightning II Program continued to report successful milestone 

accomplishments as the program moves into production. The Corporation continues to 

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MAGELLAN 2011 ANNUAL REPORT

develop its capabilities and capacity in support of the F-35 production with ﬁve locations 

(Winnipeg, Kitchener, New York, Haley and Phoenix) actively involved in supporting the 

program. Conversely, the world market for military legacy products has gained momen-

tum, which has helped to balance Magellan’s defence based businesses. 

The Global Space Market 

Magellan’s space activities are focused largely in support of Canadian programs where we 

are primarily engaged in the design and manufacture of three satellites for the Radarsat 

Constellation Mission. Launch dates are scheduled for 2015, 2016 and 2017. 

Power Generation

In 2011 Magellan’s power generation business continued to evolve as we continued the 

installation of a major electrical power generation plant for the Republic of Ghana. While 

interest in additional and complementary business opportunities in this sector remains 

high, at this time the Corporation does not have any additional committed projects .

Magellan Going Forward

In 2011 the Corporation expanded its 3-year commitment to develop and implement 

Magellan Operating System™, initially consisting of a system of standardized activities 

and essential services to improve operational execution. As a result of successes achieved 

so far, the scope was expanded to ﬁnance, costing, business development, contracting 

and quality. These initiatives provide Magellan’s divisions with necessary tools and meth-

odologies to support our efforts to achieve a premier position in the global supply chain.

Our measurable success in standardizing our practices using common sense solutions has 

resulted in improvements in meeting our customers’ needs, reducing inventories, improv-

ing our balance sheet and improving our proﬁtability in an environment which has been 

challenging for Canadian manufacturers and exporters. Additionally, early in 2011, the 

Corporation undertook a review of our brand and how we were perceived in the indus-

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MAGELLAN 2011 ANNUAL REPORT

try. As a result of this review a number of initiatives were launched to refresh our brand 

across all communication platforms to reﬂect the Corporation’s maturing and evolving 

identity which has now been ﬁrmly established within the industry. Our efforts in this area 

will continue into 2012.

The Corporation is committed to increase shareholder value by continuing to serve our 

customers with performance that provides them with conﬁdence and surety of product 

quality and delivery. Through our improved performance, Magellan has positioned itself 

with its customers to maximize business opportunities that meet its customer needs and 

our business case parameters. Our progress in 2011 could not have been achieved with-

out the continued support of our shareholders and ﬁnancial partners. A special note of 

thanks to the customers and Magellan employees who have supported the Corporation 

in adopting and implementing the Magellan Operating System™. This willingness to 

move away from traditional and ingrained methodologies has and will continue to have a 

signiﬁcant and positive impact on our ﬁnancial results. 

James S. Butyniec
President and Chief Executive Ofﬁcer

March 23, 2012

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MAGELLAN 2011 ANNUAL REPORT

MANAGEMENT’s DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of the ﬁnancial condition and results of operations of Magellan Aerospace Corporation 
(“Magellan” or the “Corporation”) has been prepared in accordance with International Financial Reporting Standards (“IFRS”). Accordingly, 
the Corporation commenced reporting on this basis in its 2011 consolidated ﬁnancial statements. The MD&A should be read in conjunc-
tion with the audited consolidated ﬁnancial statements and the notes thereto for the year ended December 31, 2011 (available on SEDAR at 
www.sedar.com). This MD&A provides a review of the signiﬁcant developments that have impacted the Corporation’s performance during 
the year ended December 31, 2011 relative to the year ended December 31, 2010. The 2010 prior period comparative ﬁnancial information 
throughout this report has been restated to conform with current period presentation, which has been prepared in accordance with IFRS. 
The information contained in this report is as at March 23, 2012. All ﬁnancial references are in Canadian dollars unless otherwise noted. 

The MD&A contains forward-looking information that represents the Corporation’s internal projections, expectations, estimates or beliefs 
concerning, among other things, future operating results and various components thereof or the Corporation’s future economic perfor-
mance. These statements relate to future events or future performance. All statements other than statements of historical facts may be 
forward-looking statements. In particular and without limitation there are forward looking statements under the heading “Company Over-
view,” “Outlook,” “Consolidated Revenues,” “2011 Updates,” “Liquidity and Capital Resources” and “Future Changes in Accounting Poli-
cies.” In some cases, forward-looking statements can be identiﬁed by terminology such as “may,” “will,” “should,” “expects,” “projects,” 
“plans,” “anticipates,” and similar expressions. The projections, estimates and beliefs contained in such forward-looking statements are 
based on management’s assumptions relating to the production performance of Magellan’s assets and competition throughout the aero-
space industry in 2011 and continuation of the current regulatory and tax regimes in the jurisdictions in which the Corporation operates, and 
necessarily involve known and unknown risks and uncertainties, including the business risks discussed in this MD&A, which may cause actual 
performance and ﬁnancial results in future periods to differ materially from any projections of future performance or results expressed or 
implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ 
materially from those predicted. Except as required by law, the Corporation does not undertake to update any forward-looking information 
in this document whether as to new information, future events or otherwise.

The MD&A presents certain non-IFRS ﬁnancial measures to assist readers in understanding the Corporation’s performance. Non-IFRS 
ﬁnancial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable 
measures calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”). Throughout this discussion, 
reference is made to EBITDA (deﬁned as net income before interest, income taxes, depreciation, amortization, dividends and stock based 
compensation), which the Corporation considers to be an indicative measure of operating performance and a metric to evaluate proﬁtabil-
ity. Reference is also made to gross proﬁt which represents revenues less direct costs and expenses. Not included in the calculation of gross 
proﬁt are administrative and general expenses, foreign exchange, gains or losses on the sale of assets, dividends, interest and income taxes. 
EBITDA and gross proﬁt are not generally accepted earnings measures and should not be considered as an alternative to net income (loss) 
or cash ﬂows as determined in accordance with IFRS. As there is no standardized method of calculating these measures, the Corporation’s 
EBITDA and gross proﬁt may not be directly comparable with similarly titled measures used by other companies. Reconciliations of EBITDA
to net income (loss) reported in accordance with IFRS are included in this MD&A. 

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

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

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MAGELLAN 2011 ANNUAL REPORT

Magellan is organized and managed as two business segments and is viewed as two operating segments by the chief operating decision-
makers, for the purpose of resource allocations, assessing performance, and strategic planning. These two segments are: Aerospace and 
Power Generation Project. The Corporation supplies both the commercial and military sectors of the Aerospace segment. In the commer-
cial sector, the Corporation is active in the business jet, regional aircraft, helicopter and large commercial jet markets. On the military side, 
the Corporation provides parts and services for major military aircraft. Magellan’s sole product for the Power Generation Project segment 
is an electric power generation project in the Republic of Ghana.

The Corporation’s percentages of revenues by segment are as follows:

Aerospace 
Power Generation Project 

2011
 88%
12%
100%

2010
 86%
14%
100%

Within the Aerospace segment, the Corporation has two major product groupings: aerostructures and aeroengines. Aerostructure and 
aeroengine products are used both in new aircraft and for spares and replacement parts. 

The Corporation supplies aerostructure products to an international customer base in the civil and defence markets. Components are pro-
duced to aerospace tolerances using conventional and high-speed automated machining centres. Capabilities include precision casting 
of airframe-mounted components. Management believes that Magellan’s dedication to technological innovation combined with low cost 
sourcing from emerging markets will position the Corporation to capture targeted complex assembly programs.

Within the aeroengines product grouping, the Corporation manufactures complex cast, fabricated and machined gas turbine engine com-
ponents, both static and rotating, and integrated nacelle components, ﬂow paths and engine exhaust systems for the world’s leading aero-
engine manufacturers. The Corporation also performs repair and overhaul services for jet engines and related components. 

The Power Generation Project segment is a specialty product complementary to the Corporation’s principal business. The Corporation’s 
sole product for the Power Generation Project segment is an electric power generation project in the Republic of Ghana that is expected to 
be completed in 2012. While a number of power generation project opportunities are being considered, at this time the Corporation does 
not have any other committed projects.

The Corporation serves both the commercial and defence markets. In 2011, 67.0% of revenues were derived from the commercial markets 
(2010 – 64.4%, 2009 – 63.9%) while 33.0% of revenues related to defence markets (2010 – 35.6%, 2009 – 36.1%). 

OUTLOOK
In 2011 Magellan beneﬁted from the sustained growth in demand for commercial aircraft and its continued efforts to implement and expand 
the Magellan Operating System™ (“MOS”) throughout the organization. The Corporations expects that the MOS initiatives will continue 
to have a growing and positive effect on Magellan’s future performance.

It is expected that the civil airline production rates will continue to increase in 2012 with peak rates now being projected into 2013 and 2014. 
This growth is fueled by the pent-up and growing demand in the Asian countries and the worldwide airline demand for cleaner, more fuel 
efﬁcient aircraft. The Corporation has invested in and is well positioned in this sector with participation levels on many of the major Boeing 
and Airbus platforms including the A350, B747-8 and the B787 and new variants of the A320 and B737.

In the defence sector, as expected, worldwide economic factors are negatively impacting defence budgets. Fiscal restraints are in many 
cases affecting the launch and ramp-up of new programs. The Corporation, having invested in the F-35 Lightning II Program, remains con-
ﬁdent that its position as an active global supplier on this international program remains solid. Presently ﬁve Magellan locations (Winnipeg, 
New York, Kitchener, Haley and Phoenix) are manufacturing products in support of the F-35 Program. In 2011 the F-35, as it ramped up 
into production, completed or surpassed all scheduled project performance milestones. Partially as a result of the slower-than-anticipated 
emergence of the new programs, legacy work in support of 3rd and 4th generation defence aircraft is now projected to stay strong. The 

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MAGELLAN 2011 ANNUAL REPORT

 
 
   
   
  
 
 
   
Corporation enjoys a direct and balancing beneﬁt from these programs, both in the aeroengine and aerostructure parts of its business. 

In 2012, Magellan expects to complete the facilitization of its location in Haverhill, MA home of the Corporation’s aeroengine shaft facility. 
Signiﬁcant effort is underway to support the investment made in this facility in support of Rolls-Royce. Additional business opportunities 
for the shaft center in Haverhill are in the discussion stages.

The space market in the United States and Canada has stabilized for ongoing projects speciﬁcally with respect to Radarsat in Canada and 
the next generation weather and communication missions. Funding for these missions is expected to be sustained.

Magellan’s Power Generation business has continued to evolve with its efforts in the Republic of Ghana. The Corporation is anticipating 
completion of the initial electric power generation plant later this year. While interest in additional and complementary business opportuni-
ties in this sector remains high, at this time the Corporation does not have any additional committed projects .

The Corporation remains sensitive to, and closely monitors uncertainties in the world that could destabilize and impact its market sectors. 
Economic challenges and political unrest continue to be the major areas of concern. Magellan has assessed a shrinking worldwide capacity 
in some areas of the aerospace supply chain which is currently and will in the future drive capital investment demand in the industry. Magel-
lan is constantly evaluating the capacity and more importantly the utilization of capital within each of its locations in order to ensure that any 
investment made is prudent and matched strategically to both customer’s needs and the Corporation’s core competencies.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Effective January 1, 2011, the Corporation began reporting its ﬁnancial results in accordance with International Financial Reporting Stan-
dards. Accordingly, these IFRS results and all future results will be reported under IFRS and prior period comparative amounts, including 
the opening statement of ﬁnancial position at January 1, 2010, have been conformed to reﬂect results as if the Corporation had always pre-
pared its ﬁnancial statements using IFRS. 

Please refer to Note 30 of the Audited Consolidated Financial Statements for the years ended December 31, 2011 and 2010 for a discussion 
regarding the Corporation’s accounting choices with regards to IFRS and the impact of this transition on the ﬁnancial statements.

SELECTED ANNUAL FINANCIAL INFORMATION

Expressed in millions of dollars except per share information
Revenues 
Net income for the year 
Net income per common share 

Basic  
Diluted 
Total assets 
Total long term liabilities  

2011
691.4  
37.4

2010
  731.6  
34.3

20091
  686.6
26.0

2.04
0.73
661.7
260.5

1.86
0.66
638.5
98.4

1.34
0.61
680.6
132.0

1The Corporation’s IFRS transition date was January 1, 2010, comparative information for 2009 has not been restated and the 2009 results shown are in accordance with 

Canadian GAAP (“CGAAP”).

Revenues for the year ended December 31, 2011 decreased from 2010 and increased over 2009. The decrease in revenues from 2010 is 
mainly due to lower revenues earned on the Corporation’s power generation project. The Corporation has not paid dividends on its com-
mon shares in the past four years. During 2011, the Corporation redeemed all of the outstanding 8.0% Cumulative Redeemable First Pref-
erence Shares Series A (“Preference Shares Series A”). The Corporation declared dividends thereon at an annual rate of $0.80 per share 
during each of 2011 and 2010. 

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MAGELLAN 2011 ANNUAL REPORT

   
 
 
  
  
   
   
   
  
2011 UPDATES
>>  

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>>  

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 Magellan announced on February 7, 2011 that an agreement has been reached between Airbus and Magellan Aerospace (UK) Limited 
securing a further work package on Airbus’ new A350 XWB. It is expected to generate revenues in excess of US$20.0 million over the 
next ten years. The contract requires the machining and treatment of complex machined aluminium lithium detail components, and 
delivery to the ﬁnal assembly line in Toulouse, France. 
 On February 7, 2011 Magellan announced an agreement with Hindustan Aeronautics Limited (”HAL“) in Bangalore, India for a new Wire 
Strike Protection System® (“WSPS®”). The agreement includes the design and development of a WSPS® for the HAL Advanced Light 
Helicopter (”ALH“). The ALH system is comprised of an upper and lower cutter, and windshield deﬂector, designed by Magellan’s Win-
nipeg facility to be integrated into the unique structure of the ALH.
 On March 8, 2011 Magellan announced a new agreement with Bell Helicopter for a WSPS® kit development. The helicopter to be ﬁt-
ted with WSPS® will be the Bell UH-1Y. The design and production of the WSPS® will be carried out at Magellan’s Winnipeg, Manitoba 
location for delivery of the prototype kits in 2011.
 On June 30, 2011 Magellan announced that its facility in Haverhill, MA has achieved the globally recognized ISO 14001 certiﬁcation for 
its environmental management system.
 Magellan held a ceremonial ribbon cutting event on October 25, 2011 celebrating the ﬁnal stages of completion of the Corporation’s 
new Advanced Composite Manufacturing Centre in Winnipeg to support the Joint Strike Fighter (“JSF”) program. A year following an 
ofﬁcial ground breaking, the Corporation hosted this ceremony to acknowledge the support and dedicated efforts of all three levels 
of government, major funding partners, their customer, and all of the other stakeholders in this major new undertaking. 
 Magellan announced on December 20, 2011 that an agreement has been reached between GKN Aerospace and Magellan Aerospace 
(UK) Limited securing a contract extension to deliver aluminum and titanium components from Magellan’s facilities in Bournemouth and 
Chalfont St Peter, UK. The components are destined to GKN’s Filton facility, which manufactures and assembles wing structures. This 
contract is projected to generate revenues in excess of £200.0 million through to December 2017. To support this program Magellan 
will make further investments in high speed 5-axis machining technology. These future investments demonstrate Magellan’s commit-
ment to world class manufacturing facilities focused on core competencies.

LABOUR MATTERS
Labour agreements at one of the Corporation’s facilities were successfully negotiated during 2011 after a seven week labour disruption. 
Two labour agreements at two of the Corporation’s facilities expired December 31, 2011 and two other labour agreements at another of the 
Corporation’s facilities expired March 15, 2012. The Corporation is currently in negotiation on these four labour agreements. 

FINANCING MATTERS
On April 28, 2011, the Corporation extended and restated the 11% loan payable (“Original Loan”) to Edco Capital Corporation (“Edco”), a 
corporation controlled by the Chairman of the Board of the Corporation. The Original Loan was amended decreasing the interest rate from 
11% per annum to 7.5% per annum commencing July 1, 2011 and was extended to July 1, 2013 in consideration of the payment of a fee to 
Edco equal to 1% of the principal amount outstanding on July 1, 2011. The Corporation has the right to repay the Original Loan at any time 
without penalty. 

On April 29, 2011, the Corporation amended its credit agreement with its existing lenders. Under the terms of the amended agreement, 
the maximum amount available under the operating credit facility was reallocated to a Canadian dollar limit of $125.0 million (up from 
$105.0 million) plus a US dollar limit of $50.0 million (down from US $70.0 million), with a maturity date of April 29, 2013. The facility is 
extendable for unlimited one-year renewal periods by the agreement of the Corporation and the lenders and continues to be guaran-
teed by the Chairman of the Board of the Corporation. 

The terms of the amended operating credit facility permit the Corporation to (i) repay, in whole or in part, the Original Loan outstanding 
from Edco and (ii) retract all (approximately $12.0 million) of the Preference Shares Series A outstanding on or after April 30, 2011, together 
with accrued and unpaid dividends on the shares to be retracted provided there is no current default or event of default under the operat-
ing credit facility and after the repayment of the loan and the payment of the retraction amount the Corporation has at least $25.0 million 
in availability under the operating credit facility. 

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MAGELLAN 2011 ANNUAL REPORT

As at December 31, 2011, the Corporation had retracted all outstanding Preference Shares Series A and the outstanding principal amount 
of the Original Loan was $33.5 million. 

On December 31, 2011, the Chairman of the Board exercised his conversion rights under the debenture agreement and $38.0 million princi-
pal amount of the 10% convertible secured subordinated debentures (“Convertible Debentures”) were converted into 38,000,000 common 
shares of the Corporation. As at December 31, 2011, $2.0 million [2010 - $40.0 million] of the Convertible Debentures were outstanding. Given 
that the conversion price of the Convertible Debentures is in the money, it is likely that the remaining $2.0 million Convertible Debentures 
will be converted into common shares of the Corporation on or before their maturity.

RESULTS FROM OPERATIONS
Consolidated Revenues
Overall, the Corporation’s revenues decreased when compared to the prior year. While the global economy improved throughout 2011, the 
Corporation continued to experience customer delays in the supply of products in the support of new programs that it has been investing 
in over the past several years. 

The Corporation’s revenues by segment were as follows:
Twelve-months ended December 31, expressed in thousands of dollars 
Aerospace 
Power Generation Project 
Total revenues 

2011

  609,942  
81,468  
691,410

2010
  627,113
  104,522
731,635

Change
(2.7)%
(22.1)%
(5.5)%

Consolidated revenues for the year ended December 31, 2011 decreased 5.5% to $691.4 million from $731.6 million last year, due mainly to 
decreased revenues earned on the Corporation’s Power Generation Project as well as reduced revenues in the aerospace segment. Rev-
enues in the aerospace segment were primarily impacted by the movement in the Canadian dollar, against the US dollar and British Pound.

Aerospace Segment
Revenues for the Aerospace segment were as follows:
Twelve-months ended December 31, expressed in thousands of dollars 
Canada
United States 
United Kingdom 
Total revenues 

2011

  284,385  
187,658  
137,899  
609,942

2010
317,342
187,555
  122,216
627,113

Change
(10.4)%
(0.0)%
12.8%
(2.7)%

Aerospace revenues for the year ended December 31, 2011 were $609.9 million, a decrease of $17.2 million or 2.7% over the previous year. 
Revenues in Canada in 2011 decreased 10.4% in comparison to revenues earned in 2010 resulting from a work stoppage in one the Corpo-
ration’s locations, reduced volumes experienced in the year for proprietary products and the strengthening of the Canadian dollar against 
the US dollar. Revenues in the United States were also impacted negatively by the movement of the Canadian dollar in comparison to the 
US dollar. In native currency, revenues in the United States were higher in 2011 when compared to 2010 as the Corporation’s volumes contin-
ued to increase on several single aisle aircraft programs. Revenues in the United Kingdom increased in 2011 in comparison to 2010 revenues 
mainly as a result of higher customer demand in 2011 when compared to 2010. Overall Aerospace revenues were impacted negatively by 
the movement of the Canadian dollar in comparison to both the US dollar and the British Pound. If average exchange rates for both the US 
dollar and British Pound experienced in 2010 remained constant in 2011, consolidated revenues for 2011 would have been approximately 
$627.5 million or approximately $17.6 million higher than actually realized in 2011.

Power Generation Segment
Revenues for the Power Generation segment were as follows:
Twelve-months ended December 31, expressed in thousands of dollars 
Power Generation Project 
Total revenues 

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MAGELLAN 2011 ANNUAL REPORT

2011
81,468  
81,468

2010
  104,522
104,522

Change
(22.1)%

  
   
 
  
  
 
   
  
   
 
 
   
 
   
   
  
  
 
Revenues earned in 2011 and in 2010 resulted from the Ghana electric power generation project. The Corporation recognizes revenue on 
this project on a percentage of completion basis, hence the decrease in revenue over the prior year represents the Corporation’s progress 
made towards completion of the project during the year. As the Corporation moves into 2012, revenue from the power generation project 
will decrease on a year over year basis unless the Corporation receives further contracts in this area.

Gross Proﬁt
Twelve-months ended December 31, expressed in thousands of dollars 
Gross Proﬁt 
Percentage of revenue 

2011
97,410
14.1%

2010
103,282
14.1%

Change
(5.7)%

Gross proﬁt in 2011 was $97.4 million, a decrease of $5.9 million from 2010 levels of $103.3 million. As a percentage of revenues, gross proﬁt was 
consistent at 14.1% in 2011 and 2010. The decline in both the US dollar and British Pound against the Canadian dollar, over the exchange rates 
prevailing in 2010, contributed negatively to the gross margin in 2011. The negative impact of the movement in exchange rates in 2011 when 
compared to 2010 was offset by changes in revenue mix, negotiated price increases and continued operational performance improvements. 

Administrative and General Expenses
Twelve-months ended December 31, expressed in thousands of dollars 
Administrative and general expenses 
Percentage of revenue 

2011
38,264
5.5%

2010
39,770
5.4%

Change
(3.8)%

Administrative and general expenses decreased from $39.8 million in 2010 to $38.3 million in 2011. The decrease in administrative and gen-
eral expenses reﬂects the ongoing efforts of the Corporation to manage expenses and the effect on translation of the weakening US dollar 
and British Pound exchange rates against the Canadian dollar. 

Other
Twelve-months ended December 31, expressed in thousands of dollars 
Foreign exchange loss  
Loss on disposal of property, plant and equipment
Plant and program closure recoveries 
Other

2011
238
198
–
436

2010
680
267
(820)
127

Included in other income is a foreign exchange loss of $0.2 million in 2011 versus a loss of $0.7 million in 2010, resulting from the change in 
foreign exchange rates on the Corporation’s US denominated working capital balances and debt in Canada and foreign exchange contracts. 
In 2011 and 2010, the Corporation retired assets for a loss on disposal of approximately $0.2 million and $0.3 million respectively. 

Due to the decline in the ﬁnancial markets in 2008, the Corporation recorded a provision for plant and program closure costs in 2008 in the 
amount of $3.8 million relating to the pension obligation on a pension plan that was in the process of being wound-up. In 2010, as a result 
of the market performance of the pension plan assets in each year, the Corporation reversed a portion of the 2008 pension charge in the 
amount of $0.8 million on this pension plan that was wound-up in 2010. 

Interest Expense
Twelve-months ended December 31, expressed in thousands of dollars 
Interest on bank indebtedness and long-term debt 
Convertible debenture interest 
Accretion costs 
Discount on sale of accounts receivable 
Total interest expense

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MAGELLAN 2011 ANNUAL REPORT

2011
9,397
4,000
3,155
447
16,999

2010
14,799
4,006
1,093
254
20,152

  
   
  
  
  
  
  
  
  
  
  
  
  
   
  
  
  
  
  
  
   
  
  
  
  
  
Interest costs for 2011 were $17.0 million, a decrease of $3.2 million from 2010. Interest on bank indebtedness and long-term debt in 2011 
decreased as principal amounts outstanding during 2011 were lower than 2010 levels. A reduced interest rate on long-term debt and lower 
interest rate spreads on bank indebtedness also contributed to the reduction in interest expense in 2011 when compared to 2010. Accretion 
costs related to the Convertible Debentures, long-term provisions and borrowings under speciﬁc conditions were $3.2 million in 2011 and 
$1.1 million in 2010. During 2011, the Corporation sold $167.1 million of accounts receivable at an annualized interest rate of 1.73% compared 
to $65.4 million of receivables sold in 2010 at an annualized interest rate of 2.35%.

Provision for (Recovery of) Income Taxes
Twelve-months ended December 31, expressed in thousands of dollars 
Current income tax expense (recovery) 
Future income tax expense  
Total income tax expense 
Effective tax rate 

2011
280
3,708
3,988
9.6%

2010
(331)
8,340
8,009
18.9%

The Corporation recorded an income tax expense in 2011 of $4.0 million on pre-tax income of $41.4 million, representing an effective tax 
rate of 9.6%, compared to a tax expense of $8.0 million on a pre-tax income of $42.4 million in 2010 for an effective tax rate of 18.9%. 

During 2011 and 2010, the Corporation recognized additional deferred tax assets in Canada totalling $7.9 million and $4.4 million respec-
tively, as a reduction of cost of revenues, as the Corporation has determined that it will be able to beneﬁt from a portion of its previously 
unrecorded future tax assets. In 2011, the Corporation continued to have unrecognized deferred tax assets in Canada where recovery of 
the loss carry forwards or other future tax assets were not “more likely than not.”

Cash Flow from Operating Activities
Twelve-months ended December 31, expressed in thousands of dollars 
(Increase) decrease in accounts receivable 
Decrease (increase) in inventories    
Decrease in prepaid expenses and other 
Decrease in accounts payable, accrued liabilities and provisions  
Net change in non-cash working capital items
Cash provided by operating activities

2011
(10,908)
24,704
6,559
(32,881)
(12,526)
51,444

2010
869
(8,221)
26,289
(1,396)
17,541
80,371

Operating activities for 2011 generated cash ﬂows of $51.4 million compared to $80.4 million in the prior year. Changes in non-cash working 
capital used cash of $12.5 million as a result of a decrease in accounts payable and accrued liabilities charges and increases accounts receiv-
able offset by a decrease in inventory and prepaid expense and other. Prepaid expenses decreased during the year as advance payments 
made to suppliers to support the Corporation’s electric power generation project in Ghana were taken into expense during the year. The 
increase in accounts receivable during the year resulted from a net decrease in the amount of receivables drawn under the Corporation’s 
securitization facilities at the end of the year when compared to 2010. During 2011, inventory levels decreased as a result of operational efﬁ-
ciencies. In 2010, changes in non-cash working capital of $17.5 million were principally a result of a decrease prepaid expenses and other 
offset by an increase in inventory. 

Cash Flow from Investing Activities
Twelve-months ended December 31, expressed in thousands of dollars 
Purchase of property, plant and equipment 
Proceeds from disposals of property, plant and equipment 
Decrease (increase) in other assets  
Cash used in investing activities 

2011
(59,260)
514
10,381
(48,365)

2010
(16,571)
206
(20,241)
(36,606)

The Corporation invested $59.3 million in capital assets during the year, of which $43.5 million represented the Corporation’s investment in 
an advanced composite manufacturing centre in Winnipeg, Manitoba to support the JSF program. A portion of the costs of the advanced 

10

MAGELLAN 2011 ANNUAL REPORT

  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
composite manufacturing centre was ﬁnanced through a mortgage in the amount of $16.1 million. Capital additions were for advanced 
technology production equipment and information technology systems, both designed to increase productivity, reduce cycle time and 
improve technology capability.

SELECTED QUARTERLY FINANCIAL INFORMATION
Expressed in millions of dollars except per share information   

 Revenues 
Net income 
Net income per common share 

Mar 31  
170.5  
7.2  

Jun 30  
186.0
4.9

Sep 30  
161.6
8.6

Basic  
Diluted  

0.40  
0.14  

0.27
0.10

0.47
0.17

2011
Dec 31
173.3
16.7

0.90
0.31

Mar 31  
177.6
3.8

0.21
0.07

Jun 30  
181.4
7.1

0.39
0.14

Sep 30  
184.7
8.0

0.44
0.16

2010
Dec 31
187.9
15.4

0.85
0.29

Revenues and net income reported in the quarterly information was impacted by the ﬂuctuations in the Canadian dollar exchange rate in 
comparison to the US dollar and British Pound. The US dollar/Canadian dollar exchange rate in 2011 ﬂuctuated reaching a low of 0.9440 and 
a high of 1.0561. During 2010, the US dollar relative to the Canadian dollar moved from an exchange rate of 1.0505 at the start of the year 
to 0.999 by December 31, 2010. The British Pound/Canadian dollar exchange rate in 2011 ﬂuctuated reaching a low of 1.5302 and a high of 
1.6354. During 2010, the British Pound relative to the Canadian dollar moved from an exchange rate of 1.6940 at the start of the year to 1.5467 
by December 31, 2010. Had exchange rates remained at levels experienced in 2010, reported revenues in 2011 would have been higher by 
$6.7 million in the ﬁrst quarter, $5.3 million in the second quarter and $6.5 million in the third quarter and were $1.2 million lower in the fourth 
quarter. Net income for the fourth quarter of 2010 and 2011 of $15.4 million and $16.7 million respectively was higher than any other quarterly 
net income disclosed in the table above. In the fourth quarter of each year, the Corporation recognized a reversal of previous impairment 
losses against intangible assets relating to various civil aircraft programs and recognized a portion of previously unrecognized deferred tax 
asset as the Corporation determined that it will be able to beneﬁt from these assets. 

RECONCILIATION OF NET INCOME TO EBITDA
Twelve-months ended December 31, expressed in thousands of dollars 
Net income  
Interest
Dividends on preference shares 
Taxes
Stock based compensation 
Depreciation and amortization 
EBITDA

2011
37,413
16,999
310
3,988
68
32,835
91,613

2010
34,344
20,152
880
8,009
268
34,599
98,252

EBITDA for the year ended 2011 was $91.6 million, compared to $98.3 million in 2010. As previously discussed decreased revenue levels 
resulted in decreased EBITDA for the year.

LIQUIDITY AND CAPITAL RESOURCES
The Corporation’s liquidity needs can be met through a variety of sources including cash on hand, cash provided by operations, short-term 
borrowings from its credit facility and accounts receivable securitization program, and long-term debt and equity capacity. Principal uses 
of cash are for operational requirements and capital expenditures. Based on current funds available and expected cash ﬂow from operat-
ing activities, management believes that the Corporation has sufﬁcient funds available to meet its liquidity requirements at any point in 
time. However, if cash from operating activities is lower than expected or capital projects exceed current estimates, or if the Corporation 
incurs major unanticipated expenses, it may be required to seek additional capital in the form of debt or equity or a combination of both.

11

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
  
  
  
  
  
   
   
  
   
  
  
   
Contractual Obligations 

Less than 1   
 year   

As at December 31, 2011, expressed in thousands of dollars
Bank indebtedness     
Long-term debt1 
Finance lease obligations 
Equipment leases 
Facility leases 
Other long-term liabilities 
Borrowings subject to speciﬁc conditions 
Convertible debentures 
Total Contractual Obligations 
1 The Corporation’s accounts receivable securitization program is included in long-term debt in the less than 1 year category

1-3 Years  
120,674
43,791
–
249
2,693
85
1,052
–
168,544

–
10,064
463
229
1,386
1,000
601
2,000
15,743

–
10,235
–
39
2,520
83
1,279
–
14,156

4-5 Years  

After 5

Years  

–
29,739
–
3
6,541
1,354
16,516
–
54,153

Total
120,674
93,829
463
520
13,140
2,522
19,448
2,000
252,596

Major cash ﬂow requirements for 2012 include the repayment of long-term debt of $10.1 million of which $6.0 million is expected to be 
reﬁnanced, payments of equipment and facility leases of $1.6 million and the repayment of convertible debentures in the amount of $2.0 
million. On April 29, 2011, the operating credit facility was extended for an additional two year period with the new expiry date of April 29, 
2013. On April 28, 2011 the Original Loan was extended to July 1, 2013. The convertible debentures become due on April 30, 2012 and are 
convertible, at the option of the holder at any time prior to April 30, 2012, in whole or in multiples of $1.0 thousand, into fully paid and non-
assessable common shares of the Corporation at a conversion rate of $1.00 per common share. 

The Corporation has made contractual commitments to purchase $16.6 million of capital assets. The Corporation also has purchase commit-
ments, largely for materials made through the normal course of operations, of $212.3 million. The Corporation plans to ﬁnance all of these 
capital commitments with operating cash ﬂow and the existing credit facility.

OFF-BALANCE SHEET ARRANGEMENTS
The Corporation does not have any off-balance sheet arrangements that have or reasonably are likely to have a material effect on its ﬁnancial 
condition, changes in ﬁnancial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 
As a result, the Corporation is not exposed materially to any ﬁnancing, liquidity, market or credit risk that could arise if it had engaged in 
these arrangements.

DERIVATIVE CONTRACTS
The Corporation operates internationally, which gives rise to a risk that its income, cash ﬂows and shareholders’ equity may be adversely 
impacted by ﬂuctuations in foreign exchange rates. Currency risk arises because the amount of the local currency receivable or payable for 
transactions denominated in foreign currencies may vary due to changes in exchange rates and because the non-Canadian dollar denomi-
nated ﬁnancial statements of the Corporation’s subsidiaries may vary on consolidation into the reporting currency of Canadian dollars. The 
Corporation uses derivative ﬁnancial instruments to help manage foreign exchange risk with the objective of reducing transaction exposures 
and the resulting volatility of the Corporation’s earnings. The Corporation does not trade in derivatives for speculative purposes. Under 
these contracts the Corporation is obligated to purchase speciﬁed amounts at predetermined dates and exchange rates. These contracts 
are matched with anticipated cash ﬂows in US dollars.

As at December 31, 2011, the Corporation has foreign exchange contracts outstanding as follows:
Foreign exchange collars 
Maturity – less than 1 year 

Amount
17,000

Foreign exchange forward contracts
Maturity – less than 1 year – US dollar 
Maturity – less than 1 year – Euros   

12

MAGELLAN 2011 ANNUAL REPORT

Floor
1.0000

Amount

18,700  
1,292  

Ceiling
1.1111

FX Rate
1.0400
1.3400

 
 
   
  
  
  
   
  
   
   
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
The fair values of the Corporation’s foreign exchange forward contracts are based on the current market values of similar contracts with the 
same remaining duration as if the contracts had been entered into on December 31, 2011.

The mark-to-market on these ﬁnancial instruments as at December 31, 2011 was an unrealized gain of $0.5 million [2010 – $1.1 million] which 
has been recorded in other expenses in the year. 

RELATED PARTY TRANSACTIONS
On April 28, 2011, the Original Loan was extended and restated. During 2011, the Corporation incurred interest of $3.7 million [2010 - $5.5 
million] in relation to the Original Loan and prepaid the Original Loan by $12.5 million [2010 - $19.0 million]. At December 31, 2011, the Cor-
poration owed Edco interest of $0.2 million [2010 - $1.0 million]. 

On April 30, 2009, the Chairman of the Board of the Corporation subscribed to $40.0 million of the Convertible Debentures. On December 
31, 2011, the Chairman of the Board exercised his conversion rights under the debenture agreement and $38.0 million principal amount 
of the Convertible Debentures, the entire amount of Convertible Debentures then held by the Chairman, were converted into 38,000,000 
common shares of the Corporation. Interest incurred during the year ended December 31, 2011 on the Convertible Debentures was $4.0 
million [2010 - $4.0 million]. As at December 31, 2011, Convertible Debentures in the principal amount of $2.0 million were held by a director
of the Corporation.

The Chairman of the Board of the Corporation has provided a guarantee for the full amount of the Corporation’s operating credit facility. 
An annual fee averaging 0.8% [2010 – 1.2%] of the guaranteed amount or $1.4 million [2010 - $2.1 million] was paid in consideration for the 
guarantee.

During the year, the Corporation incurred consulting costs of $0.1 million [2010 - $0.1 million] payable to a corporation controlled by the 
Chairman of the Board of the Corporation. As well, the Corporation paid legal fees of $0.1 million [2010 - $0.1 million] to a law ﬁrm in which 
a director is a chairman emeritus.

RISK FACTORS
The Corporation’s performance may be affected by a number of risks and uncertainties. Magellan’s senior management identiﬁes key risks 
and has processes in place to help monitor, manage, and mitigate these risks. Additional risks and uncertainties not presently known by the 
Corporation, or that the Corporation does not currently anticipate may be material and may impair the Corporation’s performance.

The following risks and uncertainties apply to the Corporation. Additional information relating to risks and uncertainties are set forth in the 
Corporation’s Annual Information Form on SEDAR at www.sedar.com.

A reduction in defence spending by the United States or other countries could result in a decrease in revenue.
Heightened sovereign debt issues in the European Union have created instability and volatility in the international credit and ﬁnancial mar-
kets and has caused a number of countries in the European Union to focus on their respective recurring yearly deﬁcit budgeting practices, 
resultant aggregate debt levels and to implement austerity measures. Likewise the governments in the United States and Canada have 
recognized the need to reduce budget deﬁcits. The United States is the principal purchaser under the JSF program and the JSF program 
represents a signiﬁcant item in the budget. Canada is also a participant in the JSF program and has invested in an Advanced Composite 
Manufacturing Facility at Magellan’s Winnipeg facility, primarily in support of the JSF program.

The Corporation relies on sales to military customers particularly in the United States. A signiﬁcant reduction in military expenditures by 
the United States or other countries with which the Corporation has material contracts such as the JSF program could materially adversely 
affect the Corporation’s business and ﬁnancial condition. The loss or signiﬁcant reduction in government funding of a large program such 
as the JSF program in which the Corporation participates could also materially adversely affect sales and earnings.

13

MAGELLAN 2011 ANNUAL REPORT

The Corporation faces risks from downturns in the domestic and global economies.
Market events and conditions that occurred in 2007 and 2008, including disruptions in the international credit markets and other ﬁnancial sys-
tems and the deterioration of global economic conditions, caused signiﬁcant volatility in the credit and ﬁnancial markets. These conditions 
continued in 2011 and linger in 2012 resulting in a lack of conﬁdence in the broader U.S. and global credit and ﬁnancial markets. While global 
ﬁnancial conditions and outlook have improved, these factors continue to impact the performance of the global economy going forward. 
Political unrest in the countries of North Africa and the Middle East may create more volatility in the price of oil and may threaten the ongoing 
recovery of the global economy or may have other unforeseen consequences. Sovereign debt issues in Europe continue to create uncertainty 
in the marketplace.

The Corporation cannot predict the depth or duration of downturns in the domestic and global economies nor the effects on markets that 
the Corporation serves, particularly the airline industry. The Corporation’s ability to increase or maintain its revenues and operating results 
may be impaired as a result of negative general economic conditions. The current economic uncertainty renders estimates of future revenues 
and expenditures even more difﬁcult than usual to formulate. The future direction of the overall domestic and global economies could have 
a signiﬁcant impact on the Corporation’s overall ﬁnancial performance and may impact the value of its Common Shares.

Factors that have an adverse impact on the aerospace industry may adversely affect the Corporation’s results of operations.
The majority of the Corporation’s gross proﬁt and operating income is derived from the aerospace industry. The Corporation’s aerospace 
operations are focused on engineering and manufacturing aircraft components on new aircraft, selling spare parts and performing repair 
and overhaul services on existing aircraft and aircraft components. Therefore, the Corporation’s business is directly affected by economic 
factors and other trends that affect the Corporation’s customers in the aerospace industry, including a possible decrease in outsourcing by 
aircraft operators and original equipment manufacturers (“OEMs”), decreased demand for air travel or projected market growth that may 
not materialize or be sustainable. The price of fuel has increased the pressure on the operating margins of aircraft companies which will 
reduce their ability to ﬁnance capital expenditures. When these economic and other factors adversely affect the aerospace industry, they 
tend to reduce the overall customer demand for the Corporation’s products and services, which decreases the Corporation’s operating 
income. Economic and other factors, both internal to the aerospace industry or general economic factors that might affect the aerospace 
industry may have an adverse impact on the Corporation’s results of operations.

Potentially volatile capital markets may reduce the Corporation’s ﬁnancial ﬂexibility and may result in less than optimal ﬁnancing 
results.
As future capital expenditures will be ﬁnanced out of cash generated from operations, borrowings and possible future equity sales, the Cor-
poration’s ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments 
in the aerospace industry and Magellan’s securities in particular.

To the extent that external sources of capital become limited or unavailable or available on onerous terms, the Corporation’s ability to make 
capital investments may be impaired, and its assets, liabilities, business, ﬁnancial condition and results of operations may be materially and 
adversely affected as a result. 

Alternatively, the Corporation may need to issue additional Common Shares or other convertible securities from treasury at low prices to 
reﬁnance existing debt or to ﬁnance the capital costs of signiﬁcant projects or may wish to borrow to ﬁnance signiﬁcant projects to accom-
plish Magellan’s long-term objectives on less than optimal terms or in excess of its optimal capital structure.

Based on current funds available and expected cash ﬂow from operating activities, management believes that the Corporation has suf-
ﬁcient funds available to fund its projected capital expenditures. However, if cash ﬂow from operating activities is lower than expected or 
capital costs for these projects exceed current estimates, or if the Corporation incurs major unanticipated expenses, it may be required to 
seek additional capital to maintain its capital expenditures at planned levels. Failure to obtain any ﬁnancing necessary for the Corporation’s 
capital expenditure plans may affect it in a materially adverse manner.

14

MAGELLAN 2011 ANNUAL REPORT

Fluctuations in the value of foreign currencies could result in currency exchange losses.
A large portion of the Corporation’s revenues and expenses are not currently denominated in Canadian dollars, and it is expected that some 
revenues and expenses will continue to be based in currencies other than the Canadian dollar. Therefore, ﬂuctuations in the Canadian dollar 
exchange rate will impact the Corporation’s results of operations and ﬁnancial condition from period to period. In addition, such ﬂuctua-
tions affect the translation of the Corporation’s results for purposes of its consolidated ﬁnancial statements. The Corporation’s activities to 
manage its currency exposure may not be successful.

CRITICAL ACCOUNTING ESTIMATES
The preparation of ﬁnancial statements requires management to make critical judgements, estimates and assumptions that affect the 
reported amounts of certain assets and liabilities at the date of the ﬁnancial statements and the reported amount of revenues and expenses 
recorded during the reporting period. The critical estimates and judgements utilized in preparing the Corporation’s ﬁnancial statements 
affect the assessment of net recoverable amounts, net realizable values and fair values, depreciation and amortization rates and useful lives, 
value of intangible assets, ability to utilize tax losses and other tax measurements, determination of functional currency, determination of 
the degree of control that exists in determining the corresponding accounting basis, and the selection of accounting policies. Any changes 
in estimates and assumptions could have a material impact on the Corporation’s future earnings and/or the amounts reported in its state-
ment of ﬁnancial position. The Corporation reviews its estimates and assumptions on an ongoing basis and uses the most current informa-
tion available and exercises careful judgement in making these estimates and assumptions. 

The main assumptions and estimates that were used in preparing the Corporation’s consolidated ﬁnancial statements relate to:

Financial instruments
The valuation of the Corporation’s derivative instruments and certain other ﬁnancial instruments requires estimation of the fair value of 
each instrument at the reporting date. Details of the basis on which fair value estimated are provided in note 18 of the audited consolidated 
ﬁnancial statements.

Impairments
The recoverable amount of intangible assets and property, plant and equipment is based on estimates and assumptions regarding the 
expected market outlook and cash ﬂows from each cash-generating unit. 

Deferred taxes
Income taxes are determined based on estimates of the Corporation’s current income taxes and estimates of deferred income taxes result-
ing from temporary differences. Deferred tax assets are assessed to determine the likelihood that they will be realized from future taxable 
income before they expire.

Government assistance
Investment tax credits and scientiﬁc research and experimental development tax credits are determined based on estimates of the Cor-
poration’s current year expenditures on qualifying programs. The investment tax credits are assessed to determine the likelihood that they 
will be applied against federal income tax.

Capitalization of development costs
When capitalizing development costs the Corporation must assess the technical and commercial feasibility of the projects and estimate the 
useful lives of resulting products. Determining whether future economic beneﬁts will ﬂow from the assets and therefore the estimates and 
assumptions associated with these calculations are instrumental in (i) deciding whether project costs can be capitalized, and (ii) accurately 
calculating the useful life of the projects for the Corporation.

Income (loss) on completion of contracts accounted for under the percentage-of-completion method
To estimate income (loss) on completion, the Corporation takes into account factors inherent to the contract by using historical and/or 
forecast data, as well as contractual indexes. When total contract costs are likely to exceed total contract revenue, the expected loss is rec-
ognized within losses on completion.

15

MAGELLAN 2011 ANNUAL REPORT

Repayable government grants
The forecast repayment of grants received from government authorities is based on income from future sales. As the forecast repayments 
are closely related to forecasts of future sales set out in business plans prepared by the operating divisions, the estimates and assump-
tions (as regards programs and ﬂuctuations in exchange rates, particularly the US dollar) underlying these business plans are instrumental 
in determining the timing of these repayments.

Employee beneﬁts
The Corporation considers a number of factors in developing the pension assumptions, including an evaluation of relevant discount rates, 
expected long-term returns on plan assets, plan asset allocations, mortality, expected changes in wages and retirement beneﬁts, analysis 
of current market conditions, economic beneﬁts available and input from actuaries and other consultants. Costs of the programmes are 
based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who 
are expected to qualify for these beneﬁts.

CHANGES IN ACCOUNTING POLICIES
Transition to and initial adoption of IFRS 
Starting January 1, 2010, the Corporation is applying IFRS as issued by the International Accounting Standards Board [“IASB”]. The prepa-
ration of the consolidated ﬁnancial statements for the year ended December 31, 2011 includes the initial adoption of accounting policies 
under IFRS which are different than the accounting policies used to prepare the most recent consolidated ﬁnancial statements prepared 
under Canadian generally accepted accounting principles [“Canadian GAAP”]. 

The accounting policies as set out in Note 2 to the audited consolidated ﬁnancial statements for the year ended December 31, 2011 have 
been applied consistently to all periods beginning on or after January 1, 2010 presented in these ﬁnancial statements. Comparative infor-
mation for the year ended December 31, 2010 has thus been adjusted from amounts previously reported under Canadian GAAP. They also 
have been applied in preparing an opening IFRS balance sheet at January 1, 2010 for the purpose of the transition to IFRS, as required by 
IFRS 1, First-time Adoption of International Financial Reporting Standards. 

Details on the changes to previously reported amounts as a result of the transition to IFRS were included in Note 30 to the audited consoli-
dated ﬁnancial statements for the year ended December 31, 2011. The ﬁnancial statements were ﬁled on SEDAR and are also available on 
Magellan’s website www.magellan.aero.

Impact of IFRS on the Corporation 
The conversion to IFRS impacts the way the Corporation presents its ﬁnancial results. The impact of the conversion to IFRS on the accounting 
systems has been minimal due to limited changes in accounting policies. The internal and disclosure control processes, as currently designed, 
have not required signiﬁcant modiﬁcations as a result of the conversion to IFRS. The Corporation has assessed the impact of adopting IFRS 
on its contractual arrangements, and has not identiﬁed any material compliance issues. The Corporation has also considered the impact 
that the transition will have on its internal planning process and compensation arrangements and has not identiﬁed any signiﬁcant issues. 

FUTURE CHANGES IN ACCOUNTING POLICIES
A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended December 31, 2011, 
and have not been applied in preparing these unaudited interim consolidated ﬁnancial statements. The following standards and interpreta-
tions have been issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Commit-
tees with effective dates relating to the annual accounting periods starting on or after the effective dates as follows:

16

MAGELLAN 2011 ANNUAL REPORT

International Accounting Standards  
IAS 12 – Income Taxes 

IFRS 7 – Financial Instruments, 
Disclosures

IFRS 9 – Financial Instruments, 
Recognition and Measurement

IFRS 10 – Consolidation

IFRS 11 – Joint Arrangements

IFRS 12 – Disclosure of Interests in  
Other Entities 

IFRS 13 – Fair Value Measurement

17

MAGELLAN 2011 ANNUAL REPORT

In December 2010, IAS 12, Income Taxes was amended to introduce an 
exception to the existing principle for the measurement of deferred tax 
assets or liabilities arising on investment property measured at fair value. 
As a result of the amendments, SIC 21, Income taxes—recovery of reval-
ued non-depreciable assets, will no longer apply to investment proper-
ties carried at fair value. The amendments also incorporate into IAS 12 the 
remaining guidance previously contained in SIC 21, which is withdrawn. 
IFRS 7 has been amended to provide more extensive quantitative disclo-
sures for ﬁnancial instruments that are offset in the statement of ﬁnan-
cial position or that are subject to enforceable master netting or similar 
arrangements.
  In November 2009, as part of the IASB project to replace IAS 39, Financial 
Instruments: Recognition and Measurement, the IASB issued the ﬁrst 
phase of IFRS 9, that introduces new requirements for the classiﬁcation 
and measurement of ﬁnancial assets. The standard was revised in Octo-
ber 2010 to include requirements regarding classiﬁcation and measure-
ment of ﬁnancial liabilities. 
IFRS 10 requires an entity to consolidate an investee when it is exposed, 
or has rights, to variable returns from its involvement with the investee 
and has the ability to affect those returns through its power over the 
investee. Under existing IFRS, consolidation is required when an entity 
has the power to govern the ﬁnancial and operating policies of an entity 
so as to obtain beneﬁts from its activities. IFRS 10 replaces SIC-12, Con-
solidation—Special Purpose Entities and parts of IAS 27, Consolidated 
and Separate Financial Statements.
IFRS 11 requires a venturer to classify its interest in a joint arrangement 
as a joint venture or joint operation. Joint ventures will be accounted for 
using the equity method of accounting whereas for a joint operation 
the venturer will recognize its share of the assets, liabilities, revenue and 
expenses of the joint operation. Under existing IFRS, entities have the 
choice to proportionately consolidate or equity account for interests in 
joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures,
and SIC-13, Jointly Controlled Entities—Non-monetary Contributions.
IFRS 12 establishes disclosure requirements for interests in other entities, 
such as joint arrangements, associates, special purpose vehicles and off 
balance sheet vehicles. The standard carries forward existing disclosures 
and also introduces signiﬁcant additional disclosure requirements that 
address the nature of, and risks associated with, an entity’s interests in 
other entities. 
IFRS 13 is a comprehensive standard for fair value measurement and dis-
closure requirements for use across all IFRS standards. The new standard 
clariﬁes that fair value is the price that would be received to sell an asset, 
or paid to transfer a liability in an orderly transaction between market 
participants, at the measurement date. It also establishes disclosures 
about fair value measurement. Under existing IFRS, guidance on measur-
ing and disclosing fair value is dispersed among the speciﬁc standards 
requiring fair value measurements and in many cases does not reﬂect a 
clear measurement basis or consistent disclosures. 

Effective Date
January 1, 2012

January 1, 2013

January 1, 2015

January 1, 2013

January 1, 2013

January 1, 2013 

January 1, 2013 

 
International Accounting Standards  
IAS 1 – Presentation of 
Financial Statements

IAS 19 – Employee Beneﬁts

IAS 27 – Separate Financial 
Statements

IAS 28 – Investments in 
Associates and Joint Ventures

IAS 32 – Financial Instruments, 
Presentation

The IASB amended IAS 1 with a new requirement for entities to group 
items presented in other comprehensive income on the basis of whether 
they are potentially reclassiﬁable to proﬁt or loss.
 A number of amendments have been made to IAS 19, which included 
eliminating the use of the “corridor” approach and requiring remeasure-
ments to be presented in OCI. The standard also includes amendments 
related to termination beneﬁts as well as enhanced disclosures. 
As a result of the issue of the new consolidation suite of standards, IAS 
27 has been reissued, as the consolidation guidance will now be included 
in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure 
requirements for investments in subsidiaries, joint ventures and associ-
ates when an entity prepares separate ﬁnancial statements. 
 As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 
has been amended and will provide the accounting guidance for invest-
ments in associates and to set out the requirements for the application 
of the equity method when accounting for investments in associates and 
joint ventures. The amended IAS 28 will be applied by all entities that are 
investors with joint control of, or signiﬁcant inﬂuence over, an investee. 
In December 2011, IAS 32 was been amended to clarify the requirements 
for offsetting ﬁnancial assets and liabilities. The amendments clarify that 
the right of offset must be available on the current date and cannot be 
contingent on a future event.

Effective Date
January 1, 2013

January 1, 2013

January 1, 2013

January 1, 2013

January 1, 2014

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

CONTROLS AND PROCEDURES
Based on the current Canadian Securities Administrators (the “CSA”) rules under National Instrument 52-109 Certiﬁcation of Disclosure in 
Issuers’ Annual and Interim Filings, the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer (or individuals performing similar functions as a 
chief executive ofﬁcer or chief ﬁnancial ofﬁcer) are required to certify as at December 31, 2011 that they are responsible for establishing and 
maintaining, and have assessed the design and operating effectiveness of disclosure controls and procedures and internal control over 
ﬁnancial reporting. 

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

In preparation for this certiﬁcation, Magellan has dedicated resources in place to document and evaluate the design and operating effec-
tiveness of disclosure controls and procedures and internal control over ﬁnancial reporting. As of December 31, 2011, an evaluation was car-
ried out, under the supervision of the President and Chief Executive Ofﬁcer and the Vice-President, Finance and Corporate Secretary, of the 
effectiveness of the Corporation’s disclosure controls and internal controls over ﬁnancial reporting, as those terms are deﬁned in National 
Instrument 52-109. Based on that evaluation, the Corporation’s management concluded that the Corporation’s design and operating dis-
closure controls and procedures and internal control over ﬁnancial reporting were effective as of December 31, 2011.

18

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

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

OTHER INFORMATION
The authorized capital of the Corporation consists of an unlimited number of Preference Shares, issuable in series, and an unlimited number 
of common shares. As at March 23, 2012, 56,209,001 common shares were outstanding. 

At December 31, 2011, the Corporation had outstanding $2.0 million of 10.0% convertible secured subordinated debentures, due April 30, 2012. 
The convertible debentures are convertible, at the option of the holder at any time prior to April 30, 2012, in whole or in multiples of $1.0 thou-
sand, into fully paid and non-assessable common shares of the Corporation at the conversion price of $1.00 per common share which is equal to 
the issuance on conversion of approximately 2,000,000 common shares in total. 

Additional information relating to Magellan Aerospace Corporation, including the Corporation’s Annual Information Form is on SEDAR at 
www.sedar.com.

19

MAGELLAN 2011 ANNUAL REPORT

Management’s report

To the shareholders of Magellan Aerospace Corporation

The consolidated ﬁnancial statements of Magellan Aerospace Corporation were prepared by management in accordance with account-
ing 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 con-
solidated 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 of Directors approved the consoli-
dated ﬁnancial statements.

James S. Butyniec
President and Chief Executive Ofﬁcer
March 23, 2012

John B. Dekker
Vice President Finance and 
Corporate Secretary

20

MAGELLAN 2011 ANNUAL REPORT

INDEPENDENT Auditors’ report

To the shareholders of Magellan Aerospace Corporation

We have audited the accompanying consolidated ﬁnancial statements of Magellan Aerospace Corporation, which comprise the consoli-
dated statements of ﬁnancial position as at December 31, 2011 and 2010, and January 1, 2010, and the consolidated statements of income 
and comprehensive income, changes in equity and cash ﬂows for the years ended December 31, 2011 and 2010, and a summary of signiﬁ-
cant accounting policies and other explanatory information.

Management’s responsibility for the consolidated ﬁnancial statements
Management is responsible for the preparation and fair presentation of these consolidated ﬁnancial statements in accordance with Inter-
national Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of 
consolidated ﬁnancial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audits. We conducted our audits in accor-
dance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and 
perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ﬁnancial state-
ments. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the 
consolidated ﬁnancial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control 
relevant to the entity’s preparation and fair presentation of the consolidated ﬁnancial statements in order to design audit procedures that 
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. 
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made 
by management, as well as evaluating the overall presentation of the consolidated ﬁnancial statements.

We believe that the audit evidence we have obtained in our audits is sufﬁcient and appropriate to provide a basis for our audit opinion. 

Opinion
In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position of Magellan Aerospace 
Corporation as at December 31, 2011 and 2010, and January 1, 2010, and its ﬁnancial performance and its cash ﬂows for the years ended 
December 31, 2011 and 2010 in accordance with International Financial Reporting Standards.

Chartered Accountants
Licensed Public Accountants 
Toronto, Canada 
March 26, 2012

21

MAGELLAN 2011 ANNUAL REPORT

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in thousands of Canadian dollars)

Current assets
Cash

Trade and other receivables 

Inventories 

Prepaid expenses and other  

Non-current assets
Property, plant and equipment 

Investment properties

Intangible assets 

Other assets

Deferred tax assets

Total assets

Current liabilities
Bank indebtedness

Accounts payable, accrued liabilities and provisions  

Preference shares

Debt due within one year  

Non-current liabilities
Bank indebtedness

Long-term debt 

Convertible debentures

Preference shares

Borrowings subject to speciﬁc conditions 

Other long-term liabilities and provisions 

Deferred tax liabilities

Equity
Share capital

Contributed surplus

Other paid in capital

Retained earnings (deﬁcit) 

Accumulated other comprehensive loss 

Total liabilities and equity 

See accompanying notes to the consolidated ﬁnancial statements

22

MAGELLAN 2011 ANNUAL REPORT

  Notes

December 31  
2011  

 December 31  

January 1

2010  

2010

3

4

5

6

7

15

8

9

12

10

8

10

11

12

13

14

15

16

11   

23

26,520  
106,480  
127,473  
5,326  
265,799  

289,744  
3,041  
66,134  
8,660  
28,360  
395,939  
661,738  

–  
106,022  
–  

12,513
118,535  

120,674  
81,768  

–

–

18,847  
29,131  
10,088  
260,508  

252,440  
2,041  

13,565
20,892  

(6,243)
282,695  
661,738  

24,952  

94,222  

22,641

97,553

  150,798  

  147,248

11,838  

38,458

  281,810  

  305,900

  239,119  

  254,256

3,192  

71,949  

22,593  

19,836  

3,369

71,840

6,732

19,861

  356,689  

  638,499  

  356,058

  661,958

  117,046  

  135,887  

  140,590

  135,637

8,000  

58,541  

–

17,213

  319,474  

  293,440

–  

17,843  

38,901  

4,000  

13,372  

16,353  

7,961  

–

74,408

38,182

–

9,096

21,904

4,781

98,430  

  148,371

  214,440  

  234,389

1,973  

13,565  

1,009  

(10,392) 

1,707

13,565

(29,514)

–

  220,595  

  638,499  

  220,147

  661,958

  
 
  
 
 
  
 
  
 
 
  
 
  
 
  
 
   
 
 
 
  
 
  
 
 
 
  
 
  
 
 
  
 
  
 
   
 
 
  
 
  
 
   
  
 
 
  
 
  
 
  
 
  
 
 
 
  
 
  
 
 
 
  
 
  
 
   
 
 
 
  
 
  
 
 
 
  
 
  
 
   
 
  
 
  
 
   
  
 
  
 
  
 
 
  
 
  
 
  
 
 
 
 
  
 
  
 
 
  
 
  
 
   
 
  
 
  
 
  
 
 
 
  
 
  
 
 
 
  
 
 
  
 
  
 
 
  
 
  
 
 
 
  
 
  
 
 
 
  
 
  
 
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
   
 
 
 
  
 
  
 
 
 
 
  
 
  
 
   
 
 
  
 
  
 
 
  
 
  
 
   
 
  
 
  
 
   
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years ended December 31
Years ended December 31 
(Expressed in thousands of Canadian dollars, except per share amounts)

Revenues

Cost of revenues

Gross proﬁt

Administrative and general expenses  

Other

Dividends on preference shares 

Interest

Income before income taxes 

Income taxes

Current

Deferred

Net income 

Other comprehensive income (loss)   

Foreign currency translation  

Actuarial losses on deﬁned beneﬁt pension plans, net of tax 

Comprehensive income 

Net income per share

Basic

Diluted

See accompanying notes to the consolidated ﬁnancial statements

Notes

20

21

22  

27

12

23

15

15

24

15, 19  

16

16

2011  
691,410  
594,000  
97,410  

2010

  731,635

  628,353

  103,282

38,264

436

310

58,400

16,999  
41,401  

39,770

127

880

62,505

20,152

42,353

280  
3,708  
3,988  
37,413  

(331)

8,340

8,009

  34,344

4,149  
(17,530) 
24,032  

(10,392)

(3,421)

20,531

2.04  
0.73  

1.86

0.66

23

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
  
 
   
 
 
  
 
  
 
   
 
  
 
  
 
   
 
  
 
  
 
   
 
  
 
 
  
 
  
 
  
 
   
 
  
 
  
 
   
 
 
  
 
  
 
   
 
 
 
  
 
  
 
   
 
  
 
 
  
 
  
 
  
 
   
 
 
 
  
 
  
 
   
 
  
 
 
 
  
 
  
 
  
 
  
 
   
 
 
  
 
  
 
   
 
 
 
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
  
 
 
  
 
  
 
 
  
 
  
 
   
 
 
  
 
   
 
 
 
  
 
  
 
   
 
  
 
 
 
  
 
  
 
  
 
  
 
   
 
 
  
 
  
 
   
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Share
capital

Contributed
surplus

Other
paid in
capital

Retained
(deﬁcit)
 earnings

Foreign 
currency  

translation

234,389  

1,707  

13,565  

–  

–  

266  

–  

–  

–  

–  

–  

–  

–  

1,973  

13,565  

–  

–  

68  

–  

–  

–  

–  

–  

(29,514) 

34,344  

(3,421) 

–  

–  

(400) 

1,009  

37,413  

(17,530) 

–  

–  

–  

–  

(10,392) 

–  

–  

–  

(10,392) 

–  

4,149  

–  

–  

Total
equity

220,147

34,344

(13,813)

266

(19,949)

(400)

220,595

37,413

(13,381)

68

38,000

2,041  

  13,565  

20,892  

(6,243) 

  282,695

(Expressed in thousands of Canadian dollars)

January 1, 2010

Net income

Other comprehensive loss

Stock-based compensation 

Preference shares

Dividends on preference shares 

December 31, 2010

Net income

Other comprehensive (loss) income 

Stock-based compensation 

Convertible debentures

December 31, 2011

–  

–  

–  

(19,949) 

–  

214,440  

–  

–  

–  

38,000  

252,440  

See accompanying notes to the consolidated ﬁnancial statements

24

MAGELLAN 2011 ANNUAL REPORT

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOW

Years ended December 31
Years ended December 31 
(Expressed in thousands of Canadian dollars)

Cash ﬂow from operating activities
  Net income 

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

5,7

7

17

15

26

5

8

10

10

12

12

  Net loss on disposal of assets 

Decrease in deﬁned beneﬁt plans

Impairment reversal

Deferred revenue

Stock-based compensation 

Accretion 

Deferred taxes

(Increase) decrease in non-cash working capital  

Net cash from operating activities  

Cash ﬂow from investing activities

Purchase of property, plant and equipment 

Proceeds from disposal of property, plant and equipment 

Decrease (increase) in other assets 

Net cash used in investing activities 

Cash ﬂow from ﬁnancing activities

Increase (decrease) in bank indebtedness 

Decrease in debt due within one year 

Decrease in long-term debt 

Increase in long-term debt 

Increase (decrease) in long-term liabilities and provisions 

Increase in borrowings 

Dividends on preference shares   

Redemption of preference shares

Net cash used in ﬁnancing activities

Increase in cash during the year 
Cash at beginning of the year 

Effect of exchange rate differences 

Cash at end of the year 

See accompanying notes to the consolidated ﬁnancial statements 

25

MAGELLAN 2011 ANNUAL REPORT

Notes

2011  

2010

37,413  
32,835  
198  
(3,979) 
(1,847) 

–
68  
3,155  
(3,873) 
(12,526) 
51,444  

(59,260) 
514  
10,381  
(48,365) 

2,704  
(3,617) 
(17,221) 
21,011  
824  
6,353  
–  
(12,000) 
(1,946) 

1,133  
24,952  
435  
26,520  

  34,344

34,599

267

(4,594)

(7,395)

271

268

1,093

3,977

17,541

80,371

(16,571)

206

(20,241)

(36,606)

(21,128)

(4,679)

(21,900)

12,813

(593)

3,976

(400)

(8,000)

(39,911)

3,854

22,641

(1,543)

24,952

 
 
  
 
  
 
   
 
 
  
 
  
 
  
 
   
 
  
 
 
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
 
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
 
 
  
 
     
 
  
 
  
 
   
 
  
 
 
 
 
 
  
 
  
 
  
 
   
 
 
 
  
 
   
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
  
 
 
 
 
 
  
 
  
 
   
 
 
  
 
  
 
   
 
  
 
 
  
 
  
 
   
 
 
  
 
  
 
   
 
 
  
 
   
 
  
 
 
  
 
  
 
   
 
  
 
  
 
  
 
   
 
 
  
 
  
 
   
 
 
  
 
  
 
   
 
  
 
 
 
 
 
 
  
 
  
 
   
 
  
 
 
  
 
  
 
   
 
  
 
 
  
 
  
 
   
 
  
 
 
  
 
  
 
   
 
  
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Magellan Aerospace Corporation (the “Corporation”) is a publicly listed company incorporated in Ontario, Canada under the Ontario Busi-
ness Corporations Act and its shares are listed on the Toronto Stock Exchange. The registered and head ofﬁce of the Corporation is located 
at 3160 Derry Road East, Mississauga, Ontario, Canada, L4T 1A9.

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

2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These consolidated ﬁnancial statements represent the Corporation’s ﬁrst annual ﬁnancial statements prepared under International Financial 
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Corporation adopted IFRS in accor-
dance with IFRS 1, First Time Adoption of IFRS as discussed in Note 30.

The Corporation’s consolidated ﬁnancial statements were previously prepared in accordance with accounting principles generally accepted 
in Canada (“Canadian GAAP”). Canadian GAAP differs in some areas from IFRS. In preparing these consolidated ﬁnancial statements, 
management has amended certain accounting methods previously applied in the Canadian GAAP ﬁnancial statements to comply with 
IFRS. The comparative ﬁgures for 2010 were restated to reﬂect these adjustments. Note 30 contains reconciliations and descriptions of the 
effect of the transition from Canadian GAAP to IFRS on equity, income and comprehensive income for the year ended December 31, 2010 
along with line by line reconciliations of the statement of ﬁnancial position as at January 1, 2010 and December 31, 2010. 

These consolidated ﬁnancial statements were authorized for issuance by the Board of Directors of the Corporation on March 23, 2012.

(b) Basis of presentation
The consolidated ﬁnancial statements of the Corporation include the assets and liabilities, and the results of operations and cash ﬂows, 
of the Corporation and its subsidiaries and the Corporation’s share of the results and net assets of a jointly controlled entity. The ﬁnancial 
statements of entities consolidated have a reporting date of December 31. Entities over which the Corporation has the power to govern 
the ﬁnancial and operating policies are accounted for as subsidiaries. Where the Corporation has the ability to exercise joint control, the 
entities are accounted for as jointly controlled entities. The results and assets and liabilities of jointly controlled entities are incorporated 
into the consolidated ﬁnancial statements using the proportionate consolidation method of accounting. Interests acquired in entities are 
consolidated from the date the Corporation acquires control and interests sold are de-consolidated from the date control ceases. Wholly 
owned operating subsidiaries of the Corporation are:

>> Magellan Aerospace Limited
>> Magellan Aerospace (UK) Limited
>> Magellan Aerospace USA, Inc.

The effects of intragroup transactions are eliminated. Accounts receivable and accounts payable as well as expenses and income between the 
consolidated entities are netted. Internal sales are transacted on the basis of market prices and intergroup proﬁts and losses are eliminated. 

The Corporation’s signiﬁcant accounting policies are set out below. These accounting policies have been applied consistently to all periods 
presented in these consolidated ﬁnancial statements and by all entities.

(c) Foreign currency translation
The consolidated ﬁnancial statements are presented in Canadian dollars, which is the Corporation’s functional and presentation currency. 

26

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

At the statement of ﬁnancial position date, foreign currency denominated monetary assets and liabilities are translated at the rates of 
exchange at the statement of ﬁnancial position date. Foreign currency transactions are translated into the functional currency using the 
exchange rates prevailing at that date, whereas non-monetary items measured at historic cost, are translated using the exchange rate pre-
vailing on the transaction date. Translation gains and losses resulting from the settlement of such transactions and from the translation of 
monetary assets and liabilities denominated in foreign currencies are recognized in income.  

Assets and liabilities of foreign operations that have a functional currency different from the presentation currency are translated using the 
closing exchange rate prevailing at the reporting date and revenues and expenses at average exchange rates during the period. Transla-
tion gains and losses on currency translation are recognized as a separate component of equity in other comprehensive income and do not 
have any impact on the net income/loss for the year.

(d) Segment reporting
Management has determined the operating segments based on information regularly reviewed for the purposes of decision making, allo-
cating resources and assessing performance by the Corporation’s chief operating decision makers. The Corporation evaluates the ﬁnancial 
performance of its operating segments primarily based on net income before interest and income taxes.

(e) Revenue recognition
Revenue comprises of all sales of goods and rendering of services at the fair value of consideration received or receivable after the deduc-
tion of any trade discounts and excluding sales taxes. The Corporation’s revenue recognition methodology is determined on a contract-
by-contract basis. Revenue is recognized when it can be measured reliably, the signiﬁcant risks and rewards of ownership are transferred to 
the customer, and it is probable that future economic beneﬁts will ﬂow to the Corporation. 

Sales of goods are recognized when the goods are dispatched or made available to the customer, except for the sale of consignment prod-
ucts located at customers premises where revenue is recognized on notiﬁcation that the product has been used.

Rendering of services and on certain long-term contracts for the sale of goods revenue is recognized using the percentage-of-completion 
method, which recognizes revenue as performance of the contract progresses. The contract progress is determined based on the percent-
age of costs incurred to date to total estimated cost for each contract after giving effect to the most recent estimates of total cost. Varia-
tions in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Provided 
that the outcome of construction contracts can be assessed with reasonable certainty, the revenues and costs on such contracts are rec-
ognized based on stage of completion and the overall contract proﬁtability. If the outcome of a contract cannot be estimated reliably, the 
zero-proﬁt method is applied, whereby revenues are only recognized to the extent that contract costs have been incurred and it is prob-
able that those costs will be recovered. 

Where it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. 

The Corporation enters into transactions that represent multiple-element arrangements. These multiple-element arrangements are assessed 
to determine whether they can be separated into more than one unit of accounting or element for the purpose of revenue recognition. 
When the appropriate criteria for separating revenue into more than one unit of accounting is met and there is vendor speciﬁc objective 
evidence of fair value for all units of accounting or elements in an arrangement, the arrangement consideration is allocated to the separate 
units of accounting or elements based on each unit’s relative fair value. When the fair value of a delivered element has not been established, 
the Corporation uses the residual method to recognize revenue if the fair value of delivered elements is determinable. This vendor speciﬁc 
evidence of fair value is established through prices charged for each revenue element when that element is sold separately. The revenue 
recognition policies described above are then applied to each unit of accounting.

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.

27

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

(f) Cost of revenues
Cost of revenues consists of production-related manufacturing costs of products sold, development services paid, and the cost of products 
purchased for resale. In addition to the direct material cost and production costs, it also comprises of systematically allocated overheads, 
including depreciation of production-related intangible assets, write-downs on inventories and an appropriate portion of production-related 
administrative overheads.

(g) Government grants
Government grants are recognized at their fair value in the period when there is reasonable assurance that the conditions attaching to the 
grant will be met and that the grant will be received. Grants are recognized as income over the periods necessary to match them with the 
related costs that they are intended to compensate. Grants relating to expenditure on property, plant and equipment and on intangible 
assets are deducted from the carrying amount of the asset. The grant is therefore recognized as income over the life of the depreciable 
asset by way of a reduced depreciation charge. Repayable grants are treated as sources of ﬁnancing and are recognized in borrowings sub-
ject to speciﬁc conditions in the consolidated statement of ﬁnancial position. Repayments made are recorded as a reduction of the liability. 
A revision to the estimate of amounts to be repaid results in an increase or decrease in the liability and the related asset or expense, and a 
cumulative adjustment to amortization is recognized immediately in income.

(h) Government assistance
Government assistance is comprised of investment tax credits and scientiﬁc research and experimental development tax credits. These 
credits are recognized when there is reasonable assurance of their recovery using the cost reduction method. Investment tax credits are 
subject to the customary approvals by the pertinent tax authorities. Adjustments required, if any, are reﬂected in the year when such assess-
ments are received.

(i) Employee beneﬁts
Deﬁned beneﬁt plans
The Corporation’s obligation in respect of deﬁned beneﬁt plans is determined periodically by independent actuaries using the projected 
unit credit method in accordance with IAS 19, Employee Beneﬁts. Actuarial gains and losses are recognized in full in the period in which they 
occur, and are recognized in retained earnings and included in other comprehensive income. Past service cost is recognized immediately 
to the extent the beneﬁts are already vested, or otherwise is recognized on a straight-line basis over the average period until the beneﬁts 
become vested. Curtailments due to the material reduction of the expected years of future services of current employees or the elimination 
of the accrual of deﬁned beneﬁts for some or all of the future services for a signiﬁcant number of employees are recognized immediately as 
a gain or loss in the income statement.

The deﬁned beneﬁt surplus or deﬁcit represents the fair value of the plan assets less the present value of the deﬁned beneﬁt obligations. 
A surplus is recognized in the statement of ﬁnancial position to the extent that the Corporation has an unconditional right to the surplus, 
either through a refund or reduction in future contributions. A deﬁcit is recognized in full.

Deﬁned contribution plans
Obligations for contributions to deﬁned contribution plans are recognized as an expense in the income statement as incurred.

Share-based compensation
The fair value of awards made under share-based compensation plans is measured at the grant date and allocated over the vesting period, 
based on the best available estimate of the number of share options expected to vest, in the income statement with a corresponding increase 
in equity. The fair value is measured using an appropriate valuation model taking into account the terms and conditions of the individual 
plans. The amount recognized as an expense is adjusted to reﬂect the actual awards vesting except where any change in the awards vest-
ing relates only to market-based criteria not being achieved.

The cost of cash-settled transactions is measured initially at fair value at the grant date using a binomial model, taking into account the terms 
and conditions upon which the share awards were granted. This fair value is expensed over the period until the vesting date with recogni-
tion of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with 
changes in fair value recognised in the income statement.

28

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

(j) Taxation
The tax charge for the period comprises of both current and deferred tax. Taxation is recognized as a charge or credit in the income state-
ment except to the extent that it relates to items recognized directly to equity in which case the related tax is also recognized in equity.

Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are established using the balance sheet liability method, providing for temporary differences between 
the carrying amounts of the assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes.  Deferred 
tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is 
probable that taxable proﬁts will be available against which deductible timing differences can be utilized. 

Deferred tax liabilities are not recognized for temporary differences arising on investment in subsidiaries where the Corporation is able to 
control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 
Deferred tax is calculated at the enacted or substantively enacted tax rates that are expected to apply in the period when the liability is 
settled or the asset is realized. 

Deferred income assets and liabilities are only offset where they arise within the same entity and tax jurisdiction.

Deferred income tax assets and liabilities are presented as non-current.

(k) Net income per share
Net income per share is calculated based on the proﬁt for the ﬁnancial year and the weighted average number of ordinary shares in issue 
during the year. Diluted net income per share is calculated using the proﬁt for the ﬁnancial year and the weighted average diluted number 
of share (ignoring any potential issue or ordinary shares which would be anti-dilutive) during the year.

(l) Inventories
Inventory is stated at the lower of average cost and net realizable value. 

The unit cost method is the prescribed cost method under which the actual production costs are charged to each unit produced and rec-
ognized to income as the unit is sold.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated 
costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is estimated to be unre-
coverable due to obsolescence, damage or declining selling prices. When circumstances that previously caused inventories to be written 
down below cost no longer exist, the amount of the write-down previously recorded is reversed.

(m) Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and any impairment in value. Cost includes the purchase 
price (after deducting trade discounts and rebates), any directly attributable costs of bringing the asset to the location and condition nec-
essary for it to be capable of operating in the manner intended by management, and the estimate of the present value of the costs of dis-
mantling and removing the item and restoring the site. Subsequent costs are included in the assets carrying amount or recognized as a 
separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Corporation 
and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognized. The cost of the day-to-day 
servicing of property, plant and equipment are recognized in the income statement as incurred.

Depreciation is calculated using the straight-line method to allocate the cost of property, plant and equipment to their residual values over 
their estimated useful lives.

29

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Scheduled depreciation is based on the following useful lives:
Assets
Buildings 
Machinery and equipment  
Tooling 
Leasehold improvements  

in years
40
10-20
5-7
term of lease

The residual value, useful lives and depreciation methods pertaining to property, plant and equipment are regularly assessed for relevance, 
at least at every statement of ﬁnancial position date, and adjustments are made when necessary to estimates used when compiling the 
ﬁnancial statements. An asset’s carrying value is written down to its recoverable amount if the assets carrying amount is greater than its 
estimated recoverable amount. These impairment losses are recognized in the income statement. Following the recognition of an impair-
ment loss, the depreciation charge applicable to the asset is adjusted prospectively in order to systematically allocate the revised carrying 
amount, net of any residual value, over the remaining useful life. 

(n) Investment properties
Investment property is property held to earn rental income and/or for capital appreciation rather than for the purpose of the Corporation’s 
operating activities. Investment property assets are carried at cost less accumulated depreciation and any recognised impairment in value. 
The depreciation policies for investment property are consistent with those described for owner-occupied property.

(o) Intangible assets
In accordance with IAS 38, Intangible Assets, expenditure on research activities is recognized as an expense in the period in which it is 
incurred. Externally acquired and internally generated intangible assets are recognized only if they meet strict criteria, relating in particular 
to technical feasibility, probability that a future economic beneﬁt associated with the asset will ﬂow to the entity and the cost of the asset 
can be measured reliably.

Intangible assets with a ﬁnite useful life are stated at cost and amortized on a straight-line basis over their useful lives or on a unit of pro-
duction basis.  Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal 
proceeds and the carrying amount of the asset, and are recognized in the income statement when the asset is de-recognized. 

(p) Impairment of non-ﬁnancial assets
Impairment of non-ﬁnancial assets is considered in accordance with IAS 36, Impairment of Assets. Where the asset does not generate 
cash ﬂows that are independent of other assets, impairment is considered for the cash-generating unit (“CGU”) to which the asset belongs.

Two types of CGUs are deﬁned within the Corporation:
>> CGUs corresponding to programs, projects, or product families associated with speciﬁc assets;
>> CGUs corresponding to the business units monitored by management and relating chieﬂy to the Corporation’s main subsidiaries.

Intangible assets not yet available for use are tested for impairment annually. Other intangible assets and property, plant and equipment 
are assessed for any indications of impairment annually. If any indication of impairment is identiﬁed, an impairment test is performed to 
estimate the recoverable amount.

An impairment loss is recognized in the income statement whenever the carrying amount of the individual asset or the cash-generating 
unit exceeds its recoverable amount. Recoverable amount is the higher of value in use or fair value less costs to sell, if this is readily avail-
able. The value in use is the present value of future cash ﬂows using a pre-tax discount rate that reﬂects the time value of money and the 
risk speciﬁc to the asset.

An impairment loss for an individual asset or cash-generating unit shall be reversed if there has been a change in estimates used to deter-
mine the recoverable amount since the last impairment loss was recognized and is only reversed to the extent that the assets carrying 
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss 
had been recognized.

30

MAGELLAN 2011 ANNUAL REPORT

  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

(q) Leases
A lease is deﬁned as an agreement whereby the lessor conveys to the lessee, in return for payment or a series of payments, the right to use 
a speciﬁc asset for an agreed period of time. If substantially all the risks and rewards associated with ownership of the leased asset are trans-
ferred to the lessee (ﬁnance lease for the lessee), the leased asset is recognized in the lessee’s statement of ﬁnancial position. The leased 
asset is recognized at its fair value as measured at the date of acquisition, or at the present value of the minimum lease payments if lower. 
Assets held under ﬁnance leases are depreciated on a basis consistent with similar owned assets or the lease term if shorter. Payments made 
under ﬁnance leases are apportioned between capital repayments and interest expense charged to the income statement. 

If the lessor retains the substantial risks and rewards (operating lease for the lessee), the leased asset is recognized in the lessor’s statement 
of ﬁnancial position. Payments made under operating leases are recognized in the income statement on a straight line basis over the term 
of the lease. 

(r) Financial instruments
Financial assets
Financial assets include, in particular, cash and cash equivalents, trade receivables, loans and other receivables, ﬁnancial investments held 
to maturity, and non-derivative and derivative ﬁnancial assets held for trading.

Financial assets are recognized at the contract date and initially measured in accordance with IAS 39 Financial Instruments: Recognition 
and Measurement. The measurement of ﬁnancial assets subsequent to initial recognition depends on whether the ﬁnancial instrument is 
held for trading, held to maturity, available-for-sale, or whether it falls in the loans and receivables category. The assignment of an asset to a 
measurement category is performed at the time of acquisition and is primarily determined by the purpose for which the ﬁnancial asset is held. 

Held for trading instruments are held at fair value. Changes in fair value are included in the income statement unless the instrument is included 
in a cash ﬂow hedge. If the instruments are included in a cash ﬂow hedging relationships, which are effective, changes in value are taken 
to equity. When the hedged forecast transaction occurs, amounts previously recorded in equity are recognized in the income statement.

Held to maturity instruments are measured at amortized cost using the effective interest method.

Available-for-sale assets are held at fair value. Changes in fair value arising from changes in exchange rates are included in the income state-
ment. All other changes in fair value are taken to equity. On disposal, the accumulated changes in value recorded in equity are included in 
the gain or loss recorded in the income statement.

Loans and receivables are held at amortized cost and not revalued (except for changes in exchange rates which are included in the income 
statement) unless they are included in a fair value hedge accounting relationship. Where such a relationship exists, the instruments are reval-
ued in respect of the risk being hedged. If instruments held at amortized cost are hedged, generally by interest rate swaps, and the hedges 
are effective, the carrying values are adjusted for changes in fair value, which are included in the income statement.

At each statement of ﬁnancial position date, the carrying amounts of ﬁnancial assets that are not measured at fair value though proﬁt or loss 
are assessed to determine whether there is any substantial objective indication of impairment. The amount of impairment loss is recognized 
in the income statement. If impairment is indicated for available-for-sale ﬁnancial assets, the amounts previously recognized in equity are 
eliminated from other comprehensive income up to the amount of the assessed impairment loss and recognized to the income statement.

Derecognition of ﬁnancial assets
Transfers of receivables in securitization transactions are recognized as sales when the contractual right to receive cash ﬂows from the assets 
has expired; or when the Corporation has transferred its contractual right to receive the cash ﬂows of the ﬁnancial assets, and either: sub-
stantially all the risks and rewards of ownership have been transferred; or the Corporation has neither retained nor transferred substantially 
all the risks and rewards, but has not retained control.

31

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Financial liabilities
Financial liabilities often entitle the holder to return the instrument to the issuer in return for cash or another ﬁnancial asset. These include, 
in particular, debentures and other debt evidenced by certiﬁcates, trade payables, liabilities to banks, ﬁnance lease liabilities, loans and 
derivative ﬁnancial liabilities.

Financial liabilities are measured at their fair value at the time of acquisition, which is normally equivalent to the net loan proceeds. Transac-
tion costs directly attributable to the acquisition are deducted from the amount of all ﬁnancial liabilities that are not measured at fair value 
through proﬁt or loss subsequent to initial recognition. If a ﬁnancial liability is interest free or bears interest at below the market rate, it is 
recognized at an amount below the settlement price or nominal value. The ﬁnancial liability initially recognized at fair value is amortized 
subsequent to initial recognition using the effective interest method.

Convertible debentures
Convertible debentures are classiﬁed according to their liability and equity elements using the residual approach, whereby the Corpora-
tion estimates the fair value of the liability element and assigns the residual value of the convertible debentures to the equity element. The 
liability element is classiﬁed as long-term debt and the equity element is classiﬁed as a conversion option and recorded in the contributed 
surplus component of equity. Upon conversion of debentures to common shares, a pro rata portion of the long-term debt, conversion 
option, unamortized discount and debt issue costs, as well as accrued but unpaid interest, will be transferred to share capital. If any convert-
ible debentures mature without being converted, the remaining conversion option balance will remain in contributed surplus. The discount 
is amortized using the effective interest rate method over the term of the related debt. The unamortized discount is included in long-term 
debt and the amortization of the discount is included in interest expense.

Derivative ﬁnancial instruments
The Corporation manages its foreign currency and interest rate exposures through the use of derivative ﬁnancial instruments. The Corpora-
tion’s policy is not to utilize derivative ﬁnancial instruments for trading or speculative purposes. For the year ended December 31, 2011, the 
Corporation’s derivative contracts were not designated as hedges and as a result are recorded on the consolidated statement of ﬁnancial 
position at their fair value. Any changes in fair value during the year are reported in other expenses in the consolidated statement of income. 
Transaction costs incurred to acquire ﬁnancial instruments are included in the underlying balance.

(s) Provisions
A provision is recognized when there is a present legal or constructive obligation, as a result of a past event, which is likely to result in an 
outﬂow of economic beneﬁts and where a reliable estimate of the amount of the obligation can be made. If the effect is material, the pro-
vision is determined by discounting the expected future cash ﬂows at a pre-tax risk-free rate and, where appropriate, the risks speciﬁc to 
the liability. A provision for onerous contracts is recognized when the expected beneﬁts to be derived from the contracts are less than the 
related unavoidable costs of meeting its obligations under the contract. Such provisions are recorded as write-downs of work-in-progress 
for that portion of the work which has already been completed, and as liability provisions for the remainder. 

(t) Share capital
Common shares are classiﬁed as equity. Transaction costs directly attributable to the issue of common shares are recognized as a deduc-
tion from equity, net of any income tax.

(u) Critical judgements and estimates
The preparation of ﬁnancial statements requires management to make critical judgements, estimates and assumptions that affect the 
reported amounts of certain assets and liabilities at the date of the ﬁnancial statements and the reported amount of revenues and expenses 
recorded during the reporting period. The critical estimates and judgements utilized in preparing the Corporation’s ﬁnancial statements 
affect the assessment of net recoverable amounts, net realizable values and fair values, depreciation and amortization rates and useful lives, 
value of intangible assets, ability to utilize tax losses and other tax measurements, determination of functional currency, determination of the 
degree of control that exists in determining the corresponding accounting basis, and the selection of accounting policies. Any changes in 
estimates and assumptions could have a material impact on the Corporation’s future income and/or the amounts reported in its statement 
of ﬁnancial position. The Corporation reviews its estimates and assumptions on an ongoing basis and uses the most current information 
available and exercises careful judgement in making these estimates and assumptions.

32

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

The main assumptions and estimates that were used in preparing the Corporation’s consolidated ﬁnancial statements relate to:

Financial instruments
The valuation of the Corporation’s derivative instruments and certain other ﬁnancial instruments requires estimation of the fair value of each 
instrument at the reporting date. Details of the basis on which fair value estimated are provided in Note 18.

Impairments
The recoverable amount of intangible assets and property, plant and equipment is based on estimates and assumptions regarding the 
expected market outlook and cash ﬂows from each CGU.  

Deferred taxes
Income taxes are determined based on estimates of the Corporation’s current income taxes and estimates of deferred income taxes result-
ing from temporary differences. Deferred tax assets are assessed to determine the likelihood that they will be realized from future taxable 
income before they expire.

Government assistance
Investment tax credits and scientiﬁc research and experimental development tax credits are determined based on estimates of the Cor-
poration’s current year expenditures on qualifying programs. The investment tax credits are assessed to determine the likelihood that they 
will be applied against federal income tax.

Capitalization of development costs
When capitalizing development costs the Corporation must assess the technical and commercial feasibility of the projects and estimate the 
useful lives of resulting products. Determining whether future economic beneﬁts will ﬂow from the assets and therefore the estimates and 
assumptions associated with these calculations are instrumental in (i) deciding whether project costs can be capitalized, and (ii) accurately 
calculating the useful life of the projects for the Corporation.

Income (loss) on completion of contracts accounted for under the percentage-of-completion method
To estimate income (loss) on completion, the Corporation takes into account factors inherent to the contract by using historical and/or fore-
cast data, as well as contractual indexes. When total contract costs are likely to exceed total contract revenue, the expected loss is recog-
nized within cost of revenues.

Repayable government grants
The forecast repayment of grants received from government authorities is based on income from future sales. As the forecast repayments 
are closely related to forecasts of future sales set out in business plans prepared by the operating divisions, the estimates and assump-
tions (as regards programs and ﬂuctuations in exchange rates, particularly the US dollar) underlying these business plans are instrumental 
in determining the timing of these repayments.

Employee beneﬁts
The Corporation considers a number of factors in developing the pension assumptions, including an evaluation of relevant discount rates, 
expected long-term returns on plan assets, plan asset allocations, mortality, expected changes in wages and retirement beneﬁts, analysis 
of current market conditions, economic beneﬁts available and input from actuaries and other consultants. Costs of the programmes are 
based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who 
are expected to qualify for these beneﬁts.

(v) New standards and interpretations
A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended December 31, 2011, 
and have not been applied in preparing these consolidated ﬁnancial statements. The following standards and interpretations have been 
issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committees with effec-
tive dates relating to the annual accounting periods starting on or after the effective dates as follows:

33

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

International Accounting Standards  
IAS 12 – Income Taxes  

IFRS 7 – Financial Instruments, 
Disclosures

IFRS 9 – Financial Instruments, 
Recognition and Measurement

IFRS 10 – Consolidation

IFRS 11 – Joint Arrangements

IFRS 12 – Disclosure of Interests in 
Other Entities

IFRS 13 – Fair Value Measurement

34

MAGELLAN 2011 ANNUAL REPORT

  In December 2010, IAS 12 Income Taxes was amended to introduce an 
exception to the existing principle for the measurement of deferred tax 
assets or liabilities arising on investment property measured at fair value. 
As a result of the amendments, SIC 21, Income taxes—recovery of reval-
ued non-depreciable assets, will no longer apply to investment proper-
ties carried at fair value. The amendments also incorporate into IAS 12 the 
remaining guidance previously contained in SIC 21, which is withdrawn.
IAS 7 has been amended to provide more extensive quantitative disclo-
sures for ﬁnancial instruments that are offset in the statement of ﬁnan-
cial position or that are subject to enforceable master netting or similar 
arrangements. 
In November 2009, as part of the IASB project to replace IAS 39, Financial 
Instruments: Recognition and Measurement, the IASB issued the ﬁrst 
phase of IFRS 9 that introduces new requirements for the classiﬁcation 
and measurement of ﬁnancial assets. The standard was revised in Octo-
ber 2010 to include requirements regarding classiﬁcation and measure-
ment of ﬁnancial liabilities. 
IFRS 10 requires an entity to consolidate an investee when it is exposed, 
or has rights, to variable returns from its involvement with the investee 
and has the ability to affect those returns through its power over the 
investee. Under existing IFRS, consolidation is required when an entity 
has the power to govern the ﬁnancial and operating policies of an entity 
so as to obtain beneﬁts from its activities. IFRS 10 replaces SIC-12, Con-
solidation—Special Purpose Entities and parts of IAS 27, Consolidated 
and Separate Financial Statements.
IFRS 11 requires a venturer to classify its interest in a joint arrangement 
as a joint venture or joint operation. Joint ventures will be accounted for 
using the equity method of accounting whereas for a joint operation 
the venturer will recognize its share of the assets, liabilities, revenue and 
expenses of the joint operation. Under existing IFRS, entities have the 
choice to proportionately consolidate or equity account for interests in 
joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures,
and SIC-13, Jointly Controlled Entities—Non-monetary Contributions.
IFRS 12 establishes disclosure requirements for interests in other entities, 
such as joint arrangements, associates, special purpose vehicles and off 
balance sheet vehicles. The standard carries forward existing disclosures 
and also introduces signiﬁcant additional disclosure requirements that 
address the nature of, and risks associated with, an entity’s interests in 
other entities. 
IFRS 13 is a comprehensive standard for fair value measurement and dis-
closure requirements for use across all IFRS standards. The new standard 
clariﬁes that fair value is the price that would be received to sell an asset, 
or paid to transfer a liability in an orderly transaction between market 
participants, at the measurement date. It also establishes disclosures 
about fair value measurement. Under existing IFRS, guidance on measur-
ing and disclosing fair value is dispersed among the speciﬁc standards 
requiring fair value measurements and in many cases does not reﬂect a 
clear measurement basis or consistent disclosures. 

Effective Date
January 1, 2012

January 1, 2013

January 1, 2015

January 1, 2013

January 1, 2013

January 1, 2013 

January 1, 2013 

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

International Accounting Standards  
IAS 1 – Presentation of 
Financial Statements

IAS 19 – Employee Beneﬁts

IAS 27 – Separate Financial Statements

IAS 28 – Investments in Associates 
and Joint Ventures

IAS 32 – Financial Instruments, 
Presentation

The IASB amended IAS 1 with a new requirement for entities to group 
items presented in other comprehensive income on the basis of whether 
they are potentially reclassiﬁable to proﬁt or loss. 
 A number of amendments have been made to IAS 19, which included 
eliminating the use of the “corridor” approach and requiring remeasure-
ments to be presented in OCI. The standard also includes amendments 
related to termination beneﬁts as well as enhanced disclosures. 
 As a result of the issue of the new consolidation suite of standards, IAS 27 
has been reissued, as the consolidation guidance will now be included 
in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure 
requirements for investments in subsidiaries, joint ventures and associates 
when an entity prepares separate ﬁnancial statements. 
 As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 
has been amended and will provide the accounting guidance for invest-
ments in associates and to set out the requirements for the application 
of the equity method when accounting for investments in associates and 
joint ventures. The amended IAS 28 will be applied by all entities that are 
investors with joint control of, or signiﬁcant inﬂuence over, an investee. 
In December 2011, IAS 32 was been amended to clarify the requirements 
for offsetting ﬁnancial assets and liabilities. The amendments clarify that 
the right of offset must be available on the current date and cannot be 
contingent on a future event.

Effective Date
January 1, 2013

January 1, 2013

January 1, 2013

January 1, 2013 

January 1, 2014 

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

3. TRADE AND OTHER RECEIVABLES

Total trade accounts receivable  
Less allowance for doubtful accounts  
Net trade receivables 
Other receivables 
Trade and other receivables  

   December 31 December 31  
2010
83,623 
1,963 
81,660 
12,562 
94,222 

2011
80,592
2,076 
78,516 
27,964   
106,480 

January 1   

2010
94,393
1,782
92,611
4,942
97,553

Included in the above amounts are accured receivables for construction contracts in progress at December 31, 2011 of $11,391 [December 
31, 2010 – $3,921, January 1, 2010 – $2,091]. 

The aging of gross trade accounts receivables at each reporting date was as follows:

December 31, 2010 
December 31, 2011 

   Less than 90   

Current

76,419   
74,119   

days
5,593   
4,780   

91-181  
days
231   
360   

182-365    More than

days   
18   
67   

365 days  
1,362   
1,266   

Total
83,623 
80,592

35

MAGELLAN 2011 ANNUAL REPORT

 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
 
 
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

4. INVENTORIES

At January 1, 2010 
At December 31,2010 
At December 31, 2011 

Raw
materials

38,740  
35,841
33,631  

Work in   
progress   
91,139   
96,958   
80,198   

Finished

goods  
17,369
17,999
13,644

Total
147,248
150,798
127,473

The cost of inventories recognized as expense and included in cost of sales for the year ended December 31, 2011 amounted to $590,128 
[2010 - $618,677].

During the year ended December 31, 2011, the Corporation recorded an impairment expense related to the write-down of inventory in the 
amount of $2,044 [December 31, 2010 - $1,783]. The Corporation also recorded reversals of previous write-down of inventory in the amount 
of $1,417 [December 31, 2010 - $2,444] due to the sale of inventory previously provided for. The carrying amount of inventory recorded at 
net realizable value was $21,530 as at December 31, 2011, with the remaining inventory recorded at cost.

Due to the long-term contractual period of the Corporation’s contracts, the Corporation may be in negotiations with its customers over 
amendments to pricing or other terms. Management’s assessment of the recoverability of amounts capitalized in inventory may be based 
on judgments with respect to the outcome of these negotiations. If the negotiations are not successful or the ﬁnal terms differ from what 
the Corporation expects, the Corporation may be required to record a loss provision on this contract. The amount of such provision, if any, 
cannot be reasonably estimated until such amendments are ﬁnalized.

36

MAGELLAN 2011 ANNUAL REPORT

 
 
 
 
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

5. PROPERTY, PLANT AND EQUIPMENT

Cost 
At January 1, 2010 
  Additions 

Disposals and other  
Foreign currency translation  

At December 31, 2010 
  Additions 

Disposals and other  
Foreign currency translation  

At December 31, 2011 

Accumulated depreciation and impairment  
At January 1, 2010 
Depreciation 
Disposal and other 
Foreign currency translation  

At December 31, 2010 
Depreciation 
Disposal and other  
Foreign currency translation  

At December 31, 2011 

Net book value   
At January 1, 2010 
At December 31, 2010 
At December 31, 2011 

Machinery  
and

Land   

Buildings

equipment  

Tooling   

Total

13,158   
–  
–  
(483)
12,675   
–  
–  
156   
12,831   

–  
–  
–  
–  
–  
–  
–
–  
–  

86,291   
746   
(681)
(1,724)
84,632   
25,880   
(235)
679   
110,956   

(26,040)
(2,508)
560   
362   
(27,626)
(2,221)
127
(138)
(29,858) 

314,235   
14,443   
(3,361)
(11,414)
313,903   
41,428   
(2,536)
3,854   
356,649   

(148,559)
(15,259)
3,143   
4,581   
(156,094)
(15,000)
1,858   
(1,870)
(171,106) 

41,015   
1,382   
(138)
(1,882)
40,377   
1,348   
–  
790   
42,515   

(25,844)
(4,333)
84   
1,345   
(28,748)
(2,868)
–
(627)
(32,243) 

454,699
16,571
(4,180)
(15,503)
451,587
68,656
(2,771)
5,479
522,951

(200,443)
(22,100)
3,787
6,288
(212,468)
(20,089)
1,985
(2,635)
(233,207)

13,158 
12,675   
12,831 

60,251 
57,006   
81,098 

165,676 
157,809   
185,543 

15,171 
11,629   
10,272 

254,256
239,119
289,744

As at December 31, 2011, total assets under ﬁnance leases included in property, plant and equipment have a cost of $5,710 [December 31, 2010 - 
$9,764, January 1, 2010 - $11,563] and a net book value of $3,362 [December 31, 2010 - $6,303, January 1, 2010 - $8,058].

Included in the above are assets under construction in the amount of $46,550 [December 31, 2010 - $3,986, January 1, 2010 - $943].

37

MAGELLAN 2011 ANNUAL REPORT

 
 
  
   
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

6. INVESTMENT PROPERTIES

At January 1, 2010 
At December 31, 2010 
At December 31, 2011 

  Accumulated 
depreciation   
and   
impairment   
(5,937)
(6,085)
(6,247) 

Cost
9,306   
9,277   
9,288   

Net
book 
value
3,369
3,192
3,041

The Corporation recognized depreciation expense of $158 in 2010 and 2011 and recorded an impairment charge of $180 as at January 1, 2010.

The fair value was determined based on valuations performed by independent professional valuators. At December 31, 2011, the fair value 
of the investment properties was $6,952.

7. INTANGIBLE ASSETS

Cost  
At January 1, 2010 
  Additions 
Disposals 
Foreign currency translation 

At December 31, 2010 
  Additions  

Foreign currency translation  

At December 31, 2011 

Depreciation and impairment  
At January 1, 2010 
Depreciation  
Impairment reversal  
Foreign currency translation  

At December 31, 2010 
Depreciation  
Impairment reversal  
Foreign currency translation  

At December 31, 2011 

Net book value   
At January 1, 2010 
At December 31,2010 
At December 31, 2011 

38

MAGELLAN 2011 ANNUAL REPORT

   Technology    Development

rights   

costs  

Total

38,990   
−   
−   
(85)   
38,905   
−   
34   
38,939   

(13,486)
(3,057)
3,280   
12   
(13,251)
(2,595)
−   
(9)
(15,855) 

25,504   
25,654   
23,084   

85,056   
4,230   
(121)
(1,805)
87,360   
3,266   
652   
91,278   

(38,720)
(7,367)
4,115   
907   
(41,065)
(8,651)
1,899   
(411)
(48,228) 

124,046
4,230
(121)
(1,890)
126,265
3,266
686
130,217

(52,206)
(10,424)
7,395
919
(54,316)
(11,246)
1,899
(420)
(64,083)

46,336   
46,295   
43,050   

71,840
71,949
66,134

 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Technology rights relate to an agreement signed in 2003, which permits the Corporation to manufacture aerospace engine components 
and share in the revenue generated by the ﬁnal sale of the engine.  A follow-on contract was signed in 2005. 

The Corporation has certain programs that meet the criteria for deferral and amortization of development costs. Development costs are 
capitalized for clearly deﬁned, technically feasible technologies which management intends to produce and promote to an identiﬁed future 
market, and for which resources exist or are expected to be available to complete the project. The Corporation records amortization in 
arriving at the carrying value of deferred development costs once the development activities have been completed and sales of the related 
product have commenced.

The recoverable amount of programs, projects and product families is determined based on estimated future cash ﬂows for the term over 
which the program is expected to be marketed, which may span several decades.

Impairments
At the end of each reporting period, the Corporation assess whether there are events or circumstances indicating that an asset may be 
impaired. Such events or circumstances notably include material adverse changes which in the long-term impact the economic environment 
(commercial prospects, procurement sources, index or cost movements, etc.) or the Corporation’s assumptions or objectives (medium-term 
plan, proﬁtability analyses, market share, backlog, regulations, etc.).

The main assumptions used to determine the recoverable amount of intangible assets relating to programs, projects and product families 
are as follows:
>>     The discounted cash ﬂow approach used to estimate the value in use of the CGU’s incorporated market participant assumptions. Expected 
future cash ﬂows are calculated based on the medium-term plans established for the next ﬁve years and estimated cash ﬂows for years 
5 to 24 [2010 – 6 to 25 years].

>>     Growth rates of nil [2010 – nil to 1%] were used to extrapolate cash ﬂow projections beyond the ﬁve year period covered by the long-term 

plan and did not exceed the long-term average growth rate of the industry.

>>    The average US exchange rate adopted is 1.00 [2010 – 1.00].
>>     The pre-tax discount rates used reﬂect the current market assessment of the risks speciﬁc to each CGU. The discount rate was estimated 
based on the average percentage of weighted average cost of capital for the industry. A discount rate of 12.5% was applied to the cash 
ﬂow projections determined in the year end testing of recoverable amounts [December 31, 2010 and January 1, 2010 –12.5%].

As a result of the impairment tests performed in 2011, the Corporation recognized a reversal of previous impairment losses of $1,899 against 
development costs relating to a civil aircraft program as the Corporation was able to negotiate price increases. These impairment reversals 
were treated as reduction against recurring costs of revenues.

In 2010, the Corporation recognized a reversal of previous impairment losses of $3,280 against technology rights and $4,347 against devel-
opment costs relating to various civil aircraft programs as the Corporation was able to achieve reductions in costs as a result of a mix of 
improved efﬁciencies and reduced material costs. These impairment reversals were treated as a reduction against recurring costs of revenues. 
The Corporation also recognized impairment losses in 2010 of $232 against development expenditures relating to a civil aircraft program.

8. BANK INDEBTEDNESS
On April 29, 2011, the Corporation amended its credit agreement with its existing lenders. The Corporation has an operating credit facility, with 
a syndicate of banks, with a Canadian dollar limit of $125,000 plus a US dollar limit of US$50,000 [$175,850 at December 31, 2011]. Under the 
terms of the amended credit agreement, the operating credit facility expires on April 29, 2013 and is extendable for unlimited one-year 
periods subject to mutual consent of the syndicate of lenders and the Corporation. Accordingly, the Corporation reclassiﬁed the oper-
ating credit facility from a short term liability to a long term liability. Bank indebtedness as at December 31, 2011 of $120,674 [Decem-
ber 31, 2010 - $117,046] bears interest at the bankers’ acceptance or LIBOR rates, plus 1.50% [2.44% at December 31, 2011 (2010 – bankers’ 
acceptance or LIBOR rates plus 2.75% or 3.60%)]. Included in the amount outstanding at December 31, 2011 is US$11,908 [December 31, 
2010 - US$21,113]. At December 31, 2011, the Corporation had drawn $123,558 under the operating credit facility, including letters of credit 
totalling $2,884 such that $52,292 was unused and available. A ﬁxed and ﬂoating charge debenture on accounts receivable, inventories 

39

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

and property, plant and equipment is pledged as collateral for the operating credit facility. The Chairman of the Board of the Corporation 
has provided a guarantee for the full amount of the operating credit facility. 

9. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND PROVISIONS

Accounts payables 
Accrued liabilities 
Provisions 

10. LONG-TERM DEBT

Property mortgages [a]  
Other loans [b]
Related party loans [c] 
Obligations under capital leases [d]   

Less current portion 

December 31    December 31   

2011
52,685 
47,567
5,770 
106,022 

2010
46,200   
84,363   
5,324 
135,887 

December 31    December 31   

2011
18,689 
33,927 
33,197 
463 
86,276   
4,508 
81,768 

2010
2,793   
16,411   
45,664   
1,926   
66,794   
48,951   
17,843   

January 1
2010 
49,715
81,481
4,441
135,637

January 1
2010 
3,314
5,941
64,578
3,518
77,351
2,943
74,408

[a] Property mortgages include $2,589 (£1,639) [2010 - $2,793 (£1,800)] of ﬁnancing of certain land acquired in 2006. This same land is collat-
eral for this mortgage and the mortgage bears interest at bank rate plus 0.90%, which at December 31, 2011 was 1.4% [2010 - 1.4%]. 

During the year, the Corporation entered into a 5 year variable rate term mortgage in the amount of $16,100, under which interest is charged at 
a margin of 1.75% over the lender’s prime lending rate of 3.0% as at December 31, 2011. The mortgage is secured by certain land and building.

[b] Other loans include loans of $19,886 [2010 - $9,844] provided by governmental authorities (“Government Loans”) that bear interest of 
approximately 2.0% to 3.82% [2010 - 1.2% to 2.0%] of which a loan in the amount of $1,264 provides for a ﬁve year interest free period if cer-
tain job criteria has been met. 

During 2011 and 2010, the Corporation entered into bank loans aggregating $13,479 (US$13,253) [2010 - $5,968 (US$6,000)] (“Commercial 
Loan”) to ﬁnance equipment over a ten year period and leasehold improvements over a three year period. The same equipment is collateral 
for the Commercial Loan which bears interest at LIBOR plus 2.75%, which at December 31, 2011 was 3.01% [2010 – 3.04%].

As at December 31, 2011, the Corporation has the availability to draw an additional $8,851 against the Government Loans and $6,861 
(US$6,747) against the Commercial Loan. 

[c] On January 31, 2008, Edco Capital Corporation (“Edco”), a corporation controlled by the Chairman of the Board of the Corporation, 
provided a $50,000 loan due July 1, 2009 (the “Original Loan”) to the Corporation. The Original Loan originally had an interest rate of 10% 
per annum calculated and payable monthly and is collateralized and subordinated to the Corporation’s existing operating credit facility. 
The Original Loan is secured by subordinated mortgages on two of the Corporation’s real properties. On April 30, 2009, the Original Loan 
from Edco in the principal amount of $50,000 was increased to $65,000; was extended to July 1, 2010 in consideration of the payment of a 
one-time fee to Edco equal to 1% of the principal amount outstanding of $50,000 and the interest rate on the loan was increased from 10% 
to 12% per annum. On March 26, 2010, the Original Loan was further extended and restated. The interest rate was decreased from 12% per 
annum to 11% per annum commencing July 1, 2010 and the loan extended to July 1, 2011 in consideration of the payment of an aggregate 
fee to Edco equal to 1% of the principal amount. The Corporation was also granted the option, exercisable on or before July 1, 2011, to 

40

MAGELLAN 2011 ANNUAL REPORT

 
 
 
 
  
  
  
  
  
  
  
  
 
 
  
  
 
 
 
 
  
  
  
  
 
  
  
  
  
  
  
 
 
  
  
  
  
 
 
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

renew the Original Loan under certain conditions. The Corporation has the right to prepay the Original Loan at any time without penalty. 
On April 28, 2011, the Original Loan was restated and extended to July 1, 2013 on the same terms and conditions except that the interest 
rate was reduced from 11% to 7.5% per annum in consideration of the payment of a one time extension fee of 1% of the principal amount 
outstanding as of July 1, 2011 of $39,600. 

During the twelve month period ended December 31, 2011, the Corporation prepaid the Original Loan by $12,500 [2010 - $19,000]. As at 
December 31, 2011, the principal amount outstanding of $33,500 was classiﬁed as a long-term liability [2010 - $46,000 was classiﬁed as debt 
due within one year].

[d] Obligations under capital leases bear interest at a rate of 7.9%. Future minimum lease payments of $475 under the capital leases are due 
in 2012 and include $12 in interest payments.

11. CONVERTIBLE DEBENTURES
On April 30, 2009, the Corporation closed a private placement in which the Chairman of the Board of the Corporation, directly or indirectly, 
purchased $40,000 principal amount of 10% convertible secured subordinated debentures (the “Convertible Debentures”) due on April 
30, 2012. Interest is due semi-annually in arrears on April 30 and October 31 in each year. The Convertible Debentures are convertible, at 
the option of the holder at any time prior to April 30, 2012, in whole or in multiples of $1,000, into fully paid and non-assessable Common 
Shares of the Corporation at the conversion price of $1.00 per Common Share which is equal to the issuance on conversion of approximately 
40,000,000 Common Shares in total. The Convertible Debentures are secured obligations of the Corporation and are subordinated in right 
of payment to all of the Corporation’s senior indebtedness. 

On December 31, 2011, the Chairman of the Board of the Corporation exercised his conversion rights under the debenture agreement and 
$38,000 principal amount of the Convertible Debentures, the entire amount of the Convertible Debentures then held by the Chairman, 
were converted into 38,000,000 common shares of the Corporation. As at December 31, 2011, $2,000 [2010 - $40,000] of the Convertible 
Debentures were outstanding. Given that the conversion price of the convertible debentures is in the money, it is likely that these will be 
converted into common shares of the Corporation on or before their maturity.

At December 31, 2011, $1,986 [2010 - $38,901] of the Convertible Debentures, net of transaction costs, has been attributed to the debt com-
ponent and is included in the consolidated statement of ﬁnancial position under debt due within one year. The difference between the car-
rying value and the face value of the Convertible Debentures will be accredited using the effective interest rate method.

As explained under “Signiﬁcant Accounting Policies – Convertible Debentures,” $1,920 of the Convertible Debentures, $545 of the 
debentures issued in 2008 and $11,100 of debentures issued in 2003 have been attributed to the equity component of the deben-
ture and are classiﬁed as other paid in capital. 

12. PREFERENCE SHARES
On May 27, 2005, the Corporation issued 2,000,000 8.0% Cumulative Redeemable First Preference Shares Series A (the “Preference Shares”) 
at a price of $10.00 per Preference Share for total gross proceeds of $20,000. Each Preference Share is convertible at the holder’s option 
into 0.67 common shares of the Corporation (1,333,333 common shares in aggregate) at a price of $15.00 per common share. Directors and 
ofﬁcers of the Corporation purchased, directly or indirectly, 1,135,000 of the Preference Shares issued.

The Preference Shares were not redeemable by the Corporation at any time prior to July 1, 2008. Thereafter, the Preference Shares are 
redeemable, under certain conditions, at the option of the Corporation at $10.00 per Preference Share plus accrued and unpaid dividends. 
In addition, subject to the terms of the Ontario Business Corporations Act (the “OBCA”), the Preference Shares will be retractable by the 
holder at the issue price plus accrued and unpaid dividends: i) from July 1, 2010 in the event that at any point after such date the volume 
weighted average trading price of the common shares on the TSX for at least 20 trading days in any consecutive 30-day period ending on 
the ﬁfth trading day prior to such date is less than $12.00 per common share; or (ii) upon the occurrence of a change of control of the Cor-
poration involving the acquisition of voting control or direction over at least 66 2/3% of the common shares and instruments convertible 
into common shares.

41

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

The acquisition of the Convertible Debentures [Note 11] on April 30, 2009 resulted in the Chairman of the Board of the Corporation holding 
in excess of 66-2/3% of the common shares of the Corporation on a fully diluted basis, which holdings constituted a change of control as 
deﬁned in the Preference Shares’ terms. Pursuant to the change of control deﬁnition in the Corporation’s outstanding Preference Shares’ 
terms, the Corporation is required to retract its outstanding Preference Shares at a price of $10.00 per share plus accrued and unpaid divi-
dends, unless such retraction contravenes any instrument of indebtedness of the Corporation or the terms of the OBCA. 

In 2010 the Corporation’s operating credit facility was amended to permit the Corporation to retract up to 20% ($4,000) of the Corporation’s 
Preference Shares on each of April 30 and October 31 (or the next business day if that day is not a business day) of each year starting with 
April 30, 2010, together with accrued and unpaid dividends on the shares to be retracted provided there is no current default or event of 
default under the operating credit facility and after the repayment of the Original Loan and the payment of the retraction amount the Cor-
poration has at least $25,000 in availability under the operating credit facility. Any permitted retraction amount not used on any prior date 
can be carried forward to future retraction dates. 

During 2010, the Corporation completed the retraction of 799,987 of its 2,000,000 Preference Shares, for total consideration paid of $8,000, 
as was permissible under the amended operating credit facility. Effective as of the Retraction Date, the holders of these Preference Shares 
ceased to be holders of these Preference Shares and were entitled to receive the retraction price of $10.00 for each Preference Share held 
plus accrued and unpaid dividends on the shares to be retracted. 

During 2010, the Corporation declared dividends of $1,280 on its Preference Shares and has reclassiﬁed $880 of the dividends from a charge 
to retained earnings to an expense on the income statement. 

In 2011 the Corporation’s operating credit facility was further amended to permit the Corporation to retract all of the remaining Preference 
Shares on or after April 30, 2011, together with accrued and unpaid dividends on the shares to be retracted provided there is no current 
default or event of default under the operating credit facility and after the repayment of the Original Loan and the payment of the retrac-
tion amount the Corporation has at least $25,000 in availability under the operating credit facility.

During 2011, the Corporation retracted the remaining 1,200,013 Preference Shares in the amount of $12,000 and declared and recorded 
dividends of $310 as an expense on the consolidated statement of income.

13. BORROWINGS SUBJECT TO SPECIFIC CONDITIONS
The Corporation has received contributions related to the development of its technologies and processes from Canadian government agen-
cies. The contributions have been deducted in calculating the Corporation’s investment in intangible assets, property plant and equipment 
or from the expense to which they relate. These amounts, plus, in certain cases, an implied return on the investment, are repayable as a per-
centage of the Corporation’s revenues. The Corporation has included in borrowings subject to speciﬁc conditions the estimated amount 
of repayments in relation to the contributions received.

42

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

The Corporation received contributions from the Canadian Government’s Strategic Aerospace and Defence Initiative Program (“SADI”) and 
Technology Partnerships Canada Program (“TPC”) for technology and process development. The SADI participation supports the devel-
opment of new manufacturing and process technology for composite and metallic materials for the multi-national Joint Strike Fighter F-35 
Lightning II aircraft and under SADI, the Corporation is to receive repayable cash ﬂow support of up to $43,400. During 2011, the Corpora-
tion received $7,867 [2010 - $6,635] of government contributions under SADI, of which $2,801 [2010 - $1,477] has been credited to the related 
assets, $333 [2010 - $373] has been credited to the related expense and $4,733 [2010 - $4,785] has been recorded in borrowings subject to 
speciﬁc conditions. The Corporation received contributions from TPC in years prior to 2010, and no new funding had been received in 2011 
and 2010. The contributions are repayable as future royalty payments when it is probable that all or part of the amounts received will be 
repaid based on future estimated sales. During 2011, the Corporation repaid $934 [2010 - $715] in government contributions.

As at December 31, 2011, the Corporation has recognized $18,847 as the estimated amount repayable to SADI and TPC. The Corporation 
is eligible for additional government contributions of $26,285 for the period from January 1, 2012 to December 31, 2014 based on approved 
expenditures.

14. OTHER LONG-TERM LIABILITIES AND PROVISIONS

December 31 December 31   

Net deﬁned beneﬁt plan deﬁcits [Note 19]  
Provisions 
Other 

Less current portion included in accounts payable, accrued liabilities and provisions  

2011
23,678
8,196 
3,027 
34,901 
5,770 
29,131

The following table presents the movement in provisions for the years ended December 31, 2011 and 2010:

At January 1, 2010 
  Additional provisions  
  Amount used 
  Unused amounts reversed  
  Unwind of discount  
Foreign currency 
At December 31, 2010 
  Additional provisions  
  Amount used 
  Unused amounts reversed  

Foreign currency 
At December 31, 2011

Warranty    Environmental   
2,957   
28   
(336 )
–   
(9 )
(15 )
2,625   
346   
(110 )
–   
4   
2,865   

1,072   
965   
(503)
365   
–   
(60)
1,839   
846   
(344)
(491)
34   
1,884   

2010
9,637 
7,403 
9,197 
26,237 
9,884 
16,353 

Other

provisions   
2,560   
915   
(407 )
(16 )
–   
(113 )
2,939   
1,117   
(535 )
(100 )
26   
3,447   

January 1
2010 
14,198
6,589
10,554
31,341
9,437
21,904

Total
6,589
1,908
(1,246)
349
(9)
(188)
7,403
2,309
(989)
(591)
64
8,196

Warranty
During the normal course of its business, the Corporation assumes the cost of certain components under warranties offered on its products. 
This provision for a warranty is based on historical data associated with similar products and is recorded as a current liability. Nevertheless, 
conditions may change and a signiﬁcant amount may need to be recorded.

Environment
Provisions for environment liabilities have been recorded for costs related to site restoration obligations. Due to the long-term nature of the 
liability, the related long-term portion of the liability is included in long-term liabilities. 

43

MAGELLAN 2011 ANNUAL REPORT

 
 
   
   
 
 
   
   
  
   
   
   
   
   
   
 
 
   
   
  
 
 
   
   
 
 
   
   
   
 
 
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
  
  
   
   
   
   
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Other
This category of provisions includes provisions related to legal, onerous contracts, and other contract related liabilities. The provisions are 
based on the Corporation’s best estimate of the amount of the expenditure required to address the matters.

15. INCOME TAXES
The following are the major components of income tax expense for the year ended December 31:

Current tax expense:  

Current tax expense for the year 

  Adjustments of previous year’s tax expense  
Current income tax expense (recovery)  

Deferred tax expense:  
  Origination and reversal of temporary differences  

Impact of tax law changes  
Deferred income tax expense  

Total income tax expense  

Income taxes recognized in other comprehensive income (loss) for the year ended December 31, are as follows:

Actuarial losses on deﬁned beneﬁt pension plans   

2011 

2010

202 
78   
280 

3,975 
(267) 
3,708 

248
(579)
(331)

8,316
24
8,340

3,988 

8,009

2011 
579 

2010
293

The Corporation’s consolidated effective tax rate for the year ended December 31, 2011 was 9.6% [2010 – 18.9%]. The difference in the 
effective tax rates compared to the Corporations’ statutory income tax rates were mainly caused by the following:

Income before income taxes   

Income taxes based on the applicable tax rate of 27.2% in 2011 and 29% in 2010  
Adjustment to income taxes resulting from:  
Beneﬁt of previously unrecognized tax assets  
Adjustments in respect of prior years   
Permanent differences  and other    
Higher income tax rates on income of foreign operations   
Changes in income tax rates   
Income tax expense  

 2011 
41,401 

2010
42,353

11,261 

12,282

(10,483)
979   
1,629 
869
(267)
3,988 

(2,777)
(120)
(781)
376
 (971)
8,009

The Canadian statutory tax rate decreased to 27.2 percent in 2011 from 29.0 percent in 2010 as a result of government enacted changes in 
tax legislation.

Changes in the deferred income tax components are adjusted through deferred tax expense except for $9,047 [2010 – 3,607] for investment 
tax credits which is adjusted through cost of revenues and $579 [2010 - $293] for employee future beneﬁts which is adjusted through other 
comprehensive income. 

44

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Deferred tax movement in the income statement is as follows:

Operating loss carry forwards 
Employee future beneﬁts 
Property, plant and equipment and intagibles 
Other
Deferred income tax expense  

Operating loss carry forwards  
Investment tax credits 
Employee future beneﬁts  
Property, plant and equipment and intangibles  
Other 
Deferred tax asset 

Presented as follows:  
Deferred tax assets 
Deferred tax liabilities 

2011
(1,422)
991
4,171
(32)
3,708

  December 31 December 31  

2011
11,999 
29,075
2,801 
(43,573) 
17,970 
18,272 

2010
11,019 
25,689 
3,424 
(37,605)
9,348   
11,875 

2010
(3,834)
305
7,965
3,904
8,340

January 1
2010 
6,976
22,095
3,804
(40,745)
22,950
15,080

28,360 
(10,088) 

19,836 
(7,961)

19,861
(4,781)

For the purposes of the above table, deferred income tax assets are shown net of offsetting deferred income tax liabilities where these 
occur in the same entity and justiﬁcation. 

As at December 31, 2011, the Corporation has not recognized Canadian deferred tax assets relating to non-capital losses of $104 and invest-
ment tax credits of $5,896 expiring through 2031 and deferred tax assets with no expiry date of $11,458.  

The temporary difference associated with investments in subsidiaries, associates and joint ventures, for which a deferred tax liability has not been 
recognized aggregates to $131,070 [2010 - $90,220]. 

16. SHARE CAPITAL
The authorized capital of the Corporation consists of an unlimited number of Preference Shares, issuable in series, and an unlimited number 
of common shares, with no par value.

Common shares

Issued and fully paid: 
Outstanding at December 31, 2010 and 2009  
Issued upon conversion of convertible debentures [Note 11] 
Outstanding at December 31, 2011   

Number   

Amount

18,209,001   
   38,000,000   
   56,209,001   

214,440
38,000
252,440

45

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
  
  
  
  
  
 
 
  
 
 
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
 
  
 
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Net income per share

Net income 
Dividends declared on preference shares
Basic
Effect of dilutive securities:      
Convertible debentures  

Diluted

Weighted  
   average no.  
of shares  

Amount  
37,413   

2011 

Per share
amount ($)  

–
37,413 

18,313,000   

2.04 

Amount  
34,344  
(400)  
33,944   

Weighted

2010

   average no.   

Per share
of shares    amount ($)

18,209,000   

1.86

5,082 
42,495 

39,896,000   
58,209,000   

(1.31) 
0.73 

4,724    40,000,000   
58,209,000   

38,668   

(1.20)
0.66

17. 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. 
No such awards were granted during the years ended December 31, 2011 and December 31, 2010. The maximum number of options for 
common shares that remain to be granted under this plan is 1,449,141. Options are granted at an exercise price equal to the market price of 
the Corporation’s common shares at the time of granting. Options normally have a life of ﬁve years with vesting at 20.0% 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 for 
the option holder’s entitlement to fully vest.

A summary of the plan and changes during each of 2011 and 2010 are as follows:

Outstanding, beginning of year  
Forfeited/expired 
Outstanding, end of year  

2011 
Weighted
average
exercise  
price ($)
15.72
13.38 
16.00 

Shares
638,200 
(210,250)
427,950 

2010
Weighted
average 
exercise
price ($)
15.02
13.58
15.72

Shares
427,950 
(203,750) 
224,200 

The following table summarizes information about options outstanding and exercisable at December 31, 2011:

  Options outstanding

 Options exercisable

Number
outstanding at
December 31,
2011
224,200 

Exercise
price ($)
16.00 

Weighted average
remaining contractual
life (in years)
1.00 

Weighted
average exercise
price ($)
16.00 

Number
exercisable at
December 31,
2011
178,080 

Weighted
average
exercise price ($)
16.00

On November 7, 2008, the Corporation amended the incentive stock option plan by adding a cash option feature to all new and previously 
granted options outstanding. The cash option feature allows option holders to elect to receive an amount in cash equal to the intrinsic value, 
being the excess market price of the common share over the exercise price of the option, instead of exercising the option and acquiring 
the common shares. The result of such an amendment is that the outstanding share options awards largely take on the characteristics of 
liability instruments rather than equity instruments. All outstanding stock options are now classiﬁed as liabilities and are carried at their fair 
value. The fair value of the liability is marked to market each period for new awards to be granted subsequent to the amendment date. The 
fair value is amortized to expense over the period in which the related services are rendered, which is usually the graded vesting period or, 
as applicable, over the period to the date an employee is eligible to retire, whichever is shorter. No such awards were granted in 2010 and 
2011. For the outstanding share option awards that were amended, the minimum expense recognized for them will be their grant-date fair 
values. Previously, all stock options were classiﬁed as equity and were measured at the estimated fair value established by the Black-Scholes 
model on the date of grant. Under this method, the estimated fair value was and will continue to be amortized to compensation expense 

46

MAGELLAN 2011 ANNUAL REPORT

 
 
   
  
  
  
   
 
 
   
 
 
 
   
  
 
 
   
 
   
 
  
  
  
 
  
  
 
  
 
 
  
       
  
  
 
 
  
       
  
 
 
  
       
  
  
 
 
  
       
  
  
 
 
  
       
  
  
       
  
       
  
  
       
 
 
 
 
 
 
 
 
 
 
 
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

and contributed surplus over the period in which the related services were rendered, which is usually the vesting period or, as applicable, 
over the period to the date an employee was eligible to retire, whichever was shorter. 

The Corporation’s employee stock options are not transferable, cannot be traded and are subject to vesting restrictions and exercise restric-
tions under the Corporation’s black-out policy which would tend to reduce the fair value of the Corporation’s stock options. Changes to the 
subjective input assumptions used in the model can cause a signiﬁcant variation in the estimate of the fair value of the options.

The Corporation has a deferred share unit plan (“DSU Plan”) for certain executive ofﬁcers (“Ofﬁcers”) which provides a structure for Ofﬁ-
cers to accumulate equity-like holdings in the Corporation. The DSU Plan allows certain Ofﬁcers to participate in the growth of the Corpo-
ration by providing a deferred payment based on the value of a common share at the time of redemption. Each Ofﬁcer receives deferred 
share units (“Units”) based on their annual management incentive compensation. The Units are issued based on the Corporation’s common 
share price at the time of issue. A third of the Units are paid upon issuance and the remaining Units are paid out equally on the anniversary 
date of issuance in the following two year period or upon retiring. The redemption value is equal to the common share price at the date of 
redemption, adjusted by any dividends paid on the common shares.  As at December 31, 2011, 25,609 units were outstanding at a value of 
$78 [December 31, 2010 – nil].                                            

The Corporation recorded compensation expense in relation to the plans during the year of $298 [2010 - $268]. 

18. FINANCIAL INSTRUMENTS
Categories of ﬁnancial instruments
Under IFRS, ﬁnancial instruments are classiﬁed into one of the following four categories: ﬁnancial assets at fair value through proﬁt or loss, 
loans and receivables, ﬁnancial liabilities at fair value through proﬁt or loss, and other ﬁnancial liabilities at amortized cost.

All ﬁnancial instruments, including derivatives, are included on the consolidated statement of ﬁnancial position, which are measured at 
fair value except for loans and receivables and other ﬁnancial liabilities, which are measured at amortized costs. Held for trading ﬁnancial 
investments are subsequently measured at fair value and all gains and losses are included in net income in the period in which they arise. 
Available-for-sale ﬁnancial instruments are subsequently measured at fair value with revaluation gains and losses included in other compre-
hensive income until the instruments are derecognized or impaired. 

The carrying values of the Corporation’s ﬁnancial instruments are classiﬁed as follows:

December 31, 2010  
December 31, 2011 

Fair value   
   through proﬁt   
   or loss: Held   

for trading1

26,093   
27,028   

Loans  
and
receivables2

94,286   
106,480   

  Other ﬁnancial  
liabilities (at  
amortized
cost)3
395,700   
342,250 

Total
ﬁnancial
assets
120,379   
133,508   

Total
ﬁnancial
liabilities
395,700
342,250

 1 Includes cash and cash equivalents and forward foreign exchange contracts included in prepaid expenses and other
2 Includes accounts receivables and loan receivables
3 Includes bank indebtedness, accounts payable and accrued liabilities, provisions, preference shares, long-term debt, borrowings subject to speciﬁc conditions, the debt 

component of the convertible debentures and accounts receivable securitization transactions

The Corporation has exposure to the following risks from its use of ﬁnancial instruments:
>> Market risk
>> Credit risk
>>   Liquidity risk

This note presents information about the Corporation’s risks to each of the above risks, its objectives, policies and processes for measuring 
and managing risk.

47

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
 
 
 
 
 
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Market risk
Market risk is the risk that changes in the market prices, such as foreign exchange rates and interest rates, will affect the Corporation’s income 
or the value of its holdings of ﬁnancial instruments. The Corporation’s policy is not to utilize derivative ﬁnancial instruments for trading or spec-
ulative purposes. The Corporation may utilize derivative instruments in the management of its foreign currency and interest rate exposures.

The Corporation thoroughly examines the various ﬁnancial instrument risks to which it is exposed and assesses the impact and likelihood 
of those risks. These risks may include currency risk, interest rate risk, credit risk and liquidity risk. Where material, these risks are reviewed 
and monitored by the Board of the Corporation.

Currency risk
The Corporation operates internationally, which gives rise to a risk that its income, cash ﬂows and shareholders’ equity may be adversely 
impacted by ﬂuctuations in foreign exchange rate. Currency risk arises because the amount of the local currency receivable or payable for 
transactions denominated in foreign currencies may vary due to changes in exchange rate (“transaction exposures”) and because the non-
Canadian dollar denominated ﬁnancial statements of the Corporation’s subsidiaries may vary on consolidation into the reporting currency 
of Canadian dollars (“translation exposures”). The Corporation uses derivative ﬁnancial instruments to manage foreign exchange risk with 
the objective of minimizing transaction exposures and the resulting volatility of the Corporation’s net income.

The most signiﬁcant transaction exposures arise in the Canadian operations where signiﬁcant portions of the revenues are transacted in 
U.S. dollars. As a result, the Corporation may experience transaction exposures because of the volatility in the exchange rate between the 
Canadian and U.S. dollar. Based on the Corporation’s current U.S. denominated net inﬂows, as of December 31, 2011, ﬂuctuations of +/- 1% 
would, everything else being equal, have an effect on net income and on other comprehensive income for the year ended December 31, 
2011 of approximately +/- $148 and $1,300 respectively.

Interest rate risk
The Corporation is exposed to interest rate risk in its ﬂoating rate bank indebtedness. At December 31, 2011, $172,023 of the Corporation’s 
total debt portfolio is subject to movements in ﬂoating interest rates. In addition, a portion of the Corporation’s accounts receivable secu-
ritization programs are exposed to interest rate ﬂuctuations. The objective of the Corporation’s interest rate management activities is to 
minimize the volatility of the Corporation’s income. The Corporation monitors its exposure to interest rates and has not entered into any 
derivative contracts to manage this risk. A ﬂuctuation in interest rates of 100 basis points (1 percent) would have impacted the amount of 
interest charged to net income during the year ended December 31, 2011 by approximately +/- $1,746.

Credit risk
Credit risk arises from cash and cash equivalents held with banks and ﬁnancial institutions as well as credit exposure to clients, including 
outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the ﬁnancial assets. The objective 
of managing credit risk is to prevent losses in ﬁnancial assets. The Corporation is also exposed to credit risk from the potential default by 
any of its counterparties on its foreign exchange forward contracts. The Corporation mitigates this credit risk by dealing with counterparties 
who are major ﬁnancial institutions that the Corporation anticipates will satisfy their obligations under the contracts.

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. The Corporation sells the majority of its products to large international organizations with strong credit ratings. Therefore, the Cor-
poration is not exposed to signiﬁcant credit risk and overall the Corporation’s credit risk has not changed signiﬁcantly from the prior year.

The carrying amount of accounts receivable are reduced through the use of an allowance account and the amount of the loss is recognized 
in the income statements within administrative and general expenses. When a receivable balance is considered uncollectible, it is written 
off against the allowance for accounts receivable. Subsequent recoveries of amounts previously written off are credited against administra-
tive and general expenses.  

48

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Derecognition of ﬁnancial assets
The Corporation sells a portion of its accounts receivables through securitization programs or factoring transactions. During 2011, the Cor-
poration sold receivables to various ﬁnancial institutions in the amount of $167,100 [2010 - $65,375] for a discount of $447 [2010 - $254] rep-
resenting an annualized interest rate of 1.73% [2010 – 2.35%]. 

As at December 31, 2011, accounts receivables include receivables sold and ﬁnanced through securitization transactions of $6,019 [2010 
- $9,591] which do not meet the IAS 39 derecognition requirements. These receivables are recognized as such in the ﬁnancial statements 
even though they have been legally sold; a corresponding ﬁnancial liability is recorded in the consolidated statement of ﬁnancial position 
under debt due within one year. 

Liquidity risk
The Corporation’s objective in managing liquidity risk is to ensure that there are sufﬁcient committed loan facilities in order to meet its liquid-
ity requirements at any point in time. The Corporation has in place a planning and budgeting process to help determine the funds required 
to support the Corporation’s normal operating requirements on an ongoing basis, taking into account its anticipated cash ﬂows from opera-
tions and its operating facility capacity. The primary sources of liquidity are the operating credit facility and the indebtedness provided by 
a company controlled by a common director, which require the continued support by the Chairman of the Board of the Corporation. Based 
on current funds available and expected cash ﬂow from operating activities, management believes that the Corporation has sufﬁcient funds 
available to meet its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital 
costs for projects exceed current estimates, or if the Corporation incurs major unanticipated expenses, it may be required to seek additional 
capital in the form of debt or equity or a combination of both.

Contractual maturity analysis
The following table summarizes the contractual maturity of the Corporation’s ﬁnancial liabilities. The table includes both interest and prin-
cipal cash ﬂows.

Bank indebtedness    
Long-term debt 1
Finance lease obligations  
Equipment leases 
Facility leases 
Other long-term liabilities  
Borrowings subject to speciﬁc conditions 
Convertible debentures  

Interest payments 
Total 

Year 1   
–   
10,064 

463    
229   
1,386   
1,000   
601   
2,000     
15,743   
4,186   
19,929   

Year 2   
120,674  
38,031 
 –   
168   
1,353   
43   
619   
–   
160,888   
2,783   
163,671   

Year 3   
 –  
5,760 
–   
81   
1,340   
42  
433   
–   
7,656   
1,313   
8,969   

Year 4   
 –   
5,139 
–   
33   
1,349   
42   
607   
–   
7,170  
1,140   
8,310   

Year 5   
–   
5,096 
–   
6   
1,171   
41   
672   
–   
6,986   
997   
7,983   

Thereafter   
–   
29,739 
–   
3   
6,541   
1,354   
16,516   
–   
54,153   
5,061   
59,214   

Total
120,674
93,829
463
520
13,140
2,522
19,448
2,000
252,596
15,480
268,076

1 The amount drawn on the Corporation’s accounts receivable securitization program is included in long-term debt in the Year 1 category.

Fair values
The Corporation has determined the estimated fair values of its ﬁnancial instruments based on appropriate valuation methodologies; how-
ever, considerable judgement 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 as follows:

Cash, 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 statement of ﬁnancial posi-
tions are reasonable estimates of their fair values.

49

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
  
  
  
  
  
 
 
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Foreign exchange contracts
The Corporation has entered into foreign exchange contracts to mitigate future cash ﬂow exposures in US dollars and Euros. Under these 
contracts, the Corporation is obliged to purchase speciﬁc amounts at predetermined dates and exchange rates. These contracts are 
matched with anticipated operational cash ﬂows in US dollars and Euros expiring in 2012. During 2011, the Corporation entered into foreign 
exchange contracts as follows:

Foreign exchange collars  
Maturity – less than 1 year – US dollar  

Foreign exchange forward contracts 
Maturity – less than 1 year – US dollar  
Maturity – less than 1 year – Euros    

Amount   
17,000   

Floor   
1.0000   

Ceiling
1.1111

Amount   
18,700   
1,292   

FX Rate
1.0400
1.3400

The fair values of the Corporation’s foreign exchange forward contracts are based on the current market values of similar contracts with the 
same remaining duration as if the contract had been entered into on December 31, 2011.

The mark-to-market on these ﬁnancial instruments as at December 31, 2011 was an unrealized gain of $508, which has been recorded in 
other expense for the period.

Long-term debt
The fair value of the Corporation’s long-term debt, calculated by discounting the expected future cash ﬂows based on current rates for debt 
with similar terms and maturities, is $88,061 at December 31, 2011. 

Convertible debentures
The fair market value of the Corporation’s convertible debentures, calculated by discounting the expected future cash ﬂows at prevailing 
interest rates, is estimated at $2,075. 

Collateral
As at December 31, 2011, the carrying amount of the ﬁnancial assets that the Corporation has pledged as collateral for its long-term debt 
facilities was $133,000.

Fair value hierarchy
The Corporation’s ﬁnancial assets and liabilities recorded at fair value on the consolidated statement of ﬁnancial position have been catego-
rized into three categories based on a fair value hierarchy. Fair value of assets and liabilities included in Level I are determined by reference 
to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level II include valuations using inputs other 
than the quoted prices for which all signiﬁcant inputs are based on observable market data, either directly or indirectly. Level III valuations 
are based on inputs that are not based on observable market data.

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A ﬁnancial instrument is classiﬁed to the 
lowest level of the hierarchy for which a signiﬁcant input has been considered in measuring fair value.

The following table presents the fair value of the ﬁnancial instruments that are carried at fair value classiﬁed using the fair value hierarchy 
described above.

Financial assets  

Foreign exchange contracts  

50

MAGELLAN 2011 ANNUAL REPORT

    Quoted prices   
in active   
markets   
(Level 1)   

Signiﬁcant   
other   
observable   
inputs (Level II)   

Signiﬁcant
unobservable
inputs
(Level III)   

Total

−   

508   

−   

508

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
 
 
  
   
 
 
  
   
 
 
  
  
  
   
  
  
  
   
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

19. 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 its employees.

Deﬁned contribution plans
The Corporation’s expenses for deﬁned contribution plans for the year ended December 31, 2011 totalled $4,243 [2010 - $4,212].

Deﬁned beneﬁt plans
The Corporation obtains actuarial valuations for its accrued beneﬁt obligations and the fair value of plan assets for accounting purposes 
under IFRS as at December 31 of each year. In addition, the Corporation estimates movements in its accrued beneﬁt liabilities at the end 
of each interim reporting period, based upon movements in discount rates and the rates of return on plan assets, as well as any signiﬁcant 
changes to the plans. Adjustments are also made for payments made and beneﬁts earned.

The Corporation’s deﬁned beneﬁt plans cover payments for pensions, and other beneﬁt plans described as follows:

Pension plans
The Corporation’s pension plans provide eligible employees with pension beneﬁts based on a number of criteria including earnings, years 
of service, retirement age, and speciﬁed beneﬁt levels, and include both ﬁnal average earnings formulae and minimum beneﬁt formulae.

Actuarial valuations for funding purposes are prepared and ﬁled with the appropriate regulatory authorities at least tri-annually.  The most 
recent actuarial valuations for the various pension plans were completed between December 31, 2008 and January 1, 2011.

Other beneﬁt plan
The Corporation has another beneﬁt plan to provide post-employment coverage for health care beneﬁts including prescribed drugs, hos-
pital and other medical, dental and vision beneﬁts for eligible retired employees, their spouses and eligible dependants. Other beneﬁt 
plans provide for post-employment life insurance and compensated absences for eligible current employees, including vacation to be taken 
before retirement, if certain age and service requirements are met.

Changes in beneﬁt plan assets of the Corporation’s deﬁned beneﬁt plans

2011 
Other  

2010
Other
  beneﬁt plans   beneﬁt plans    beneﬁt plans

Pension  

–
– 
– 
 –
– 
– 
–
–
–

106,843  
4,499 
(517)
8,335  
303  
(4,812)
(32,255)
(327)
82,069  

 –
–
–
–
 –
–
–
–
–

Deﬁned beneﬁt plan assets 
Fair market value of plan assets  

Beginning of year 
Expected return on plan assets   

  Actuarial loss 

Employer contributions  
Employee contributions  
Beneﬁt payments 
Beneﬁt payments in relation to plan wind-up     
Foreign exchange gain (loss)  
End of year 

Pension 
beneﬁt plans  

82,069 
5,085 
(6,121) 
6,599
354 
(5,483) 

–
124 
82,627 

51

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
  
  
 
 
  
  
  
 
 
  
  
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
  
  
 
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Changes in the beneﬁt plan obligations of the Corporation’s deﬁned beneﬁt plans

Deﬁned beneﬁt plan obligations
Accured beneﬁt obligation
Beginning of year 
Current service cost  
Interest cost 
Past service cost
Employee contributions  

  Actuarial loss 

Beneﬁt payments 
Beneﬁt payments in relation to plan wind-up     
Foreign exchange loss  
End of year 

Pension 
beneﬁt plans   

2011 
Other   

 beneﬁt plans

2010
Other
beneﬁt plans    beneﬁt plans

Pension  

91,392 
2,788
4,709 
208  
354 
12,129 
(5,483) 

–
208 
106,305 

734 
 – 
628 
–  
–
153 
(584) 
– 
18 
949 

110,616 
2,293 
5,828 
–
303 
9,927 
(4,812)
(32,255)
(508)
91,392 

872
–
314
–
–
–
(408)
–
(44)
734

Reconciliation of funded status of beneﬁt plans to amounts recorded in the ﬁnancial statements

Fair market value of plan assets  
Accrued beneﬁt obligation  
Funded status of plans – deﬁcit  
Effect of limit on recognition of asset
Accrued beneﬁt liability 

Pension 
beneﬁt plans   
82,627 
(106,305) 
(23,678) 

–

(23,678) 

2011
Other   

 beneﬁt plans
– 
(949) 
(949)
–
(949)

Pension   

2010
Other
beneﬁt plans     beneﬁt plans
–
(734)
(734)
–
(734)

82,069   
(91,392)
(9,323)
(314)
(9,637)

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

All deﬁned beneﬁt plans were in a deﬁcit status as at December 31, 2011 and one of the ﬁve deﬁned beneﬁt plans were in a surplus status 
as at December 31, 2010. During 2010, the Corporation completed the wind-up of one of its deﬁned beneﬁt plans.

The Corporation expects to contribute approximately $5,752 in 2012 to all its deﬁned beneﬁt plans in accordance with normal funding policy. 
Because of market driven changes that the Corporation cannot predict, the Corporation could be required to make contributions in the 
future that differ signiﬁcantly from its estimates.

52

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
  
   
  
 
 
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
 
 
  
  
  
   
   
 
 
  
  
  
 
 
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
   
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Components of pension costs
The following tables show the before tax impact on net income and other comprehensive income of the Corporation’s pension and other 
deﬁned beneﬁt plans.

Recognized in net income  
Current service cost 
Interest cost 
Expected return on plan assets1
Other 
Total pension cost recognized in net income 

Pension 
beneﬁt plans   

2011 
Other   

Pension   
 beneﬁt plans   beneﬁt plans  

2010
Other
 beneﬁt plans

2,788 
4,709 
(5,085)
208
2,620   

–
628 
 –
–
628 

2,293  
5,828   
(5,994)
–
2,127 

 –
314
–
–
314

1 The actual return on plan assets is a loss of $1,036 for the year ended December 31, 2011 [2010 – gain of $4,517].

Recognized in other comprehensive income 
Actuarial loss immediately recognized 
Effect of limit on recognition of asset 
Total pension cost recognized in other comprehensive income 

Pension 
beneﬁt plans   

2011 
Other   

Pension   
 beneﬁt plans   beneﬁt plans  

2010
Other
 beneﬁt plans

(18,270) 
314 
(17,956) 

(153) 
–  
(153)

(7,126)
3,412 
(3,714)

–
–
–

Signiﬁcant assumptions and sensitivity analysis
The signiﬁcant actuarial assumptions adopted in measuring the Corporation’s accrued beneﬁt obligations represent management’s best 
estimates reﬂecting the long-term nature of employee future beneﬁts and are as follows [weighted-average assumptions as at December 31]:
2010
Other
 beneﬁt plans

Pension   
 beneﬁt plans   beneﬁt plans  

Pension 
beneﬁt plans   

2011 
Other   

Accrued beneﬁt obligation at December 31: 
Discount rate 
Expected long-term rate of return on plan assets 
Rate of compensation increase 

Beneﬁt costs for the year ended December 31:  
Discount rate 
Expected long-term rate of return on plan assets 
Rate of compensation increase 

4.6%   
6.0%
2.9% 

4.6% 
6.0%   
2.9%   

4.25% 
–
–

4.25% 
– 
– 

5.25% 
6.0%  
2.9% 

5.25%   
6.0% 
2.9% 

7.0%
 –
–  

7.0%
–
–

The discount rate assumption used in determining the obligations for pension and other beneﬁt plans was selected based on a review of 
current market interest rates of high-quality, ﬁxed rate debt securities adjusted to reﬂect the duration of expected future cash outﬂows for 
pension beneﬁt payments. At December 31, 2011, a 1% change in the discount rate used could result in a $15,699 increase or decrease in 
the pension beneﬁt obligation with a corresponding beneﬁt or change recognized in other comprehensive income in the year.

The expected rate of return on plan assets is reviewed annually by the Corporation. The Corporation must make assumptions about the 
expected long-term rate of return of plan assets, but there is no assurance that the plan will be able to earn the assumed rate of return.  

53

MAGELLAN 2011 ANNUAL REPORT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

The Corporation funds health care beneﬁt costs, shown under other beneﬁt plans, as a pay as you go basis. For measurement purposes, a 
5.0% to 10.0% annual rate of increase in the per capita cost of covered health care and dental beneﬁts was assumed for 2011. The rate was 
assumed to decrease gradually over the next 10 years to 3.0% and to remain at that level thereafter. The impact of applying a one-percent-
age-point increase or decrease in the assumed health care and dental beneﬁt trend rates as at December 31, 2011 was nominal.

Assets
The weighted average asset allocations of the deﬁned beneﬁt plans at the measurement date, by asset category, are as follows:

Equity investments 
Fixed income investments  
Other investments 

2011 
47.6% 
45.7% 
6.7% 
100.0% 

2010
46.7%
48.2%
5.1%
100.0%

20. SEGMENTED INFORMATION
Based on the nature of the Corporation’s markets, two main operating segments were identiﬁed: Aerospace and Power Generation Proj-
ect. The Aerospace segment includes the design, development, manufacture, repair and overhaul and sale of systems and components 
for military and civil aviation, while the Power Generation Project segment includes the supply of gas turbine power generation units. Rev-
enues in the Power Generation Project segment arise solely from the power generation project in the Republic of Ghana and the revenue 
is included in Canada export revenue.

The Corporation evaluated the performance of its operating segments primarily based on net income before interest and income tax expense.

The Corporation accounts for intersegment and related party sales and transfers, if any, at the exchange amount.

The Corporation’s primary sources of revenue are as follows:
For the year ended December 31     
Revenues  

Sale of goods 
Construction contracts  
Services 

2011 

2010

478,293 
115,095 
98,022 
691,410 

502,100
142,934
86,601
731,635

The aggregate amount of revenues recognized for construction contracts in progress at December 31, 2011 was $227,895 [December 31, 
2010 - $255,400]. Advance payments received for construction contracts in progress at December 31, 2011 were $4,240 [December 31, 2010 
- $27,220]. Retentions in connection with construction contracts at December 31, 2011 were $1,017 [December 31, 2010 - $995]. Advance pay-
ments and retentions are included in accounts payable, accrued liabilities and provisions.

54

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
 
  
  
  
  
  
  
 
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Segmented information consists of the following:
Activity segments:

Revenues 
Income before interest and income taxes  
Interest expense  
Income before income taxes   

Power
Generation

Aerospace   
609,942   
53,014   

Project   
81,468   
5,386   

2011   

Power
   Generation

Total   Aerospace   
627,113 
54,895 

691,410 
58,400 
16,999  
41,401  

Project   
104,522 
7,610 

2010

Total
731,635
62,505
20,152
42,353

Total assets 
Total liabilities 

638,583 
369,580   

23,155 
9,463   

661,738   
379,043 

595,370 
382,633 

43,129 
35,271 

638,499
417,904

Additions to property, plant and equipment  
Depreciation and amortization  
Impairment reversal

59,260   
30,407   
1,847

–  
2,428   

–

59,260 
32,835 
1,847

16,571  
31,669 
7,395

– 
2,930 
–

16,571
34,599
7,395

Geographic segments:

United
Kingdom
Canada
137,899 
365,853 
12,064   
267,089   
1Export revenue is attributed to countries based on the location of the customers.

United
States
187,658 
33,420   

Revenues
Export revenues1

Canada
421,864 
329,948 

United  
States
187,555 
29,214 

United
Kingdom  
122,216 
9,237 

2011

Total
691,410   
312,523 

2011 

Canada

United   
States   

United 
Kingdom

Total

Canada

United   
States

United 
Kingdom  

2010

Total
731,635
368,399

2010

Total

Property, plant and 
equipment and intangible 
assets 

201,586 

121,030 

33,262 

355,878

165,825 

114,267 

30,976 

311,068

The major customers for the Corporation for the years ended December 31 are as follows:

Canadian operations 
  Number of customers  
  Percentage of total Canadian revenues 
US operations 
    Number of customers  
  Percentage of total US revenues 
UK operations 
    Number of customers  
  Percentage of total UK revenues 

55

MAGELLAN 2011 ANNUAL REPORT

 2011 

2010

2 
33% 

1 
40% 

1
73% 

1
25%

1
38%

1
84%

 
 
 
 
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
  
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

21. COST OF REVENUES

Operating expenses  
Amortization  
Investment tax credits   
Impairment of inventories   
Impairment reversal of intangibles    

22. ADMINISTRATIVE AND GENERAL EXPENSES

Salaries, wages and beneﬁts   
Administration and ofﬁce expenses  
Professional services  
Amortization  

23. INTEREST EXPENSE

Interest on bank indebtedness and long-term debt [Notes 8 and 10] 
Interest on convertible debenture [Note 11]   
Accretion charge on convertible debenture, long-term debt and borrowings      
Discount on sale of accounts receivables   

2011 
573,639 
30,806 
(9,173)
627   
(1,899)
594,000 

2010
608,832
32,004
(4,427)
(661)
 (7,395)
628,353

2011 
22,725 
10,714 
2,796 
2,029 
38,264 

2011 
9,397 
4,000 
3,155
447
16,999 

2010
22,762
11,756
2,657
2,595
39,770

2010
14,799
4,006
1,093
254
20,152

24. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) includes unrealized foreign currency translation gains and losses, which arise on the translation to Cana-
dian dollars of assets and liabilities of the Corporation’s foreign operations and net actuarial losses on deﬁned beneﬁt pension plans, net of 
tax. The Corporation recorded unrealized currency translation gains for the year ended December 31, 2011 of $4,149 [2010 – loss of $10,392] 
and net actuarial losses on deﬁned beneﬁt plans of $17,530 [2010 $3,421]. These gains and losses are reﬂected in the consolidated statement 
of ﬁnancial position and had no impact on net income for the year. 

25. RELATED PARTY DISCLOSURE
Transactions with related parties
On April 28, 2011, the Original Loan was extended and restated [Note 10]. During 2011, the Corporation incurred interest of $3,748 [2010 - 
$5,524] in relation to the Original Loan and prepaid the Original Loan by $12,500 [2010 - $19,000]. At December 31, 2011, the Corporation 
owed Edco interest of $214 [2010 - $995].  

On April 30, 2009, the Chairman of the Board of the Corporation subscribed to $40,000 of the Convertible Debentures. On December 31, 
2011, the Chairman of the Board exercised his conversion rights under the debenture agreement and $38,000 principal amount of the Con-
vertible Debentures, the entire amount of the Convertible Debentures then held by the Chairman, were converted into 38,000,000 common 
shares of the Corporation. Interest incurred during the year ended December 31, 2011 on the Convertible Debentures was $4,000 [2010 
- $4,006]. As at December 31, 2011, Convertible Debentures in the principal amount of $2,000 were held by a director of the Corporation.

The Chairman of the Board of the Corporation has provided a guarantee for the full amount of the Corporation’s operating credit facility. 
An annual fee averaging 0.8% [2010 – 1.2%] of the guaranteed amount or $1,399 [2010 - $2,127] was paid in consideration for the guarantee.

56

MAGELLAN 2011 ANNUAL REPORT

      
  
  
  
  
  
  
  
 
 
      
  
  
  
  
  
  
   
 
      
  
  
  
  
  
  
  
  
   
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

During the year, the Corporation incurred consulting costs of $100 [2010 - $100] payable to a corporation controlled by the Chairman of the 
Board of the Corporation. As well, the Corporation paid legal fees of $69 [2010 - $57] to a law ﬁrm in which a director is a chairman emeritus.

Key management personnel
Key management includes members of the Board of the Corporation and executive ofﬁcers, as they have the collective authority and 
responsibility for planning, directing and controlling the activities of the Corporation. The compensation expense for key management for 
services is as follows:

Short-term beneﬁts 
Post-employment beneﬁts  
Share-based payments 

2011 
2,161 
103 
147
2,411  

2010
2,061
101
–
2,162

Short-term beneﬁts include cash payments for base salaries, bonuses and other short-term cash payments. Post-employment beneﬁts include 
the Corporation’s contribution pension plan and pension adjustment for deﬁned beneﬁt plan. Share-based payments include amounts paid 
to executives under the DSU Plan.

26. SUPPLEMENTARY CASH FLOW INFORMATION 

Net change in non-cash working capital 
Accounts receivable 
Inventories 
Prepaid expenses and other  
Accounts payable, accrued liabilities and provisions 

Interest paid 
Income taxes paid 

2011 

2010

(10,908) 
24,704 
6,559 
(32,881) 
(12,526)  

14,873 
1,447 

869
(8,221)
26,289
(1,396)
17,541

19,924
249

27. ADDITIONAL FINANCIAL INFORMATION
Included in other expenses is a foreign exchange loss of $238 [2010 - $680] on the conversion of foreign currency denominated working 
capital balances and debt.

28. MANAGEMENT OF CAPITAL
The Corporation’s objective is to maintain a capital base sufﬁcient to maintain investor, creditor and market conﬁdence and to sustain future 
development of the business. Management deﬁnes capital as the Corporation’s shareholders’ equity and interest bearing debt, including 
the debt and equity components of the convertible debentures. 

As at December 31, 2011, total managed capital was $497,650, comprised of shareholders’ equity of $282,695 and interest-bearing debt of 
$214,955. Included in interest bearing debt is the debt component of the convertible debentures of $1,986, where a component of the asso-
ciated interest expense is a non-cash charge. 

The Corporation manages its capital structure and makes adjustments to it in light of economic conditions, the risk characteristics of the 
underlying assets and the Corporation’s working capital requirements. In order to maintain or adjust its capital structure, the Corporation, 
upon approval from its Board of Directors, may issue or repay long-term debt, issue shares, repurchase shares through the normal course 
issuer bid, pay dividends or undertake other activities as deemed appropriate under the speciﬁc circumstances. The Board of Directors 
reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major 
investments or divestitures, as well as capital and operating budgets. Based on current funds available and expected cash ﬂow from oper-
ating activities, management believes that the Corporation has sufﬁcient funds available to meet its liquidity requirements at any point in 

57

MAGELLAN 2011 ANNUAL REPORT

 
 
  
  
 
 
 
 
  
  
  
  
  
 
 
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

time. However, if cash from operating activities is lower than expected or capital costs for projects exceed current estimates, or if the Cor-
poration incurs major unanticipated expenses, it may be required to seek additional capital in the form of debt or equity or a combination 
of both. There were no changes in the Corporation’s approach to capital management during the year. 

The Corporation must adhere to covenants in its operating credit facility. As at December 31, 2011 the Corporation was in compliance with 
these covenants.

29. CONTINGENT LIABILITES AND COMMITMENTS
In the ordinary course of business activities, the Corporation may be contingently liable for litigation and claims with, among other, custom-
ers, suppliers and former employees. Management believes that adequate provisions have been recorded in the accounts where required. 
Although, it is not possible to accurately estimate the extent of the potential costs and losses, if any, management believes, but can pro-
vide no assurance, that the ultimate resolution of such contingencies would not have a material adverse effect on the ﬁnancial position of 
the Corporation.

At December 31, 2011, capital commitments in respect of purchase of property, plant and equipment totalled $16,569, all of which had been 
ordered. There were no other material capital commitments at the end of the year.

30. ADOPTION OF INTERNATION FINANCIAL REPORTING STANDARDS
The Corporation has adopted IFRS effective January 1, 2011. Prior to the adoption of IFRS the Corporation prepared its ﬁnancial statements 
in accordance with Canadian GAAP. The Corporation’s ﬁnancial statements for the year ended December 31, 2011 will be the ﬁrst annual 
ﬁnancial statements that comply with IFRS. The Corporation’s transition date is January 1, 2010 and the Corporation has prepared its open-
ing IFRS statement of ﬁnancial position at that date. These ﬁnancial statements have been prepared in accordance with the accounting poli-
cies described in Note 2, including the application of IFRS 1, First-time Adoption of International Financial Reporting Standards (“IFRS 1”). 

The following tables reconcile the ﬁnancial statements previously reported under Canadian GAAP to the ﬁnancial statements prepared in 
accordance with IFRS. Explanations of the effect of the transition to IFRS follow the reconciliations. 

58

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Reconciliation of equity at January 1, 2010
The following is a reconciliation of the Corporation’s equity reported in accordance with Canadian GAAP to its equity in accordance with 
IFRS at the transition date:

Notes   

(xiv) 

(xv) 

(vi), (x) 

(xvi), (vii) 

(viii), (xiii) 

(iii), (ix) 

(xv) 

(xii) 

(xii) 

(xi),(xiv) 

(xi) 

(xv) 

(xii)

(xiii) 

(iii) 

(v) 

(iv)

Effect of
Canadian transition to
IFRS 
−   
14,703 
−   
−   
(3,958)
(444)
3,369 
(16,828)
(18,177)
2,675 
(18,660)
−   
(4,177) 
4,441 
14,892 
692 
−   
(5,500)
2,148 
9,096 
9,953 
31,545   
−   
(3,001)
−   
(113,651)
66,447   
(50,205) 
(18,660)

GAAP
22,641   
82,850 
147,248   
38,458   
3,958 
254,700 
− 
88,668 
24,909 
17,186 
680,618   
140,590   
135,373 
− 
2,321 
73,716 
38,182   
10,281 
− 
− 
9,803 
410,266   
234,389   
4,708 
13,565   
84,137   
 (66,447)
270,352   
680,618   

IFRS
22,641
97,553
147,248
38,458
−
254,256
3,369
71,840
6,732
19,861
661,958
140,590
131,196
4,441
17,213
74,408
38,182
4,781
2,148
9,096
19,756
441,811
234,389
1,707
13,565
(29,514)
−
220,147
661,958

Cash 
Trade and other receivables  
Inventories  
Prepaid expenses and other   
Deferred tax assets - current  
Property, plant and equipment  
Investment properties 
Intangible assets 
Other assets 
Deferred tax assets 
Total assets 
Bank indebtedness 
Accounts payable and accrued liabilities  
Provisions - current 
Debt due within one year  
Long-term debt 
Convertible debentures  
Deferred tax liabilities
Provisions 
Borrowings subject to speciﬁc conditions  
Other long-term liabilities  
Total liabilities 
Share Capital 
Contributed surplus 
Other paid in capital 
Retained earnings  
Accumulated other comprehensive loss  
Total equity 
Total liabilities and equity  

59

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Reconciliation of equity at December 31, 2010
The following is a reconciliation of the Corporation’s equity reported in accordance with Canadian GAAP to its equity in accordance with 
IFRS at the transition date:

Notes   

(xiv) 
(xviii)   

(xv) 

(vi), (x) 
(xvi)   

(viii) 
(iii), (ix)   

(xv) 

(xii) 

(xii) 

(xi),(xiv) 

(xi) 

(xv) 

(xii) 
(xiii)   

(iii) 

(v) 

(iv) 

Effect of
Canadian transition to

GAAP
24,952   
84,287 
151,741 
11,838   
3,742 
239,508 
− 
80,322 
39,791 
18,082 
654,263   
117,046   
135,528 
− 
8,000   
48,438 
17,700 
38,901   
13,391 
4,000   
− 
− 
5,436 
388,440   
214,440   
5,289 
13,565   
109,145   
(76,616)
265,823   
654,263   

IFRS 
−   
9,935 
(943)
−   
(3,742)
(389)
3,192 
(8,373)
(17,198)
1,754 
(15,764)
−   
(4,965)
5,324 
−   
10,103 
143 
−   
(5,430)
−   
2,079 
13,372 
8,838 
29,464   
−   
(3,316)
−   
(108,136)
66,224 
(45,228)
(15,764)

IFRS
24,952
94,222
150,798
11,838
−
239,119
3,192
71,949
22,593
19,836
638,499
117,046
130,563
5,324
8,000
58,541
17,843
38,901
7,961
4,000
2,079
13,372
14,274
417,904
214,440
1,973
13,565
1,009
(10,392)
220,595
638,499

Cash 
Trade and other receivable  
Inventories 
Prepaid expenses and other   
Deferred tax assets – current  
Property, plant and equipment  
Investment properties 
Intangible assets 
Other assets 
Deferred tax assets 
Total assets 
Bank indebtedness 
Accounts payable and accrued liabilities  
Provisions – current 
Preference shares – current  
Debt due within one year  
Long-term debt 
Convertible debentures  
Deferred tax liabilities 
Preference shares 
Provisions 
Borrowings subject to speciﬁc conditions  
Other long-term liabilities  
Total liabilities 
Share capital 
Contributed surplus 
Other paid in capital 
Retained earnings  
Accumulated other comprehensive loss  
Total equity 
Total liabilities and equity  

60

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

Reconciliation of net income for the year ended December 31, 2010 

Revenues 
Cost of revenues 
Gross proﬁt 
Administrative and general expenses  
Other 
Dividends on preference shares  
Net income before interest and income taxes  
Interest 
Income taxes 
Net income 
Foreign currency translation  
Actuarial loss on deﬁned beneﬁt plans  
Comprehensive income  

Notes   

(xvii) 

(iii), (viii), (x) 

(v) 

(xi) 

(xv) 

Effect of
Canadian transition to
IFRS 

GAAP

732,508 
639,172 
93,336   
40,026 
127   
880   
52,303   
19,736 
7,159 
25,408   
(10,169)
–   
15,239   

(873) 
(10,819)
9,946   
(256)
−   
−   
10,202   
416 
850 
8,936   
(223)
(3,421)
5,292   

IFRS

731,635
628,353
103,282
39,770
127
880
62,505
20,152
8,009
34,344
(10,392)
(3,421)
20,531

Explanations of the effects of the transition to IFRS
The following explanations accompany the preceding reconciliations and describe the effect of the transition to IFRS, including manda-
tory exceptions and optional exemptions from retrospective application of IFRS under IFRS 1 and items requiring retrospective application.

Mandatory exceptions from retrospective application
IFRS 1 requires certain mandatory exceptions from full retrospective application of all accounting standards effective at the transition date. 
The following mandatory exceptions were applicable to the Corporation at the transition date.

(i) Estimates
In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the 
same date under previous GAAP, unless there is objective evidence that those estimated were in error. The Corporation’s IFRS estimates 
as of January 1, 2010 are consistent with its Canadian GAAP estimates for the same date.

Optional IFRS 1 exemptions from retrospective application
In general, IFRS requires an entity to comply with all of the accounting standards effective at the end of the ﬁrst reporting period after 
adopting IFRS. This means restating accounting transactions as if the standards had been in place when the transactions occurred. IFRS 1 
provides optional exemptions from retrospectively applying the standards. The Corporation has applied the following signiﬁcant optional 
exemptions to its opening statement of ﬁnancial position prepared as at the date of transition.

(ii) Business combinations
The Corporation has elected to adopt IFRS 3, Business Combinations (“IFRS 3”) prospectively. Accordingly, all business combinations on 
or after January 1, 2010 will be accounted for in accordance with IFRS 3 and prior business combinations will not be restated.

(iii) Employee beneﬁts
The Corporation has elected to recognize all cumulative actuarial gains and losses of $25,583 that were deferred previously under Canadian 
GAAP immediately in opening retained earnings at the date of transition for all of its employee beneﬁt plans.

61

MAGELLAN 2011 ANNUAL REPORT

 
 
  
 
 
 
 
  
  
  
   
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

(iv) Cumulative translation difference
IAS 21, The Effect of Changes in Foreign Exchange Rates (“IAS 21”) requires cumulative translation differences to be reported as a sepa-
rate component of equity and, on disposal of foreign operation, the cumulative translation difference related to that operation forms part 
of the gain or loss on disposal. The Corporation has elected to set previously accumulated cumulative translation differences, which was 
included in other comprehensive loss, to zero at January 1, 2010 and absorbed into retained earnings. This exemption has been applied to 
all subsidiaries. The aggregate amount at January 1, 2010 was $66,447.

(v) Share-based payment transactions
IFRS 2, Share Based Payment (“IFRS 2”) applies to situations where an entity grants shares or share options to employees or to other parties 
providing goods and services and requires these payments to be recognized as an expense in the entity’s ﬁnancial statements. The Corpo-
ration has elected to apply IFRS 2 to equity instruments granted after November 7, 2002 which had not vested at January 1, 2010. For equity 
instruments with a cash-settlement option the Corporation has not applied IFRS 2 to liabilities that were settled before January 1, 2010. In 
addition IFRS 1, allows for the reversal of cumulative expense previously recognized on options vested at the transition date.

At January 1, 2010, this change in accounting policy reduced contributed surplus and increased opening retained earnings by $3,001. There 
is no impact on the assets of the Corporation as the charge to the income statement is matched by an equal credit through equity.

(vi) Deemed cost
IFRS 1 provides the option to measure property, plant and equipment, investment properties and intangible assets at deemed cost being 
the fair value of the asset at the date of transition. The Corporation has elected to measure items of property, plant and equipment, invest-
ment properties and intangible assets at depreciated historical cost. 

(vii) Borrowing costs
IFRS 1 provides the option to apply IAS 23, Borrowing Costs (“IAS 23”) retrospectively or prospectively from the date of transition. The Cor-
poration has elected to apply IAS 23 on a prospective basis.

Explanation of reconciling items from Canadian GAAP to IFRS
(viii) Impairment of assets
IAS 36, Impairment of Assets (“IAS 36”), requires a one-step approach to determine the recoverable amount of a CGU. Canadian GAAP’s 
two step approach required the application of discounted cash ﬂow techniques to measure the impairment amount, but only after the use 
of undiscounted cash analysis indicates the existence of impairment.  The adoption of IAS 36 is expected to result in more frequent write-
downs since the carrying amount of the assets which are supported by undiscounted cash ﬂows may be determined impaired when the 
future cash ﬂows are discounted in accordance with the IFRS requirements. Under IFRS, except for impairment losses attributed to goodwill, 
previous impairment losses may be reversed or reduced if circumstances lead to a change in the impairment amount.

In accordance with IAS 36, the Corporation assessed whether there are events or circumstances indicating that an asset may be impaired 
both at the date of transition to IFRS and as at December 31, 2010. Recoverable amounts were calculated on value in use, using discounted 
cash ﬂow models based on the Corporation’s long-term planning model. The key assumptions used in those reviews are disclosed in Note 
7. As a result of the review of recoverable amounts it was determined that certain of the Corporation’s CGUs were impaired.

The total impact on the statement of ﬁnancial position shows a reduction in investment property of $180 at January 1, 2010 [$170 at December 
31, 2010] and a reduction in intangible assets of $19,103 at January 1, 2010 [$11,372 at December 31, 2010]. In addition, the operating expense 
reﬂects the impact on depreciation/amortization as a result of the recognition of an impairment loss on transition to IFRS.

(ix) Employee beneﬁts
Under IAS 19, Employee Beneﬁts (“IAS 19”), the Corporation has elected to recognize all actuarial gains and losses immediately in opening 
retained earnings without recognition to the income statement in subsequent periods. As a result, actuarial gains and losses are not amor-
tized to the income statement but rather are recorded directly to retained earnings at the end of each reporting period. The Corporations’ 
operating companies have adjusted their pension expense to remove the amortization of actuarial gains or losses. 

62

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

IAS 19 requires the Corporation to expense vested past service costs immediately and unvested service costs on a straight-line basis until 
the beneﬁts become vested. The Corporation currently amortizes past service costs over the expected average remaining service life to full 
eligibility of the employees covered by the plan. In addition IFRIC 14, The Limit on a Deﬁned Beneﬁt Asset - Minimum Funding Require-
ments, requires the Corporation to take into account solvency funding contributions it currently makes to its pension plans to cover it sol-
vency deﬁcit when determining its pension asset or obligation. The Corporation has recorded an additional liability as a result of IFRIC 14.

The statement of ﬁnancial position shows a total IAS 19 pension deﬁcit of $10,698 at January 1, 2010 [$9,637 at December 31, 2010] which 
compares with an asset of $16,059 at January 1, 2010 [$22,616 at December 31, 2010] reported previously under Canadian GAAP. In addition, 
the operating expense through the 2010 income statement reduced by $1,328.

(x) Property, plant and equipment
Consistent with Canadian GAAP, IAS 16, Property, Plant and Equipment (“IAS 16”) requires separable components of property, plant 
and equipment to be recognized initially at cost. As a result of the detailed componentization assessment, the total impact on the state-
ment of ﬁnancial position shows a reduction in property, plant and equipment of $744 at January 1, 2010 [$775 at December 31, 2010]. 
In addition, the operating expense reﬂects a reduction on depreciation and amortization as a result of derecognizing certain assets on 
transition to IFRS.

(xi) Leases
When classifying capital leases (or “ﬁnance leases”), more judgment is applied and additional qualitative indicators are used under 
IAS 17, Leases (“IAS 17”) to determine lease classiﬁcation due to the lack of quantitative threshold as speciﬁed in Canadian GAAP. 
The Corporation has reclassiﬁed certain leases previously accounted for as operating leases under Canadian GAAP as ﬁnance leases 
under IFRS. This affects the statement of ﬁnancial position at January 1, 2010 by increases in property, plant and equipment of $3,786 
[$3,369 at December 31, 2010]; long-term debt by $1,314 [$656 at December 31, 2010] and opening retained earnings of $2,472 [$2,857 
at December 31, 2010].

(xii) Provisions
IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”) require an entity to recognize a provision when a contract is 
determined to be onerous. A contract is onerous when the unavoidable costs of meeting the obligations under the contract exceed the 
economic beneﬁts expected to be received under it. Canadian GAAP only requires the recognition of such a liability in certain prescribed 
situations. This difference resulted in the recognition of a liability under IFRS that was not previously recognized under Canadian GAAP. 
Other measurement differences under IFRS also resulted in the earlier recognition of provisions.

The total impact on the statement of ﬁnancial position shows an increase in current and long-term provisions of $6,589 at January 1, 2010 
[$7,403 at December 31, 2010]. In addition, the operating expense reﬂects the impact on operating expense as a result of the recognition 
of the additional provisions on transition to IFRS.

Under IFRS, current and long-term provisions are accounted for and disclosed separately from accounts payable and accrued liabilities 
and other liabilities. Provisions were reclassiﬁed from accounts payable and accrued liabilities and other liabilities to current and long-term 
provisions. 

(xiii) Government grants
Under Canadian GAAP, government grants received are deducted from the related asset or expense and any repayments are recorded as 
an expense in cost of revenues. Under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”), 
government grants are recognized when there is reasonable assurance that the entity will comply with the conditions attached to them 
and the grants will be received. In addition, a liability is recognized for future royalty payments when it is probable that all or part of the 
amounts received will be repaid based on future estimated sales. Repayments made are recorded as a reduction of the liability. A revision 
to the estimate of amounts to be repaid results in an increase or decrease in the liability and the related asset or expense, and a cumulative 
adjustment to amortization is recognized immediately in income. Upon transition to IFRS, the Corporation has recorded a liability based on 
management’s best estimate of the expected amount of government grants that may become repayable.

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MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

This affects the statement of ﬁnancial position at January 1, 2010 by increasing other assets by $679 [$5,007 at December 31, 2010], intangible 
assets by $2,276 [$2,492 at December 31, 2010], property, plant and equipment by $63 [$379 at December 31, 2010], borrowings by $9,096 
[$13,372 at December 31, 2010] and a reduction in accounts payable and accrued liabilities by $719 [increased by $45 at December 31, 2010] 
and opening retained earnings of $5,359 [$5,178 at December 31, 2010].

(xiv) Financial instruments
Under IAS 39, Financial Instruments (“IAS 39”), the criterion for derecognizing of receivables under IFRS is different from Canadian GAAP
as Canadian GAAP focuses mainly on surrendering control over the transferred assets while IFRS focuses on the transfer of substantive risks 
and rewards. Certain receivables in which the Corporation sells but does not transfer substantially all the risks and rewards will need to be 
recognized on the statement of ﬁnancial position. 

This affects the statement of ﬁnancial position at January 1, 2010 by increasing trade and other receivables and debt due within one year by 
$14,270 [$9,591 at December 31, 2010].  

(xv) Income taxes
While IAS 12, Income Taxes (“IAS 12”) is similar to the existing Canadian GAAP standard, any material adjustments to balances resulting 
from the adoption to IFRS would have a corresponding effect on deferred tax balances.

Under Canadian GAAP, an entity is required to present both current and long-term future income taxes on its statement of ﬁnancial posi-
tion. Under IFRS, all future income taxes will be presented as long-term assets or liabilities.

The total impact on the statement of ﬁnancial position at January 1, 2010 is an increase in the net deferred tax asset by $4,217 [$3,442 at 
December 31, 2010] compared with that previously reported under Canadian GAAP.

(xvi)  Investment properties
Investment property as deﬁned by IAS 40, Investment Properties (“IAS 40”) requires a separate line presentation called “Investment Prop-
erties” on the statement of ﬁnancial position for property that is held to earn rental income or for capital appreciation. If the cost model is 
chosen for recording purposes, then fair value information is required to be disclosed in the notes to the ﬁnancial statements. The Corpora-
tion holds properties that earn rental income from third parties in addition to holdings of excess land. 

The Corporation has determined that these properties meet the deﬁnition of investment property under IAS 40 and has disclosed as at Janu-
ary 1, 2010 investment properties of $3,369 [$3,192 at December 31, 2010] as a separate line item in the consolidated ﬁnancial statements. 

(xvii) Functional currency
Under IAS 21, each entity, division or branch in a group must be analyzed, through application of primary and secondary factors, to deter-
mine its functional currency. Based on this assessment, the functional currency of each of the Canadian entities in the group is the Cana-
dian dollar, with the exception of a branch which has a US dollar functional currency. Under Canadian GAAP the functional currency of the 
branch was assessed as part of the integral operations of a Canadian entity of the Corporation, hence the branch had a Canadian dollar 
functional currency. 

(xviii) Share-based payment transactions
Under IFRS, the Corporation moved from straight-line to graded vesting as well as to estimating forfeitures for the recognition of share-
based compensation expense. The graded vesting requires a greater portion of expense to be recorded in the initial periods compared to 
distributing the expense equally over all vesting periods under the straight-line method.

64

MAGELLAN 2011 ANNUAL REPORT

Notes To Consolidated Financial Statements
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

The expense under IFRS is $314 lower for the year ended December 31, 2010 than under Canadian GAAP. There is no impact on the assets 
of the Corporation as the charge to the income statement is matched by an equal credit through equity.

(xix) Cash ﬂows
The Corporation’s cash ﬂows under IFRS are unchanged from those under Canadian GAAP. All of the IFRS accounting adjustments net out 
within cash generated from operations except for the recording of borrowings in relation to the repayable government grants which have 
increased the net cash generated from ﬁnancing activities with an offsetting increase in cash used in investing activities by $3,976, and the 
recognition of accounts receivables and debt due within one year under the securitization program which increased the net cash gener-
ated from ﬁnancing activities by  $4,679.

65

MAGELLAN 2011 ANNUAL REPORT

Board of Directors and Officers 

Corporate Ofﬁcers

Board Of Directors

Committees Of The Board

(1) 

(2) 

(3) 

(4) 

 Audit Committee 
Chairman: 
William A. Dimma

 Governance and 
Nominating Committee 
Chairman: 
Bruce W. Gowan

 Human Resources and 
Compensation Committee 
Chairman: 
William G. Davis

 Environmental and Health 
& Safety Committee 
Chairman: 
Donald C. Lowe

N. Murray Edwards 
Chairman

Richard A. Neill 
Vice Chairman

James S. Butyniec
President and Chief Executive Ofﬁcer

John B. Dekker
Vice President,
Finance and Corporate Secretary

Daniel R. Zanatta
Vice president,
Business Development, 
Marketing and Contracts

Larry A. Winegarden 
Vice President, 
Corporate Strategy

Konrad B. Hahnelt
Vice President, 
Strategic Global Sourcing

Jo-Ann C. Ball 
Vice President, 
Human Resources

N. Murray Edwards
Chairman  
Magellan Aerospace Corporation 
President
Edco Financial Holdings Ltd. 
Calgary, Alberta

Richard A. Neill (4)
Vice Chairman 
Magellan Aerospace Corporation 
Mississauga, Ontario

James S. Butyniec
President and Chief Executive Ofﬁcer
Magellan Aerospace Corporation 
Mississauga, Ontario

Hon. William G. Davis P.C., C.C., Q.C. (3)
Counsel
Davis Webb LLP
Brampton, Ontario

William A. Dimma C.M., O. Ont. (1, 2)
Chairman 
Decision Dynamics Technology 
Calgary, Alberta

Bruce W. Gowan (1, 2, 3)
Corporate Director
Huntsville, Ontario

Donald C. Lowe (1, 4)
Corporate Director
Toronto, Ontario

Larry G. Moeller (4)
President
Kimball Capital Corporation 
Calgary, Alberta

James S. Palmer, C.M., Q.C., (2, 3)
Chairman Emeritus
Burnet, Duckworth & Palmer LLP
Calgary, Alberta

66

MAGELLAN 2011 ANNUAL REPORT

Operating Facilities Directory and Shareholder Information

Canada

United Kingdom

Corporate Ofﬁce

Davy Way, Llay Industrial Estate, 
Llay, Wrexham LL12 0PG
Tel: 01978 856600

Miners Road, Llay Industrial Estate, 
Llay, Wrexham LL12 0PJ
Tel: 01978 856798

Rackery Lane, 
Llay, Wrexham LL12 0PB
Tel: 01978 852101

510 Wallisdown Road, 
Bournemouth, Dorset BH11 8QN
Tel: 01202 512405

7/8 Lyon Road, Wallisdown, 
Poole, Dorset BH12 5HF
Tel: 01202 535536

1 West Point Row,
Great Park Road,
Bradely Stoke, Bristol BS32 4QG
Tel: 01454 453550

Chiltern Hill, Chalfont St Peter,
Buckinghamshire SL9 9YZ
Tel: 01753 890922

India

Nandana, 108/7
1st Main Road
Widia Layout,
Vijaya Nagar
Bangalore 560 040
Tel: 905 677 1889

Magellan Aerospace Corporation
3160 Derry Road East
Mississauga, Ontario, Canada 
L4T 1A9
Tel:  905 677 1889
Fax: 905 677 5658
www.magellan.aero
For investor information:
ir@magellan.aero

Auditors

Ernst & Young LLP
Toronto, Ontario

Transfer Agent

Computershare Investor Services Inc.
Toronto, Ontario
Tel: 1 800 564 6253
e-mail: service@computershare.com
www.computershare.com

Stock Listing

Toronto Stock Exchange — TSX
Common Shares — MAL

Annual Meeting

The Annual Meeting of the 
Shareholders of Magellan Aerospace 
Corporation will be held on 
Wednesday, May 9th, 2012 at 
2:00 p.m. at The Living Arts Centre, 
4141 Living Arts Drive, 
Mississauga, Ontario L5B 4B8

660 Berry Street, 
Winnipeg, Manitoba R3H 0S5
Tel: 204 775 8331

3160 Derry Road East, 
Mississauga, Ontario L4T 1A9
Tel: 905 673 3250

634 Magnesium Road, 
Haley, Ontario K0J 1Y0
Tel: 613 432 8841

975 Wilson Avenue, 
Kitchener, Ontario N2C 1J1
Tel: 519 893 7575

United States

97–11 50th Avenue, 
New York, New York 11368
Tel: 718 699 4000

25 Aero Road, 
Bohemia, New York 11716
Tel: 631 589 2440

159 Grassy Plain Street, Route 53, 
Bethel, Connecticut 06801
Tel: 203 798 9373

20 Computer Drive, 
Haverhill, Massachusetts 01832
Tel: 978 774 6000

2320 Wedekind Drive, 
Middletown, Ohio 45042
Tel: 513 422 2751

5170 West Bethany Road, 
Glendale, Arizona 85301
Tel: 623 931 0010

5401 West Luke Avenue, 
Glendale, Arizona 85311
Tel: 623 939 9441

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MAGELLAN 2011 ANNUAL REPORT