Magellan Aerospace Corporation Annual Report 2014

FY2014 Annual Report · Magellan Aerospace Corporation

Loading PDF…

2014 annual report

To Magellan’s Shareholders

Magellan Aerospace Corporation (“Magellan” or the “Corporation”) is
pleased to report to you the results for 2014, and speak to the past year’s
activities, including updates on key programs, and on the fundamental
business practices that Magellan utilizes to deliver value to its customers
and shareholders. While most years have changing market conditions that
can impact our business, this past year is also marked by a change of
leadership at Magellan.

ational performance. With considerable effort from the entire
team, Magellan has met its obligations to customers on major
programs and realigned its business into a more integrated and
coordinated operation.

Thank you to the investors, financial partners, and the entire Magel-
lan team for the continued support over the challenging times
and congratulations to all, on all that has been accomplished.

James S. Butyniec
President and Chief Executive Officer

On May 13, 2014, in line with Magellan’s succession planning
process, the Board of Directors announced the appointment of
Mr. Phillip C. Underwood as the President of Magellan Aerospace
Corporation. Upon my retirement at the end of the fiscal year, Mr.
Underwood assumed the position of President and Chief Execu-
tive Officer of the Corporation. I have had the pleasure of working
alongside Phil over the years and have complete confidence that
Magellan will continue to prosper under his leadership.

In 2014, the strength of the global aerospace market remained
steady and Magellan increased its foothold on major, future com-
mercial and defence programs that are well supported by future
demand. The current aerospace market conditions and improved
global economic stability was reflected in Magellan’s positive
financial trend. Magellan also declared and paid dividends to
shareholders in excess of $10 million in 2014. Going forward,
Magellan remains committed to strengthening the balance sheet,
and looking to the future with a renewed vision to identify the best
opportunities to invest in the growth of its business.

The strategy of the Corporation has been to focus on several
key competencies in the aerospace industry, and identify the
areas where Magellan is world class and can be competitive in
a global scenario. In focussing on these core strengths, Magellan
has been rewarded with programs that are suited to these areas
of expertise and enables the Corporation to provide integrated
and cost effective solutions for its customers.

Magellan remained disciplined in fostering a culture of continu-
ous improvement throughout the organization to maximize the
yield from production programs as well as to positively impact its
ability to meet customer requirements. The Magellan Operating
System™ (MOS™) continued to provide the foundation for sus-
taining operational excellence across the Corporation.

There is much optimism for the future outlook for Magellan Aero-
space. Over the past decade, the Corporation has demonstrated
the ability to adjust to a changing global market while maintain-
ing shareholder confidence, and improving financial and oper-

MAGELLAN 2014 ANNUAL REPORTCommencing, January 1, 2015, I began my tenure as President and Chief
Executive Officer of Magellan Aerospace Corporation (“Magellan” or the
“Corporation”). In this first communication to shareholders in this new year,
Magellan would like to recognize and thank its stakeholders, customers,
and employees for their continued support and contributions to the many
accomplishments of this past year.

While we each have an important role to play, the role of effective
leadership is paramount to the success of any enterprise. Over
the last decade, Mr. James (Jim) Butyniec, Magellan’s outgoing
President and Chief Executive Officer, has led a remarkable
transformation in the Corporation -- strengthening the financial
position and operational performance. Under his management,
the share price has grown substantially and there has been a
significant improvement in the balance sheet that has enabled
and positioned the Corporation to invest for the future.

To capitalize on the legacy of achievement over the past decade,
an initial order of business for Magellan in 2015 is to further
develop the vision for the Corporation that describes where the
business will be in 2020. This “2020 Vision” will recognize the
significant growth projected for the commercial aerospace market
over the next 5 years and will strategically position the Corpo-
ration to maximize the opportunities that this growth represents.
Magellan’s strategic position on major defence and space plat-
forms will also present important opportunities for growth in both
profitability as well as the adoption of technology. In order to take
full advantage of these market opportunities, Magellan will need
to work to understand its customers’ strategies for product and
market development and how these strategies may impact the
business in the future. A strategy not aligned with our customers’
strategies, is destined to fail.

As an example of the focus required, on January 6, 2015 Magel-
lan announced a 10-year agreement with a customer whom we
have conducted business with over five decades. The agreement
provided the framework for a new level of strategic alignment
with the customer based on a recognition and understanding
of the strategies of both parties going forward. The agreement
reflects Magellan’s commitment to invest in core technology,
aligned with our understanding of the customer requirements,
their values and priorities. This agreement recognizes Magellan’s
ability to assist the customer in achieving the highest standard
of product and performance. The strategic alignment secured
with this agreement is an important stride towards achieving the
Corporation’s 2020 Vision.

During the first quarter of 2015 Magellan has begun the work
with the divisions to develop the 2020 Vision. This transition and

focus will continue throughout 2015 and will serve to underscore
the importance of aligning this market growth with the strategic
requirements of our customers.

As the task to create the 2020 Vision progresses, comprehensive
plans will also be developed to ensure that Magellan’s facilities
and centres of excellence are utilized to their full potential, with
a focus on reducing duplication of effort and resources, and
positioning the Corporation’s ability to invest in technology and
business strategies.

On the operational front, it is clear throughout the organization
that Magellan must exemplify a level of global excellence and the
ability to deploy advanced technologies and processes to ensure
that the Corporation remains both competitive and profitable.
Magellan must further recognize, understand and plan for the
customers’ drive to reduce the cost of acquisition of our products.

As a base for our operations Magellan will continue to utilize the
standardized principles of MOS™ to ensure the Corporation’s
standards of operational excellence continue. MOS™ is embed-
ded into Magellan’s everyday activities and ensures an efficient
and methodical approach that governs all facets of the business.

Magellan has a strong foundation to meet the challenges of
demanding production schedules, the adoption of new techno-
logical innovations, and the ability to deliver process improve-
ments to meet the future requirements of the customer. Moving
forward, the Corporation remains committed to maintaining
shareholder confidence by continuing to manage its enterprises
in an efficient, responsible and profitable manner. Magellan looks
forward to the tasks of the coming year with enthusiasm, and a
readiness to define and execute to a clear 2020 Vision.

Phillip C. Underwood
President and Chief Executive Officer
March 20, 2015

MAGELLAN 2014 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of Magellan Aero-
space Corporation (“Magellan” or the “Corporation”) should be read in conjunction with the audited consolidated financial
statements and the notes thereto for the years ended December 31, 2014 and 2013, and the Annual Information Form for the
year ended December 31, 2014 (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, 2014 relative to the
year ended December 31, 2013. The information contained in this report is as at March 20, 2015. 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 Corpora-
tion’s future economic performance. 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 “Overview”, “2014 and Recent Updates”, “Outlook”, “Consolidated Revenues”, “Liquidity and
Capital Resources”, “Risk Factors” and “Future Changes in Accounting Policies”. In some cases, forward-looking statements
can be identified by terminology such as “may”, “will”, “should”, “could”, “expects”, “forcasts”, “believes”, “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 through-
out the aerospace industry in 2014 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 dis-
cussed 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 a result of
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 and amortization), which the Corporation considers to be an indicative measure of operating performance and
a metric to evaluate profitability. EBITDA is not a generally accepted earnings measure and should not be considered as an
alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized method of
calculating this measure, the Corporation’s EBITDA may not be directly comparable with similarly titled measures used by
other companies. Reconciliations of EBITDA to net income (loss) reported in accordance with IFRS are included in this MD&A.

1. OVERVIEW
A summary of Magellan’s business and significant 2014 events

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

The Corporation has focused on strengthening operations, strengthening its balance sheet and leveraging core competencies
in its strategic business development activities. During 2014, key performance indicators reflected the continued success of
the Corporation’s MOSTM program. MOSTM is the Magellan Operating System adopted in 2007 which standardizes and instills
best practices in the Corporation’s facilities. This program and its policies and procedures have been firmly imbedded in daily
operations and continue to produce positive results. Through cash generation from improved operating performance, the bal-
ance sheet has improved year over year. Management, in utilizing the positive cash generation, has maintained a year over
year focus on debt retirement. Recent new program awards have confirmed the value of the Corporation’s core competency
strategy as it pursues new work opportunities.

MAGELLAN 2014 ANNUAL REPORTMagellan 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 defence sectors of the Aero-
space segment. In the commercial sector, the Corporation is active in the large commercial jet, business jet, regional aircraft,
and helicopter markets. On the defence side, the Corporation provides parts and services for major military aircraft. Magel-
lan’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

2014

99.8%

0.2%

100.0%

2013

99.7%

0.3%

100.0%

Within the Aerospace segment, the Corporation has two major product groupings: aerostructures and aeroengines. Aerostruc-
ture 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 commercial and defence markets.
Components are produced 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 tar-
geted complex assembly programs.

Within the aeroengines product grouping, the Corporation manufactures complex castings, fabricated and machined gas tur-
bine engine components, both static and rotating, and integrated nacelle components, flow paths and engine exhaust systems
for the world’s leading aeroengine 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 in the Power Generation Project segment is an electric power generation project in the Republic
of Ghana (the “Project”) that was substantially completed and all revenue related to the original statement of work was recog-
nized as at March 31, 2013. In 2014, the Corporation signed an amendment to the original Project contract which increased
the statement of work for the Project. 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 2014, for the Aerospace segment, 77% of reve-
nues were derived from commercial markets (2013 – 73%, 2012 – 70%) while 23% of revenues related to defence markets
(2013 – 27%, 2012 – 30%).

2014 and Recent Updates

- Magellan announced on April 7, 2014 the award of a contract for engine repair and overhaul (“R&O”) for the F404 engine that
powers Canada’s fleet of CF-188 Hornet aircraft. The one-year contract renewal, which was competitively bid, commenced
on April 1, 2014, and includes an option for an additional year. The work is carried out at Magellan’s facility in Mississauga,
Ontario and is expected to generate sales of approximately Cdn $55 million over the two year period, if renewed. Under the
terms of the contract, the Corporation will provide maintenance, engineering, material management, provision of Field Ser-
vice Representatives, and Publication support for the CF-188 F404 engine and ancillary components.

- The Corporation announced on May 20, 2014 that, in partnership with the University of Manitoba, an advanced satellite
integration facility (“ASIF”) will be established in Winnipeg, Manitoba. With the support of Western Economic Diversification
Canada, the facility will be shared and jointly operated by Magellan and the University of Manitoba and will create a unique
and innovative hub that will bring together industry and academia in the research, development, and the construction and
testing of satellite buses and components. Magellan’s facility in Winnipeg, Manitoba will be home to the ASIF and will be
large enough to accommodate the simultaneous assembly, integration and testing of three satellite buses. Magellan will
invest more than $2 million in the project that will contribute to the construction of the facility, multi-year program funding,

MAGELLAN 2014 ANNUAL REPORTand the establishment of an Industrial Research Chair in the area of satellite development within the Faculty of Engineering
at the University of Manitoba.

- On July 30, 2014, Magellan announced it was selected to provide landing gear kits to Boeing Commercial Airplanes (“Boe-
ing”) for the B737 MAX aircraft. The new B737 MAX family will replace the present 737 Next Generation family of aircraft
that are currently in production at Boeing. The manufacture and integration of the landing gear kits will be carried out at
Magellan’s New York facilities, which have operations in both Corona, NY and Long Island, NY. Magellan expects that this
contract could generate revenues up to US$50 million annually over the contract period. Magellan’s New York facilities are
well-established centres of excellence focused on hard metal machining and the provision of high volume kitted part families
that are delivered directly to both Tier One and Prime aircraft manufacturers.

- An announcement was made on September 30, 2014 that the Black Brant IX rocket was successfully launched from the
NASA Wallops Flight Facility in Wallops Island, Virginia in the early morning of August 28, 2014 at 5:40 a.m. The launch
mission was a test of a new sub-payload deployment method for suborbital rockets and also included the release of vapor
tracers in space. The launch and vapor tracers, which help measure the wind in the transition region between the Earth’s
atmosphere and space, could be seen from as far away as western Pennsylvania, southern New Jersey, West Virginia, and
Myrtle Beach. The Black Brant was launched by Orbital Sciences Corporation under contract from the NASA Sounding
Rockets Program Office.

- The Corporation announced on October 3, 2014 the first anniversary of its MAC-200 Bus on the Cascade SmallSat and
IOnospheric Polar Explorer (CASSIOPE) mission in space. The mission was developed and implemented by Canadian
industry led by MacDonald, Dettwiler and Associates Ltd., as prime contractor, with important contributions from the
Canadian industry team, which includes Magellan. The mission launched on September 29, 2013, carrying eight science
instruments, collectively named e-Pop as well as a second payload for advanced telecommunications technology demon-
stration (termed Cascade). The two payloads were assembled into Magellan’s MAC-200 satellite bus and have been
operating in space for more than one year.

- On January 6, 2015 Magellan announced the signing of a 10-year agreement with Pratt & Whitney Canada (“P&WC”), a
United Technologies Company, for the supply of complex magnesium and aluminum castings. The castings will be produced
primarily by Magellan’s facility in Haley, Ontario, with several being produced at its Glendale, Arizona plant. The agreement
is expected to represent approximately $250 million in revenue for Magellan from 2014 through 2023. P&WC has been a key
customer of Magellan’s Haley facility in Ontario for more than 50 years. This new long-term agreement recognizes Magellan’s
position as a leader in the industry and provides the framework for a new level of strategic alignment with P&WC.

- An announcement was made on March 4, 2015, that Magellan and the University of Manitoba unveiled their new
Advanced Satellite Integration Facility at Magellan’s facility in Winnipeg, Manitoba. The facility will support research,
development, construction and testing of satellite systems and components. The facility was constructed in an existing
6,000-square-foot area, large enough to accommodate up to three satellites at various stages of assembly with sufficient
ceiling height for high crane lifting requirements. The ASIF is an ISO Class 8 cleanroom facility that will satisfy the require-
ments of current and future satellite programs initiated by the Government of Canada. The facility expansion was funded by
an investment of $2.4 million from Western Economic Diversification Canada. Magellan invested $1.5 million which includes
$0.6 million for the establishment of an Industrial Research Chair in the area of satellite development within the Faculty of
Engineering at the University of Manitoba, and contributed to the construction of the facility, multi-year research and devel-
opment (R&D) and educational funding.

Labour Matters

During 2014, two labour agreements which expired on December 31, 2013, and four labour agreements which expired during
2014, were successfully re-negotiated during the year ended December 31, 2014 with contract periods ending in 2015,
2016 and 2017. Three labour agreements at three of the Corporation’s facilities expire in 2015. The Corporation successfully
re-negotiated the labour agreement that expired on February 28, 2015 with a contract period ending 2017. The Corporation
is currently in negotiations at one facility as the labour agreement expired on March 15, 2015. The other agreement expires in
the second half of 2015.

MAGELLAN 2014 ANNUAL REPORTFinancing Matters

On September 30, 2014, Magellan announced the Corporation amended the Bank Facility Agreement pursuant to which
Magellan and the lenders agreed to adjust the maximum amounts available under the operating credit facility to Cdn$95 million
(down from Cdn$115 million), US$35 million and £11 million British pounds. Under the terms of the amended credit agree-
ment, the operating credit facility expires on September 30, 2018. The Bank Facility Agreement also includes a Cdn$50 million
uncommitted accordion provision which provides the Corporation with the option to increase the size of the operating credit
facility to $200 million. Extensions of the facility are subject to mutual consent of the syndicate of lenders and the Corporation.
Pursuant to the amendment of the Bank Facility Agreement, the guarantee of the facility by Mr. Edwards, which had supported
the Corporation since 2005, was released.

2. OUTLOOK
The outlook for Magellan’s business in 2015

The commercial aircraft cycle remains on the high from 2014 where airlines recorded one of the most profitable years on record
partially as a result of lower fuel prices. Depending upon whether or not this manifests in lower fare prices, the coming year
is expected to be healthier as airlines deplete their fuel hedges and take full advantage of continued low fuel costs. Industry
experts are debating over the potential long term effect of lower fuel prices on next generation aircraft orders such as order
deferrals or cancelations. The prevailing opinion appears to be that airlines generally have a longer term perspective and that
as long as interest rates remain low, the best hedge against volatile fuel prices is more fuel efficient aircraft.

Magellan remains well positioned in the civil aircraft market, particularly due to its participation within the aerostructures seg-
ment of its business. Magellan holds positions on all Airbus and Boeing programs and is seeking to increase these positions.

During 2015, Boeing expects to continue the B737 production rate at 42 per month with plans to increase to 47 per month by
2017, and 52 per month by 2018. Airbus plans to increase the A320 rate from 42 per month to 43 within 2015 and 50 by late
2016. The looming challenge faced by both companies in this narrow-body segment will be to raise output over the next three
years to accommodate the transition to the new A320 neo and B737 MAX models.

Within the widebody segment, Boeing’s B777 build rate is currently at 8.3 per month and is expected to remain steady through
2015. Boeing expects to continue the B787 rate through 2015 at 10 per month with plans to move to 12 per month by 2016 and
14 per month by the end of the decade. The B747 is running at 1.5 per month and is expected to drop to 1.3 per month mid-2015.

Airbus’ A380 production rate is expected to remain at 30 per year for the foreseeable future. The A350XWB is expected to
ramp up in 2015 from 2.2 per month to a maximum planned rate of 13 per month by 2018.

ATR continues to dominate the turboprop segment of the regional aircraft market and Embraer the jet segment. Within turbo-
props, Bombardier has succeeded at maintaining a Q400 production rate of approximately 30 per year despite the demise
of their deal with Rostec in Russia that would have expanded their market share. Comparatively, ATR will build 83 ATR-42/72
aircraft in 2015. Within the jet segment, Embraer is in the detail design phase for its new E2 family of jets as the current
E170/E190 series jets satisfy market demand. Finally, Bombardier celebrates the first flight of their C-Series aircraft after a num-
ber of setbacks. Magellan through third party contracts provides products primarily in support of the Bombardier Q400 and
does not have an aerostructures support role for the “C-Series” program.

Within the business jet sector, Honeywell predicts in their annual forecast that large-cabin aircraft will represent 75% of business
jets delivered by value through this decade. At the same time, Forecast International predicts solid recovery within the small
to medium-cabin sector over the next several years. They believe the key to unlocking latent North American demand is con-
tinued economic improvement. Airframers are positioning for the recovery in this segment with a number of new products to
enter into service such as the HondaJet, Pilatus PC-24 and the Sirrus SF-50. Magellan supports a number of programs within
this sector through its aeroengine and casting capabilities.

The recent strength in the civil rotorcraft market had been a welcome refuge from military budget cuts in the past year but
this has given way to a much flatter sales landscape. High oil prices which had been favourable to backlogs for oil and gas
exploration applications are expected to be scaled back considering low crude prices. As well, the parapublic segment was
originally hoped to bring a lift to the market, but the trimming of government budgets may curb potential opportunities. There is
positive news as a number of new programs are on the horizon. They are AgustaWestland’s AW169 and AW189 both showing

MAGELLAN 2014 ANNUAL REPORTstrong sales, Bell Helicopter’s 505 Jet Ranger X and the 525 Relentless, Airbus’ EC175 and then finally their new X4 experi-
mental helicopter.

US spending power will continue to dominate the military helicopter market as it prepares to map out the future modernization
of its vast helicopter fleets. New programs such as the Joint Multi-Role Helicopter (JMR) competed between Boeing/Sikorsky’s
Defiant helicopter and Bell Helicopter’s V-280 Valor tiltrotor is one example. In the heavy lift arena, development of the new
Sikorsky CH53K heavy lift helicopter continues to make progress.

Still a large unknown in the US defence market is how the government will achieve a sequestration-compliant budget in light
of political dysfunction and unforeseen budget demands from new global threats such as ISIS. In the midst of this, there are
new-start programs such as F-35 Joint Strike Fighter, KC-46 Tanker, Long Range Strike Bomber and helicopters that compete
for budget priorities. Extending out-of-service dates for existing fleets can be beneficial for defence contractors producing
legacy platforms, as the new single-source program model can challenge the industry.

Having said this, the F-35 program continues to dominate the global fighter market. During 2014 the program overcame a sig-
nificant setback as investigators determined the probable cause of the engine problems that triggered a fire on an F-35 fighter
jet in July while on the ground. Modifications to the engine and the break in process were implemented allowing the Pentagon
to resume the award of contracts for new aircraft and engines. From a program development perspective key milestones were
achieved in 2014 including the first flight operations from an aircraft carrier for the F-35C. In July 2015, the US Marines are
expected to declare initial-operational-capability (“IOC”) of their F-35B’s which will represent the first IOC achievement for the
program. The USAF is expected to declare their IOC in 2016. Magellan’s annual revenues have been increasing steadily over
the years and they have now exceeded $140 million for the program to date. This trend will continue into 2015 with anticipated
significant increases to annual production rates of the F-35 program going forward. A focus on driving costs down has been
prominent for the program and this is expected to be maintained as international sales activities increase. The Canadian Gov-
ernment procurement decision for the next generation fighter continues to be addressed within the Government.

3. SELECTED ANNUAL INFORMATION
A summary of selected annual financial information for 2014, 2013 and 2012

Expressed in millions of dollars, except per share information

Revenues

Net income for the year

Net income per common share - Basic

Net income per common share - Diluted

EBITDA

EBITDA per common share - Diluted

Total assets

Total long-term liabilities

2014

843.0

56.6

0.97

120.3

2.07

834.6

198.0

2013

752.1

45.5

0.78

100.8

1.73

791.9

99.3

2012

704.0

57.0

0.99

0.98

100.8

1.73

755.0

267.0

Revenues for the year ended December 31, 2014 increased from 2013 and 2012 levels. The increase in revenues from 2013
is primarily attributable to the strengthening of the US dollar and British pound in comparison to the Canadian dollar and to
production rate increases on several leading programs in the global commercial aerospace market. Net income increased in
2014 from 2013 due to improved efficiencies resulting from increased production volumes and the favourable movement of
the Canadian dollar relative to the US dollar and British pound (see “Results of Operations – Gross Profit”). During 2014 the
Corporation paid quarterly dividends on common shares of $0.04 per share for the first three quarters and $0.055 per share
in the fourth quarter, amounting to $10.2 million. During 2013, the Corporation paid quarterly dividends on common shares of
$0.03 per share in both the third and fourth quarter, amounting to $3.5 million.

MAGELLAN 2014 ANNUAL REPORT4. RESULTS OF OPERATIONS
A discussion of Magellan’s operating results for 2014 and 2013

Consolidated Revenues

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

2014

840,903

2,133

843,036

2013

749,934

2,192

752,126

Change

12.1%

(2.7)%

12.1%

Consolidated revenues for the year ended December 31, 2014 increased 12.1% to $843.0 million from $752.1 million last year,
due mainly to increased revenues earned in the Corporation’s Aerospace segment offset, in part, by slightly reduced revenues
in the Corporation’s Power Generation Project segment. The weakness in the Canadian dollar in combination with increase in
product shipments contributed to the year over year increase in sales.

Aerospace Segment

Revenues for the Aerospace segment were as follows:

Twelve-months ended December 31, expressed in thousands of dollars

Canada

United States

Europe

Total revenues

2014

323,085

272,646

245,172

840,903

2013

299,297

232,260

218,377

749,934

Change

7.9%

17.4%

12.3%

12.1%

Aerospace revenues for the year ended December 31, 2014 were $840.9 million, an increase of $91.0 million or 12.1% over
the previous year. Revenues in Canada in 2014 increased 7.9% in comparison to revenues earned in 2013 while revenues in
United States in US dollars increased 9.5% and increased 17.4% when measured in Canadian dollars. Revenues in Europe
increased in 2014 in comparison to 2013 when measured in Canadian dollars, however remained consistent with revenues in
2013 when measured in British pounds.

Favourable foreign exchange impacts on the translation of foreign operations to Canadian dollars resulting from a stronger
United States dollar and British pound in 2014 against the Canadian dollar contributed to higher revenues generated in United
States and Europe in 2014 when compared to 2013. If average exchange rates for both the United States dollar and British
pound experienced in 2013 remained constant in 2014, consolidated revenues for 2014 would have been approximately $782.9
million or approximately $58.0 million lower than actually realized in 2014.

Power Generation Project Segment

Revenues for the Power Generation Project segment were as follows:

Twelve-months ended December 31,expressed in thousands of dollars

Power Generation Project

Total revenues

2014

2,133

2013

2,192

Change

(2.7)%

Revenues earned in 2014 and 2013 are from the Corporation’s Ghana electric power generation project. The original state-
ment of work on the Ghana Power Generation Project (the “Project”) was substantially completed and all revenue related to
the original statement of work was recognized as at March 31, 2013. In the second quarter of 2014, the Corporation signed an
amendment to the original Project contract which increased the statement of work for the Project. Revenues recorded in the
year represent the progress made to date on the additional statement of work.

MAGELLAN 2014 ANNUAL REPORTGross Profit

Twelve-months ended December 31,expressed in thousands of dollars

Gross Profit

Percentage of revenue

2014

133,782

15.9%

2013

112,327

14.9%

Change

19.1%

Gross profit increased by $21.5 million from 2013 levels of $112.3 million to $133.8 million in 2014. Gross profit, as a percent-
age of revenues, was higher in 2014 at 15.9% versus 14.9% in 2013. Increases in the underlying activity and the impact of the
weakness in the Canadian dollar resulted in a higher gross profit for 2014 when compared to 2013.

Administrative and General Expenses

Twelve-months ended December 31, expressed in thousands of dollars

Administrative and general expenses

Percentage of revenue

2014

48,221

5.7%

2013

45,481

6.0%

Change

6.0%

Administrative and general expenses increased to $48.2 million in 2014 from $45.5 million in 2013. Foreign exchange accounts
for approximately $4.2 million of the year over year spend increase, offsetting the decrease in administrative and general
expenses in native currency in 2014 when compared to 2013.

Other

Twelve-months ended December 31, expressed in thousands of dollars

Foreign exchange gain

Gain on settlement of long-term liabilities

Loss on disposal of property, plant and equipment

Other

2014

(523)

–

1,097

574

2013

(142)

(1,031)

576

(597)

Included in other income is a foreign exchange gain of $0.5 million in 2014 compared to a gain of $0.1 million in 2013, result-
ing from the revaluation and settlement of the Corporation’s Unites States dollar denominated monetary assets and liabilities
in Canada and foreign exchange contracts. The Corporation reached a favourable agreement in 2013 on the settlement of its
borrowings subject to specific conditions and recorded a gain of $1.0 million. In 2014 and 2013, the Corporation retired assets
for a loss on disposal of approximately $1.1 million and $0.6 million, respectively.

Interest Expense

Twelve-months ended December 31, expressed in thousands of dollars

Interest on bank indebtedness and long-term debt

Accretion charge on long-term debt and borrowings

Discount on sale of trade receivables

Interest expense

2014

4,586

2,531

770

7,887

2013

6,935

(916)

702

6,721

Interest costs for 2014 were $7.9 million, an increase of $1.2 million from 2013 largely due to a higher accretion charge as long-
term bond rates decreased in 2014 when compared to 2013. Long-term bond rates in 2013 increased resulting in a recovery
of accretion expense recorded in prior years. Interest on bank indebtedness and long-term debt in 2014 decreased as the
Corporation continued to reduce its external interest bearing debt. During 2014, the Corporation sold $287.3 million of trade
receivables at an annualized interest rate of 1.68% compared to the sale of $256.2 million of trade receivables in 2013 at an
annualized interest rate of 1.73%.

MAGELLAN 2014 ANNUAL REPORTIncome Taxes

Twelve-months ended December 31, expressed in thousands of dollars

Current income tax expense

Deferred income tax expense

Income tax expense

Effective tax rate

2014

4,991

15,537

20,528

26.6%

2013

3,893

11,346

15,239

25.1%

The Corporation recorded an income tax expense in 2014 of $20.5 million on pre-tax income of $77.1 million, representing an
effective tax rate of 26.6%, compared to an income tax expense of $15.2 million on a pre-tax income of $60.7 million in 2013
for an effective tax rate of 25.1%.

During each of 2014 and 2013, the Corporation recognized investment tax credits in Canada totalling $6.9 million and $7.4
million, respectively, as a reduction of cost of revenues, as the Corporation has determined that it will be able to benefit from
these investment tax credits. The increase in the effective tax rate to 26.6% in 2014 when compared to 25.1% in 2013 is primar-
ily due to higher income reported by the Corporation’s international subsidiaries that operate in higher income tax jurisdictions.

5. RECONCILIATION OF NET INCOME TO EBITDA
A description and reconciliation of certain non-IFRS measures used by management

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

Twelve-months ended December 31, expressed in thousands of dollars

Net income

Interest

Taxes

Depreciation and amortization

EBITDA

2014

56,572

7,887

20,528

35,300

120,287

2013

45,483

6,721

15,239

33,309

100,752

EBITDA for the year ended 2014 of $120.5 million increased by $19.5 million when compared to $100.8 million in 2013. Increased
revenue levels and improved margins in 2014 over 2013 were partially offset by the administrative and general expenses.

MAGELLAN 2014 ANNUAL REPORT6. SELECTED QUARTERLY FINANCIAL INFORMATION
A summary view of Magellan’s quarterly financial performance

Expressed in millions of dollars except per share information

2014

2013

Revenues

Income before taxes

Net income

Net income per common share

Basic and Diluted

EBITDA 1

Mar 31

Jun 30

Sep 30

Dec 31

Mar 31

Jun 30

Sep 30

Dec 31

210.5

221.0

202.5

208.9

185.3

189.9

181.0

195.9

16.7

12.1

0.21

27.1

18.8

13.6

0.23

30.2

17.7

13.0

0.22

28.3

23.9

17.9

0.31

34.7

11.0

8.0

0.14

21.3

15.5

11.2

0.19

25.6

13.2

9.5

0.16

22.9

21.0

16.8

0.29

31.0

1 EBITDA is not an International Financial Reporting Standards (“IFRS”) financial measure. Please see the “Reconciliation of Net Income to EBITDA” section for
more information.

The Corporation recorded its highest quarterly revenue in the second quarter of 2014. Revenues and net income reported in
the quarterly information were impacted favourably by the fluctuations in the Canadian dollar exchange rate in comparison to
the Unites States dollar and British pound. The Unites States dollar/Canadian dollar exchange rate in 2014 fluctuated reach-
ing a low of 1.0627 and a high of 1.1643. During 2014, the Unites States dollar relative to the Canadian dollar moved from an
exchange rate of 1.0639 at the start of the 2014 calendar year to an exchange rate of 1.1601 by December 31, 2014. The Brit-
ish pound/Canadian dollar exchange rate in 2014 fluctuated reaching a low of 1.7429 and a high of 1.8587. During 2014, the
British pound relative to the Canadian dollar moved from an exchange rate of 1.7575 at the start of the 2014 calendar year to
an exchange rate of 1.8058 by December 31, 2014. Had exchange rates remained at levels experienced in 2013, reported
revenues in 2014 would have been lower by $18.5 million in the first quarter; $15.7 million in the second quarter, $11.9 million
in the third quarter and $12.0 million in the fourth quarter.

Net income for the fourth quarters of 2014 and 2013 of $17.9 million and $16.8 million, respectively, was higher than all other
quarterly net income shown in the table above. In the fourth quarter of 2013 the Corporation recognized a reversal of previous
impairment losses against intangible assets relating to various commercial aircraft programs and in the fourth quarter of 2013
and 2014 the Corporation recognized previously unrecognized investment tax credits.

7. LIQUIDITY AND CAPITAL RESOURCES
A discussion of Magellan’s cash flow, liquidity, credit facilities and other disclosures

The Corporation’s liquidity needs can be met through a variety of sources including cash on hand, cash provided by opera-
tions, short-term borrowings from its credit facility and trade receivables securitization program, and long-term debt and equity
capacity. Principal uses of cash are to fund liabilities as they become due, finance capital expenditures, fund debt repayments,
pay dividends and provide flexibility for new investment opportunities. 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.

In 2014, $78.6 million of cash was generated by operations, $41.1 million was used in investing activities and $42.9 million was
used in financing activities. Cash decreased by $5.2 million in the year from $7.8 million to $2.6 million.

MAGELLAN 2014 ANNUAL REPORTCash Flow from Operating Activities

Twelve-months ended December 31, expressed in thousands of dollars

Increase in trade receivables

Increase in inventories

Decrease (increase) in prepaid expenses and other

(Decrease) increase in accounts payable, accrued liabilities and provisions

Net change in non-cash working capital items

Cash provided by operating activities

2014

(8,438)

(10,267)

361

(4,917)

(23,261)

78,576

2013

(8,126)

(6,698)

(5,886)

10,412

(10,298)

69,819

Operating activities for 2014 generated cash of $78.6 million compared to $69.8 million in the prior year. Changes in non-cash
working capital items used cash of $23.3 million as a result of increases in trade receivables and inventories and a decrease
in accounts payable, accrued liabilities and provisions. The increase in trade receivables during the year is attributed pri-
marily to the higher revenues. Increased inventory levels in 2014 were to support higher production volumes on a number of
programs. In 2013, changes in non-cash working capital of $10.3 million were principally a result of increases in trade receivables,
inventory and prepaid expenses and other, offset in part by an increase in accounts payable, accrued liabilities and provisions.

Cash Flow from Investing Activities

Twelve-months ended December 31, expressed in thousands of dollars

Investment in joint venture

Purchase of property, plant and equipment

Proceeds from disposals of property, plant and equipment

Increase in other assets

Cash used in investing activities

2014

(326)

(35,481)

611

(5,945)

(41,141)

2013

(4,283)

(31,299)

486

(9,293)

(44,389)

The Corporation invested $35.5 million in capital assets during the year in comparison to $31.3 million in 2013. The Corpora-
tion continues to invest in advanced technology production equipment and information technology systems, both designed to
increase productivity, reduce cycle time and improve technology capability.

In 2013, the Corporation invested $4.0 million in acquiring a 49% interest in Triveni Aeronautics Private Limited, an aerospace
components manufacturing company based in India. The investment was financed from the Corporation’s operating credit facility.

Contractual Obligations

As at December 31, 2014, expressed in thousands of dollars

Bank indebtedness

Trade receivables securitization

Long-term debt

Equipment leases

Facility leases

Other long-term liabilities

Borrowings subject to specific conditions

Less than
1 year

1-3 Years

4-5 Years

–

36,125

3,891

530

1,785

125

2,543

–

8,767

803

3,022

544

193

After 5
Years

–

81,442

–

10,200

26,819

323

1,934

410

2,196

4,580

679

16,388

Total

81,442

36,125

49,677

1,738

11,321

1,758

21,320

Total contractual obligations

44,999

13,329

96,505

48,548

203,381

MAGELLAN 2014 ANNUAL REPORTMajor cash flow requirements for 2015 include the repayment of trade receivables securitization of $36.1 million which is expected
to be refinanced, repayment of long-term debt of $3.9 million, payments of equipment and facility leases of $2.2 million and
borrowings subject to specific conditions of $2.5 million.

On September 30, 2014, the Corporation amended and restated its Bank Facility Agreement with its existing lenders. Under
the terms of the amended agreement, the maximum amount available under the operating credit facility was amended to a
Canadian dollar limit of $95.0 million (down from $115.0 million) plus a United States dollar limit of $35.0 million, and the addi-
tion of a £9 million British Pound limit with a maturity date of September 30, 2018. The Bank Facility Agreement also includes a
Canadian $50.0 million uncommitted accordion provision which provides Magellan with the option to increase the size of the
operating credit facility to $200.0 million. Extensions of the facility are subject to mutual consent of the syndicate of lenders and
the Corporation. Pursuant to the amendment of the Bank Facility Agreement, the guarantee of the facility by the Chairman of
the Board of the Corporation, which had supported the Corporation since 2005, was released.

As at December 31, 2014, the Corporation had made contractual commitments to purchase $17.7 million of capital assets. In
addition, the Corporation also had purchase commitments, largely for materials required for the normal course of operations,
of $304.7 million as at December 31, 2014. The Corporation plans to fund all of these capital commitments with operating cash
flow and the existing credit facility.

Outstanding Share Information

The authorized capital of the Corporation consists of an unlimited number of preference shares, issuable in series, and an
unlimited number of common shares. As at March 20, 2015, 58,209,001 common shares were outstanding and no prefer-
ence shares were outstanding. More information on the Corporation’s share capital is provided in note 15 of the consolidated
financial statements.

On March 31, 2014, June 30, 2014, and September 30, 2014 the Corporation paid quarterly dividends on 58,209,001 common
shares of $0.04 per common share, representing an aggregate dividend payment of $7.0 million. On December 31, 2014 the
Corporation paid quarterly dividends on 58,209,001 common shares of $0.055 per common share, amounting to $3.2 million.
In each of the third and fourth quarter of 2013, the Corporation declared and paid quarterly cash dividends of $0.03 per com-
mon share representing an aggregate dividend payment of $3.5 million.

In the first quarter of 2015, the Corporation declared cash dividends of $0.055 per common share payable on March 31, 2015
to shareholders of record at the close of business on March 13, 2015.

8. FINANCIAL INSTRUMENTS
A summary of Magellan’s financial instruments

Derivative Contracts

The Corporation operates internationally, which gives rise to a risk that its income, cash flows and shareholders’ equity may
be adversely impacted by fluctuations in foreign exchange rates. Currency risk arises because the amount of the local cur-
rency receivable or payable for transactions denominated in foreign currencies may vary due to changes in exchange rates
and because the non-Canadian dollar denominated financial statements of the Corporation’s subsidiaries may vary on con-
solidation into the reporting currency of Canadian dollars. The Corporation from time to time may use derivative financial
instruments to help manage foreign exchange risk with the objective of reducing transaction exposures and the resulting volatility
of the Corporation’s earnings. The Corporation does not trade in derivatives for speculative purposes. Under these contracts
the Corporation is obligated to purchase specified amounts at predetermined dates and exchange rates. These contracts are
matched with anticipated cash flows in United States dollars. The counterparties to the foreign currency contracts are all major
financial institutions with high credit ratings. As at December 31, 2014, the Corporation entered into a forward exchange contract
to purchase US dollars of $3.5 million at an exchange rate of $1.1613 Canadian per $1.00 US dollar, expiring in January 2015.

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 expen-

MAGELLAN 2014 ANNUAL REPORTditures 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.

9. RELATED PARTY TRANSACTIONS
A summary of Magellan’s transactions with related parties

During 2013, the Corporation incurred interest of $2.0 million in relation to a loan (“Original Loan”) provided by Edco Capital
Corporation, a corporation controlled by the Chairman of the Board, to the Corporation. The Original Loan was prepaid by
$30.0 million in 2013, leaving a balance of $nil as at December 31, 2013.

The Chairman of the Board of the Corporation provided a guarantee for the full amount of the Corporation’s operating credit
facility until September 30, 2014 at which time the guarantee was released. An annual fee averaging 0.5% [2013 – 0.5%] of the
guaranteed amount or $0.6 million [2013 - $0.8 million] was paid in consideration for the guarantee.

During the year, the Corporation incurred consulting costs of $0.1 million [2013 - $0.1 million] payable to a corporation controlled
by the Chairman of the Board of the Corporation.

10. RISK FACTORS
A summary of risks and uncertainties facing Magellan

The Corporation’s performance may be affected by a number of risks and uncertainties. Magellan’s senior management iden-
tifies 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.

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 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 in the past has increased the pressure
on the operating margins of aircraft companies which reduces their ability to finance capital expenditures. Constraints in the
credit market may reduce the ability of airlines and others to purchase new aircraft, negatively affecting the demand for the Cor-
poration’s products. 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 and external to the aerospace industry might affect the aerospace industry and may
have an adverse impact on the Corporation’s results of operations. More specifically, a number of additional external risk fac-
tors may include the financial condition of the airline industry, commercial aerospace customers and government aerospace
customers; government policies related to import and export restrictions and business acquisition; changing priorities and
possible spending cuts by government agencies; government support for export sales; world trade policies; increased com-
petition from other businesses, including new entrants in market segments in which we compete. In addition, acts of terrorism,
natural disasters, global health risks, political instability or the outbreak of war or continued hostilities in certain regions of the
world could result in lower orders or the rescheduling or cancellation of part of the existing order backlog for some of the Cor-
poration’s products.

MAGELLAN 2014 ANNUAL REPORTThe Corporation faces risks from downturns in the domestic and global economies.
Potential loss due to unfavourable economic conditions, such as a macroeconomic downturn in key markets, could result in
potential buyers postponing the purchase of the Corporation’s products or services, lower order intake, order cancellations or
deferral of deliveries, lower availability of customer financing, downward pressure on selling prices, increased inventory levels,
decreased level of customer advances, slower collection of receivables, reduction in production activities, discontinued pro-
duction of certain products, termination of employees and adverse impacts on the Corporation’s suppliers.

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 rev-
enues and operating results may be impaired as a result of negative general economic conditions. Economic uncertainty
renders estimates of future revenues and expenditures more difficult 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.

The Corporation may be unable to successfully achieve or maintain “key supplier” status with OEMs, and may be required to
risk capital to achieve key supplier status.
Many OEMs are moving toward developing strategic partnerships with their key suppliers. Each key supplier provides an array
of integrated services including purchasing, warehousing and assembly for OEM customers. The Corporation has been desig-
nated as a key supplier by some OEMs and is striving to achieve a higher level of integrated supply with other OEMS. In order
to achieve key status, the Corporation may need to expand the Corporation’s existing capacities or capabilities, and there is
no assurance that the Corporation will be able to do so.

Many new aircraft and aircraft engine programs require that major suppliers become risk-sharing partners, meaning that the
cost of design, development and engineering work associated with the development of the aircraft or the aircraft engine is
partially born by the supplier, usually in exchange for a life-time agreement to supply those critical parts once the aircraft or
the aircraft engine is in production. In the event that the aircraft or the aircraft engine fails to reach the production stage, inad-
equate number of units is produced, or actual sales otherwise do not meet projections, the Corporation may incur significant
costs without any corresponding revenues.

A reduction in defence spending by the United States or other countries could result in a decrease in revenue.
Over the last several years, heightened sovereign debt issues in the European Union have created instability and volatility in
the international credit and financial markets and have 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 concerns about the national debt issue in the United States and actions taken by the government of the United States
has led to reductions in spending, including defence spending. The United States defence budget for 2014 had reduced
spending by 15% over the previous year resulting in the elimination and/or reduction in some new defence programs. In
addition, the governments in Canada and other countries have recognized the need to reduce budget deficits. Worldwide
spending on defence in 2015, while restrained, is expected to stabilize. The primary driver to defence spending in 2015 reflects
the demands on various countries that are affected by the current turmoil in Eastern Europe and the Middle East.

The United States is the principal purchaser under the F-35 program which represents a significant item in their budget. Canada
is also a participant in the F-35 program and has invested in an Advanced Composite Manufacturing Facility at Magellan’s Win-
nipeg facility, primarily in support of the F-35 program. The Canadian government has also announced plans to consider other
options for replacing its aging CF-18 fighter jets. In addition, other countries who are part of the F-35 program have announced
plans to delay orders for the F-35 aircraft. This is somewhat balanced by recent announcements of new foreign military sales.

The Corporation relies on sales to defence customers particularly in the United States. A significant reduction in defence
expenditures by the United States or other countries with which the Corporation has material contracts, such as the F-35 pro-
gram, could materially adversely affect the Corporation’s business and financial condition. The loss or significant reduction in
government funding of a large program in which the Corporation participates, such as the F-35 program, could also materially
adversely affect sales and earnings.

MAGELLAN 2014 ANNUAL REPORTFluctuations 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 fluctuations 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.

Cancellations, reductions or delays in customer orders may adversely affect the Corporation’s results of operations.
The Corporation’s overall operating results are affected by many factors, including the timing of orders from large customers
and the timing of expenditures to manufacture parts and purchase inventory in anticipation of future sales of products and ser-
vices. A large portion of the Corporation’s operating expenses is relatively fixed. Because several of the Corporation’s operating
locations typically do not obtain long-term purchase orders or commitments from customers, the Corporation must anticipate
the future volume of orders based upon the historic purchasing patterns of customers and upon discussions with customers
as to their anticipated future requirements. These historic patterns may be disrupted by many factors, including changing eco-
nomic conditions, inventory adjustments, work stoppages or labour disruptions. Cancellations, reductions or delays in orders
by a customer or group of customers could have a material adverse effect on the Corporation’s business, financial condition
and results of operations.

11. CRITICAL ACCOUNTING ESTIMATES
A description of accounting estimates that are critical to determining Magellan’s financial results

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 val-
ues, 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 corre-
sponding 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 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.

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 17 of the
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 resulting from temporary differences. Deferred tax assets are assessed to determine the likelihood that they will be real-
ized 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 Corporation’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.

MAGELLAN 2014 ANNUAL REPORTCapitalization 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. When total contract costs are likely to exceed total contract revenue, the expected loss is recognized
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 assumptions 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 dis-
count rates, 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 programs 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.

12. CHANGES IN ACCOUNTING POLICIES
A description of accounting standards adopted in the current year

The Corporation has adopted the following new and amended standards in the current year.

Financial Assets and Liabilities
In December 2011 the International Accounting Standards Board (“IASB”) issued amendments to International Accounting
Standards (“IAS”) 32, Financial Instruments: Presentation to clarify the existing requirements for offsetting financial assets and
financial liabilities. The amendments specify that the right of set-off has to be legally enforceable even in the event of bankruptcy
and that it must be available on the current date and cannot be contingent on a future date. The adoption of this pronounce-
ment on January 1, 2014 did not have an impact on the consolidated financial statements of the Corporation.

Levies
In May 2013, the IASB issued International Financial Reporting Interpretations Committee (“IFRIC”) 21, Levies. IFRIC 21 is
effective for annual periods beginning on or after January 1, 2014 and is to be applied retrospectively. IFRIC 21 provides
guidance on accounting for levies in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The
interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms
that an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs, which may be
at a point in time or over a period of time. The adoption of this pronouncement on January 1, 2014 did not have an impact on
the consolidated financial statements of the Corporation.

Impairment of Assets
In May 29, 2013, the IASB published amendments to IAS 36, Impairment of Assets which reduce the circumstances in which
the recoverable amount of a cash generating unit is required to be disclosed and clarify the disclosures required when an
impairment loss has been recognized or reversed in the period. The adoption of this pronouncement on January 1, 2014 did
not have an impact on the consolidated financial statements of the Corporation.

13. FUTURE CHANGES IN ACCOUNTING POLICIES
A description of new accounting standards and interpretations not yet adopted

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended Decem-
ber 31, 2014, and have not been applied in preparing these consolidated financial statements. The following standards and

MAGELLAN 2014 ANNUAL REPORTinterpretations have been issued by the International Accounting Standards Board and the International Financial Reporting
Interpretations Committees with effective dates relating to the annual accounting periods starting on or after the effective dates
as follows:

Employee Benefits
In November 2013, Defined Benefit Plans: Employee Contributions was issued to amend IAS 19, Employee Benefits. These
narrow scope amendments simplify the accounting for contributions to defined benefit plans. These amendments are effec-
tive for annual periods beginning on or after July 1, 2014, with earlier application permitted. The Corporation is in the process
of evaluating the impact of adopting this amendment may have on the Corporation’s consolidated financial statements.

Joint Arrangements
In May 2014, the IASB issued amendments to IFRS 11, Joint Arrangements (“IFRS 11”) to address the accounting for acquisitions
of interests in joint operations. The amendments address how a joint operator should account for the acquisition of an interest
in a joint operation in which the activity of the joint operation constitutes a business. IFRS 11, as amended, now requires that
such transactions shall be accounted for using the principles related to business combinations accounting as outlined in IFRS
3, Business Combinations. The amendments are to be applied prospectively and are effective for annual periods beginning
on or after January 1, 2016, with earlier application permitted. Upon adoption, these amendments may impact the Corporation
in respect of future sale or contribution of assets with its joint ventures.

Revenue Recognition
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), which supersedes IAS 18, Rev-
enue, IAS 11, Construction Contracts and other interpretive guidance associated with revenue recognition. IFRS 15 provides
a single, principle based five-step model to be applied to all contracts with customers, except insurance contracts, financial
instruments and lease contracts, which fall in the scope of other IFRSs. In addition to the five-step model, the standard spec-
ifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The
incremental costs of obtaining a contract must be recognized as an asset if the entity expects to recover these costs. The stan-
dard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some nonfinancial
assets that are not an output of the entity’s ordinary activities. IFRS 15 is to be applied on either a full or modified retrospective
approach and is effective for annual periods beginning on or after January 1, 2017, with earlier application permitted. The Cor-
poration is in the process of evaluating the impact that IFRS 15 may have on the Corporation’s consolidated financial statements.

Property, Plant and Equipment
In May 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment (“IAS 16”) and IAS 38, Intangible Assets
(“IAS 38”) to clarify acceptable methods of depreciation and amortization. The amended IAS 16 eliminates the use of a rev-
enue-based depreciation method for items of property, plant and equipment. Similarly, amendments to IAS 38 eliminate the
use of a revenue-based amortization model for intangible assets except in certain specific circumstances. The amendments
are to be applied prospectively and are effective for annual periods beginning on or after January 1, 2016, with earlier applica-
tion permitted. The Corporation is in the process of evaluating the impact of adopting these amendments on the Corporation’s
consolidated financial statements.

Financial Instruments – Recognition and Measurement
In July 2014, the IASB issued the final amendments to IFRS 9, Financial Instruments (“IFRS 9”) which provides guidance
on the classification and measurement of financial assets and liabilities, impairment of financial assets, and general hedge
accounting. The classification and measurement portion of the standard determines how financial assets and financial liabil-
ities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. The amended
IFRS 9 introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses.
In addition, the amended IFRS 9 includes a substantially-reformed model for hedge accounting, with enhanced disclosures
about risk management activity. The new standard is effective for annual periods beginning on or after January 1, 2018, with
earlier adoption permitted. The Corporation is in the process of evaluating the impact of adopting these amendments on the
Corporation’s consolidated financial statements.

MAGELLAN 2014 ANNUAL REPORTin IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint
venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a busi-
ness (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that
do not constitute a business, even if the assets are housed in a subsidiary. The amendments are to be applied prospectively
and are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. Upon adoption,
these amendments may impact the Corporation in respect of future sale or contribution of assets with its joint ventures.

Operating Segments
The Annual Improvements to IFRSs 2010-2012 included amendments to IFRS 8, Operating Segments. This standard has
been amended to require (i) disclosure of judgments made by a company’s management in aggregating segments, and (ii)
a reconciliation of segment assets to the entity’s assets when segments are reported. These amendments are effective for
annual periods beginning on or after July 1, 2014. The Corporation is in the process of evaluating the impact of adopting these
amendments on the Corporation’s consolidated financial statements.

14. CONTROLS AND PROCEDURES
A description of Magellan’s disclosure controls and internal controls over financial reporting

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 are required to certify
as at December 31, 2014 that they are responsible for establishing and maintaining, and have assessed the design and oper-
ating 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, misstatements or fraud. In addition, internal control over financial reporting that management has designed and
established may be circumvented and rendered ineffective as a result of unauthorized acts of individuals through collusion
or management override. A system of control, no matter how well conceived and operated, can provide only reasonable, but
not absolute, assurance that control objectives are met. Due to the inherent limitations in a system of control, there is no abso-
lute assurance that all controls issues, which may result in errors, misstatements, or fraud, can be prevented or detected. The
inherent limitations include, amongst other things: (i) management’s assumptions and judgments could ultimately prove to be
incorrect under varying conditions and circumstances; (ii) the impact of isolated errors; (iii) assumptions about the likelihood
of future events.

In preparation for this certification, Magellan has dedicated resources in place to document and evaluate the design and oper-
ating effectiveness of disclosure controls and procedures and internal control over financial reporting. As of December 31, 2014,
an evaluation was carried out, under the supervision of the President and Chief Executive Officer and the Chief Financial Offi-
cer 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 disclosure controls and procedures and internal control over financial
reporting were effective as of December 31, 2014.

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.

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

MAGELLAN 2014 ANNUAL REPORTManagement’s Report

To the shareholders of Magellan Aerospace Corporation

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

Management maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded and to
facilitate the preparation of relevant, reliable and timely financial information. External auditors appointed by the shareholders
have examined the consolidated financial statements. The Audit Committee, consisting of non-management directors, has
reviewed these consolidated financial statements with management and the auditors and has reported to the Board of Direc-
tors. The Board of Directors approved the consolidated financial statements.

Phillip C. Underwood
President and Chief Executive Officer
March 20, 2015

John B. Dekker
Chief Financial Officer and
Corporate Secretary

MAGELLAN 2014 ANNUAL REPORTIndependent Auditors’ Report

To the Shareholders of Magellan Aerospace Corporation

We have audited the accompanying consolidated financial statements of Magellan Aerospace Corporation, which comprise the
consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of income
and comprehensive income, changes in equity and cash flows for the years ended December 31, 2014 and 2013, and a sum-
mary of significant 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 International 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 accordance 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 finan-
cial statements. 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 state-
ments 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 pre-
sentation 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, 2014 and 2013 and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.

Toronto, Canada
March 20, 2015

MAGELLAN 2014 ANNUAL REPORTConsolidated 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 and accrued liabilities and provisions

Debt due within one year

Non-current liabilities

Bank indebtedness

Long-term debt

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

Accumulated other comprehensive income

Total liabilities and equity

See accompanying notes to the consolidated financial statements

December 31

Notes

2014

2013

11,17

2,645

160,989

176,870

12,396

352,900

351,057

4,370

60,588

23,139

42,499

481,653

834,553

–

136,976

40,016

176,992

81,442

43,866

18,777

26,562

27,318

197,965

254,440

2,044

13,565

166,398

23,149

459,596

834,553

7,760

146,969

160,269

12,461

327,459

331,940

4,663

60,365

24,472

43,011

464,451

791,910

115,930

137,625

30,932

284,487

–

46,154

17,637

15,713

19,761

99,265

254,440

2,044

13,565

129,464

8,645

408,158

791,910

MAGELLAN 2014 ANNUAL REPORTConsolidated Statements Of Income And Comprehensive Income

Expressed in thousands of Canadian dollars, except per share amounts

Revenues

Cost of revenues

Gross profit

Administrative and general expenses

Other

Income before interest and income taxes

Interest

Income before income taxes

Income taxes

Current

Deferred

Net income

Other comprehensive income (loss)

Other comprehensive income that may be reclassified to profit and
loss in subsequent periods:

Foreign currency translation

Items not to be reclassified to profit and loss in subsequent periods:

Actuarial (loss) income 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

12, 26

14,18

Years ended December 31

2014

843,036

709,254

133,782

48,221

574

84,987

7,887

77,100

4,991

15,537

20,528

56,572

2013

752,126

639,799

112,327

45,481

(597)

67,443

6,721

60,722

3,893

11,346

15,239

45,483

14,504

15,842

(9,452)

61,624

0.97

15,792

77,117

0.78

MAGELLAN 2014 ANNUAL REPORTCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Expressed in thousands of Canadian dollars

January 1, 2013

Net income

Other comprehensive income

Common share dividend

December 31, 2013

Net income

Other comprehensive (loss) income

Common share dividend

December 31, 2014

Share
capital

Contributed
surplus

254,440

2,044

–

Other
paid in
capital

13,565

–

Retained
earnings

Foreign
currency
translation

Total
equity

71,682

45,483

15,792

(3,493)

(7,197)

334,534

–

15,842

–

45,483

31,634

(3,493)

254,440

2,044

13,565

129,464

8,645

408,158

–

56,572

(9,452)

(10,186)

–

14,504

56,572

5,052

–

(10,186)

254,440

2,044

13,565

166,398

23,149

459,596

See accompanying notes to the consolidated financial statements

MAGELLAN 2014 ANNUAL REPORTCONSOLIDATED STATEMENTS OF CASH FLOW

Expressed in thousands of Canadian dollars

Cash flow from operating activities

Net income

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

Net loss on disposal of assets

Decrease in defined benefit plans

Impairment reversal, net

Accretion

Deferred taxes

Income on investments in joint ventures

Increase in non-cash working capital

Net cash from operating activities

Cash flow from investing activities

Investment in joint venture

Purchase of property, plant and equipment

Proceeds from disposal of property, plant and equipment

Increase in other assets

Net cash used in investing activities

Cash flow from financing activities

(Decrease) increase in bank indebtedness

Increase (decrease) in debt due within one year

Decrease in long-term debt

Increase (decrease) in long-term liabilities and provisions

Decrease in borrowings, net

Common share dividend

Net cash used in financing activities

Decrease 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

Years ended December 31

Notes

2014

2013

5,7

56,572

35,300

1,097

(2,512)

–

2,531

9,155

(306)

(23,261)

78,576

(326)

(35,481)

611

(5,945)

(41,141)

(35,964)

8,515

(4,972)

161

(501)

(10,186)

(42,947)

(5,512)

7,760

397

2,645

45,483

33,309

576

(2,046)

(1,312)

(916)

5,036

(13)

(10,298)

69,819

(4,283)

(31,299)

486

(9,293)

(44,389)

1,830

(1,444)

(35,745)

(581)

(1,796)

(3,493)

(41,229)

(15,799)

22,423

1,136

7,760

MAGELLAN 2014 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unless otherwise stated, all amounts are in thousands of Canadian dollars)

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business
Magellan Aerospace Corporation (the “Corporation” or “Magellan”) is a publicly listed company incorporated in Ontario, Can-
ada under the Ontario Business 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 projects. Through its wholly owned subsidiaries, Magellan engineers and manufactures aeroengine and aerostruc-
ture components for aerospace markets, including advanced products for defence and space markets, and complementary
specialty products. The Corporation also supports the aftermarket through the supply of spare parts as well as through repair
and overhaul services and in certain circumstances parts and equipment for power generation projects.

Statement of Compliance
These consolidated financial statements are prepared under International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”).

These consolidated financial statements were authorized for issuance by the Board of Directors of the Corporation on March
20, 2015.

Basis of Presentation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments,
which are measured at fair value. These consolidated financial statements have been prepared using IFRS principles applica-
ble to a going concern, which contemplate the realization of assets and settlement of liabilities in the normal course of business
as they come due. All amounts are presented in Canadian dollars, unless otherwise indicated.

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.

Basis of Consolidation
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 interest in its joint ventures. The financial statements
of entities consolidated have a reporting date of December 31. Entities over which the Corporation has control are accounted
for as subsidiaries. Control is achieved when the Corporation is exposed, or has rights, to variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Where the Corporation has the abil-
ity to exercise joint control, the entities are accounted for as joint ventures and are incorporated into the consolidated financial
statements using the equity 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. Trade receivables 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.

Determination of Fair Value
Fair value is determined based on 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. Fair value is measured using the assumptions that market
participants would use when pricing an asset or liability. Fair value is determined by using quoted prices in active markets for
identical or similar assets or liabilities. When quoted prices in active markets are not available, fair value is determined using
valuation techniques that maximize the use of observable inputs.

MAGELLAN 2014 ANNUAL REPORTWhen observable valuation inputs are not available, significant judgment is required to determine fair value by assessing the
valuation techniques and valuation inputs. The use of alternative valuation techniques or valuation inputs may result in a dif-
ferent fair value.

Foreign Currency Translation
The consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.

Foreign currency denominated monetary assets and liabilities are translated at the rates of exchange at the statement of finan-
cial 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 prevailing 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 trans-
lated using the closing exchange rate prevailing at the reporting date and revenues and expenses at average exchange rates
during the period. Translation 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.

Segment Reporting
Management has determined the operating segments based on information regularly reviewed for the purposes of decision
making, allocating 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.

Revenue Recognition
Revenue is comprised of all sales of goods and rendering of services at the fair value of consideration received or receivable
after the deduction 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 con-
signment products 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 percent-
age-of-completion method, which recognizes revenue as performance of the contract progresses. The contract progress is
determined based on the percentage of costs incurred to date to total estimated cost for each contract after giving effect to
the most recent estimates of total cost. Variations 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 recognized 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 probable 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. This vendor
specific objective 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.

MAGELLAN 2014 ANNUAL REPORTCost 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 system-
atically allocated overheads, including depreciation of production-related intangible assets, write-downs on inventories and
an appropriate portion of production-related administrative overheads.

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 nec-
essary 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 subject to specific conditions in the consolidated statement
of financial position. Repayments made are recorded as a reduction of the liability.

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 assessments are received.

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 19R, Employee Benefits. Actuarial gains and losses are recognized in full
in the period in which they occur, and are recognized in other comprehensive income and immediately transferred to retained
earnings. 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 significant 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 vesting 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 recognition 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 recognized in the income statement.

MAGELLAN 2014 ANNUAL REPORTTaxation
The tax charge for the period is comprised of both current and deferred income tax. Taxation is recognized as a charge or
credit in the income statement 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 income 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 income 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 tax 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.

Net Income per Share
Net income per share is calculated based on the profit for the financial year and the weighted average number of common
shares outstanding during the year. Diluted net income per share is calculated using the profit for the financial year adjusted
for the effect of any dilutive instruments and the weighted average diluted number of shares (ignoring any potential issue of
common shares which would be anti-dilutive) during the year.

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 pro-
duced and recognized 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 unrecoverable 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.

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 necessary for it to be capable of operating in the manner intended by management, and the estimate
of the present value of the costs of dismantling 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 rec-
ognized 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.

MAGELLAN 2014 ANNUAL REPORTScheduled depreciation is based on the following useful lives:

Assets

Buildings

Machinery and equipment

Tooling

Leasehold improvements

in years

10-20

5-7

term of lease

The residual values, 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 consolidated financial statements. An asset’s carrying value is written down to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount. These impairment losses are recognized in the income
statement. Following the recognition of an impairment loss, the depreciation charge applicable to the asset is adjusted prospec-
tively in order to systematically allocate the revised carrying amount, net of any residual value, over the remaining useful life.

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
recognized impairment in value. The depreciation policies for investment property are consistent with those described for
owner-occupied property.

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 crite-
ria, 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 unit of production 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.

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 inflows that are largely 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 CGU
exceeds its recoverable amount. Recoverable amount is the higher of value in use or fair value less costs to sell, if this is read-
ily available. 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.

MAGELLAN 2014 ANNUAL REPORTAn impairment loss for an individual asset or CGU 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 asset’s
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.

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 transferred 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.

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 deter-
mined 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 instru-
ment 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 statement. 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 revalued 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 through
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 in the income statement.

MAGELLAN 2014 ANNUAL REPORTDerecognition 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: substantially 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.

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 pro-
ceeds. Transaction 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.

Derivative financial instruments
The Corporation manages its foreign currency and interest rate exposures through the use of derivative financial instruments.
The Corporation’s policy is not to utilize derivative financial instruments for trading or speculative purposes. The Corporation’s
derivative contracts are not designated as hedges and as a result are recorded on the consolidated statement of financial posi-
tion 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.

Provisions
A provision is recognized when there is a present legal or constructive obligation, as a result of a past event, which is more
likely than not 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 provision 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.

Share Capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares are recognized
as a deduction from equity, net of any income tax.

Estimates, Assumptions and Judgements
The preparation of consolidated financial statements requires management to make critical judgements, estimates and assump-
tions that affect the reported amounts of certain assets and liabilities at the date of the consolidated 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 consolidated 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.

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

MAGELLAN 2014 ANNUAL REPORTImpairments
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.

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.

2. NEW AND AMENDED INTERNATIONAL FINANCIAL REPORATING STANDARDS

New and Amended International Financial Reporting Standards Adopted in 2014

The Corporation has adopted the following new and amended standards in the current year.

Financial Assets and Liabilities
In December 2011, amendments to IAS 32, Financial Instruments: Presentation were issued to clarify the existing requirements
for offsetting financial assets and financial liabilities. The amendments specify that the right of set-off has to be legally enforce-
able even in the event of bankruptcy and that it must be available on the current date and cannot be contingent on a future
date. The adoption of this pronouncement on January 1, 2014 did not have an impact on the consolidated financial statements
of the Corporation.

MAGELLAN 2014 ANNUAL REPORTthat an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs, which may be
at a point in time or over a period of time. The adoption of this pronouncement on January 1, 2014 did not have an impact on
the consolidated financial statements of the Corporation.

New and Amended International Financial Reporting Standards to be Adopted in 2015 or Later

The following new standards and amendments to existing standards were issued by the IASB and are expected to be adopted
by the Corporation in 2015 or later.

Revenue Recognition
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), which supersedes IAS 18, Rev-
enue, IAS 11, Construction Contracts and other interpretive guidance associated with revenue recognition. IFRS 15 provides
a single, principle based five-step model to be applied to all contracts with customers, except insurance contracts, financial
instruments and lease contracts, which fall in the scope of other IFRSs. In addition to the five-step model, the standard spec-
ifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The
incremental costs of obtaining a contract must be recognized as an asset if the entity expects to recover these costs. The
standard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some nonfinancial
assets that are not an output of the entity’s ordinary activities. IFRS 15 is to be applied on either a full or modified retrospective
approach and is effective for annual periods beginning on or after January 1, 2017, with earlier application permitted. The Cor-
poration is in the process of evaluating the impact that IFRS 15 may have on the Corporation’s consolidated financial statements.

MAGELLAN 2014 ANNUAL REPORTFinancial Instruments – Recognition and Measurement
In July 2014, the IASB issued the final amendments to IFRS 9, Financial Instruments (“IFRS 9”) which provides guidance
on the classification and measurement of financial assets and liabilities, impairment of financial assets, and general hedge
accounting. The classification and measurement portion of the standard determines how financial assets and financial liabil-
ities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. The amended
IFRS 9 introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses.
In addition, the amended IFRS 9 includes a substantially-reformed model for hedge accounting, with enhanced disclosures
about risk management activity. The new standard is effective for annual periods beginning on or after January 1, 2018, with
earlier adoption permitted. The Corporation is in the process of evaluating the impact of adopting these amendments on the
Corporation’s consolidated financial statements.

Consolidated Financial Statements and Investments in Associates and Joint Ventures
In September 2014, the IASB issued amendments to IFRS 10, Consolidated Financial Statements (“IFRS 10”) and IAS 28,
Investments in Associates and Joint Ventures (“IAS 28”) to address an acknowledged inconsistency between the requirements
in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint
venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a busi-
ness (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that
do not constitute a business, even if the assets are housed in a subsidiary. The amendments are to be applied prospectively
and are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. Upon adoption,
these amendments may impact the Corporation in respect of future sale or contribution of assets with its joint ventures.

MAGELLAN 2014 ANNUAL REPORT3. TRADE AND OTHER RECEIVABLES

Trade receivables

Less allowance for doubtful accounts

Net trade receivables

Other receivables

December 31

2014

124,566

276

124,290

36,699

160,989

2013

109,970

279

109,691

37,278

146,969

Included in the above amounts are accrued receivables for construction contracts in progress at December 31, 2014 of $11,218
[December 31, 2013 - $13,635].

The following table presents the aging of gross trade receivables:

December 31, 2013

December 31, 2014

INVENTORIES

At December 31, 2013

At December 31, 2014

Current

97,836

117,081

Less than
90 days

91-181
days

182-365
days

More than
365 days

11,304

6,700

714

648

126

Total

109,970

124,566

Raw
materials

Work in
progress

Finished
goods

Total

42,742

98,224

19,303

160,269

47,210

111,097

18,563

176,870

The cost of inventories recognized as expense and included in cost of sales for the year ended December 31, 2014 amounted
to $696,956 [2014 - $638,152].

During the year ended December 31, 2014, the Corporation recorded an impairment expense related to the write-down of inven-
tory in the amount of $306 [2013 - $1,869]. The Corporation also recorded reversals of previous write-downs of inventory in the
amount of $1,851 [2013 - $1,355] due to the sale of inventory previously provided for. The carrying amount of inventory recorded
at net realizable value was $18,441 as at December 31, 2014 [2013 - $25,016], 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 cus-
tomers 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.

MAGELLAN 2014 ANNUAL REPORT5. PROPERTY, PLANT AND EQUIPMENT

Cost

At December 31, 2012

Additions

Disposals and other

Reclassified to investment property

Foreign currency translation

At December 31, 2013

Additions

Disposals and other

Foreign currency translation

At December 31, 2014

Accumulated depreciation and impairment

At December 31, 2012

Depreciation

Disposal and other

Reclassified to investment property

Foreign currency translation

At December 31, 2013

Depreciation

Disposal and other

Foreign currency translation

At December 31, 2014

Net book value

At December 31, 2013

At December 31, 2014

Land Buildings

Machinery
and
equipment

Tooling

Total

12,765

115,222

395,351

43,616

566,954

–

551

1,275

(56)

(3,353)

2,603

26,728

(4,464)

–

2,146

(173)

–

17,559

2,553

30,149

(4,693)

(3,353)

23,266

13,316

115,691

435,174

48,142

612,323

–

564

3,289

(19)

3,378

30,307

(4,396)

18,495

1,439

35,035

(10,260)

(14,675)

3,150

25,587

13,880

122,339

479,580

42,471

658,270

–

(32,954)

(184,279)

(34,237)

(251,470)

(3,671)

(18,082)

(2,537)

(24,290)

1,419

(562)

3,622

–

3,735

1,419

(7,127)

(2,088)

(9,777)

(35,743)

(205,866)

(38,774)

(280,383)

(3,770)

(20,240)

(2,595)

(26,605)

2,485

(1,319)

(8,985)

10,188

(2,601)

12,680

(12,905)

(40,825)

(232,606)

(33,782)

(307,213)

13,316

13,880

79,948

229,308

81,514

246,974

9,368

8,689

331,940

351,057

As at December 31, 2013 and 2014, the Corporation did not have any assets under finance lease.

Included in the above are assets under construction in the amount of $10,123 [December 31, 2013 - $10,348], which as at
December 31, 2014 are not amortized.

MAGELLAN 2014 ANNUAL REPORT6.

INVESTMENT PROPERTIES

At December 31, 2013

At December 31, 2014

Accumulated
depreciation and
impairment

(6,583)

(6,775)

Cost

11,246

11,145

Net
book value

4,663

4,370

The Corporation’s investment properties consist of land and building. In 2013 the Corporation reclassified $1,934 from prop-
erty plant and equipment primarily as a result of the change in use of the related asset. Depreciation expense recognized in
relation to the buildings in 2014 was $175 [2013 - $169].

The fair value of the Corporation’s investment properties was $12,000 at December 31, 2014. The fair value was determined
through the use of the market comparable approach and discounted cash flows approach which are categorized as a Level
3 in the fair value hierarchy. In 2015, the Corporation obtained an opinion by an external valuator, with experience in the real
estate market, on the fair value of $5,000 of the total fair values of the Corporation’s investment properties. For one other invest-
ment property, the Corporation used the fair value obtained in 2012 by an external valuator as the market conditions in which
the property is held did not change materially. For all other investment properties, the Corporation internally determined the
fair value using the discounted cash flow approach.

MAGELLAN 2014 ANNUAL REPORT7.

INTANGIBLE ASSETS

Cost

At December 31, 2012

Additions

Disposals

Foreign currency translation

At December 31, 2013

Additions

Disposals

Foreign currency translation

At December 31, 2014

Depreciation and impairment

At December 31, 2012

Depreciation

Disposals

Impairment reversal

Foreign currency translation

At December 31, 2013

Depreciation

Disposals

Impairment reversal

Foreign currency translation

At December 31, 2014

Net book value

At December 31, 2013

At December 31, 2014

Technology
rights

Development
costs

Total

132,912

6,120

(2,815)

2,348

138,565

7,087

(92)

3,025

94,007

6,120

(2,815)

2,245

99,557

7,087

(92)

2,880

109,432

148,585

(51,259)

(5,198)

241

1,312

(1,572)

(56,476)

(5,368)

–

(2,014)

(63,858)

(70,257)

(7,885)

241

1,312

(1,611)

(78,200)

(7,714)

–

(2,083)

(87,997)

43,081

45,574

60,365

60,588

38,905

–

103

39,008

–

145

39,153

(18,998)

(2,687)

–

(39)

(21,724)

(2,346)

–

(69)

(24,139)

17,284

15,014

Technology rights relate to an agreement which permits the Corporation to manufacture aerospace engine components and
share in the revenue generated by the final sale of the engine.

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 Cor-
poration 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 Corporation estimates the intangible assets to
be amortized over a period of 3 to 10 years based on units of production.

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.

MAGELLAN 2014 ANNUAL REPORTImpairments
At the end of each reporting period, the Corporation assesses 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.).

In 2013, the Corporation recognized a reversal of previous impairment losses of $1,884 against development costs relating
to a commercial aircraft program as the Corporation was able to negotiate additional favourable contract terms. In addition,
the Corporation recognized impairment losses of $572 against development costs relating to a separate commercial aircraft
program as the Corporation revised its estimated number of units, due to changes in market outlook, resulting in movements
to the timing of cash flows. The impairment reversal and charge were recorded against recurring costs of revenues. The main
assumptions used in 2013 to determine the recoverable amount of intangible assets relating to programs, projects and prod-
uct families were as follows:

- The discounted cash flow approach used to estimate the value in use of the CGU’s incorporated expected future cash flows

based on medium-term plans established for the next five years and estimated cash flows for years 6 to 22.

- Growth rates of 1 - 2% 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 of 1.04.
- 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.

INVESTMENTS IN JOINT VENTURES

The Corporation has interests in a number of individually immaterial joint ventures. The Corporation’s joint ventures are private
entities that are not listed on any public exchange. All operations are continuing. The Corporation has no share of any contin-
gent liabilities or capital commitments in its joint ventures as at December 31, 2014 and December 31, 2013.

Balance, beginning of the year

Equity contribution

Share of total comprehensive income

Balance, end of the year

December 31

2014

4,696

326

306

5,328

2013

400

4,283

4,696

In 2013 the Corporation invested $3,994 in a 49% interest in Triveni Aeronautics Private Limited (“Triveni”) located in India
which was funded through working capital. Triveni is an aerospace components manufacturing company which offers critical
parts and sub-assemblies to aero-engines and aero-structures industries, and as such the Corporation views the acquisition
as a strategic fit. The Corporation has accounted for its interest in Triveni as a joint venture and recorded the investment at the
amount of consideration paid of $3,994, which included the Corporation’s share of the net fair value of assets and liabilities of
$3,090 and goodwill of $904 identified on acquisition.

To support the activities of certain joint ventures, the Corporation and the other investors in the joint ventures have agreed to
make additional contributions, in proportion to their interests, to make up any losses, if required. In addition, profits of the joint
ventures are not distributed until the parties to the arrangement provide consent for distribution.

9. BANK INDEBTEDNESS

On September 30, 2014, the Corporation amended its credit agreement with its existing lenders. The Corporation has an oper-
ating credit facility, with a syndicate of banks, with a Canadian dollar limit of $95,000, a US dollar limit of US$35,000 and a
British Pound limit of £11,000 [$155,482 at December 31, 2014]. Under the terms of the amended credit agreement, the oper-

MAGELLAN 2014 ANNUAL REPORTating credit facility expires on September 30, 2018. Extensions of the facility are subject to mutual consent of the syndicate
of lenders and the Corporation. The credit agreement also includes a Canadian $50,000 uncommitted accordion provision
which provides the Corporation with the option to increase the size of the operating credit facility. Bank indebtedness as at
December 31, 2014 of $81,442 [December 31, 2013 - $115,930] bears interest at the bankers’ acceptance or LIBOR rates plus
2.0% [2.87% at December 31, 2014 (2013 – bankers’ acceptance or LIBOR rates plus 1.20% or 2.09%)]. Included in the amount
outstanding at December 31, 2014 is US$15,946 [December 31, 2013 - US$26,797]. At December 31, 2014, the Corporation
had drawn $84,544 under the operating credit facility, including letters of credit totalling $3,102 such that $70,938 was unused
and available. A fixed and floating charge debenture on trade receivables, inventories and property, plant and equipment is
pledged as collateral for the operating credit facility.

10. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND PROVISIONS

Accounts payables

Accrued liabilities

Provisions [Note 13]

11. LONG-TERM DEBT

Property mortgages [a]

Other loans [b]

Less current portion

December 31

2014

64,160

71,029

1,787

136,976

2013

61,327

74,291

2,007

137,625

December 31

2014

16,629

31,128

47,757

3,891

43,866

2013

17,427

33,637

51,064

4,910

46,154

[a] Property mortgages include $2,061 (£1,141) [2013 - $2,307 (£1,309)] of financing of certain land acquired in 2006.
This same land is collateral for this mortgage and the mortgage bears interest at bank rate plus 0.90%, which at
December 31, 2014 was 1.4% [2013 – 1.4%]. The property mortgage requires scheduled monthly repayments of accrued inter-
est and principal and matures in June 2021.

The Corporation has a five year fixed rate term mortgage, under which interest is charged at a 4.49% as at December 31, 2014.
The mortgage is due in February 2018, with accrued interest and principal paid monthly. The mortgage is secured by certain
land and building. The principal amount outstanding at December 31, 2014 was $14,568 [2013 - $15,122].

[b] Other loans include loans of $17,353 [2013 - $17,718] provided by governmental authorities (“Government Loans”) that bear
interest of approximately 1.75% to 3.82% [2013 – 1.75% to 3.82%] of which a loan in the amount of $1,931 provides for a five
year interest free period if certain job criteria has been met. The Government Loans mature during the period of September
2016 and April 2024 with accrued interest and principal repayable monthly.

Included in other loans are bank loans aggregating $13,690 (US$11,801) [2013 - $15,406 (US$14,485)] (“Commercial Loans”)
to finance equipment over a ten year period maturing between December 2020 and December 2022. The Commercial Loans
require scheduled monthly repayments of accrued interest and principal. The same equipment is collateral for the Commercial
Loans which bears interest at LIBOR plus 2.75%, which at December 31, 2014 was 2.92% [2013 – 2.96%].

As at December 31, 2014, the Corporation has the availability to draw an additional $8,690 against the Government Loans.

MAGELLAN 2014 ANNUAL REPORT12. BORROWINGS SUBJECT TO SPECIFIC CONDITIONS

The Corporation has received contributions related to the development of its technologies and processes from Canadian
government agencies. 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 percentage 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.

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 partic-
ipation supports the development 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 2014, the Corporation received $1,702 [2013 - $1,063] of government contributions under
SADI, of which $374 [2013 - $252] has been credited to the related assets, $343 [2013 - $137] has been credited to the related
expense and $985 [2013 - $674] has been recorded in borrowings subject to specific conditions. The Corporation received
contributions from TPC in years prior to 2010, and no additional funding has been received. In 2013, the Corporation reached
an agreement with TPC settling one of the grants received which resulted in the recognition of a gain of $1,031, included in
other income in the consolidated statements of income. The contributions are repayable as future royalty payments; a liability
is recorded for the amounts received that will be repaid based on future estimated sales. During 2014, the Corporation repaid
$2,234 [2013 - $1,196] in government contributions.

As at December 31, 2014, the Corporation has recognized $21,320 [2013- $19,348] as amount repayable to SADI and
TPC. The Corporation is eligible for additional government contributions of $19,831 for the period from January 1, 2015 to
March 31, 2018 based on approved expenditures.

13. OTHER LONG-TERM LIABILITIES AND PROVISIONS

Net defined benefit plan deficits [Note 18]

Provisions

Other

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

December 31

2014

16,285

4,279

7,785

28,349

1,787

26,562

2013

6,640

4,316

6,764

17,720

2,007

15,713

MAGELLAN 2014 ANNUAL REPORTThe following table presents the movement in provisions:

At December 31, 2012

Additional provisions

Amount used

Unused amounts reversed

Unwind of discount

Foreign currency

At December 31, 2013

Additional provisions

Amount used

Unused amounts reversed

Unwind of discount

Foreign currency

At December 31, 2014

Warranty

Environmental

1,664

753

(1,085)

(258)

–

170

1,244

637

(636)

(267)

–

216

1,194

3,139

(72)

(220)

(163)

2,696

(5)

(11)

181

2,866

Other
provisions

416

Total

5,219

851

(154)

(1,311)

–

376

126

(176)

(126)

–

219

(478)

(163)

198

4,316

766

(817)

(404)

181

237

4,279

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.

Environmental
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.

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.

MAGELLAN 2014 ANNUAL REPORT14. INCOME TAXES

The following are the major components of income tax expense:

Current income tax expense

Current tax expense for the year

Adjustments of previous year’s tax expense

Deferred income tax expense

Origination and reversal of temporary differences

Impact of tax law changes

Total income tax expense

2014

4,886

105

4,991

14,877

660

15,537

20,528

2013

3,837

3,893

11,291

11,346

15,239

The Corporation’s consolidated effective tax rate for the year ended December 31, 2014 was 26.6% [2013 – 25.1%]. The differ-
ence in the effective tax rates compared to the Corporation’s statutory income tax rates were mainly caused by the following:

Income before income taxes

2014

77,100

2013

60,722

Income taxes based on the applicable tax rate of 25.8% in 2014 and 2013

19,902

15,678

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

(14)

(234)

196

714

(36)

20,528

(8)

(1,458)

928

402

(303)

15,239

Changes in the deferred tax components are adjusted through deferred income tax expense except for $6,870 [2013 – $7,379]
of investment tax credits which is adjusted through cost of revenues and $3,348 [2013 - $5,400] for employee future benefits
which is adjusted through other comprehensive income.

The following are the major components of deferred tax assets and liabilities:

December 31

Operating loss carry forwards

Investment tax credits

Employee future benefits

Property, plant and equipment and intangibles

Other

Deferred tax assets

2014

6,841

39,809

5,199

(55,575)

18,907

15,181

2013

11,976

44,646

(216)

(48,591)

15,435

23,250

MAGELLAN 2014 ANNUAL REPORTFor the purposes of the above table, deferred tax assets are shown net of offsetting deferred tax liabilities where these occur
in the same entity and jurisdiction, as follows.

Deferred tax assets

Deferred tax liabilities

December 31

2014

42,499

(27,318)

2013

43,011

(19,761)

The temporary difference associated with investments in subsidiaries and joint ventures, for which a deferred tax liability has
not been recognized aggregates to $283,328 [2013 - $225,550].

15. 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:

Number

Amount

Outstanding at December 31, 2013 and December 31, 2014

58,209,001

254,440

Net income per share

Net Income

Weighted average number of shares

Basic and diluted net income per share

Dividends declared

2014

56,572

2013

45,483

58,209,001

0.97

0.78

On March 31, 2014, June 30, 2014, and September 30, 2014 the Corporation paid quarterly dividends on 58,209,001 common
shares of $0.04 per common share, amounting to $6,985. On December 31, 2014 the Corporation paid quarterly dividends
on 58,209,001 common shares of $0.055 per common share, amounting to $3,201.

For the year ended December 31, 2013, the Corporation declared and paid dividends on common shares on
September 30, 2013 and December 31, 2013 of $0.03 per share totalling $3,493.

Subsequent to December 31, 2014, the Corporation declared dividends to holders of common shares in the amount of $0.055
per common share payable on March 31, 2015, for shareholders of record at the close of business on March 13, 2015.

16. STOCK-BASED COMPENSATION PLAN

The Corporation has an incentive stock option plan, which provides for the granting of options for the benefit of employees and
directors. The options include a cash option feature that 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 exer-
cising the option and acquiring the common shares. 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. As at December 31, 2014 and December 31, 2013, there
were no options granted and outstanding. The maximum number of options for common shares that is available to be granted
under this plan is 1,673,341.

The Corporation has a deferred share unit plan (“DSU Plan”) for certain executive officers (“Officers”) which provides a struc-

MAGELLAN 2014 ANNUAL REPORTture for Officers to accumulate equity-like holdings in the Corporation. The DSU Plan allows certain Officers to participate in
the growth of the Corporation by providing a deferred payment based on the value of a common share at the time of redemp-
tion. 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 vested and paid
upon issuance and the remaining Units are vested and paid out equally on the anniversary date of issuance in the following
two year period or upon retiring. The cash 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, 2014, 56,333 Units were outstanding at an accrued value of
$582 [December 31, 2013 – $535].

The Corporation recorded compensation expense in relation to the plans during the year of $440 [2013 - $427].

17. FINANCIAL INSTRUMENTS

Categories of financial instruments

Under IFRS, financial instruments are classified into one of the following categories: financial assets at fair value through profit
or loss, loans and receivables, available for sale financial assets, financial assets and liabilities held for trading, financial liabil-
ities 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 mea-
sured 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 comprehensive income until the instruments are derecognized or impaired.

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

Fair value
through profit
or loss: Held
for trading1
7,760

Loans and
receivables2
146,969

2,645

160,989

Other
financial
liabilities (at
amortized
cost)3
346,271

319,290

Total
financial
assets

154,729

163,634

Total
financial
liabilities

346,271

319,290

December 31, 2013

December 31, 2014

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

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.

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 speculative purposes. The Corporation may utilize derivative instruments in the management
of its foreign currency and interest rate exposures.

MAGELLAN 2014 ANNUAL REPORTThe 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 (“trans-
action 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 US dollars. As a result, the Corporation may experience transaction exposures because of the volatility in the
exchange rate between the Canadian and US dollar. Based on the Corporation’s current US denominated net inflows, as of
December 31, 2014, fluctuations of +/- 1% would, everything else being equal, have an effect on net income for the year ended
December 31, 2014 of approximately +/- $97. The Corporation may experience translation exposures on the consolidation of its
US and European subsidiaries. Fluctuations of +/- 1% in the US dollar and British pound would, everything else being equal,
have an effect on other comprehensive income of approximately $2,715.

Interest rate risk
The Corporation is exposed to interest rate risk in its floating rate bank indebtedness. At December 31, 2014, $127,329 of the
Corporation’s total debt portfolio is subject to movements in floating interest rates. In addition, a portion of the Corporation’s
trade receivables securitization 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,
2014 by approximately +/- $1,196.

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

Derecognition of financial assets
The Corporation sells a portion of its trade receivables through securitization programs or factoring transactions. During 2014,
the Corporation sold receivables to various financial institutions in the amount of $287,282 [2013 - $256,150] for a discount of
$770 [2013 - $698] representing an annualized interest rate of 1.68% [2013 – 1.73%].

As at December 31, 2014, trade receivables include receivables sold and financed through securitization transactions of $36,125
[2013 – $26,022] which do not meet the IAS 39 derecognition requirements as the Corporation continues to be exposed to

MAGELLAN 2014 ANNUAL REPORTcredit risk. These receivables are recognized as such in the consolidated 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 liquidity 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 operations and its operating facility capacity. The primary sources of liquidity are the
operating credit facility, trade receivables securitization program and cash provided by operations. 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 inter-
est and principal cash flows.

Bank indebtedness

Long-term debt1

Equipment leases

Facility leases

Other long-term liabilities

Borrowings subject to
specific conditions

Interest payments

Total

Year 1

Year 2

Year 3

–

40,016

530

1,785

125

2,543

44,999

1,320

46,319

–

4,218

480

1,595

317

132

6,742

1,208

7,950

–

4,549

323

1,427

227

6,587

1,094

7,681

Year 4

81,442

5,060

203

1,077

205

1,043

89,030

1,049

90,079

Year 5 Thereafter

–

5,140

26,819

120

857

205

1,153

7,475

908

8,383

4,580

679

16,388

48,548

3,933

Total

81,442

85,802

1,738

11,321

1,758

21,320

203,381

9,512

52,481

212,893

1 The amount drawn on the Corporation’s trade receivables 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 method-
ologies; however, 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, trade receivables, 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 statements of
financial position are reasonable estimates of their fair values.

Foreign exchange contracts
The Corporation enters into forward 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. As at December 31, 2014, the
Corporation entered into a forward exchange contract to purchase US dollars of $3,500 at an exchange rate of $1.1613 Cana-
dian per $1.00 US dollar, expiring in January 2015.

MAGELLAN 2014 ANNUAL REPORTLong-term debt
The fair value of the Corporation’s long-term debt is $47,739 at December 31, 2014. The fair value was determined by dis-
counting the expected future cash flows based on current rates for debt with similar terms and maturities which is categorized
as a Level 2 in the fair value hierarchy.

Collateral
As at December 31, 2014, the carrying amount of all of the financial assets that the Corporation has pledged as collateral for
its long-term debt facilities was $163,634.

Fair value hierarchy

The Corporation’s financial assets and liabilities recorded at fair value on the consolidated statement of financial position have
been categorized 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
2 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 3 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
Corporation does not have any financial assets carried at fair value as at December 31, 2014.

18. EMPLOYEE FUTURE BENEFITS

The Corporation provides retirement benefits through a variety of arrangements comprised principally of defined benefit and
defined contribution plans that cover a substantial portion of employees in accordance with local regulations and practices.
The most significant plans in terms of the benefits accrued to date by participants are career average and final average earn-
ings plans and around 87% of the obligations accrued to date come from defined benefit plans in Canada.

Defined Benefit Plans

Canada
The Canadian defined benefit plans comprise of both career average and final average earnings plans which provide ben-
efits to members in the form of a guaranteed level of pension payable for life. A majority of the plans are currently closed to
new entrants. The level of pensions in the defined benefit plans depends on the member’s length of service and salary at
retirement age for final average earnings plans and salary during employment for career average plans. The defined benefit
pension plans requires contributions to be made to a separate trustee-administered fund which is governed by the Corporation.
The Corporation is responsible for the administration of the plans assets and for the definition of the investment strategy. The
Corporation reviews the level of funding in the defined benefit pension plans on an annual basis as required by local govern-
ment legislation. Such review includes the asset-liability matching strategy and investment risk management policy. Actuarial
valuations are required at least every three years. Depending on the jurisdiction and the funded status of the plan, actuarial
valuations may be required annually. The most recent actuarial valuations for the various pension plans were completed between
December 31, 2013 and January 1, 2014.

Contributions are determined by the appointed actuary and cover the going-concern normal costs and deficits (established
under the assumption that the plan will continue to be in force) or solvency deficits (established under the assumption that
the plan stops its operations and is being liquidated), as prescribed by laws and actuarial practices. Under the laws in effect,
minimum contributions are required to amortize the going-concern deficits over a period of fifteen years and solvency deficits
over a period of five years. Temporary solvency relief measures put in place to mitigate the adverse effects of the 2008 finan-
cial crisis allow for the amortization of solvency deficits over a period of up to ten years.

US
The US defined benefit plan provides benefits to members in the form of a guaranteed level of pension payable for life at retire-
ment, and is currently closed to future accrual of benefits. The benefit payments are from a trustee-administered fund and plan
assets held in trusts are governed by Internal Revenue Service (“IRS”) regulations. Responsibility for governance of the plan,

MAGELLAN 2014 ANNUAL REPORTincluding investment decisions and contribution schedules, is also governed by IRS Regulations and lies with the Corporation.
Actuarial valuations are required annually. Contributions are determined by appointed actuaries and cover normal cost and
deficits as prescribed by law. Funding deficits are generally amortized over a period of seven years.

Investment Policy
The overall investment policy and strategy for the defined benefit pension plans is guided by the objective of achieving an invest-
ment return which, together with contributions, ensures that there will be sufficient assets to pay pension benefits as they fall due
while also mitigating the risks of the plans. See below for more information about the Corporation’s risk management initiatives.

The target asset allocation is determined based on expected economic and market conditions, the maturity profile of the
plans’ liabilities, the funded status of the respective plans and the plan stakeholders’ tolerance to risk. Generally, the Corpora-
tion aims to have a portfolio mix of a combined 5% in money market securities, 20% in non-traditional equities, 30% in fixed
income instruments and 45% in equity for the Canadian defined benefit plans and a portfolio mix of a combined 20% in cash,
35 % in fixed income instruments and 45% in equity for the US defined benefit plan. As the plans mature and the funded sta-
tus improves through cash contributions and anticipated excess equity returns, the Corporation intends to reduce the level of
investment risk by investing in more fixed-income assets that better match the liabilities.

Risk Management
The Corporation’s pension plans are exposed to various risks, including equity, interest rate, inflation, liquidity and longevity
risks. Several risk strategies and policies have been put in place to mitigate the impact these risks could have on the funded
status of defined benefit plans and on the future level of contributions by the Corporation. The following is a description of key
risks together with the mitigation measures in place to address them.

Equity risk
Equity risk is the risk that results from fluctuations in equity prices. This risk is managed by maintaining diversification of port-
folios across geographies, industry sectors and investment strategies.

Interest rate risk
Interest rate risk is the risk that results from fluctuations in the fair value of plan assets and liabilities due to movements in interest
rates. This risk is managed by reducing the mismatch between the duration of plan assets and the duration of pension obligation.

This is accomplished by having a portion of the portfolio invested in long-term bonds. A decrease in corporate and/or govern-
ment bond yields will increase plan liabilities, which will be partially offset by an increase in the value of the plans’ bond holdings.

Liquidity risk
Liquidity risk is the risk stemming from holding assets which cannot be readily converted to cash when needed for the payment
of benefits or to rebalance the portfolios. Liquidity risk is managed through investment in government bonds and equity futures.

Longevity risk
Longevity risk is the risk that increasing life expectancy results in longer-than-expected benefit payments resulting in an increase
in the plans’ liabilities. This risk is mitigated by using the most recent mortality tables to set the level of contributions.

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.

Defined Contribution Plans

The Corporation’s management, administrative and certain unionized employees may participate in defined contribution
pension plans. The Corporation contributes an amount expressed as a percentage of employees’ contributions with such per-
centage varying by group.

The Corporation’s expenses for defined contribution plans amounted to $4,718 for the year ended December 31, 2014
[2014 - $4,189].

MAGELLAN 2014 ANNUAL REPORTOther Benefit Plan

The Corporation has another benefit plan in the US which includes retiree medical benefits that contribute to the health care
coverage of certain employees and their beneficiates after retirement. The other benefit plan is currently closed to new entrants.
The post-retirement benefits cover all types of medical expenses including, but not limited to, cost of doctor visits, hospitaliza-
tion, surgery and pharmaceuticals. The other benefit plan also provides for post-employment life insurance and compensated
absences for eligible current employees, including vacation to be taken before retirement, if certain age and service require-
ments are met. The retirees contribute to the costs of the post-retirement medical benefits. The plan is not pre-funded and
costs are incurred as amounts are paid.

The Corporation recognized total defined benefit costs related to its defined and other benefit plans as follows:

Current service cost

Net interest cost on net defined benefit liability (asset)

Past service cost

Other

Total defined benefit cost recognized in net income

2014

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

2,160

131

–

532

2,823

–

635

–

635

2,225

1,073

154

532

3,984

–

268

–

268

The re-measurement components recognized in the statement of other comprehensive income for the Corporation’s defined
benefit plans comprise the following:

Actuarial losses (gains)

Return on pension assets (excluding amounts in net
interest on defined benefit schemes)

Based on adjustment of liability assumptions

Due to liability experience adjustment

Total defined benefit cost recognized in the statement of other
comprehensive income

2014

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

(4,706)

14,566

2,940

12,800

–

(9,751)

(9,747)

(1,905)

(21,403)

–

The following tables show the changes in the fair value of plan assets and the defined benefit obligation as recognized in the
consolidated financial statements for the Corporation’s benefit plans:

MAGELLAN 2014 ANNUAL REPORTChanges in benefit plan assets of the Corporation’s benefit plans

Fair value, beginning of year

Interest income on plan assets

Actual return on assets
(excluding interest income on plan assets)

Employer contributions

Employee contributions

Benefit payments

Administration costs

Exchange differences

End of year

2014

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

99,635

4,726

4,715

5,310

312

(6,175)

(848)

638

108,313

–

87,480

3,553

9,743

6,031

358

(7,490)

(471)

431

99,635

–

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

2014

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

Beginning of year

Current service cost

Interest cost

Actuarial losses (gains) in other comprehensive income from:

Changes in demographic assumptions

Changes in financial assumptions

Experience adjustments

Employee contributions

Benefit payments

Plan amendments and curtailments

Exchange difference

End of year

105,148

2,160

4,857

1,301

12,934

2,940

312

(6,175)

–

825

124,302

966

–

635

–

(356)

–

101

1,346

116,219

2,225

4,627

1,707

(11,376)

(1,904)

358

(7,490)

154

628

105,148

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

2014

880

–

268

–

(244)

–

966

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

Fair value of plan assets

Accrued benefit obligation

Net defined benefit liability

Included in other long-term liabilities and provisions

Included in other assets

108,313

(124,302)

(15,989)

(16,285)

296

–

(1,346)

–

99,635

(105,148)

(5,513)

(6,640)

1,127

–

(966)

–

MAGELLAN 2014 ANNUAL REPORTThe Corporation expects to contribute approximately $5,622 in 2015 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.

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

Discount rate

Rate of compensation increase

Mortality Table

2014

2013

Defined
benefit plans

Other
benefit plan

Defined
benefit plans

Other
benefit plan

3.90%

2.9%

3.90%

–

4.75%

2.9%

4.75%

–

2014 CPM Private Sector
Mortality Table projection
with CPM Scale B
(with size adjustment)

2013 RPP Private Sector
Mortality Table projection
with CPM Scale A
(with size adjustment)

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, 2014, a 1.0% decrease in the discount rate used (all other
assumptions remaining unchanged) could result in a $19,727 increase in the pension benefit obligation with a corresponding
charge recognized in other comprehensive income in the year.

The mortality assumption was reviewed and revised to reflect a new scale for expected rates of improvement in future mortal-
ity. A one year additional life expectancy as at December 31, 2014 for all defined benefit plans would increase the net defined
benefit liability by $1,915, all other actuarial assumptions remaining unchanged.

The Corporation funds health care benefit costs, shown under other benefit plan, as a pay as you go basis. For measure-
ment 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 2014. 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-percentage-point increase or decrease in the assumed health care and dental benefit
trend rates as at December 31, 2014 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

Defined benefit pension liability term

Defined benefits schedule for disbursement within 12 months

Defined benefits schedule for disbursement within 2 -5 years

Defined benefits schedule for disbursement after 5 years or more

2014

80%

16%

100%

2013

70%

26%

100%

Total

6,159

17,091

45,404

MAGELLAN 2014 ANNUAL REPORT19. SEGMENTED INFORMATION

Based on the nature of the Corporation’s markets, two main operating segments were identified: Aerospace and Power
Generation Project. The aerospace segment includes the design, development, manufacture, repair and overhaul and sale
of systems and components for defence and commercial aviation, while the power generation project segment includes the
supply of gas turbine power generation units. Revenues in the power generation project segment arise solely from the power
generation project in 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:

Sale of goods

Construction contracts

Services

2014

711,984

61,374

69,678

843,036

2013

631,046

32,139

88,941

752,126

At December 31, 2014, aggregate costs incurred under open construction contracts and recognized profits, net of recognized
losses, amounted to $335,440 [December 31, 2013 - $292,465]. Advance payments received for construction contracts in
progress at December 31, 2014 were $2,521 [December 31, 2013 - $19,073]. Retentions in connection with construction con-
tracts at December 31, 2014 were $1,160 [December 31, 2013 - $1,064]. Advance payments and retentions are included in
accounts payable, accrued liabilities and provisions.

Segmented information consists of the following:

Activity segments:

2014

Power
Generation
Project

Aerospace

Total Aerospace

Power
Generation
Project

2013

Total

Revenues

840,903

2,133

843,036

749,934

2,192

752,126

Income before interest and income taxes

85,896

(909)

84,987

69,029

(1,586)

7,887

77,100

67,443

6,721

60,722

Interest expense

Income before income taxes

Total assets

Total liabilities

Additions to property, plant and equipment

Depreciation and amortization

Impairment reversal, net

817,322

370,681

35,481

35,300

–

17,231

834,553

4,276

374,957

727,227

371,789

24,683

11,963

791,910

383,752

–

35,481

35,300

–

31,299

33,309

1,312

–

31,299

33,309

1,312

MAGELLAN 2014 ANNUAL REPORTGeographic segments:

Revenues

Export revenues1

2014

2013

Canada

United
States

Europe

Total

Canada

United
States

Europe

Total

325,218

272,646

245,172

843,036

301,489

232,260

218,377

752,126

203,448

68,199

23,382

295,029

201,281

62,264

16,680

280,225

1 Export revenue is attributed to countries based on the location of the customers

Canada

United
States

Europe

Total

Canada

United
States

Europe

Total

2014

2013

Property, plant
and equipment
and intangible assets

179,881

146,722

85,042

411,645

185,818

131,043

75,444

392,305

The major customers for the Corporation are as follows:

Canadian operations

Number of customers

Percentage of total Canadian revenues

US operations

Number of customers

Percentage of total US revenues

European operations

Number of customers

Percentage of total European revenues

20. COST OF REVENUES

Operating expenses

Amortization

Investment tax credits

Impairment (reversal) of inventories

Impairment reversal, net [Note 7]

2014

41%

59%

85%

2014

690,294

27,315

(6,810)

(1,545)

–

709,254

2013

27%

55%

85%

2013

616,613

31,363

(7,379)

514

(1,312)

639,799

MAGELLAN 2014 ANNUAL REPORT21. ADMINISTRATIVE AND GENERAL EXPENSES

Salaries, wages and benefits

Administration and office expenses

Professional services

Amortization

22. INTEREST EXPENSE

Interest on bank indebtedness and long-term debt [Notes 9 and 11]

Accretion charge on long-term debt and borrowings

Discount on sale of trade receivables

2014

30,588

13,831

2,255

1,547

48,221

2014

4,586

2,531

770

7,887

2013

29,541

11,914

2,402

1,624

45,481

2013

6,935

(916)

702

6,721

23. OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) includes unrealized foreign currency translation gains and losses, which arise on the trans-
lation to Canadian 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, 2014 of $14,504 [2013 – $15,842] and net actuarial losses on defined benefit plans of $9,452 [2013 – gains of $15,792]. These
gains and losses are reflected in the consolidated statement of financial position and had no impact on net income for the year.

24. RELATED PARTY DISCLOSURE

Transactions with related parties

During 2013, the Corporation incurred interest of $2,016 in relation to a loan (“Original Loan”) provided by Edco Capital Corpo-
ration, a corporation controlled by the Chairman of the Board, to the Corporation. The Original Loan was prepaid by $30,000
in 2013, leaving a balance of $nil as at December 31, 2013.

The Chairman of the Board of the Corporation provided a guarantee for the full amount of the Corporation’s operating credit
facility until September 30, 2014 at which time the guarantee was released. An annual fee averaging 0.5% [2013 – 0.5%] of the
guaranteed amount or $575 [2013 - $755] was paid in consideration for the guarantee.

During the year, the Corporation incurred consulting costs of $100 [2013 - $100] payable to a corporation controlled by the
Chairman of the Board of the Corporation.

MAGELLAN 2014 ANNUAL REPORTKey management personnel

Key management includes members of the Board of the Corporation and executive officers, as they have the collective author-
ity 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

2014

3,136

226

352

3,714

2013

2,449

155

318

2,922

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.

25. SUPPLEMENTARY CASH FLOW INFORMATION

Net change in non-cash working capital

Trade receivables

Inventories

Prepaid expenses and other

Accounts payable, accrued liabilities and provisions

Interest paid

Income taxes paid

26. ADDITIONAL FINANCIAL INFORMATION

2014

2013

(8,438)

(10,267)

361

(4,917)

(23,261)

5,443

3,295

(8,126)

(6,698)

(5,886)

10,412

(10,298)

7,696

974

Included in other expenses is a foreign exchange gain of $523 [2013 – $142] on the conversion of foreign currency denomi-
nated working capital balances and debt.

27. 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 inter-
est bearing debt.

As at December 31, 2014, total managed capital was $624,920, comprised of shareholders’ equity of $459,596 and inter-
est-bearing debt of $165,324.

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 operating activities, management believes

MAGELLAN 2014 ANNUAL REPORTthat 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. 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, 2014 the Corporation was in
compliance with these covenants.

28. CONTINGENT LIABILITIES AND COMMITMENTS

In the ordinary course of business activities, the Corporation may be contingently liable for litigation and claims with, among
other, customers, 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 provide 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, 2014, capital commitments in respect of purchase of property, plant and equipment totalled $17,704, all of
which had been ordered. There were no other material capital commitments at the end of the year.

MAGELLAN 2014 ANNUAL REPORTBoard of Directors and Executive Officers

EXECUTIVE OFFICERS

BOARD OF DIRECTORS

COMMITTEES OF THE BOARD

N. Murray Edwards

Chairman

James S. Butyniec

Vice Chairman

Phillip C. Underwood

President and
Chief Executive Officer

John B. Dekker

Chief Financial Officer and
Corporate Secretary

Daniel R. Zanatta

Vice President,
Business Development,
Marketing and Contracts

Larry A. Winegarden

Vice President,
Corporate Strategy

Jo-Ann C. Ball

Vice President,
Human Resources

Elena M. Milantoni

Vice President,
Finance and Treasurer

Karen Yoshiki-Gravelsins

Vice President,
Corporate Stewardship and
Operational Excellence

Mark Allcock

Vice President,
Information Technology

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

James S. Butyniec

Vice Chairman
Magellan Aerospace Corporation
Mississauga, Ontario

(1) Audit Committee

Chairman:
William A. Dimma

(2) Governance and

Nominating Committee
Chairman:
Bruce W. Gowan

(3) Human Resources and

Compensation Committee
Chairman:
William G. Davis

Phillip C. Underwood

(4) Environmental and Health &

President and Chief Executive Officer
Magellan Aerospace Corporation
Mississauga, Ontario

Safety Committee
Chairman:
Larry G. Moeller

Beth M. Budd Bandler (2, 4)

President
Beth Bandler Professional Corporation
Toronto, Ontario

Hon. William G. Davis P.C., C.C., Q.C. (2, 3)

Counsel
Davis Webb LLP
Brampton, Ontario

William A. Dimma C.M., O. Ont. (1)

Corporate Director
Toronto, Ontario

Bruce W. Gowan (1, 2, 3)

Corporate Director
Huntsville, Ontario

Larry G. Moeller (4)

President
Kimball Capital Corporation
Calgary, Alberta

Steven Somerville (1, 3, 4)

Co-President
Spectrum Capital Corporation
Toronto, Ontario

MAGELLAN 2014 ANNUAL REPORTOperating Facilities Directory and Shareholder Information

CANADA

UNITED KINGDOM

CORPORATE OFFICE

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

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

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

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

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

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

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

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

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

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

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

11 Tullykevin Road
Greyabbey, County Down
BT22 2QE
Tel: 02842 758231

Amy Johnson Way
Blackpool Business Park, Blackpool
FY4 2RP
Tel: 01253 345466

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

POLAND

Wojska Polskiego 3
39–300 Mielec
Tel: 017 773 8970

INDIA

Unit No. 201, Oxford Towers
No. 139, Kodihalli, Old Airport Road
Bangalore 560 008
Tel: 91 80 2520 3191

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 12th, 2015 at
2:00 p.m. at The Living Arts Centre,
4141 Living Arts Drive,
Mississauga, Ontario L5B 4B8

MAGELLAN 2014 ANNUAL REPORTMagellan Aerospace
3160 Derry Road East
Mississauga, Ontario
Canada L4T 1A9