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CAE reports third quarter financial results

Feb. 10, 2011, Montreal - CAE on Wednesday reported financial results for the third quarter ended Dec. 31, 2010.


February 10, 2011
By Carey Fredericks


Topics

Feb. 10, 2011, Montreal – CAE on Wednesday reported financial results for the third quarter ended Dec. 31, 2010.

Net earnings were C$40.7 million (C$0.16 per share), compared to C$37.7 million (C$0.15 per share) in the third quarter of last year. Excluding a restructuring charge last year, earnings were $40.3 million (C$0.16 per share). Revenue was C$411.3 million, 7% higher compared to C$382.9 million in the third quarter last year. All financial information is in Canadian dollars.

"The recovery underway in commercial aerospace led to higher activity in our civil segments during the third quarter, especially in training and services where we signed a number of long term agreements with airlines," said Marc Parent, CAE's President and Chief Executive Officer. "In military, we announced a range of strategic program wins, including the $250 million KC-135 training contract for the U.S. Air Force – CAE's first win as a prime contractor on a major U.S. military Aircrew Training Systems Contract."

Earnings before interest and taxes(1) (EBIT) were $64.8 million, or 15.8% of revenue.

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Summary of consolidated results

Amounts in M except
for operating margins
Q3-2011 Q3-2010 YTD-2011 YTD-2010
Revenue $411.3 $382.9 $1,164.6 $1,130.4
Total Segment
Operating Income
$64.8 $64.6 $188.9 $199.2
Restructuring Charge $(3.9)   – $ (32.3)
Earnings before interest
and income taxes
$64.8 $60.7 $188.9 $167.0
As a % of revenue 15.8% 15.9% 16.2% 14.8%
Net Earnings $40.7 $37.7 $120.1 $104.0
Orders $514.4 $315.8 $1,378.3 $946.8
Backlog $3,215.3 $2,917.1 $3,215.3 $2,917.1

Military segments

Revenue for CAE's combined Military segments increased 6% in the third quarter to $220.7 million compared to $207.9 million last year. Training and services revenue was stable at $67.0 million while simulation products revenue grew 9% to $153.7 million. Year to date, combined Military revenue increased 3% from $590.9 million to $608.7 million. Before the negative impact of foreign currency translation over the first nine months, our revenue would have been up approximately 10%.

In addition to the foreign exchange impact, the prolonged U.S. government budget approval process has caused some delays in the government's funding of programs for which we have already been selected. As such, some of the revenue expected in the second half of this fiscal year will now only likely be realized next year. We expect a strong fourth quarter and to finish fiscal 2011 with high single-digit percentage revenue growth for the year. Based on our backlog and the programs we project winning near term, we still expect double-digit percentage growth in fiscal 2012.

Combined Military operating income was $38.8 million and operating margin was 17.6% compared to $35.8 million and 17.2%, respectively, in the third quarter last year.

We announced a number of orders involving aircraft platforms we consider strategic to CAE, including the award to CAE USA of the prime contractor role on a major Aircrew Training Systems Contract to provide KC-135 training for the U.S. Air Force. This 10-year, $250 million award represents an important milestone for CAE as we pursue services outsourcing opportunities around the globe. $20 million of this contract is included in CAE's $3.2 billion backlog. Combined Military orders in the quarter totaled $203.8 million for a book-to-sales ratio of 0.92x. The ratio was 1.35x for the last 12 months.

Simulation Products/Military (SP/M)

Amounts in M, except for
operating margins
Q3-2011 Q2-2011 Q1-2011 Q4-2010 Q3-2010
Revenue $ 153.7 $137.2 $115.8 $149.3 $140.4
Segment Operating Income $28.3 $24.7 $18.0 $25.8 $23.4
Operating Margins 18.4% 18.0% 15.5% 17.3% 16.7%
Backlog 881.0 920.3 921.2 868.0 815.3

 
Training & Services /Military (TS/M)

Amount in M except for
operating margins
Q3-2011 Q2-2011 Q1-2011 Q4-2010 Q3-2010
Revenue $67.0 $68.6 $66.4 $68.5 $67.5
Segment Operating Income $10.5 $11.5 $13.8 $9.2 $12.4
Operating Margins 15.7% 16.8% 20.8% 13.4% 18.4%
Backlog $1,234.8 $1,270.0 $1,226.4 $1,193.7 $1,101.8

 
Civil segments

Revenue for our combined Civil segments increased 9% in the third quarter to $190.6 million compared to $175.0 million last year. This was the net result of a 21% increase in training and services revenue to $124.3 million, and a 9% decrease in simulation products revenue to $66.3 million, where we had a particularly strong comparable quarter last year. Excluding the impact of our New Core Markets initiatives of Healthcare, Mining and Energy, which are reported as part of the training and services segment, our operating margin in training was 17.7%. In simulation products, our operating margin was stable at 11.0% and our combined Civil segment operating margin was 15.2%.

Year to date, combined Civil revenue increased 3% from $539.5 million to $555.9 million. Before the negative impact of foreign currency translation over the first nine months, our revenue would have been up approximately 9%.

Market activity continued to be more robust with the renewal and addition of a range of training contracts expected to generate $222.9 million in future revenue. We strengthened our position in South America with new long-term training agreements with TAM Airlines and LAN Airlines. In simulation products, we maintained our lead with eight full-flight simulator (FFS) orders for customers in the Middle East, China and Australia for a total of 22 announced year-to-date. We continue to expect our total FFS unit orders for the year to be in the mid-twenties, with a number of orders having delivery dates in later years, which will contribute to our longer-term performance.

We received $310.6 million in combined civil segment orders representing a book-to-sales ratio of 1.63x. The ratio was 1.21x for the last 12 months.

Training & Services/Civil (TS/C)

Amounts in M except for
Operating Margins RSEUs
and FFSs deployed
Q3-2011 Q2-2011 Q1-2011 Q4-2010 Q3-2010
Revenue $124.3 $118.0 $117.6 $113.6 $102.4
Segment Operating Income $18.7 $18.9 $22.2 $21.0 $17.4
Operating Margins 15.0% 16.0% 18.9% 18.5% 17.0%
Backlog $774.2 $695.3 $706.8 $728.7 $755.9
RSEUs 132 131 132 131 129
FFSs deployed 152 151 150 148 146

 
Simulation Products/Civil (SP/C)

Amounts in M except
for Operating Margins
Q3-2011 Q2-2011 Q1-2011 Q4-2010 Q3-2010
Revenue $66.3 $62.8 $66.9 $64.5 $72.6
Segment Operating Income $7.3 $6.8 $8.2 $8.9 $11.4
Operating Margins 11.0% 10.8% 12.3% 13.8% 15.7%
Backlog $325.3 $305.3 $251.7 $252.4 $244.1

 
New Core Markets

We made additional progress in developing our CAE Mining initiative with the acquisition on January 1, 2011 of Century Systems Technologies, a supplier of solutions that complement our offering.

In CAE Healthcare, we sold more of our bedside ultrasound solutions as well as our surgical simulators to customers around the world. After the end of the quarter we launched our CAE Caesar(TM) trauma patient simulator, which is a high-fidelity patient simulator for training civil and military practitioners responsible for the care of trauma patients in the field.

Additional financial highlights

The effect of translating the results of our self-sustaining subsidiaries into Canadian dollars negatively impacted this quarter's revenue by $16.8 million and net earnings by $2.1 million, when compared to the third quarter of fiscal 2010. For the first nine months of fiscal 2011 the negative translation impact on revenue was $70.1 million and $10.3 million on net earnings.

Income taxes were $15.7 million representing an effective tax rate of 28%, which results from our mix of income from various jurisdictions. Year to date, our effective tax rate is also 28%.

Cash provided by continuing operating activities was $56.0 million and free cash flow(2) was $5.0 million this quarter. We invested $23.8 million in non-cash working capital, mainly in support of a number of contracts involving new aircraft types.

Net debt(3) was $285.6 million as at December 31, 2010, up $7.1 million from last quarter.

CAE will pay a dividend of $0.04 per share on March 31, 2011 to shareholders of record at the close of business on March 15, 2011.


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