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Press release from Marketwire

CAE reports second quarter financial results for fiscal year 2012

- Quarterly revenue $433.5 million compared to $388.0 million in prior year - Earnings per share of $0.15 ($0.16 excluding special items) compared to $0.15 in prior year - Combined Civil segment operating margin of 20% and combined Military of 15.0% - 1.30x quarterly book-to-sales and a 14% increase in order backlog to C$3.6 billion

Thursday, November 10, 2011

CAE reports second quarter financial results for fiscal year 201208:25 EST Thursday, November 10, 2011MONTREAL, CANADA--(Marketwire - Nov. 10, 2011) -(NYSE:CAE)(TSX:CAE) – CAE today reported financial results for the second quarter ended September 30, 2011. Net income attributable to equity holders of the company was C$38.4 million (C$0.15 per share) this quarter, compared to C$39.1 million (C$0.15 per share) last year. Excluding C$8.4 million (C$2.7 million after tax) of business acquisition and integration charges, net income attributable to equity holders of the company would have been C$41.1 million (C$0.16 per share). All financial information is in Canadian dollars.Revenue for the quarter was $433.5 million, 12% higher than $388.0 million in the second quarter last year. "Demand for our Civil aviation training products and services was strong in all regions this quarter and we signed a number of key contracts in defence, adding to our healthy $3.6 billion backlog", said Marc Parent, CAE's President and Chief Executive Officer. "This quarter also marked a turning point in the development of our New Core markets segment, which is now on track to generate over $120 million of revenue next fiscal year and to become profitable." Second quarter operating profit(1) was $63.9 million, or 14.7% of revenue. Excluding $8.4 million business acquisition and integration charges, operating profit would have been $72.3 million. Summary of consolidated results(amounts in millions, except for operating margins)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$433.5427.9465.6410.8388.0Operating profit$63.972.077.870.368.8As a % of revenue%14.716.816.717.117.7Net income attributable to equity holders of the company$38.443.145.538.539.1Backlog$3,648.23,463.23,449.03,224.93,199.9Civil segmentsRevenue for our combined Civil segments increased 22% in the second quarter to $211.7 million compared to $172.9 million last year. Operating profit was $42.3 million (20.0% of revenue) compared to $31.5 million (18.2% of revenue) last year.Civil market activity continued to be strong in the second quarter in all regions with eight full-flight simulator orders for customers in both emerging and legacy markets. We signed training services contracts expected to generate $245.5 million in future revenue, including long term agreements with airline customers in Asia and South America. Our Emirates-CAE Flight Training joint venture announced that it will open a second training centre in Dubai, and we also announced that CAE is initiating pilot training in the Czech Republic to serve customers in Eastern Europe. We received $336.9 million in combined civil segment orders this quarter representing a book-to-sales ratio of 1.59x. The ratio for the last 12 months was 1.35x.Training & Services/Civil (TS/C)(amounts in millions except operating margins, RSEU and FFSs deployed)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$119.1124.0121.0113.2109.9Segment operating income$27.635.525.324.223.6Operating margins%23.228.620.921.421.5Backlog$1,125.4970.5986.5774.2695.3RSEU139137132132131FFS deployed165160156152151Simulation Products/Civil (SP/C)(amounts in millions except operating margins)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$92.686.176.266.763.0Segment operating income$14.79.79.47.97.9Operating margins%15.911.312.311.812.5Backlog$340.6341.1303.8324.3304.7Military segmentsRevenue for CAE's combined Military segments decreased 3% in the second quarter to $201.5 million compared to $207.0 million last year. Operating profit was $30.2 million (15.0% of revenue), compared to $38.6 million (18.6% of revenue) last year. During the quarter, CAE was awarded contracts to design and manufacture seven simulators for the United States military and a customer in the Middle East. We were awarded a contract to upgrade the US Air Force's KC-135 tanker simulators, as well as deliver the second year of training services, as part of a 10-year Aircrew Training System program, which CAE USA leads as prime contractor. We won a contract to provide two simulators to the US Navy for joint, network-centric warfare training. In Europe, we were awarded a contract to perform upgrades on the German Air Force's Tornado simulators as well as a contract to provide maintenance and support services on Eurofighter simulators.Combined Military orders in the quarter totaled $206.2 million for a book-to-sales ratio of 1.02x. The ratio for the last 12 months was 0.98x. In addition to CAE's combined military backlog of $2.2 billion at September 30, 2011, CAE's unfunded military backlog(2) was $280.2 million.Simulation Products/Military (SP/M)(amounts in millions except operating margins)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$136.0135.2179.3153.7137.2Segment operating income$20.918.834.028.625.1Operating margins%15.413.919.018.618.3Backlog$907.4897.8888.7883.0922.2Training & Services /Military (TS/M)(amounts in millions except operating margins)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$65.571.278.066.169.8Segment operating income$9.310.612.010.913.5Operating margins%14.214.915.416.519.3Backlog$1,274.81,253.81,270.01,243.41,277.7New Core MarketsRevenue for New Core Markets was $20.3 million compared to $8.1 million last year. Operating loss was $8.6 million, which includes $8.4 million of charges related to the acquisition and integration of Medical Education Technologies, Inc. (METI). This compares to a loss of $1.3 million last year.CAE Healthcare acquired METI for US$130 million, establishing CAE as the market leader in technology-based simulation for healthcare education, and providing us with a comprehensive line of patient simulators. We also acquired products and technology from Haptica to enhance our capabilities and broaden our surgical simulation offering. During the quarter we sold products including certain of our surgical, medical imaging and human patient solutions to customers including the Madigan and Ft. Bragg Womack Army Medical Centres in the US; New York University and Western Carolina University. In CAE Mining, we sold geological modeling, mine planning systems and professional services to customers including JSC Polymetal in Russia, Yamana Gold Inc. in Brazil, and Negociación Minera Santa Maria de la Paz y Anexas S.A. de C.V. in Mexico. New Core Markets (NCM)(amounts in millions)Q2-2012Q1-2012Q4-2011Q3-2011Q2-2011Revenue$20.311.411.111.18.1Segment operating income (loss)$(8.6)(2.6)(3.9)(1.3)(1.3)Additional financial highlightsIncome taxes this quarter were $10.3 million representing an effective tax rate of 21%, compared to 27% last year. The decrease was mainly attributable to the recognition of previously unrecognized tax assets resulting from net operating losses in the U.S., which was triggered by our acquisition of METI this quarter. Excluding that element, the income tax expense this quarter would have been $13.5 million, representing an effective tax rate of 28%.Free cash flow(3) was $109.3 million this quarter due mainly to a $67.3 million favourable change in non-cash working capital.Capital expenditures totalled $46.7 million this quarter, including $35.8 million in support of our growth initiatives and the balance for maintenance. Net debt(4) was $618.8 million as at September 30, 2011 compared with $520.5 million as at June 30, 2011. The increase of $98.3 million was mainly due to additional debt obligations undertaken to finance our acquisition of METI. CAE will pay a dividend of $0.04 per share on December 30, 2011 to shareholders of record at the close of business on December 15, 2011.Additional informationYou will find a more detailed discussion of our results by segment in the Management's Discussion and Analysis (MD&A) as well as in our consolidated interim financial statements which are posted on our website at www.cae.com/Q2FY12.CAE's unaudited consolidated interim financial statements and management's discussion and analysis for the quarter ended September 30, 2011 have been filed with the Canadian securities commissions and are available on our website (www.cae.com) and on SEDAR (www.sedar.com). They have also been filed with the U.S. Securities and Exchange Commission and are available on their website (www.sec.gov).Conference call Q2 FY2012 CAE will host a conference call focusing on fiscal year 2012 second quarter financial results today at 1:00 p.m. ET. The call is intended for analysts, institutional investors and the media. Participants can listen to the conference by dialling + 1 877 586-3392 or + 1 416 981-9024. The conference call will also be audio webcast live for the public at www.cae.com. CAE is a global leader in modeling, simulation and training for civil aviation and defence. The company employs more than 7,500 people at more than 100 sites and training locations in more than 20 countries. Through CAE's global network of 33 civil aviation, military and helicopter training centres, the company trains more than 80,000 crewmembers yearly. CAE's business is diversified, ranging from the sale of simulation products to providing comprehensive services such as training and aviation services, professional services and in-service support. The company aims to apply its simulation expertise and operational experience to help customers enhance safety, improve efficiency, maintain readiness and solve challenging problems. CAE is now leveraging its simulation capabilities in new markets such as healthcare and mining. www.cae.comCertain statements made in this news release, including, but not limited to, statements that are not historical facts, are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring or other special items or events that are announced or completed after the date of this news release, including mergers, acquisitions, or other business combinations and divestitures. You will find more information about the risks and uncertainties associated with our business in the MD&A section of our annual report and annual information form for the year ended March 31, 2011. These documents have been filed with the Canadian securities commissions and are available on our website (www.cae.com), on SEDAR (www.sedar.com) and a free copy is available upon request to CAE. They have also been filed with the U.S. Securities and Exchange Commission under Form 40-F and are available on EDGAR (www.sec.gov). The forward-looking statements contained in this news release represent our expectations as of November 10, 2011 and, accordingly, are subject to change after this date. We do not update or revise forward-looking information even if new information becomes available unless legislation requires us to do so. You should not place undue reliance on forward-looking statements.Notes(1) Operating profit is a non-GAAP measure that shows us how we have performed before the effects of certain financing decisions and tax structures. We track operating profit because we believe it makes it easier to compare our performance with previous periods, and with companies and industries that do not have the same capital structure or tax laws. (2) Unfunded backlog is a non-GAAP measure that represents firm military orders we have received but have not yet executed for which funding authorization has not yet been obtained. We include unexercised options with a high probability that they will be exercised, but exclude indefinite-delivery/ indefinite-quantity (IDIQ) contracts.(3) Free cash flow is a non-GAAP measure that shows us how much cash we have available to build the business, repay debt and meet ongoing financial obligations. We use it as an indicator of our financial strength and liquidity. We calculate it by taking the net cash generated by our continuing operating activities, subtracting maintenance capital expenditures, other assets not related to growth and dividends paid and adding proceeds from sale of property, plant and equipment. (4) Net debt is a non-GAAP measure we use to monitor how much debt we have after taking into account liquid assets such as cash and cash equivalents. We use it as an indicator of our overall financial position, and calculate it by taking our total long-term debt, including the current portion, and subtracting cash and cash equivalents. Consolidated Statement of Financial Position(Unaudited)September 30March 31(amounts in millions of Canadian dollars)20112011AssetsCash and cash equivalents$227.1$276.4Accounts receivable308.1296.8Contracts in progress : assets245.4230.5Inventories142.5124.3Prepayments42.143.5Income taxes recoverable80.658.8Derivative financial assets7.918.9Total current assets$1,053.7$1,049.2Property, plant and equipment1,291.71,211.0Intangible assets539.4375.8Deferred tax assets27.120.7Derivative financial assets8.311.6Other assets162.5149.0Total assets$3,082.7$2,817.3Liabilities and equityAccounts payable and accrued liabilities$528.5$551.9Provisions21.620.9Income taxes payable8.212.9Contracts in progress : liabilities114.9125.8Current portion of long-term debt125.786.2Derivative financial liabilities28.112.4Total current liabilities$827.0$810.1Provisions10.010.4Long-term debt720.2574.0Royalty obligations152.3161.6Employee benefits obligations105.062.8Deferred gains and other non-current liabilities188.7187.6Deferred tax liabilities71.464.5Derivative financial liabilities14.913.4Total liabilities$2,089.5$1,884.4EquityShare capital$447.0$440.7Contributed surplus18.617.1Other reserves13.3(9.8)Retained earnings494.9466.4Equity attributable to equity holders of the Company$973.8$914.4Non-controlling interests19.418.5Total equity$993.2$932.9Total liabilities and equity$3,082.7$2,817.3Consolidated Income Statement(Unaudited)(amounts in millions of Canadian dollars,except per share amounts)Three months endedSix months endedSeptember 30September 302011201020112010Revenue$433.5$388.0$861.4$754.4Cost of sales296.0258.8584.3496.2Gross profit$137.5$129.2$277.1$258.2Research and development expenses15.99.831.122.4Selling, general and administrative expenses59.855.2122.1111.4Other (gains) losses - net(2.1)(4.6)(12.0)(10.1)Operating profit$63.9$68.8$135.9$134.5Finance income(2.3)(1.1)(3.5)(2.1)Finance expense17.216.133.331.3Finance expense - net$14.9$15.0$29.8$29.2Earnings before income taxes$49.0$53.8$106.1$105.3Income tax expense10.314.423.929.3Net income$38.7$39.4$82.2$76.0Attributable to:Equity holders of the Company$38.4$39.1$81.5$76.3Non-controlling interests0.30.30.7(0.3)$38.7$39.4$82.2$76.0Earnings per share from continuing operationsattributable to equity holders of the CompanyBasic$0.15$0.15$0.32$0.30Diluted0.150.150.320.30Consolidated Statement of Comprehensive IncomeThree months endedSix months ended(Unaudited)September 30September 30(amounts in millions of Canadian dollars)2011201020112010Net income$38.7$39.4$82.2$76.0Other comprehensive income (loss)Foreign currency translation adjustmentNet currency translation difference on the translation of financial statements of foreign operations$59.4 $ 8.3$58.5 $ 26.6Net change in (losses) gains on certain long-term debt denominated in foreign currency and designated as hedges of net investments in foreign operations(12.3) 3.3(11.5) (0.9)Income taxes1.9(0.4)1.9(0.4)$49.0$11.2$48.9$25.3Net changes in cash flow hedgeEffective portion of changes in fair value of cash flow hedges$(25.9)$(3.5)$(27.9)$(7.8)Net change in fair value of cash flow hedges transferred to net income or to related non-financial assets or liabilities(2.1) 2.8(6.6) (5.6)Income taxes7.60.38.94.0$(20.4)$(0.4)$(25.6)$(9.4)Defined benefit plan actuarial losses adjustmentDefined benefit plan actuarial losses$(42.1)$(3.4)$(44.8)$(8.0)Income taxes11.70.912.42.1$(30.4)$(2.5)$(32.4)$(5.9)Other comprehensive (loss) income$(1.8)$8.3$(9.1)$10.0Total comprehensive income$36.9$47.7$73.1$86.0Total comprehensive income (loss) attributable to:Equity holders of the Company$36.4$47.4$72.2$86.1Non-controlling interests0.50.30.9(0.1)Total comprehensive income$36.9$47.7$73.1$86.0Consolidated Statement of Changes in Equity(Unaudited)six months ended September 30, 2011Attributable to equity holders of the Company (amounts in millions of Canadian dollars, except number of shares)Number of sharesCommon shares Stated valueContributed surplusOther reservesRetained earnings TotalNon-controlling interestsTotalequityBalances, beginning of period256,964,756$440.7$17.1$(9.8)$466.4$914.4$18.5$932.9Net income----81.581.50.782.2Other comprehensive income (loss):Foreign currency translation adjustment---48.7-48.70.248.9Net changes in cash flow hedge---(25.6)-(25.6)-(25.6)Defined benefit plan actuarial losses adjustment----(32.4)(32.4)-(32.4)Total comprehensive income-$-$-$23.1$49.1$72.2$0.9$73.1Stock options exercised270,7502.0---2.0-2.0Optional cash purchase495-------Stock dividends322,7763.6--(3.6)---Transfer upon exercise of stock options-0.7(0.7)-----Share-based payments--2.2--2.2-2.2Dividends----(17.0)(17.0)-(17.0)Balances, end of period257,558,777$447.0$18.6$13.3$494.9$973.8$19.4$993.2(Unaudited)six months ended September 30, 2010Attributable to equity holders of the Company (amounts in millions of Canadian dollars, except number of shares)Number of sharesCommon shares Stated valueContributed surplusOther reservesRetained earningsTotalNon-controlling interestsTotal equityBalances, beginning of period256,516,994$436.3$14.2$11.4$338.5$800.4$18.0$818.4Net income----76.376.3(0.3)76.0Other comprehensive income (loss):Foreign currency translation adjustment---25.1-25.10.225.3Net changes in cash flow hedge---(9.4)-(9.4)-(9.4)Defined benefit plan actuarial losses adjustment----(5.9)(5.9)-(5.9)Total comprehensive income-$-$-$15.7$70.4$86.1$(0.1)$86.0Stock options exercised80,9250.6---0.6-0.6Stock dividends25,3930.3--(0.3)---Transfer upon exercise of stock options-0.2(0.2)-----Share-based payments--2.5--2.5-2.5Acquisition of non-controlling interests----(0.2)(0.2)(0.2)(0.4)Dividends----(17.7)(17.7)-(17.7)Balances, end of period256,623,312$437.4$16.5$27.1$390.7$871.7$17.7$889.4The total of retained earnings and other reserves for the six months ended September 30, 2011 was $508.2 million ($417.8 million as at September 30, 2010). Consolidated Statement of Cash Flows(Unaudited)six months ended September 30(amounts in millions of Canadian dollars)20112010Operating activitiesNet income$82.2$76.0Adjustments to reconcile net income to cash flows from operating activities:Depreciation of property, plant and equipment44.641.7Amortization of intangible and other assets14.511.1Financing cost amortization0.80.9Deferred income taxes13.612.3Investment tax credits(8.4)(2.9)Share-based payments0.511.5Defined benefit pension plans(4.5)0.3Amortization of other non-current liabilities(4.9)(3.5)Other(4.3)(0.4)Changes in non-cash working capital(92.7)(116.7)Net cash provided by operating activities$41.4$30.3Investing activitiesBusiness combinations, net of cash and cash equivalents acquired$(126.1)$(19.6)Joint venture, net of cash and cash equivalents acquired(26.8)(1.9)Capital expenditures from property, plant and equipment(77.2)(51.9)Proceeds from disposal of property, plant and equipment27.21.3Capitalized development costs(18.7)(8.6)ERP and other software(8.5)(7.1)Other(0.5)(1.7)Net cash used in investing activities$(230.6)$(89.5)Financing activitiesNet borrowing under revolving unsecured credit facilities$14.2$-Net effect of current financial assets program(7.7)-Proceeds from long-term debt, net of transaction costs170.513.4Repayment of long-term debt(16.7)(13.2)Repayment of finance lease(11.1)(22.6)Dividends paid(17.0)(17.7)Common stock issuance2.00.6Other(0.6)(8.6)Net cash provided by (used in) financing activities$133.6$(48.1)Net decrease in cash and cash equivalents$(55.6)$(107.3)Cash and cash equivalents, beginning of period276.4312.9Effect of foreign exchange rate changes on cash and cash equivalents6.33.0Cash and cash equivalents, end of period$227.1$208.6Supplemental information:Interest paid$21.8$17.2Interest received2.21.6Income taxes paid21.07.7FOR FURTHER INFORMATION PLEASE CONTACT: Nathalie Bourque, Vice President,Media contact:Public Affairs and Global Communications(514) 734-5788nathalie.bourque@cae.comORAndrew Arnovitz, Vice President,Investor relations:Investor Relations and Strategy(514) 734-5760andrew.arnovitz@cae.com