CAE Inc.
TSX : CAE
NYSE : CGT

CAE Inc.

November 03, 2005 12:23 ET

CAE reports second-quarter results for fiscal year 2006

MONTREAL, Nov. 3 - (TSX:CAE)(NYSE:CGT) - CAE today
reported financial results for the second quarter ended September 30, 2005.
Earnings from continuing operations were $17.8 million, or $0.07 per share,
which compares to second-quarter earnings of $12.8 million or $0.05 per share
in the prior fiscal year. All financial information is in Canadian dollars.

Excluding non-recurring items, earnings from continuing operations for
the quarter were $0.08 per share, which on the same basis compares to $0.05 in
the second quarter last year.

Consolidated revenues from continuing operations increased 19% to reach
$280.3 million, compared to $235.1 million in the second quarter last year.

Year-to-date revenue was $546.3 million, an $80.3 million increase over
the same period last year. Year-to-date net earnings amounted to
$37.9 million, compared to $38.3 million for the same period last year. Year-
to-date earnings from continuing operations were $0.15 per share, compared to
$0.13 for the same period last year. Excluding non-recurring items, year-to-
date earnings from continuing operations were $0.16 per share, which on the
same basis compares to $0.09 in the same period last year.

"We are pleased with the progress we are making," said Robert E. Brown,
CAE's President and Chief Executive Officer. "Our restructuring is on track,
and we are building a solid foundation for next year and beyond."

Business Segment Highlights

Beginning April 1, 2005, CAE began reporting financial results on a newly
segmented basis - distinguishing between products and services - to reflect
the way that the business is now being managed. The four segments are Training
& Services/Civil, Training & Services/Military, Simulation Products/Civil, and
Simulation Products/Military.

Training & Services/Civil

Revenues in the Training & Services/Civil segment amounted to
$79.4 million in the second quarter, a 5% quarter-over-quarter decrease
resulting from the seasonal nature of the training business, the second and
third quarters traditionally being weaker. On a year-over-year basis, revenues
increased by 11%. The strong year-over-year improvement reflects increased
client demand for training and the expansion of CAE's global network by two
simulators over the course of the year. Management observed a healthy business
aviation market during the quarter.

Operating income for the second quarter amounted to $11.6 million, a
quarter-over-quarter decrease of $5.3 million. However, compared to the same
period last year, operating income increased by 63%, stemming from an
increased level of activity at CAE's training centres and the favourable
impact of the reduction of amortization expenses following the impairment
charge recorded in the third quarter last year. However, these upsides were
partially offset by the strengthening of the Canadian dollar vis-à-vis the
US dollar and the Euro, the main operating currencies of the segment.

New orders totalled $132.2 million in the second quarter. Segment backlog
was $830.4 million as of September 30, 2005.

Training & Services/Military

Revenues in the Training & Services/Military segment amounted to
$50.7 million in the second quarter, a 15% year-over-year increase explained
by higher business volumes and the inclusion of newly acquired Terrain Experts
and Greenley & Associates, both of which contribute to CAE's modelling and
simulation activities.

Operating income for the second quarter amounted to $5.4 million, a year-
over-year decrease of 4%, mainly due to currency translation.

New orders totalled $24.5 million in the second quarter. Segment backlog
was $829.4 million as of September 30, 2005. Given the unique nature and
irregular timing of military contract awards, variations in the level of order
bookings between quarters in both Military segments are normally expected.

Simulation Products/Civil

Revenues in the Simulation Products/Civil segment amounted to
$55.8 million in the second quarter, a 7% quarter-over-quarter decrease. On a
year-over-year basis, revenues decreased by 6%. These differences are related
to the mix of programs and their level of completion during the quarter.

Operating income for the second quarter amounted to $3.4 million, a year-
over-year increase of 48%. The improved profitability stems from manufacturing
productivity gains related to restructuring.

Management had previously indicated that it expected operating income to
decrease from the most recent first quarter. A number of factors contributed
to the lower result in the second quarter. The second quarter is normally
affected by seasonality during the summer vacation period, when the pace of
manufacturing tends to decrease. As well, performance in the preceding quarter
had benefited from a different mix of simulators being built, and from
successfully reaching important milestones on certain programs.

In addition to these factors - which were anticipated - second-quarter
results were impacted by the Company's recent decision to revise the
amortization of certain development costs, resulting in a non-cash expense of
approximately $1.8 million. Excluding this charge, operating income would have
been $5.2 million, or 9% of revenues. The strengthening of the Canadian dollar
also had a negative impact on the quarter.

New orders totalled $59.3 million in the second quarter, including five
full-flight simulator orders. Segment backlog was $280.3 million as of
September 30, 2005, and CAE had been awarded 11 orders for full-flight
simulators. Subsequent to the end of the quarter, CAE received two more
orders, bringing its total number of full-flight simulator sales to 13 this
fiscal year. CAE has revised its sales forecast from 17 to 20 full-flight
simulator sales for the year.

Simulation Products/Military

Revenues in the Simulation Products/Military segment amounted to
$94.4 million in the second quarter, a 58% year-over-year increase resulting
from a comparatively higher program volume, including the German NH90 program.

Operating income for the second quarter amounted to $9.7 million, a year-
over-year increase of 35%. This increase stems from higher revenues and cost
savings realized on simulators manufactured in Montreal, offset somewhat by
lower initial margins on the NH90 program.

New orders totalled $59.7 million in the second quarter. Segment backlog
was $493.1 million as of September 30, 2005.

Cash flow and financial position

Net cash provided by continuing operating activities for the quarter
totalled $53.8 million compared to $20.6 million for the prior year period.

CAE's free cash flow - defined as net cash provided by continuing
operations less capital expenditures (including capitalized costs) and
dividends paid, plus sale and leaseback proceeds - was $18.3 million for the
quarter; an increase of $36.6 million compared to the second quarter of fiscal
year 2005.

CAE will pay a dividend of $0.01 per share to shareholders of record on
December 16, 2005, payable on December 30, 2005.

CAE's net debt, defined as long-term debt less cash and cash equivalents,
was $250.1 million as of September 30, 2005, compared to $630.3 million a year
earlier.

Additional consolidated financial results

Net earnings for the second quarter were $17.1 million, compared to
$14.0 million in the year-earlier quarter.

Second-quarter consolidated earnings before interest and taxes (EBIT)
from continuing operations reached $28.1 million or 10.0% of revenues,
compared to $22.2 million or 9.4% of revenues in the second quarter last year.

The consolidated backlog from continuing operations at September 30, 2005
was $2.4 billion, compared to $2.3 billion a year earlier.

Capital expenditures for the quarter amounted to $24.3 million, for a
total of $42.2 million for the first half of the fiscal year. Capital
expenditures are expected to be higher in the second half of fiscal year 2006.

Income taxes for the second quarter were $5.9 million, representing an
effective tax rate of 25% compared to 22% last year and 33% last quarter. The
sequential decrease results from changes in the mix of income for tax purposes
from various jurisdictions. Management still expects a 31% effective income
tax rate for fiscal year 2006 as a whole.

Non-recurring items

Excluding non-recurring items, earnings per share from continuing
operations for the second quarter were $0.08, which on the same basis compares
to $0.05 in the second quarter last year, and $0.08 in the first quarter.
Reported second-quarter results include an after-tax write-down of
$0.7 million in deferred financing costs, and restructuring and related
charges of $1.5 million after tax. To date, the Company has incurred
approximately $30 million of the projected $55 million restructuring costs it
had identified. While further amounts still remain under the restructuring
program, such expenses can only be recognized as they are incurred. The
previously disclosed estimate of cash cost savings expected from restructuring
remains on track.

A more detailed discussion of business segment highlights can be found in
the Management Discussion & Analysis posted on CAE's website at
http://www.cae.com/financialsQ2.

Conference Call

CAE will host a conference call today at 1:00 p.m. EST for analysts,
institutional investors and the media. North American participants can listen
to the conference by dialling 1-800-387-6216 or 514-861-6560. Overseas
participants can dial +800-7664-7664 or 1-514-861-6560. The conference call
will also be audio Webcast live for the public at www.cae.com.

CAE is a leading provider of simulation and modelling technologies as
well as integrated training services for commercial and business aviation, and
defence customers worldwide. The Company has annual revenues of approximately
C$1 billion, with operations and training facilities in 17 countries on five
continents.

Certain 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 of any dispositions,
monetizations, mergers, acquisitions, other business combinations or other
transactions that may be announced or that may occur after the date hereof.
For a description of risks that could cause actual results or events to differ
materially from current expectations, please refer to the section entitled
"Risk Factors" in CAE Inc.'s Annual Information Form for the year ended March
31, 2005 filed with the Canadian securities commissions (available at
www.cae.com or on SEDAR at www.sedar.com) and with the U.S. Securities and
Exchange Commission under Form 40-F (available on EDGAR at www.sec.gov), as
updated in CAE's fiscal 2006 Second Quarter MD&A dated November 3, 2005, under
the section entitled "Business Risks And Uncertainties". The forward-looking
statements contained in this news release represent our expectations as of
November 3, 2005 and, accordingly, are subject to change after such date.
However, we disclaim any intention or obligation to update any forward-looking
statements, whether as a result of new information or otherwise.



Consolidated Balance Sheets
as at as at
(Unaudited) September 30 March 31
(amounts in millions of Canadian dollars) 2005 2005
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 69.8 $ 57.1
Accounts receivable 260.9 255.7
Inventories 121.0 101.0
Prepaid expenses 23.2 17.8
Income taxes recoverable 73.9 58.5
Future income taxes 6.1 2.5
Current assets held for sale - 5.8
-------------------------------------------------------------------------
554.9 498.4
Property, plant and equipment, net 754.2 792.2
Future income taxes 96.9 101.0
Intangible assets 21.0 20.2
Goodwill 91.9 92.1
Other assets 126.4 138.3
Long-term assets held for sale 4.0 57.5
-------------------------------------------------------------------------
$ 1,649.3 $ 1,699.7
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-------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 313.7 $ 312.8
Deposits on contracts 142.6 93.5
Long-term debt due within one year 14.4 35.3
Future income taxes 23.9 19.6
Current liabilities related to assets
held for sale - 7.8
-------------------------------------------------------------------------
494.6 469.0
Long-term debt 305.5 307.6
Deferred gains and other long-term liabilities 178.2 179.8
Future income taxes 25.4 38.3
Long-term liabilities related to assets
held for sale - 53.4
-------------------------------------------------------------------------
1,003.7 1,048.1
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Shareholders' Equity
Capital stock 385.1 373.8
Contributed surplus 4.3 3.3
Retained earnings 373.7 340.8
Currency translation adjustment (117.5) (66.3)
-------------------------------------------------------------------------
645.6 651.6
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$ 1,649.3 $ 1,699.7
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Consolidated Statements of Earnings

(Unaudited) three months ended six months ended
(amounts in millions of Canadian September 30 September 30
dollars, except per share amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue $ 280.3 $ 235.1 $ 546.3 $ 466.0
-------------------------------------------------------------------------
Earnings before the undernoted $ 30.1 $ 22.2 $ 60.9 $ 53.7
Other (expense) income, net (2.0) - 3.1 -
-------------------------------------------------------------------------
Earnings before interests and
income taxes $ 28.1 $ 22.2 $ 64.0 $ 53.7
Interest expense, net 4.4 5.8 9.2 10.6
-------------------------------------------------------------------------
Earnings before income taxes $ 23.7 $ 16.4 $ 54.8 $ 43.1
Income tax expense 5.9 3.6 16.2 11.4
-------------------------------------------------------------------------
Earnings from continuing
operations $ 17.8 $ 12.8 $ 38.6 $ 31.7
Results of discontinued operations (0.7) 1.2 (0.7) 6.6
-------------------------------------------------------------------------
Net earnings $ 17.1 $ 14.0 $ 37.9 $ 38.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings per
share from continuing operations $ 0.07 $ 0.05 $ 0.15 $ 0.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings per share $ 0.07 $ 0.06 $ 0.15 $ 0.16
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per share $ 0.07 $ 0.05 $ 0.15 $ 0.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares
outstanding 249.8 246.8 249.3 246.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated Statements of Retained Earnings

(Unaudited) three months ended six months ended
(amounts in millions of September 30 September 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Retained earnings at beginning of
period $ 359.1 $ 579.0 $ 340.8 $ 562.1
Net earnings 17.1 14.0 37.9 38.3
Dividends (2.5) (7.4) (5.0) (14.8)
-------------------------------------------------------------------------
Retained earnings at end of
period $ 373.7 $ 585.6 $ 373.7 $ 585.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated Statements of Cash Flows

(Unaudited) three months ended six months ended
(amounts in millions of September 30 September 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Operating activities
Net earnings $ 17.1 $ 14.0 $ 37.9 $ 38.3
Results of discontinued operations 0.7 (1.2) 0.7 (6.6)
-------------------------------------------------------------------------
Earnings from continuing operations 17.8 12.8 38.6 31.7
Adjustments to reconcile earnings
to cash flows from operating
activities:
Depreciation and amortization 12.9 13.2 26.0 27.1
Amortization of deferred
financing costs 1.3 0.6 1.7 1.3
Amortization of intangible and
other assets 7.6 5.5 10.8 8.8
Future income taxes 6.3 3.0 (4.7) 12.8
Investment tax credit (2.9) (6.4) (2.7) (20.1)
Stock-based compensation 0.6 0.6 1.1 0.9
Other 2.0 0.5 5.6 2.8
Decrease (increase) in non-cash
working capital 8.2 (9.2) (0.8) (39.0)
-------------------------------------------------------------------------

Net cash provided by continuing
operating activities 53.8 20.6 75.6 26.3
Net cash (used in) provided by
discontinued operating activities (0.1) 15.3 2.1 20.6
-------------------------------------------------------------------------

Net cash provided by operating
activities 53.7 35.9 77.7 46.9
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Investing activities
Purchase of business (net of
cash and cash equivalents
acquired) - (5.7) 2.6 (6.6)
Proceeds from disposal of
discontinued operations - 0.8 - 0.8
Capital expenditures (24.3) (25.0) (42.2) (66.2)
Deferred development costs - (3.2) - (6.9)
Deferred pre-operating costs 0.1 (0.2) (0.3) (1.3)
Other assets (8.9) (3.3) (12.1) (4.1)
-------------------------------------------------------------------------
Net cash used in continuing
investing activities (33.1) (36.6) (52.0) (84.3)
Net cash used in discontinued
investing activities (6.1) (2.2) (7.2) (4.1)
-------------------------------------------------------------------------
Net cash used in investing
activities (39.2) (38.8) (59.2) (88.4)
-------------------------------------------------------------------------

Financing activities
Proceeds from long-term debt 49.5 126.0 89.3 149.2
Repayments of long-term debt (41.5) (124.7) (92.9) (127.0)
Dividends paid (2.4) (7.2) (4.8) (14.4)
Common stock issuances 2.9 0.2 5.0 0.5
Other (0.5) 1.8 (1.0) 3.1
-------------------------------------------------------------------------
Net cash provided (used in) by
continuing financing activities 8.0 (3.9) (4.4) 11.4
Net cash provided by discontinued
financing activities 0.4 0.6 1.2 1.8
-------------------------------------------------------------------------
Net cash provided (used in) by
financing activities 8.4 (3.3) (3.2) 13.2
-------------------------------------------------------------------------
Effect of foreign exchange rate
changes on cash and cash
equivalents (5.2) (2.3) (7.0) (1.5)
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 17.7 (8.5) 8.3 (29.8)
Cash and cash equivalents at
beginning of period 52.1 40.6 61.5 61.9
-------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 69.8 $ 32.1 $ 69.8 $ 32.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash and cash equivalents
related to:
Continuing operations $ 69.8 $ 23.6
Discontinued operations - 8.5
-------------------------------------------------------------------------
$ 69.8 $ 32.1
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