CAE Inc.
TSX : CAE
NYSE : CGT

CAE Inc.

February 14, 2008 09:03 ET

CAE reports third quarter results for fiscal year 2008

- Net earnings up 33% year over year to CDN$39.5 million - Revenue up 4% year over year to $344.8 million - Free cash flow of CDN$46.2 million - Consolidated book-to-sales ratio of 1.6x

MONTREAL, Feb. 14 - (NYSE: CGT; TSX: CAE) - CAE today
reported financial results for the third quarter ended December 31, 2007. Net
earnings were $39.5 million ($0.16 per share) this quarter, compared to
$29.7 million ($0.12 per share) in the third quarter of last year. All
financial information is in Canadian dollars.



Summary of consolidated results

(millions, except
operating margins) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
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Revenue $ 344.8 353.9 358.3 337.3 331.2
Earnings before
interest and
income taxes (EBIT) $ 61.7 62.1 58.0 53.3 44.2
As a % of revenue % 17.9 17.5 16.2 15.8 13.3
Net earnings $ 39.5 38.9 38.7 34.3 29.7
Backlog $ 2,710.7 2,513.3 2,599.5 2,774.6 2,711.9
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Consolidated revenue was $344.8 million, $13.6 million higher than in the
third quarter of 2007.

Consolidated earnings from continuing operations were $40.1 million
compared to $29.7 million in the third quarter of 2007. Excluding
non-recurring items, earnings last year were $32.0 million.

Third-quarter consolidated earnings before interest and taxes(1) (EBIT)
were $61.7 million, or 17.9% of revenue. EBIT increased 40% or $17.5 million
year over year, as a result of higher segment operating income in all
segments.

"Our results continue to show that we have successfully diversified our
interests between civil and military markets, and among the various regions of
the world," said Robert E. Brown, CAE's President and Chief Executive Officer.
"Approximately 60% of our revenues are now being generated outside North
America and those originating in high growth areas like Asia, the Middle East
and South America have grown by 25% over the same nine-month period last year.

The growing proportion of our civil and military training and services
activity is providing greater stability and predictability to our results. We
are continuing to execute our growth strategy by prudently and purposefully
investing to meet the long term needs of our aerospace and defence customers."

We saw a higher level of activity this quarter in the combined military
segments, with orders totalling $339 million. As a result, the combined
military backlog increased 14% from last quarter.

We won a $160 million contract to provide MRH90 helicopter training
systems and services to the Australian Defence Forces. In addition, Helicopter
Training Media International, a company owned equally by CAE and Thales,
entered into a contract to supply the French Air Force with an NH90 full
mission simulator. The Royal Netherlands Air Force awarded us contracts for
C-130H and KDC-10 full mission simulators as well as for maintenance and
support services. Also related to the C-130 aircraft, we received a contract
to provide maintenance and logistics services to the U.S. Air Force and for
pilot instruction and courseware development.

Earlier in the quarter, the government of Canada qualified the CAE-led
team for the C-130J and CH-47 aircrew training capability.

In civil training and services, we secured more than $104 million in new
training contracts, including a five-year agreement with Dassault Falcon Jet
as a preferred provider for maintenance training for Dassault employees. We
also announced a $50 million, 10-year contract with AirAsia to provide
training to all of the airline's current and future pilots. Subsequent to the
end of the quarter, we announced the selection of Kuala Lumpur as the location
for our Southeast Asian training hub, and together with AirAsia, we plan to
develop an aviation centre of excellence.

During the quarter we signed contracts for 11 civil full-flight simulators
(FFSs). We have announced 31 FFS orders year to date and we are likely to
slightly exceed our previous full-year guidance of 34. The exact number of
sales we conclude this year will ultimately depend on the timing of a number
of contracts.

Business segment highlights

Simulation Products/Civil (SP/C)

Financial results
(millions, except
operating margins) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
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Revenue $ 103.5 112.3 113.0 97.6 92.1
Segment operating
income $ 25.2 26.2 19.7 15.3 15.5
Operating margins % 24.3 23.3 17.4 15.7 16.8
Backlog $ 388.7 373.3 413.3 352.8 340.0
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Revenue in the SP/C segment was $103.5 million in the quarter, up by 12%
over the same period last year. Revenue increased as a result of higher
orders, partly offset by the negative impact of the appreciation of the
Canadian dollar.

Segment operating income was $25.2 million, up by 63% over the same period
last year. This increase is mainly due to higher revenue in the quarter as
well as stronger operating margins. The mix of programs, positive sustained
cost performance, strong demand and higher volume all contributed to the
operating margin of 24.3%.

New orders totalled $123.7 million, and segment backlog was $388.7 million
at the end of the quarter.

Training & Services/Civil (TS/C)

Financial results

(millions, except
operating margins) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $ 92.8 90.0 94.8 91.7 83.1
Segment operating
income $ 15.5 14.6 19.6 21.3 13.5
Operating margins % 16.7 16.2 20.7 23.2 16.2
Backlog $ 896.1 887.5 853.4 951.6 905.6
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Revenue in the TS/C segment increased 12% year over year as a result of
continued strong demand in most of our training centres and the addition of
12 revenue simulator equivalent units (RSEUs) to our global network.

Segment operating income was $15.5 million (16.7% of revenue), compared to
$13.5 million (16.2% of revenue) last year. While our civil training business
showed continued operational strength, margins in the quarter were impacted by
operating costs associated with the expansion of our network and the ramp-up
of new training programs.

TS/C's operating margin is relatively unaffected by foreign exchange
fluctuations, however, year over year, the appreciation of the Canadian dollar
reduced the translation value of the segment's revenue and operating income.

New orders exceeded $104 million, and segment backlog was $896.1 million
at the end of the quarter.

Simulation Products/Military (SP/M)

Financial results

(millions, except
operating margins) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
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-------------------------------------------------------------------------
Revenue $ 89.6 97.1 95.5 92.2 105.2
Segment operating
income $ 11.5 13.4 12.3 9.5 11.2
Operating margins % 12.8 13.8 12.9 10.3 10.6
Backlog $ 704.4 535.3 560.5 635.8 609.0
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Revenue in the SP/M segment was $89.6 million in the quarter, compared to
the $105.2 million we generated last year. Revenue was higher last year mainly
because of the intense level of activity on some European programs. Also, last
year's results benefited from a lower Canadian dollar compared with its U.S.
counterpart.

Segment operating income in the quarter was $11.5 million, up 3% year over
year.

New orders totalled $265.7 million, and segment backlog was $704.4 million
at the end of the quarter. We expect variations in the level of order bookings
between quarters in both Military segments because of the unique nature of
military contracts and the irregular timing in which they are awarded.

Training & Services/Military (TS/M)

Financial results

(millions, except
operating margins) Q3-08 Q2-08 Q1-08 Q4-07 Q3-07
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Revenue $ 58.9 54.5 55.0 55.8 50.8
Segment operating
income $ 9.5 7.9 6.4 6.1 6.8
Operating margins % 16.1 14.5 11.6 10.9 13.4
Backlog $ 721.5 717.2 772.3 834.4 857.3
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Revenue in the TS/M segment was $58.9 million, up by 16% from last year
despite negative foreign exchange fluctuations. This increase is the result of
additional support and training services business with European and U.S.
Forces. As well, we received the benefit of a cost recovery during the
quarter, which resulted from an annual labour rate review with the Canadian
government. The recent quarter also includes the integration of Engenuity (now
part of Presagis) and Kesem (now part of CAE Professional Services) into our
results.

Segment operating income was $9.5 million, up by 40% over the same period
last year.

New orders totalled $72.9 million this quarter, and segment backlog was
$721.5 million at the end of the quarter.

Combined revenue in the quarter for the Military business as a whole was
$148.5 million and combined operating income was $21.0 million, resulting in
an operating margin of 14.1%.

The combined Military book-to-sales ratio in the quarter was 2.3x and 1.1x
on a trailing 12-month basis.


Cash flow and financial position


In the third quarter, we generated $61.0 million of net cash provided by
continuing operations. We invested $21.1 million in capital expenditures, and
received $14.4 million in non-recourse financing. As a result, we generated
free cash flow(2) of $46.2 million in the quarter.

Net debt(3) was $187.2 million for the quarter, down by 14% from last
quarter.

CAE will pay a dividend of $0.01 per share on March 31, 2008 to
shareholders of record on March 14, 2008.


Additional consolidated financial results


The consolidated backlog was $2.711 billion at the end of the quarter,
compared to $2.513 billion at the end of last quarter. New orders of
$566.6 million were added to backlog this quarter, while negative foreign
exchange movements reduced the Canadian dollar value of the backlog by
$24.4 million. The net increase was partially offset by $344.8 million of
revenues generated from backlog.

Income taxes were $16.8 million in the quarter, representing an effective
tax rate of 30%. We expect the effective income tax rate for fiscal 2008 to be
approximately 30%.

You 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
financial statements which are posted on our website at www.cae.com/Q3FY08.


Conference call


CAE will host a conference call today at 12:00 p.m. EST for analysts,
institutional investors and the media. North American participants can listen
to the conference by dialing +1-866-540-8136 or +1-514-868-1042. Overseas
participants can dial +800-6578-9868 or +1-514-868-1042. The conference call
will also be audio Webcast live for the public at www.cae.com.


CAE is a world leader in providing simulation and modelling technologies
and integrated training solutions for the civil aviation industry and defence
forces around the globe. With annual revenues exceeding C$1 billion, CAE
employs approximately 6,000 people at more than 75 sites and training
locations in 20 countries. We have the largest installed base of civil and
military full-flight simulators and training devices. More than
75,000 crewmembers train yearly in our global network of 27 civil aviation and
military training centres. We also offer modelling and simulation software to
various market segments and through CAE's professional services division, we
assist customers with a wide range of simulation-based needs.


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 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, 2007. 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 February 14, 2008 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) Earnings before interest and taxes (EBIT) is a non-GAAP measure that
shows us how we have performed before the effects of certain
financing decisions and tax structures. We track EBIT 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) Free cash flow is a non-GAAP measure that tells 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 all
capital expenditures (including growth capital expenditures and
capitalized costs) and dividends paid, and then adding the proceeds
from sale and leaseback arrangements and other asset-specific
financing (including non-recourse debt). Dividends are deducted in
the calculation of free cash flow because we consider them an
obligation, like interest on debt, which means that amount is not
available for other uses.

(3) 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 (debt
that matures in more than one year), including the current portion,
and subtracting cash and cash equivalents.


Consolidated Balance Sheets

(Unaudited) As at December 31 As at March 31
(amounts in millions of Canadian dollars) 2007 2007
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Assets
Current assets
Cash and cash equivalents $ 201.0 $ 150.2
Accounts receivable 264.8 219.8
Inventories 212.2 203.8
Prepaid expenses 31.5 23.5
Income taxes recoverable 39.7 24.7
Future income taxes 8.3 3.7
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757.5 625.7
Property, plant and equipment, net 948.5 986.6
Future income taxes 62.1 81.5
Intangible assets 58.7 36.0
Goodwill 111.0 96.9
Other assets 132.6 129.5
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$ 2,070.4 $ 1,956.2
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 371.4 $ 403.9
Deposits on contracts 209.2 184.8
Current portion of long-term debt 26.7 27.2
Future income taxes 10.9 4.9
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618.2 620.8
Long-term debt 361.5 256.0
Deferred gains and other long-term liabilities 191.5 232.7
Future income taxes 33.6 16.8
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1,204.8 1,126.3
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Shareholders' Equity
Capital stock 418.5 401.7
Contributed surplus 6.3 5.7
Retained earnings 611.4 510.2
Accumulated other comprehensive loss (170.6) (87.7)
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865.6 829.9
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$ 2,070.4 $ 1,956.2
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Consolidated Statements of Earnings

(Unaudited)
(amounts in millions of Three months ended Nine months ended
Canadian dollars, except December 31 December 31
per share amounts) 2007 2006 2007 2006
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Revenue $ 344.8 $ 331.2 $ 1,057.0 $ 913.4
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Earnings before interest
and income taxes $ 61.7 $ 44.2 $ 181.8 $ 136.1
Interest expense, net 4.8 2.9 12.8 7.1
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Earnings before income taxes $ 56.9 $ 41.3 $ 169.0 $ 129.0
Income tax expense 16.8 11.6 51.2 35.0
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Earnings from continuing
operations $ 40.1 $ 29.7 $ 117.8 $ 94.0
Results of discontinued
operations (0.6) - (0.7) (0.9)
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Net earnings $ 39.5 $ 29.7 $ 117.1 $ 93.1
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Basic earnings per share
from continuing operations $ 0.16 $ 0.12 $ 0.47 $ 0.37
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Diluted earnings per share
from continuing operations $ 0.16 $ 0.12 $ 0.46 $ 0.37
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Basic and diluted earnings
per share $ 0.16 $ 0.12 $ 0.46 $ 0.37
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Weighted average number of
shares outstanding (Basic) 253.8 251.2 253.2 251.0
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Weighted average number of
shares outstanding (Diluted) 254.8 253.3 254.4 252.8
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Consolidated Statements of Retained Earnings

(Unaudited) Three months ended Nine months ended
(amounts in millions of December 31 December 31
Canadian dollars) 2007 2006 2007 2006
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Retained earnings at beginning
of period $ 574.4 $ 451.2 $ 510.2 $ 392.8
Transition adjustments -
Financial instruments - - (8.3) -
Net earnings 39.5 29.7 117.1 93.1
Dividends (2.5) (2.5) (7.6) (7.5)
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Retained earnings at end
of period $ 611.4 $ 478.4 $ 611.4 $ 478.4
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Consolidated Statements of Comprehensive Income

(Unaudited) Three months ended Nine months ended
(amounts in millions of December 31 December 31
Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings $ 39.5 $ 29.7 $ 117.1 $ 93.1
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Other comprehensive (loss)
income, net of income taxes:

Foreign Currency Translation
Adjustment
Net foreign exchange (losses)
gains on translating financial
statements of self-sustaining
foreign operations $ (3.3) $ 45.1 $(113.9) $ 29.1
Net change in gains (losses)
on certain long-term debt
denominated in foreign
currency and designated
as hedges on net investments
of self-sustaining foreign
operations 2.4 (5.4) 17.0 0.2
Income tax adjustment (0.3) 0.1 0.6 (0.1)
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$ (1.2) $ 39.8 $ (96.3) $ 29.2
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Net Changes in Cash Flow Hedge
Net change in (losses) gains
on derivative items
designated as hedges of
cash flows $ (3.7) $ - $ 24.9 $ -
Income tax adjustment 1.3 - (8.0) -
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$ (2.4) $ - $ 16.9 $ -
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Total other comprehensive
(loss) income $ (3.6) $ 39.8 $ (79.4) $ 29.2
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Comprehensive income $ 35.9 $ 69.5 $ 37.7 $ 122.3
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Consolidated Statements of Cash Flows

(Unaudited) Three months ended Nine months ended
(amounts in millions of December 31 December 31
Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating activities
Net earnings $ 39.5 $ 29.7 $ 117.1 $ 93.1
Results of discontinued
operations 0.6 - 0.7 0.9
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Earnings from continuing
operations 40.1 29.7 117.8 94.0
Adjustments to reconcile
earnings to cash flows
from operating activities:
Depreciation 15.3 14.3 45.5 40.4
Financing cost amortization 0.1 0.2 0.6 0.6
Amortization and write down of
intangible and other assets 4.2 3.4 12.7 10.6
Future income taxes 20.0 (1.2) 30.1 11.4
Investment tax credits 2.3 9.6 9.8 5.5
Stock-based compensation plans 1.4 6.4 0.3 14.4
Employee future benefits, net (0.1) (0.2) (0.3) (0.5)
Other 1.4 (4.3) 2.4 (2.8)
Changes in non-cash working
capital (23.7) 18.1 (88.9) (26.5)
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Net cash provided by operating
activities 61.0 76.0 130.0 147.1
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Investing activities
Business acquisitions (net of
cash and cash equivalents
acquired) - (4.9) (40.7) (4.9)
Proceeds from disposal of
discontinued operations - - - (6.6)
Capital expenditures (21.1) (42.7) (141.2) (124.3)
Deferred development costs (4.2) (0.1) (13.9) (0.3)
Deferred pre-operating costs (0.5) (2.6) (0.9) (2.7)
Other (0.9) (1.1) (4.3) 2.6
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Net cash used in investing
activities (26.7) (51.4) (201.0) (136.2)
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Financing activities
Net borrowing under revolving
unsecured credit facilities 15.0 (30.6) 30.0 (0.6)
Proceeds from long-term debt,
net of transaction costs and
debt basis adjustment 15.7 8.0 125.1 32.5
Reimbursement of long-term debt (4.5) (3.6) (20.9) (11.2)
Dividends paid (2.5) (2.4) (7.4) (7.3)
Common stock issuance 0.2 0.9 13.7 3.6
Other (1.3) (1.6) (5.8) (1.0)
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Net cash provided by (used in)
financing activities 22.6 (29.3) 134.7 16.0
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Effect of foreign exchange rate
changes on cash and cash
equivalents (0.2) 6.8 (12.9) 4.9
-------------------------------------------------------------------------
Net increase in cash and cash
equivalents 56.7 2.1 50.8 31.8
Cash and cash equivalents at
beginning of period 144.3 110.8 150.2 81.1
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Cash and cash equivalents
at end of period $ 201.0 $ 112.9 $ 201.0 $ 112.9
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