CAE reports second quarter financial results for fiscal year 2014 and announces dividend increase

- $119.7 million free cash flow(1) resulting in net debt-to-capital(2) of 38.7% - 13.4% consolidated operating margin up from 11.8% last quarter on stronger Civil and Military margins - 13 Civil full-flight simulator (FFS) sales in Q2 and five more since for 33 sales year to date - Consolidated book-to-sales(3) of 1.47x for $3.9 billion backlog(4)

Marketwired

MONTREAL, CANADA--(Marketwired - Nov 13, 2013) - (CAE)(CAE.TO) - CAE today reported financial results for the second quarter ended September 30, 2013. Net income attributable to equity holders was $38.3 million ($0.15 per share) this quarter, compared to $35.6 million ($0.14 per share) last year. Revenue for the quarter was $487.5 million, compared to $506.5 million in the second quarter last year. All financial information is in Canadian dollars.

CAE's Board of Directors today approved a one cent increase in CAE's quarterly dividend to six cents per quarter.

"We improved operating margins during the quarter in both Civil and Military, sustaining our confidence that performance will be stronger in the second half," said Marc Parent, CAE's President and Chief Executive Officer. "Our operational focus yielded strong free cash flow in the quarter of nearly $120 million, which enabled us to reduce net debt(5) below 40% of capital. We achieved a book-to-sales ratio of 1.47 on solid order intake and our backlog reached $3.9 billion. This includes a record $2.0 billion backlog in Civil, which is indicative of our sector leadership within a robust aerospace market. As a reflection of our confidence in CAE's position and outlook, we are pleased to announce a 20 percent dividend increase."

Summary of consolidated results

(amounts in millions, except operating margins) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 487.5 530.4 565.6 500.9 506.5
Operating profit (6) $ 65.2 62.8 66.9 59.8 64.0
As a % of revenue % 13.4 11.8 11.8 11.9 12.6
Net Income $ 38.2 45.4 45.7 37.2 35.9
Net income attributable to the equity holders of the Company $ 38.3 45.6 43.1 37.5 35.6
Backlog $ 3,939.4 3,714.5 3,717.8 3,462.8 3,561.3

Civil segments

Revenue for our combined Civil segments decreased 6% in the second quarter to $269.3 million compared to $285.3 million last year. Second quarter operating income was $39.0 million (14.5% of revenue) compared to $45.2 million (15.8% of revenue) last year.

We received 13 FFS orders in the second quarter and have since sold another five, bringing us to 33 year to date. During the quarter we signed long-term contract renewals with Jazz Aviation and Execaire for training services and we commenced training at our new centre in New Delhi, India with our joint venture partner, Interglobe, the parent of Indigo Airlines. We received $514.5 million in combined civil segment orders this quarter for a book-to-sales ratio of 1.91x. The ratio for the trailing 12 months was 1.37x. Second quarter Civil backlog was a record $1.997 billion.

Training & Services/Civil (TS/C)

(amounts in millions except operating margins, SEU and FFSs deployed) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 166.4 178.3 176.1 169.0 166.8
Segment operating income(7) $ 19.4 17.5 24.9 24.2 22.1
Operating margins % 11.7 9.8 14.1 14.3 13.2
Backlog $ 1,445.4 1,300.0 1,311.6 1,065.8 1,092.9
SEU(8) 188 190 187 186 187
FFSs deployed 233 230 227 222 218

Simulation Products/Civil (SP/C)

(amounts in millions except operating margins) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 102.9 123.5 143.4 104.4 118.5
Segment operating income $ 19.6 20.1 25.8 21.9 23.1
Operating margins % 19.0 16.3 18.0 21.0 19.5
Backlog $ 551.6 454.4 411.0 393.3 427.4

Military segments

Revenue for our combined Military segments decreased 1% in the second quarter to $191.1 million compared to $192.9 million last year. Combined Military operating income was $25.2 million (13.2% of revenue) for the quarter, compared to $26.1 million (13.5% of revenue) last year.

We booked orders during the quarter for upgrades to the German Air Force's Tornado simulators as well as upgrades to the U.S. Air Force's KC-135 operational flight trainers together with an extension of our aircrew training services contract. Also with the U.S. Air Force, we signed a contract to train its 1,500 RPV pilot and sensor operators. In total, we received $174.0 million in combined military segment orders this quarter, representing a book-to-sales ratio of 0.91x. In addition to these orders are $120.6 million in negotiated options received in the quarter involving U.S. defence programs. Second quarter Military backlog was $1.94 billion and we had an additional $370.6 million of unfunded backlog(9).

Simulation Products/Military (SP/M)

(amounts in millions except operating margins) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 123.5 137.8 153.1 140.1 132.4
Segment operating income $ 18.3 16.5 19.4 19.3 21.1
Operating margins % 14.8 12.0 12.7 13.8 15.9
Backlog $ 635.4 673.4 688.7 729.2 722.6

Training & Services /Military (TS/M)

(amounts in millions except operating margins) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 67.6 61.0 64.0 58.7 60.5
Segment operating income $ 6.9 7.1 8.8 6.1 5.0
Operating margins % 10.2 11.6 13.8 10.4 8.3
Backlog $ 1,307.0 1,286.7 1,306.5 1,274.5 1,318.4

New Core Markets

Revenue in New Core Markets was $27.1 million for the quarter, compared to $28.3 million last year. Operating income was $1.0 million compared to $2.2 million last year.

In CAE Healthcare, we had sales of our training centre management systems and patient simulators to customers in the U.S. and internationally. We also signed a contract with a medical device company in the U.S. to develop a cardiac procedure simulation solution.

In CAE Mining, we released a major update to our geological data management system and our Sirovision product. Sales during the quarter included our resource modeling and open pit planning software and our Sirovision 3D mapping software and stereo camera systems to customers in India, Australia, Canada and Peru.

New Core Markets (NCM)

(amounts in millions except operating margins) Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Revenue $ 27.1 29.8 29.0 28.7 28.3
Segment operating income $ 1.0 1.6 1.8 1.7 2.2
Operating margins % 3.7 5.4 6.2 5.9 7.8

Additional financial highlights

Income taxes this quarter were $8.4 million representing an effective tax rate of 18%, compared to 24% last year. The decrease in the effective tax rate was mainly due to a change in the mix of income from various jurisdictions and an adjustment resulting from the substantively enacted reduction of the U.K. statutory tax rate. Excluding the effect of this adjustment in the quarter, the income tax expense would have been $8.9 million.

Free cash flow was positive $119.7 million this quarter. The increase from last quarter was mainly attributable to a reduction of $51.5 million in non-cash working capital(10). For the year to date, free cash flow was positive $108.2 million, or $216.8 million higher than the first half last year, mainly due to an increase in cash provided by operating activities and favourable changes in non-cash working capital.

Capital expenditures(11) totaled $24.6 million this quarter with $15.2 million for growth and $9.4 million for maintenance.

Net debt was $810.4 million as at September 30, 2013, compared to $897.8 million as at June 30, 2013. Our net debt-to-total capital ratio decreased to 38.7%.

CAE will increase its dividend to $0.06 per share effective December 31, 2013 to shareholders of record at the close of business on December 16, 2013.

Additional information

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 interim financial statements which are posted on our website at www.cae.com/investors.

CAE's unaudited consolidated interim financial statements and management's discussion and analysis for the quarter ended September 30, 2013 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 FY2014

CAE will host a conference call focusing on fiscal year 2014 second quarter 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 approximately 8,000 people at more than 100 sites and training locations in approximately 30 countries. CAE offers civil aviation, military, and helicopter training services in more than 50 locations worldwide and trains approximately 100,000 crewmembers yearly. In addition, the CAE Oxford Aviation Academy offers training to aspiring pilot cadets in 10 CAE-operated flight schools. CAE's business is diversified, ranging from the sale of simulation products to providing comprehensive services such as training and aviation services, integrated enterprise solutions, in-service support and crew sourcing. The company applies simulation expertise and operational experience to help customers enhance safety, improve efficiency, maintain readiness and solve challenging problems. CAE is leveraging its simulation capabilities in new markets such as healthcare and mining. www.cae.com

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, 2013. 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 13, 2013 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.

Non-GAAP and other financial measures

This press release includes non-GAAP and other financial measures. Non-GAAP measures are useful supplemental information but may not have a standardized meaning according to GAAP. These measures should not be confused with, or used as an alternative for, performance measures calculated according to GAAP. They should also not be used to compare with similar measures from other companies. Management believes that providing certain non-GAAP measures provides users with a better understanding of our results and trends and provides additional information on our financial and operating performance.

(1) Free cash flow is a non-GAAP measure that shows us how much cash we have available to invest in growth opportunities, 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, investment in other assets not related to growth and dividends paid and adding proceeds from the disposal of property, plant and equipment, dividends received from equity accounted investees and proceeds, net of payments, from equity accounted investees.

(2) Net debt-to-capital is calculated as long-term debt, including current portion of long-term debt, less cash and cash equivalents (net debt), divided by the sum of shareholder's equity plus net debt.

(3) The book-to-sales ratio is the total orders divided by total revenue in the period.

(4) Backlog is a non-GAAP measure that represents the expected value of orders we have received but have not yet executed.

(5) 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 of long-term debt, and subtracting cash and cash equivalents.

(6) Operating profit is 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.

(7) Segment operating income (SOI) is a non-GAAP measure and our key indicator of each segment's financial performance. This measure gives us a good indication of the profitability of each segment because it does not include the impact of any items not specifically related to the segment's performance. We calculate it by using segment operating profit, including the after tax share in profit of equity accounted investees and excluding net finance expense, income taxes, restructuring, integration and acquisition costs and other items not specifically related to the segment's performance.

(8) Simulator equivalent unit (SEU) is a financial measure we use to show the total average number of FFSs available to generate earnings during the period.

(9) 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 negotiated options with a high probability that they will be exercised, but exclude indefinite-delivery/indefinite-quantity (IDIQ) contracts.

(10) Non-cash working capital is a non-GAAP measure we use to monitor how much money we have committed in the day-to-day operation of our business. We calculate it by taking current assets (not including cash and cash equivalents or the current portion of assets held-for-sale) and subtracting current liabilities (not including the current portion of long-term debt or the current portion of liabilities related to assets held-for-sale).

(11) Maintenance capital expenditure is a non-GAAP measure we use to calculate the investment needed to sustain the current level of economic activity. Growth capital expenditure is a non-GAAP measure we use to calculate the investment needed to increase the current level of economic activity.

For a detailed reconciliation of these measures as well as other non-GAAP and other financial measures monitored by CAE, please refer to CAE's management's discussion and analysis filed with the Canadian securities commissions available on our website (www.cae.com) and on SEDAR (www.sedar.com).

Consolidated Statement of Financial Position

(Unaudited)September 30March 31 April 1
(amounts in millions of Canadian dollars) 20132013 2012
Restated Restated
Assets
Cash and cash equivalents$286.9$260.0 $254.7
Accounts receivable 372.1 401.4 302.3
Contracts in progress: assets 233.9 265.6 259.8
Inventories 206.4 176.2 146.9
Prepayments 72.7 53.5 46.1
Income taxes recoverable 33.1 141.9 95.5
Derivative financial assets 6.0 9.0 10.3
Total current assets$1,211.1$1,307.6 $1,115.6
Property, plant and equipment 1,195.1 1,142.8 993.2
Intangible assets 815.4 794.4 527.9
Investment in equity accounted investees 194.6 196.9 172.9
Deferred tax assets 35.2 31.3 16.9
Derivative financial assets 4.4 6.4 7.2
Other assets 359.0 211.9 195.2
Total assets$3,814.8$3,691.3 $3,028.9
Liabilities and equity
Accounts payable and accrued liabilities$610.7$644.2 $556.2
Provisions 36.2 49.0 21.6
Income taxes payable 10.4 10.0 9.4
Contracts in progress: liabilities 146.6 122.3 110.4
Current portion of long-term debt 41.4 70.6 119.3
Derivative financial liabilities 14.0 10.3 8.9
Total current liabilities$859.3$906.4 $825.8
Provisions 6.4 7.9 5.5
Long-term debt 1,055.9 1,002.8 588.4
Royalty obligations 157.6 160.6 161.6
Employee benefits obligations 101.7 136.1 114.3
Deferred gains and other non-current liabilities 186.1 191.4 182.5
Deferred tax liabilities 156.3 129.9 90.0
Derivative financial liabilities 9.6 9.8 9.4
Total liabilities$2,532.9$2,544.9 $1,977.5
Equity
Share capital$486.7$471.7 $454.5
Contributed surplus 22.3 21.9 19.2
Accumulated other comprehensive income (loss) 22.8 (12.0) (6.0)
Retained earnings 716.4 633.0 563.4
Equity attributable to equity holders of the Company$1,248.2$1,114.6 $1,031.1
Non-controlling interests 33.7 31.8 20.3
Total equity$1,281.9$1,146.4 $1,051.4
Total liabilities and equity$3,814.8$3,691.3 $3,028.9

Consolidated Income Statement

(Unaudited)Three months ended
September 30

Six months ended
September 30

(amounts in millions of Canadian dollars, except per share amounts) 2013 2012 2013 2012
Restated Restated
Revenue$487.5 $506.5 $1,017.9 $968.7
Cost of sales 353.4 370.7 736.3 683.0
Gross profit$134.1 $135.8 $281.6 $285.7
Research and development expenses 14.9 14.3 32.4 28.2
Selling, general and administrative expenses 66.6 66.1 141.9 133.3
Other gains - net (5.1) (13.1) (10.3) (13.9)
After tax share in profit of equity accounted investees (7.5) (5.0) (10.4) (10.7)
Restructuring, integration and acquisition costs - 9.5 - 41.5
Operating profit$65.2 $64.0 $128.0 $107.3
Finance income (2.3) (2.2) (5.1) (4.2)
Finance expense 20.9 18.9 40.8 37.0
Finance expense - net$18.6 $16.7 $35.7 $32.8
Earnings before income taxes$46.6 $47.3 $92.3 $74.5
Income tax expense 8.4 11.4 8.7 16.7
Net income$38.2 $35.9 $83.6 $57.8
Attributable to:
Equity holders of the Company$38.3 $35.6 $83.9 $57.1
Non-controlling interests (0.1) 0.3 (0.3) 0.7
$38.2 $35.9 $83.6 $57.8
Earnings per share from continuing operations attributable to equity holders of the Company
Basic and diluted$0.15 $0.14 $0.32 $0.22

Consolidated Statement of Comprehensive Income (Loss)

Three months ended Six months ended
(Unaudited)September 30 September 30
(amounts in millions of Canadian dollars)2013 2012 2013 2012
Restated Restated
Net income$38.2 $35.9 $83.6 $57.8
Items that may be reclassified to net income
Foreign currency translation
Net currency translation difference on the translation of financial statements of foreign operations$(4.7)$(36.5)$43.7 $(35.9)
Net gains (losses) on certain long-term debt denominated in foreign currency and designated as hedges of net investments in foreign operations 9.5 9.7 (5.4) 7.2
Income taxes (1.7) (1.3) - (1.3)
Share in foreign currency translation difference of equity accounted investees (5.2) (4.8) 1.8 (2.5)
$(2.1)$(32.9)$40.1 $(32.5)
Net changes in cash flow hedges
Effective portion of changes in fair value of cash flow hedges$2.6 $15.9 $(12.8)$10.8
Reclassifications to net income or to related non-financial assets or liabilities 4.1 (7.7) 6.6 (8.4)
Income taxes (1.9) (2.2) 1.5 (0.7)
After tax share in net changes in fair value of cash flow hedges of equity accounted investees 0.3 (0.5) (0.7) (1.5)
$5.1 $5.5 $(5.4)$0.2
Net changes in available-for-sale financial instruments
Net change in fair value of available-for-sale financial assets$0.1 $- $0.1 $-
$0.1 $- $0.1 $-
Items that are never reclassified to net income
Defined benefit plan actuarial gains (losses)
Defined benefit plan actuarial gains (losses)$11.3 $(32.3)$35.0 $(37.1)
Income taxes (3.1) 8.6 (9.4) 9.9
$8.2 $(23.7)$25.6 $(27.2)
Other comprehensive income (loss)$11.3 $(51.1)$60.4 $(59.5)
Total comprehensive income (loss)$49.5 $(15.2)$144.0 $(1.7)
Attributable to:
Equity holders of the Company$49.6 $(15.4)$144.3 $(2.4)
Non-controlling interests (0.1) 0.2 (0.3) 0.7
$49.5 $(15.2)$144.0 $(1.7)

Consolidated Statement of Changes in Equity

(Unaudited)Attributable to equity holders of the Company
six months ended September 30, 2013Common shares
(amounts in millions of Canadian dollars, except number of shares)
Number of
shares
Stated
value

Contributed
surplus
Accumulated
other
comprehensive
income

Retained
earnings


Total
Non-
controlling
interests

Total
equity
Balances, beginning of period - restated259,979,059$471.7$21.9 $(12.0)$633.0 $ 1,114.6 $31.8 $1,146.4
Net income- - - - 83.9 83.9 (0.3) 83.6
Other comprehensive income (loss):
Foreign currency translation- - - 40.1 - 40.1 - 40.1
Net changes in cash flow hedges- - - (5.4) - (5.4) - (5.4)
Net changes in available-for-sale financial instruments- - - 0.1 - 0.1 - 0.1
Defined benefit plan actuarial gains- - - - 25.6 25.6 - 25.6
Total comprehensive income (loss)-$-$- $34.8 $109.5 $144.3 $(0.3)$144.0
Stock options exercised820,778 6.7 - - - 6.7 - 6.7
Optional cash purchase681 - - - - - - -
Stock dividends604,601 6.5 - - (6.5) - - -
Transfer upon exercise of stock options- 1.8 (1.8) - - - - -
Share-based payments- - 2.2 - - 2.2 - 2.2
Additions to non-controlling interests- - - - - - 2.2 2.2
Dividends- - - - (19.6) (19.6) - (19.6)
Balances, end of period261,405,119$486.7$22.3 $22.8 $716.4 $1,248.2 $33.7 $1,281.9
(Unaudited)Attributable to equity holders of the Company
six months ended September 30, 2012 Common shares
(amounts in millions of Canadian dollars, except number of shares)
Number of
shares
Stated
value

Contributed
surplus
Accumulated
other
comprehensive
loss

Retained
earnings


Total
Non-
controlling
interests

Total
equity
Balances, beginning of period - restated258,266,295$454.5$19.2 $(6.0)$563.4 $1,031.1 $20.3$1,051.4
Net income- - - - 57.1 57.1 0.7 57.8
Other comprehensive income (loss):
Foreign currency translation- - - (32.5) - (32.5) - (32.5)
Net changes in cash flow hedges- - - 0.2 - 0.2 - 0.2
Defined benefit plan actuarial losses- - - - (27.2) (27.2) - (27.2)
Total comprehensive (loss) income-$-$- $(32.3)$29.9 $(2.4)$0.7$(1.7)
Stock options exercised233,425 2.0 - - - 2.0 - 2.0
Optional cash purchase612 - - - - - - -
Stock dividends543,516 5.4 - - (5.4) - - -
Transfer upon exercise of stock options- 0.6 (0.6) - - - - -
Share-based payments- - 2.3 - - 2.3 - 2.3
Additions of non-controlling interests- - - - - - 0.8 0.8
Dividends- - - - (17.9) (17.9) - (17.9)
Balances, end of period - restated259,043,848$462.5$20.9 $(38.3)$570.0 $1,015.1 $21.8$1,036.9

The total of retained earnings and accumulated other comprehensive (loss) income for the six months ended September 30, 2013 was $739.2 million (2012 - $531.7 million).

Consolidated Statement of Cash Flows

(Unaudited)
six months ended September 30
(amounts in millions of Canadian dollars) 2013 2012
Restated
Operating activities
Net income$83.6 $57.8
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation of property, plant and equipment 49.4 46.3
Amortization of intangible and other assets 30.8 20.5
Financing cost amortization 0.8 0.8
After tax share in profit of equity accounted investees (10.4) (10.7)
Deferred income taxes 14.5 15.6
Investment tax credits (7.3) (11.2)
Share-based compensation 1.2 (0.3)
Defined benefit pension plans (0.3) (0.7)
Amortization of other non-current liabilities (11.2) (6.9)
Other 1.1 (1.1)
Changes in non-cash working capital (17.5) (166.0)
Net cash provided by (used in) operating activities$134.7 $(55.9)
Investing activities
Business combinations, net of cash and cash equivalents acquired$(0.5)$(264.4)
Capital expenditures for property, plant and equipment (54.5) (60.3)
Proceeds from disposal of property, plant and equipment 6.4 0.3
Capitalized development costs (22.3) (24.0)
Enterprise resource planning (ERP) and other software (3.9) (10.1)
Net proceeds (payments) from equity accounted investees 2.0 (3.4)
Dividends received from equity accounted investees 14.2 -
Other (9.0) (1.0)
Net cash used in investing activities$(67.6)$(362.9)
Financing activities
Net change in restricted cash$(18.1)$-
Net effect of current financial assets program - (21.9)
Proceeds from borrowing under revolving unsecured credit facilities 279.0 371.2
Repayment of borrowing under revolving unsecured credit facilities (294.1) (141.3)
Proceeds from long-term debt, net of transaction costs 39.0 328.1
Repayment of long-term debt (28.6) (143.0)
Repayment of finance lease (9.1) (7.6)
Dividends paid (19.6) (17.9)
Common stock issuance 6.7 2.0
Other - (1.3)
Net cash (used in) provided by financing activities$(44.8)$368.3
Effect of foreign exchange rate changes on cash and cash equivalents$4.6 $(3.5)
Net increase (decrease) in cash and cash equivalents 26.9 (54.0)
Cash and cash equivalents, beginning of period 260.0 254.7
Cash and cash equivalents, end of period$286.9 $200.7
Supplemental information:
Dividends received$14.8 $2.0
Interest paid 26.3 25.0
Interest received 2.8 2.8
Income taxes paid 11.5 13.8
Contact:
Investor relations:
Andrew Arnovitz, Vice President,
Investor Relations and Strategy
(514) 734-5760
andrew.arnovitz@cae.com
Media:
Nathalie Bourque, Vice President,
Public Affairs and Global Communications
(514) 734-5788
nathalie.bourque@cae.com

View Comments (0)