CAE Inc (CAE) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CAE's third quarter conference call. I would now like to turn the meeting over to Mr. Arnovitz. You may now proceed Mr. Arnovitz.

Good morning and welcome to CAE's fiscal year 2004 third quarter conference call. Let me begin by reading the following statement. Statements in this conference call that are not reported financial results or other historical information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They include for example, statements about our business out look, assessment of market conditions, strategies, future plans, future sales, prices for our major products, inventory levels, capital spending and tax rates.

These forward-looking statements are not guarantees of future performance. They are based on management's expectations that involve a number of business risks and uncertainties and which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The risks and uncertainties relating to the forward-looking statements in this presentation include those prescribed in CAE's filing with the SEC.

Presenting this morning are Derek Burney, President and Chief Executive Officer and Paul Renaud, our Chief Financial Officer. Derek Burney will begin with an overview of third quarter results. Paul and I will provide you with the detail review of financial performance for each business units and Mr. Burney will conclude the formal part of this presentation with CAE's out look for the remainder of the fiscal year. We will then have a Q&A session with financial analysts, following which we will have a separate Q and A period for members of the media. As always, this conference call will be archived on CAE's Web site. Let me now turn the call over to Derek.

Thank you Andrew and good morning, ladies and gentlemen. CAE made meaningful its modest progress in the third quarter with revenues of $304.9 million, operating earnings of $33.4 million and earnings from continuing operations as well as net earnings of $21.4 million or 9 cent per share. All were well above the second quarter, though still well below last year's levels. We are battling severe head winds in the commercial aerospace market. The combination of low demand, fierce competition and the 21% increase in the Canadian dollar against its American counterpart have reduced the basic numbers and the margins of our civil business.

Meanwhile, delays in government decision-making remain a frustrating fact of life in our military business. Nevertheless, we see the third quarter results as tangible evidence that the worst is over. We also know that the recovery, and I'm not sure that is the right word will be slow. Specifically, we are encouraged by the fact that both our top and bottom lines grew relative to the prior quarter, with the third quarter generating 42% of net earnings and 38% of revenues on a year to date basis.

And both civil and military have generated more orders in nine months than they did all last year. With civil securing 14 full flight simulator orders as of today compared to 11 all last year and new and committed military orders totaling $333 million as of December 31st, compared to $285 million in full fiscal year 2003.

Paul will follow shortly with a more detailed review of the results and our financial status. But before he does, let me make a few comments on the performance of the each unit.

Civil continues to deal the effect of a triple whammy that is undermined our productivity gains. Essentially, fewer units of production involving Canadian labor that are generating fewer US dollars that in turn are worth less in Canadian dollar terms. In addition, the accounting for additional sale and lease back financings has reduced margin. There's the basic economic challenge of lower volumes and higher fixed costs. There's also a need to absorb the high initial cost of developing prototype simulators like the Embraer 170 and the Airbus A380, necessary costs that will obviously be easier to absorb in a period of higher volume and all of this in a market where demand is weak but pricing pressures are strong.

On the training side, growth momentum is continuing, utilization of our 94 simulator-training network increased during the quarter to 65%, pushing year to date utilization from 61% at the mid-year to 63% after nine months. However, there was continuing strong pressure on prices and therefore yield as well as the impact of a stronger Canadian dollar. The net result was a 6% increase in third quarter training revenue from the prior year. Net of foreign exchange impacts, the increase was 19% for the quarter and 21% year to date.

During the third quarter, we moved to meet the demand of the world's two fastest growing aviation markets, China and the Middle East. We will add a seventh simulator, an Airbus A321 to our 10-bay Chinese trading facility and, with our partner, expand the scope of our facility in the Emirates by adding a Bell 412 helicopter and a second 737NG simulator. Our joint venture with Siberia will be up and running tomorrow following the meeting of both boards. We see this as a potential model for future out sourcing arrangements with major carriers.

In addition, we view the recent exclusive training arrangement between CAE Simuflight and Flight Options as an important win for civil in both financial and strategic terms. Flight Options is one of the major players in the fractional business jet business as well as a former client of our principle competitor, FSI.

Turning to the other units, Marine grew its quarterly earnings by 6% from the prior year despite foreign exchange fluctuations with contributions from the Astute, Malaysian, and Indian naval programs causing a substantial increase in revenues and earnings from the prior quarter. Factor out foreign exchange impacts and Marine would be growing at a healthy 18% rate inline with our initial expectations.

On the military front, our appeal against the flight school 21 decisions was not upheld. Normal commercial concepts of fairness and value are not always determinant in defense procurement. However, we did win some other important contracts in the key US market including a large subcontract from Lockheed Martin to revise C130-J training for the US Air Force. And despite the flight school result, our Tampa operation is on track to achieve a record year with orders topping 150 million Canadian and an announcement expected very shortly will move us significantly down that track.

When technology trumps other considerations, CAE can compete and win in the US market and we intend to do so. But the real lesson from flight school 21 is that politics is never too far away from defense procurement programs. While our status as an eligible prime contractor gives us some tactical flexibility in the US market, we obviously have to adapt our marketing and our partnering tactics in order to meet that reality.

On a more positive note, the CAE Talus team is being selected as the preferred bidder to provide a range of NH90 helicopter-training systems throughout Europe. This program has valued initially at 650 million Canadian dollars. I say initially because this contract will create future needs, training services and upgrades.

Furthermore, the current contract contemplates of training system for 400 helicopters. And NHI anticipates the NH90 fleet may be as large as 1,000. In short, this is a very important platform for the future growth by CAE. With that, let me ask Paul to review the third quarter in more detail. Paul?

Thank you Derek and good morning, everyone. As Derek mentioned, the third quarter results were an improvement over the first two quarters of this year, confirmation that the worst is over. Consolidated earnings from continuing operations and net earnings for the three month period ended December 31, 2003 was 21.4 million or 9 cents per share, a 42% increase over our second quarter results. However, earnings from continuing operations were down when compared to 31.5 million or 14 cents per share reported in the same period last year.

Year to date consolidated earnings from continued operations amounted to 51.6 million or 23 cents per share compared to 92 million or 42 cents per share reported in fiscal 2003. Operating earnings continue to be impacted by reduced contributions from both civil and military business segments, partially offset by higher operating earnings for Marine. Adverse aviation market conditions particularly hampered the results of the civil business. In addition, all business segments continue to be affected by foreign currency fluctuations particularly, the significant strengthening of the Canadian dollar relative to the US dollar.

The FX impacts reduced third quarter and year to date earnings by 6.1 million and 18 million respectively, equivalent to two cent for the quarter and 8 cents for the year to date. Operating earnings were also affected by higher long-term compensation expense. In addition, with the pension assumption having been changed midway through last year, higher expense has affected the year to date though not the third quarter results.

The decline in operating earnings was partially offset by lower interest expense and lower tax rate for the quarter and the nine-month period as compared to last fiscal year. Interest expense of 5.2 million for the quarter compared favorably to the 9 million for the same period last year. This lower expense reflects the benefit from a reduction in long-term debt resulting from a combination of the September 30, 2003 issue of common shares, which yielded the company net proceeds of 168 million, and the receipt of approximately 94 million from the sale and lease back of five simulators concluded on the same date.

For year to date, interest expense amounts to 19.1 million versus 25.8 million for the corresponding period last year. CAE's earnings from continuing operations also benefited from a lower tax rate this year as compared to last year, 24% versus 32% in the quarter, and 21% versus 32% year to date. These lower rates reflect the combination of the mix of taxable income from various jurisdictions and the recognition in the first quarter of loss carried forward in Australia.

Consolidated revenue for the third quarter increased 24 % over the second quarter and 5% over last year to $304.9 million. This increase was driven mainly by significant improvements in the military and marine segments with increases of 32% and 17% respectively. These increases were offset by a 19% reduction in the civil segment. Excluding the effects of foreign currency fluctuation, revenue in the quarter would have increased by 14%.

On a year to date basis, revenues of 793.9 million decreased by 3% compared to the prior year revenue of 818.3 million. Adjusting for the strengthening of the Canadian dollar against the US dollar during these past nine months, revenue would have exceeded the prior year by approximately 5%. During the quarter, both this year and last year, there was no impact from discontinued operation on CAE's results. Year to date consolidated net earnings reflect a $1.9 million loss from discontinued operations amounting to 49.7 million compared to 92 million last year.

Our cash flow this quarter in year to date is not as good as we had anticipated. CAE's net debt defined as long-term debt less cash in short-term investment increased this quarter by 46 million leaving the net debt lower by 195.9 million compared to march 31 2003. The quarterly increase in net debt reflected a higher level of accounts receivable for the military and marine business segments as they make progress toward the achievement of more than $75 million worth of milestones on three significant contracts. The nigh time flying helicopter simulation program for the German government, a contract for Shinith (ph) helicopter simulator for the government of Singapore and the astute control system program for BAE systems in the UK. A payment of 10 million on the latter was collected subsequent to the end of the quarter and CAE expects to receive payments on the majority of the remainder during the first half of fiscal 2005.

On a year to date basis, the net debt reduction of 195.9 million is mostly attributable to the receipt of 122.5 million from sale lease back transactions and the proceeds from the share issuance, partially offset by increase in non-cash working capital. This increase is due to the higher accounts receivable, particularly this quarter as previously mentioned, an increase in inventories primarily for the advanced build of certain civil simulator and to lower accounts payable and accrued liability. CAE's consolidated backlog as of December 31, 2003 was $2.2 billion. This amount has remained constant in the past nine months. Military accounts for 1.2 billion, Marine 600 million, and civil 350 million of the total backlog.

Before commenting on the performance of each business segment, I would like to address certain issues that have recently been raised concerning CAE's accounting.

First, a review by our external auditors as of December 31, 2003 has supported the conclusion that there's no impairment to the claim value of good will.

Second, sale and lease back is a cost-effective form of financing for CAE that is widely used in the aerospace industry. The accounting for our sale and lease back transaction is in accordance with Canadian generally accepted accounting principles, our supplementally disclosure goes beyond the requirements, which is specifically intended to assist with the interpretation of our results. We do not anticipate any significant changes to our accounting for these cost-effective transactions when new accounting rules are adopted.

Third, the accounting for development of pre-operating costs is dictated by GAAP and not by CAE, do not defer and subsequently amortize such costs as some have suggested would mean our financial statements are not in accordance with GAAP. Finally, recall that we amended a key assumption to our pension accounting last year, changing the return on assets to of 6.5% to 9%, which I believe is at the conservative end of the spectrum and we were early adopters in the expensing of stock options. This is good corporate governance as well as proper accounting.

I will now spend a few moments on the operating performance of each business. For civil, a combination of lower demand, the fierce computation and the appreciation of the Canadian dollar against its US counterparts have impact the results for the quarter and year to date. Revenue for the third quarter totaled 112.5 million, 19% below last year. Excluding the foreign currency impact, revenue for the quarter would have been 8% below last year.

Third quarter training revenue grew 6% from last year, a 19% increase in the third quarter and a 21% year to date increase net of foreign exchange impacts. Year to date revenue in civil amounted to 332.9 million, 46.6 million below the same period last year. Three-quarter of a decrease relates to the shift in the Canada-US exchange rate. Training now accounts for approximately 60% of Cavil's revenue compared to less than 50% last year.

Operating earnings for the third quarter amounted to 10.9 million compared to 9.9 million in the second quarter and 29.2 million in the prior year period. Year to date operating earnings of 27.4 million compared to 86.7 million last year. The reduction in operating earnings and margins from the prior year is attributable to the compounding effect of lower volumes, lower selling prices, particularly in the equipment segment, the effect of sale and lease back accounting and currency fluctuation.

Foreign currency exchanges reduce operating earnings by 1.8 million in the quarter and 18 million year to date. Military revenue of 141.6 million for the quarter was 34.2 million or 32% higher than last year's level of 107.4 million, despite foreign currency fluctuation that negatively impacted the top line by approximately 6.3 million.

The increase in revenue against the prior year was mainly due to contributions from the German helicopter in the Euro fighter 2002 programs and the increase in the services for support business, particularly in Australia. Year to date revenues amounted to 341.6 million, 19.7 million or 6% higher than last year for the same nine-month period. The increase was due to the performance of the programs mentioned above. Excluding foreign exchange, revenue would have amounted to 362 million representing a 12% increase.

Despite the revenue increase, operating earnings of 12.6 million or 4.1 million or 25% lower than last years third quarter. Year to date operating earnings of 36.7 million were well below last year. Approximately 3 million for the quarter and 5 million year to date are the reduction in operating earnings can be associated to foreign exchange. Higher marketing expenses for bids on major projects and the change in program mix also adversely affected these results this year. This was accentuated in the third quarter because of the significance of the German helicopter program.

CAE is the prime contractor on this program, meaning we book 100% of the revenue and costs, though we only perform 50% of the work. Subcontractors performed the remaining portion of this program with CAE's margin being much lower on a contract administration and management that -- on contract administration and management than if the work had been performed in-house at CAE.

Revenue from Marine for the third quarter amounted to 50.8 million, 17% above last year. The 7.5 million increase was mostly due to a higher level of activity on the astute Royal Malaysian Navy and Indian Navy programs. Excluding foreign exchange fluctuations revenue would have amounted to 53.3 million. Cumulative revenues of 119.4 million were 2.5 million higher than last year, this increase was a result of an increase in activities on the above-noted programs and from new contracts in this fiscal year including contracts with the Canadian Department of National Defense and with the Hyundai Heavy Industries for ship controller systems and a series of destroyers. The higher revenues were realized despite a negative impact of 8.2 million from foreign exchange fluctuation.

Operating earnings for the quarter of 9.9 million were 6 million or 6% higher than last year -- 0.6 million or 6% higher than last year. This increase is commensurate with the growth and revenue. Foreign exchange had a 12% negative impact on operating earnings for the quarter. Year to date operating earnings amounted to 20.4 million, 2.5 million below the same period last year. This decline is attributable to a negative foreign exchange impact of 4.5 million. I will now turn the meeting back over to Derek.

Thanks, Paul. Earlier I noticed some transit reinforce our view that the worst is over, namely better results this quarter than in the first two quarters of our fiscal year, steady growth in training and more simulator in military orders in nine months and for the full year last year.

At the same time, I believe other positive signs in the market. The US economy continues to recover. There is an improving outlook for international air traffic this year following a pickup in the fourth quarter of calendar year 2003. We may be nearer the end of the beginning for the airline restructuring process with the American Majors is now planning to expanding in capacity to pre 90-11 levels by the end of the calendar year in order to meet the competition from rapidly expanding low cost carriers. And there's some movement in the military procurement process as militaries begin to address new strategic reality. We hope therefore to sustain the Q3 momentum for the remainder of this fiscal year.

In civil, the name in the training game remains to optimize the revenue and minimize the cost pertaining Sim while improving our value proposition. In short, it's about getting better and wetter, specifically by expanding our Sim offer throughout our training network. You can expect us to continue to be prudent with our capital expenditures, expanding inline with demand and on a self-financing basis. With cost reduction now a continuous comparative among the airlines, given the intense price competition we also believe the out sourcing of training is an idea, whose time is coming.

Civil anticipates one or two more potential full flight simulator orders before the end of the year, which will bring the full year total to 15 or 16. The major challenge ahead lies in reducing non-labor costs that is lowering the cost of data and parts the currently make up one half of the cost from the full flight simulator. This is going to be job one in the foreseeable future.

Military expects to exceed $500 million in orders this year. In itself, a solid base for future growth. With the British AVTS land simulation award already delayed into next year, the opportunity for military to turn that 500 plus into 700 plus by year-end depends on the timing and obviously the outcome of the CAF-18 decision here in Canada.

The past few years have been a time of great change at CAE both internally and externally. Managing and measuring this transformation would have been a challenge even in stable conditions. That is occurred in such turbulent market conditions made the challenge that much more difficult for management and employees alike. Earlier today, our board reaffirmed the fundamental elements of our strategic.

In the months ahead, we will refine our value proposition and our marketing efforts for each unit while keeping a consistent focus on costs control. But I continue to believe that CAE is better off today with a brighter future because of our strategic transformation and that we have built a platform that can create a greater value for our customers and our shareholders and in the future.

With that we will now welcome your questions.

Thank you. [OPERATOR INSTRUCTIONS] The first question from Robert Novartis from Reuters. You may now proceed.

I am with the media. I will wait for the media portion if you like.

Thank you so much. Our first question is from James David from Scotia Capital. You may now proceed.

Thank you. Good morning all. Just a couple of house keeping questions, Paul, if I might. What were the deferred development and pre-operating cost entries in this in the cash flow statement?

You mean for the quarter?

Yes.

It hasn't really changed that much, other than the level has gone down. But it's more the pre-operating costs associated with the startup of some of our training centers and on the astute training center.

OK.

And the deferred development again is, you know, doing some work on our visuals and no doubt some work on other software development for to support our civil training.

OK.

So sort of we have the same programs going but you know it's trailing off because a lot of the 721 that we talked about in the last couple of years is now behind us.

OK. And you might have touched on this line. I unfortunately missed it. What was the reason your inventories were up in the quarter?

Well, the inventories I mean they're not up that much but they are up about 10 million in the quarter. But again it's just really in connection with some advanced builds of similarities that we have.

OK. Derek, in the quarter, you had a pretty good clip on the military side relative to the first and second quarters, quite substantial actually. And I think you mentioned there were three things and two of those were equipment, one was support service, as Paul mentioned. Is this -- it's a lumpy business and you know given the way your backlog growing, is growing. Is this a bit of aberration in terms of the growth? You know because I want to certainly looking forward to this the fourth quarter and the first quarter of next year and so on but has such a big uptick. How would one interpret the nature of that growth in that specific time frame?

Carefully. I know the reason you know is very hard to give you a smooth quarter-to-quarter over quarter expectation because we don't control the timing on these projects and so what I have been saying in terms of what we expect the order book to be for the year as a whole is about as close as I can come to giving you an estimate of how that business is going to grow.

Obviously, if we do get to a 700 million order book for this year that's going to help us next year we get 500 million that's going to help us a little less, but you know as they say it depends on the timing of government decisions and programs that we have been bidding on. Here was a bit of aberration in this quarter, which I think both Paul and I alluded to in the German night time flying helicopter contract, which helped on the top line military but didn't help as much in the bottom line because I think it was just the reason Paul explained this was a job in which we were the prime but the sub-contracting element was not something that we could that we had direct control over and the margin was lower rate than we might have, otherwise been able to do on our own.

OK.

So, I can't - you know I would be very reluctant to give you any kind of comment about what the projectory on military is. We have just become very accustomed to the fact that the governments are not as efficient in taking decisions on defense procurement and foreign cash opens the door on all this we might talk about some other programs but we don't want to go there today I guess.

OK. And just last quick one. You mentioned you expected something to show up in paper very soon. Is that shouldn't black log and carryovers. Or is that something non-related to that?

Well, I don't want to get too specific but you won't have to wait very long for the specifics.

OK. Thank you.

Thank you. The next question is from Ben Cherniavsky from Raymond James, you may now proceed.

Good Morning. One question I have is that Paul, in the last quarter you talked about being free cash flow and generating cash and working capital in the second half of the year, what change relative to your expectation this year that through that off or this quarter that threw that off?

What's really turned it off is are these major military programs and on the programs that I was specific we are not going to hit the milestone in the timeframe that we had anticipated, we are going to be later and achieving that in a simply, you know, both cases in the German, it's new technology and we have got a very demanding customer, we want (inaudible) and the other one is also the new technology on the Vesalian.

So, we planned to hit the milestones before the end of the fiscal year, which will trigger the billing, but unfortunately they then have the time of make the payments and we don't really get the payments until beyond Q4. That's the major impact really on the large programs military and marine are actually our civil business on the receivables we are doing a very good job there.

OK. Fair enough. The Little Bird simulator I believe that gets delivered sometimes this spring, is that right?

Yes.

What impact will that have or should we assume that will have on fiscal '05 in terms of call it lost revenue or burned out revenue something that was done. I guess its a fairly significant project, which will officially come to an end when its delivered, I understand that, is that correct?

It's one element for program, Ben, that we expect to see more on.

OK.

I can't give you the specifics, what is been to contribute next fiscal year but I don't think necessarily its coming to an end next fiscal year

Can we clarify that one for you and give it to you, when you are off line?

Yes. Absolutely. I wonder…

But the point I want to make is that's the program what the U.S army's special forces.

Yes.

A Little Bird is one piece of something that we will expect more from we already announced earlier this year some ad on. And I think you should expect more of the same going forward.

Great. And could you tell me what it contributed, should contribute this year though in termS of revenue.

I'll have to get you that. I don't have it in my head.

OK. Great.

We will get back to you today on that.

Appreciate that. Thanks a Lot.

Thank you. The next question from Cameron Jeffreys from Credit Suisse First Boston. Please go ahead.

Hi, good morning. Just a couple this morning. Can you just Paul give me the backlog numbers again by division or use in the caps first?

OK. The backlog in solo is 2.2 billion, 1.2 billion is military, 600 million is marine and the balance is civil.

OK. And third party content and you know you mentioned you know that the German the sub-contracting issues, is third party consent included in those numbers or is that just -

Yes. With, that would be to the extent that we have the contract and we get a 100% of the revenue. Yes, that would be

OK. Secondly, on the just on getting back during James question on inventorying the advance bill, can you just give me a census to why you are you know doing that, are you anticipating future business, you have down the line so you just want to get these type of things

Well, we are certainly after the betting in future business down the line and by the same time we are also putting in a plan to curtail this a little bit as well, so you know we will see that level go down going forward. But the advantage still were associate with the business we see in then, and on the sort of common aircraft type that you have expect, that's you have to realize we have some good visibility in terms of what is coming down the pipe.

OK. Next on the foreign exchange, have you had any - any types of you know?

We have to realize. We have some good visibility in terms of what's coming down the pipe.

OK. Next on the foreign exchange, have you had any types of you know, positive impacts on hedging or anything like that, so far in the fiscal year to date?

Yes. I mean I did. We have some positive impacts in that as we you know, as we win some contracts we had. So I can tell you when you got Jeff Blue in the summer, we hedged that. So, we are seeing with Airbus. So, they are spending favorable today. But at the end of the day, you know, we had, when we get the contract, we're not hedging before we receive the contract.

Right. Can you quantify any kind of you know, impact you had Rustbar, Udedone, you haven't delivered on some of the contracts obviously, that's a kind of hedged in your backlog but-

The number we are giving you is the net number. So, you have to go back and separate it but at the end of the day you know, the net gains we have got is more offset by the impact on the other way. But, we track it and you know, the good news is that the Canadian dollar stays where it has and that will help us in Q4 on the basis that, its Canadian dollar weakened of a little bit since the end of December.

Right. And finally, Derek any update on the progress in finding your successor? And that's it for me.

When we find them, it will be announced.

Thank you. The next question from Zaik Abobian (ph) from Atherton Capital. Please go ahead.

Hi guys. Good morning. Paul, there is one thing I don't think I understand. The winner you've to be mentioned about being a prime contractor on the German contract, you book the revenues. How do you account for the sub contracting?

It's a cost. So its built into the cost of the program. In that particular case, this program was awarded quite a few years ago and she is the prime. And so, when we would do our baseline, we would have the total cost of our program, but because we are not doing that big sub contract component, you know, you won't get the margin, the markup as if you did that work for yourself. And that's the way you've got to it Zaik because when you know, we got to take a 100% through the top line because we are the primary contract king to us.

OK. I have one more question regarding your sale on least pack of the simulators. You provide a schedule in the quarterly report about differed games. How do you, do you amortize that and how does that--

Yes, we amortize that over the lights of the least in lease, in fact, if you end down to the residual value. But if you, if you look at it, it's a not that significant. And I think, in the quarter, the schedules there, but I think, we did discuss it more thoroughly even in our annually report. But to the extent that you have a gain and you have a 20 year lease and if that gain works out to be 10 million, you would have amortized that over twenty years. So, that can at least you know, its down to 0.

OK. Thank you.

Thank you. The next question is from Samy Hadfone (ph) from CDP Capital. Please go ahead.

Good morning. I have three separate questions. One relating to the backlog on the military issue. We take it for granted that the proportions between the short term and long term haven't changed essentially 30-70?

Yes

OK and -

Can you speak up Samy, we can barely hear you.

Sorry. Im using a new head set so. And Derek, you said that you expect the total orders on the military site to come up to 500 million, may be 700 million .If I remember correctly, on the second quarter, you said that you had expected to double the 220 that you had received year to date, which would have been in the 650 range. The difference is essentially timing from government?

The difference is CF-18. If it happens in the quarter and we win, we'll make that number. If it doesn't happen in the quarter or if we don't win, we won't. That's the hitch that is the difference between 500 and 700 is CF-18.

OK. This sort of a house keeping item, the 14 orders that you received on the simulators, I have gone through the press releases. They would indicate 9 would be - ignoring partial billing, and so on. 9 will be delivered fiscal '05, is that number right?

I can't answer that. Again, I'll have to check on that. It's a good question.

OK.

But, I don't have the answer in my head.

Essentially, I have displayed it as 9 fiscal '05, approximately 4 in fiscal '06 and the southwest one which I have put into fiscal '07 because it just as 2006.

I know the Jet Blue staggered Samy and I just don't know what the time frame is off hand, but, can I confirm that for you later?

Sure, that will be great.

OK.

And last question Paul, I don't know if you can answer it. To what extent that the increased through put on the military help the civil margin in this particular quarter in terms of the integrated production facility?

Not the whole lot, Samy, because you have to realize increased throughput was really coming out of on the German program. So, it is not really coming out the Montreal program.

All right, thank you very much.

Thank you. The next question is from Pierre Therisse from Desjardins Securities. You may now proceed.

Yes. Good morning. Paul, I just want up to circle back to the - to what James asked on the Dove, on your casual statement. Can you explain some of the differences between Q2 and Q3? In your operating activities, others at negative 7.6 million, it was positive 7.1. And also, explain the difference between Q2 and Q3, between your deferred deployment (inaudible), that was 0 in Q2 and now it is negative 4.7 and it was on your differed pre-operating cost, it was 400,000, now it is negative 5.7. Can you explain those variances?

That is a lot of detail. I would suggest, I will take down and I will get back to you. I don't have those specific answers in terms of comparing the Q3 versus the Q2.

Because there's roughly about 17 18 million of differences between the two quarter.

No problem. I would be happy to get you the details because, its probably made up of a number of things. I just, doesn't nothing really strikes me as anything odd or whatever.

OK. And how do you explain the fact that your account receivable of - are up like 25% or close to 80 million between Q2 and Q3 despite the fact that you know that civil is essentially flat in terms of--.

That what, its mainly coming on the military marine. And I think, if you look at the top line growth of those numbers and so what you getting is a lot of billings in that activity, which is creating the gross and receivable.

So we should see a reversible in Q4?

As I mentioned to you on the call and the details, you'll see some in Q4 but realistically on some of those programs, particularly the German program and the Singapore program, a lot of that is going to spill over into the First quarter of fiscal '05, because we just know that we will not. At time, we get the - complete the program with the milestone, the billings will go out before the end of the fiscal but we wont get the cash until some time in beginning of '05.

OK. At the terms of payment have changed with those customers? Or --

No, no. You have to hit the milestone in order to trigger the billing and then they got the 30 days repay.

OK. Now in terms of capacity, Derek in the training side of the business, the targets for the year was 65% realization, Correct?

Correct.

OK. According to my calculation, it says in your press release you have termed that 65%. For the first 5 month you should be around 61, 62%.

I think it actually 63 for the year to date, 65 for the quarters, 63%--.

OK. So you are going to be, you going to need to be closer to 70% realization in

basics 63 for the year to date, 65 for the quarter 63%

OK. So you are going to be you are going need to be closer to 70% annualization in Q4 to meet your objective of 65% for the year. Do you think that's achievable?

Its going to be tough. But it remains our target.

OK.

And no question is going to be tough, but it remains the target that we should inform.

OK. Thank you very much.

Thank you. The next question is form Marko Pencak from GMP. Please go ahead.

Good Morning. In the - at the end of your second quarter in you sale only spare activity, you disclose, you show a total lease obligation of another 529.9 million. Curious what that number is at the end of the third quarter?

I only think it's really changed well; we didn't do any in the - in Q3.

But would we not have to subtract here lease - the lease expense that you incurred in the quarter.

Yes. The number is about just over 490 million.

OK. My second question has to do with the Airbus A380 and my understanding is that first deliveries are supposed to be in early 2006, which means that the airlines that have taken those early deliveries would obviously have to train their pilots earlier which means that if you were to get that business and given that the five biggest airlines for that aeroplane are existing customers of yours, you stand very well positioned I think to get some of that business. When therefore, do you think that those airlines would have to make decision in terms of their training requirements?

Well, you could appreciate; we are in discussion in with those who have signed on for initial orders. Marko already, my guess would be that one of the first airlines to make a decision on training equipment will be Emirates, because they are one of the most significant contractees. Others include Qantas, Malaysia, Korean Airlines and Qatar Airlines and I can only tell you that we certainly - we have a special team dedicated to the A380 and that team is involved in discussions with each of those most likely potential candidates for training. I would guess, as I say that the first decision is likely to come from Emirates.

But the other sense of - I am just trying to get a sort of a time frame in terms of when would be a sort of the latest that they could decide just given, you know relevant lead times for both pilot training and your ability to deliver, a segment of them.

Well, we do need to - they do need to be training before they take delivery of the aircraft, but I will have to clarify and confirm at what point each of those airlines is anticipating delivery of the aircraft and then I would back up from that in terms of delivery of the simulators. Again, I would have to talk to our marketing folks and get you more specific sum than I have in my head.

OK.

But I would be happy to try to do that.

Thanks. Last question, you mentioned competition being very fierce. Can you just on a qualitative basis, sort of compare the equipment side versus the training side. Thanks.

I think the pricing pressure is most obvious to us on the equipment side and it probably represents about 50% of the decline in the margin on the year-over-year basis. In other words, when you take into account on top of that, you know 50% of the cost is in Canadian dollars, you know (inaudible).

Great.

But I would guess that the impact is more severe on the equipment than on the training because not all the training revenue is in US dollars, but one thing was almost all the equipment sales are in US dollars. So its more severe on a corporate than on training but its severe on both.

OK. Thanks.

And just to elaborate a bit, you would expect Marko, you've got a lot, you've got strong price pressured on simulators which are in locations where supply is well in front of demand. But its not, its not as universal or feature as it is in an equipment.

Great. Thanks.

Thank you. The following question is from Ihor Danyliuk from Merrill Lynch. Please go ahead.

Yes. Hi, two questions. You gave pretty good guidance in terms of the break down in terms of, on the civil side between pilot training and simulator sales on the revenues. Can you give us the kind of percentage break down in terms of your operating earnings on those two operations?

No, I mean, you know, we don't and its an integrated business.

Could you give us guidance on that?

No.

OK and how about in terms of the margins between pilot training and simulators?

No, perhaps the same. I mean we've run that as an integrated business. We are providing you some of the primers of the key operating primers to help you. But its really, you know one business that's fully integrated.

I don't know how integrated they are I mean, you forgot your training pilots around the world, then you manufacturing simulators essentially in Montreal. So, can you help me on the integration? I mean, I understand that you know, you provide your own simulators but in terms of third party simulators sales versus pilot training, they are two separate businesses.

You know, we don't run them as separate businesses and you know, management, this is one industry and one market and you know, from a customer point of view, whether or not, we sell a stimulator, whether or not we do training. I mean we are the one stop shop that can meet all of the demands of the customer. That's how we look at the business. That's how management manages the business.

OK. That's second question, then in terms of margins for Marine, I mean, they have varied you know they were up someone in the order of 21.5% a year ago. They've been as low as 14% between now and then. What's the reasonable estimate in terms of guidance going forward for that business?

We don't really give guidance going forward on margins or earnings or anything else because you know.

OK. Well Derek, I mean, its OK. Lets go back into the Marine Control; your margins for the quarter were 19.5%. That was a good bounce for more they had been in the first and second quarter, you know again close it to the 19% going forward or in the fourth quarter, say or you got to, let me clearly see that's your reasonable estimate going forward. Is that sustainable?

Well, you could assume that we're going to be trying to maintain and not improve that margin in Marine.

OK. So the 19% is a more activated estimate in the fourth quarter then the 16.3 in the second quarter.

You know, I wouldn't pretend to give you information to base year analysis on, of that kind.

OK

Others than to say what I've said.

OK. Thanks Derek, thanks Paul.

Thanks.

Thank you. The next question is from Claude Proulx from BMO Nesbitt Burns. Please go ahead.

Thank you. Good morning. Three questions. First one, I don't think you've qualified the amount of sub contract work that you book on that German contract during the third quarter. Was it the order of $30, $40 million?

Well, that we required to qualify the amount. All that I can tell you, I believe that contract in the self of our revenues in the third quarter was about 15% of the revenues and then we said about half of that is contract to do.

OK. Second one, if I look at your press release. Up and till about a week ago in at the bottom of the page, where you described the company, you were saying that the employment level was 6000 people. And in today's press release, it says 5500; I mean I assume those 500 people were not laid off last week. But, can you give an idea of, when those people were, when those reduction employment took place, in what area of the business those reduction done?

I would say that reduction is probably reflecting the change over the year and that the majorities are here in Montreal. But that you are absolutely right. There were 500 people released in the last couple of months. We have laid off approximately a hundred hourly employees earlier this year, that is January, half of whom are on temporary lay off, and we also laid off about 40 engineering technicians, salaried employees in January this year.

So I would say less than a third of the 500 that happened in last couple of months and they didn't happen all of the sudden. These were layoffs that were planned months ahead of time, given our expectation about the demand for our product and services.

I guess the remaining 350 would be spread equally during the rest of the year roughly or?

Yes. It's the best I can recall, I mean I could probably give you more scientific answer if I went back and looked at it, but you can assume it was on a sloping line beginning in January running through the calendar year and not, you know, not what the dramatic burst of the any one, just is the gradual prudent winding down based on, as I said, the demand that we saw for our products and services.

And you say mostly people in Montreal, I mean, some of the production versus may be development stand point for sales, can you split it roughly?

Well I would say, its mostly production, which is where most of our employees here in Montreal are involved in. There have been layoffs in Tampa. There have been layoffs in some of our other facilities, but given that bulk of our employment, over two thirds of our total employment is here in Montreal, you can assume and given the most of our manufacturing, it is here in Montreal, you can assume that that's why the majority of the reductions have taken place here.

OK. And the average labor cost, would you say $60,000 including all the benefits. Would it be reasonable member or?

What do you think Paul? Is that roughly right?

Yes.

I would say reasonable.

OK. Last question, I mean the tax rate going.

60,000 (inaudible) include which is a lot higher today than that was a year ago.

Obviously. The tax rate, I know it fluctuates, it depends on the timing and especially on the geographic spread, but can you give any idea guidance?

For the guidance, we are not really changing our guidance, we expect around 25% tax rate for the year. And that's really reflecting the geographical mix but also picks up on the fact that we had a very low rate in the first quarter.

And if I were to look at next year.

Next year, you will see a higher tax rate because we don't add, that's not a repeat of the Australian and certainly planned in the book, so I think you would be looking that, certainly, probably in the 30% range.

OK.

Based on what we see today.

OK. Thank you very much.

Thank you. The following question is from Steve Arthur from RBC Capital Market. Please go ahead.

Yes. Thanks. Just a quick follow up. We have talked about the big sequential jump in military, it was also big jump in reign over Q2 really this is not also a smooth business. Is there any particular projects in that the contributors and specific milestones and over the next couple of quarters, are they more milestones that we should see from this project?

I think the big breeze in our dream is the catch up on these two programs, I think I signaled at the end of the second quarter these at as I explain why the numbers in the second quarters from reign were down well we saw the pick up from the two primarily in the third quarter. That was at this probably that single biggest factor on marine.

And it is fully caught up now and that we shouldn't see that

Yes exactly. I mean despite which you read about the delays in the program we are being fully compensated by BAE where we, our contractors with BAE now with the government.

So that probably in these partially contributed to the higher marine margins in Q3?

Yes. It's a good program. It's an on going program as well.

Right. In terms of the military margins, the NH 90 project will continue with the same kind of sub contracting agreement so

No, no that's a joint venture between ourselves and Dallas (ph), that's very different from contract where one is prime and the other is sub contractive. We are twin primes, that's the way I would describe that one.

OK. But in terms of the effect on margin, is this safe to assume that this is kind of a new reality or steady state?

No, I can't make a comment on margins for a contract that hasn't been concluded yet.

Fine

We hope to conclude the contract in the summer, but even that you know is I've learnt a hard way not to predicate my comments about the future military contracts in terms of any, precise date I can only tell you as of today my military business believes that the contracts on NH 90 initial contract, NH 90 should be concluded in the summer and we'll have that much better stanza what the margins are going to be at that time.

We already know what the margins are in the bid that we put in that one between that then the actual contracts that could be some adjustments. You know military margins I've said I think clearly consistently that we would not replicate the 16% and the 17% margins that we saw last year and I think the margins you never seen from military are more typical what you should expect from military on an on going basis.

Great. Thank you

Operator, we will take one more call from the financial communities where we can give a chance to the media to ask questions.

Thank you. The last question for the Analyst today from Robert Fay from Canaccord Capital. You may now proceed.

Thanks, couple of questions. Going back to the astute contract and there is really three elements to it and could you give us some guidance as to where you stand on the control systems and where you stand on the facility, actual construction, the train facility.

On the control system, just reading your question we are probably about 70% complete on the control system contracts today and in terms of on the training fees which we are in a joint venture 50-50 joint venture with the Lenium Marconi, that's one element of our Capex program and they expect to, you know the building that would continue through all the next fiscal year hopefully but they started up as the trainee center shortly thereafter.

OK. And there is also some potential additional work on the additional control systems are bigger ahead for further.

Oh yes for sure.

OK

There may be something on that in the fourth quarter.

OK good. On the subcontract work that you have in military and marines going forward on that backlog, do you have any sort of idea how much revenue were in those backlogs or how much of those backlogs will represent sub contract work?

Not a whole lot, interestingly the NTF program is getting near the tail end and so and even to time and early, even if you look now, the way that is going to be developed or each going to do our own work shares and so, we will be flowing through the revenue in our cops our real cop.

OK and last question, The Sims, which you sold this year to your joint venture side in China and the Emirates, will there be recorded as a revenue of capital spent?

In China tap is a 50- 50 or 51-29 for a past, but de canny roles we would get half of the revenue and under the deby (ph), one sim is a sale and the other one is our that will be sort of part of our training network.

Great. Thank you.

Thank you, we will now go on with the media. [OPERATOR INSTRUCTIONS] Our first question form the media is Mr. Pattern (ph) from Canadian Press. Please go ahead.

Hi, I would like to learn a little more about what you are talking about the job one as far as cutting some of your non employment costs and I was wondering how you plan to do that and also those plans were would have on your employees?

Well, what I said was the task of the data and the parts represent roughly 50% of the cost of the simulator, the other 50% being labor. So in order to get our cost down, we can't shrink the labor force beyond what we have already done or we can't certainly shrink our labor cost or rather beyond what we have already done, so the only prospect we have is to get lower prices for parts and data and that can come around the variety of ways in terms of negotiations with our suppliers. I don't see it having a direct impact on our employee situation.

Its a question of, are we going to stay a smarter negotiation but I guess I better not use that kind of term, it is going to take a tougher negotiation by us with our suppliers in the same way as we as the supplier to the industry are facing tough negotiations form our customers. If the cascading down of the same phenomena for life, I don't see that job one having a further negative impact on our employee base here in Montreal.

And you never really announced these lay offset that have already happened, right?

Well, I think we announced some over a year ago but we don't announce ones that are done you know, not in one full scoop. What we do is we consult with our union number one, we plan these things a head of time and we consult with the employees that are affected obviously and if they don't happen in one burst, if they happen over a period of weeks, we don't make an announcement because they are not material to the operation of the company when they came in 10 or 12 or 15 that's one given time.

Yes and you said some of the lay house were temporary, what would caused them to be called back, or has there specific dead line or schedule when they are expected to come back?

Well its predicate the call back is predicated on winning contracts that were out for bid including a very important one here in Canada.

OK. That now was my next question, which is, can you refresh my memory on that. It was announced a long time ago, I think 2000 wasn't that and I guess you've mentioned that since then, what exactly is the value of the contract or the potential value to it and what would you do.

You are talking about -

CF 18, yes.

Talking about CF18, the combination of equipments and services is about $240 million.

That was the CAE's part of it.

And the bulk of added equipment.

And what stage is to add like who is deciding?

Well it was to be decided last fall and I think it's on the decision desk in other words as we speak. But what does that mean, I don't know.

And you similarly had the same thing in burden with the EBITDA.

Yes, EBITDA -- was supposed to have happened last fall. We are informed that I guess in October that it was being delayed where all the competitors were given the opportunity for rebid in December, which we did. We are now told that the decision will come in May of this year. That's the selection of the preferred bidder and with then take a year to negotiate the contract desire expectation. But that's the current timetable and as we learnt these timetables, I will tell this to fluctuate. And while doing business on small projects and concentrating more heavily on small projects, which is what I meant when is said that we are refining our marketing tactics.

OK. Now you also mentioned that you think by the end of this year on the several side of your business that the major airlines will be staring to get back to their pre 9 and 11 levels. I don't know if their operations are that spending but what gives you the feeling that's going to happen. Are they telling you directly or you are observing what's going on from an outside point of you or a while.

I think it's the termination of what ae are hearing and reading in terms of not just hat just what the airlines from (inaudible) but I order thing about passenger traffic and as I think as I said because the assumption here by the end of this calendar year they will be back at the capacity level they had the demand level that they had just before 9 on 11. We're expecting that that's the time that they are going to start making some decisions on how they going to change their fleet the increased demand in passenger traffic. As we say we follow the trends as closely as we can with the airlines themselves are reporting.

You see when the reporting either the quarterly or the monthly results they give you some indication of what they are anticipating. (inaudible) Regular serve what passenger traffic is and what the expectation is. So if the combination of our sense that what's everybody is saying. That's much slower than had originally been anticipated. People had to soon with the recovery from 9 or 11 what would have been faster.

I think biggest change this year was the SARS epidemic. I mean that actually had much more of the impact on the airlines during the Iraq war. People were at the beginning of our fiscal anticipating negative impact from the Iraq war. They were not anticipating the SARS epidemic which is you know, not only affected our Canada quiet severely but affected almost all of the Asian airlines, which otherwise were doing, were last affected by another eleven.

And how much or how important to your business is Air Canada to CAE?

Well, Air Canada is a very important customer to CAE both as the buyer of our equipment and as the user of our training. Especially, jets, so how important is in the overall scheme of things. We make a point of not being overly dependent on any individual customer bur certainly Air Canada is a very important customer for us here in Canada as is West jet. As these jets go, I mean, briefly all the Canadian airlines are in someway or another making use of our state of training facilities.

And as Air Canada buys comes to and gets to (inaudible) are there new bombarding regional jets. You would be in a position to supply either the simulators of the training for any type of plane they bought?

Absolutely. You better believe it that we are already talking.

OK and one last thing, which are about the currency fluctuation. The Canadian dollar sort of eased off in the last few weeks or and I wonder what in layman's terms, does CAE do about the fluctuations of the Canadian currency. I know you explained to the analysts in analyst's terms, what you do but for the average person how do you deal with the ups and downs of the Canadian dollar?

I will ask my average CFO.

What we do today when we sign a contract and we know what the net US dollar cash flows would be on that particular contract we enter into a hedge today. The hedge that is over the life of the program. In other words, we lock in the rates so that when we sell it today and if the rate is 75 cents, we lock that in.

What if could ask if the early questions from other members of the media.

Thank you. The next question from Robert Novartis from Reuters. Please go ahead:

Yes good afternoon. A couple of question or couple of ball question really. First, I wonder if you could clarify your remark on the January trial cuts where you said January this year. Are you referring to the fiscal year or the current calendar year? But overall under outlook of civil aviation, I wonder if you could tell us, what things you are looking at right now that would signal a rebound in civil aviation market, is it air track global air traffic or is it recalls of pilots and as according to that what are you seeing in the business jet market and how might that affect your fortunes in the months ahead?

January is January OK. January 2003 is January 2003, whether its fiscal calendar or its January. On the uptick in civil, I would not use the term like rebound. What I have said very carefully is, that we are expecting that by the end of this calendar year, you will see particularly the American majors beginning to expand the capacity beyond what they had at the time of 9/11. In order to compete more directly with the low cost carriers who have been expanding pretty steadily. So I am very careful not to suggest a rebound or even a dramatic recovery.

I think, what we are seeing is modest progress, this calendar year towards the level that we were at in this market before 9/11. I think most analysts are anticipating a recovery in the civil aerospace market the following year and that's the evidence of that will come in terms of air craft orders, new air craft orders that is from air line.

The business jet area is a very important market for us in terms of training for a couple of reasons, number one-its the largest single addressable market for an independent training provider such as CAE. In other words, unlike the major or commercial jet market, this is one where independent training provider such as CAE and FSI are very big in the market. Number two is important because it involves where it suppose to dry training, that is much as the use of the simulator for the hour training but the provision of the curriculum, the program poor training as well as the use of the simulator and we are seeing good growth in that area.

Our contract with flight options, which are highlighted in my remarks, is probably the most dramatic evidence of growth for us in that business. This is the contract over three-year period of worth about $30 million if I recall to CAE with a two-year expansion. My applied options are one of the largest fractional jet operators in the business jet fuel and had previously been a customer of our major competitor.

All right. I wonder also if I ask you last year on military contract bidding. There seem to be a suggestion that because of its Canadian identity, CAE was having a tougher time on getting some of those US military contracts have you noticed any change in the meter and on the part of the United States in that regard?

In terms of (inaudible) when to when?

Well, it is simply in the last quarter, have you noticed any change in attitude toward bidding via Canadian company on these big US military contracts? Are they more favorable or less favorable and then has been under the meter?

Well, as I said in my remarks, politics is never too far removed from defense procurement whether its in the United States or almost any market but we've had some success of late in the US market. We expect to have more success, which I hope we will be able to announce very shortly in the US market. We have area expectation that this is going to be a record year for our operation in Tampa. I indicated that they expect their order book in Tampa alone to the above 150 million dollars Canadian for this fiscal year.

So, we have every reason to believe that we are going to enjoy success in the US market as I said when technology is the major consideration, we believe that CAE is well placed to win in that market but we recognize that technology or normal commercial concepts are not the only way that decisions are often taken.

Would some one else wish to ask a question at this point?

Absolutely yes. Our following question come Reg Karen (ph) from Bloomberg News. You may now proceed.

Very Good morning gentlemen. I would like to thank CP for standing back to others go. I'm wondering that Derek or whoever I want a follow-up one the currency theme. Have the backhand of the same that they believe manufacturers in the country have really adjusted to the rise, is that a fair comment do you think from them? And what are you doing beyond the hedging? Is there anything else you can do to address that very steep rise in the past year?

If you will allow a terrible pun, I will dodge that question and hand it over to Paul Renaud.

Thank you very much. Outside of hedging, the only way you can do it, because the nature of our business we sell in U.S. dollars and the good part of our labour cost here is in Canadian dollars, the only way to get out of it is further productivity improvements. But when you have such a massive short-term improvement in excess of 20%, you just can't get productivity gains at that level (inaudible)

And truthfully we have done enormous gains on productivity over the last number of years contributing to bottom line improvement. And but there's not a whole lot you can do. And if we got to operate under 75, 80-cent dollar in the future, you know we will continue to focus on the cost. At the same time, it makes, you know, in terms of perhaps acquiring some of our supplies from the U.S. cheaper than they used to be.

Great.

You know, but outside of that, you know, for us on the labor side, we just have to do -- we got to become more efficient.

A more serious comment, Rick, if I may. The problem with it has been the sudden nature of a 21% increase. I mean, I think companies in manufacturing can absorb currency fluctuation if it is staggered over a longer period. But I don't think anybody anticipated a 21% increase in one tell swoop as we had this past fiscal year. Nor do I expect anybody would be as confident in saying that they could cope with that or they had absorbed that at this point. I think that would be, you know -- I don't think there's ever been a precedent for that steep an increase in this short period of time.

Do you need then to see some easing of rates here and Canada to try to take some steam out of the dollar to allow you and other exporters to catch up on those inefficiencies if you can?

I certainly wouldn't be offended by a narrower gap.

Right. Just quickly on the military side, when you discuss operating earnings, just a technical question, that excludes what -- is that depreciation taxes --

It's equivalent to EBIT.

OK. Great.

That's before Interest and Taxes.

Al right. Thanks very much.

Thank you. The next question is from Hathwesh Shalon from Montreal Gazedski, go ahead.

Yes, hi. Just to pin it down about the job cuts, the incremental I guess job cuts over the last I guess 13 months, when you said starting in January '03. So it would be 500 in Montreal or 500 overall.

Yes.

And the majority of them in Montreal?

Yes.

How many of them outside of Montreal?

I mean the smaller amount in Montreal.

But in amount terms, in figures?

I don't have it. I don't have the actual number. I can only tell you that the majority, and I would guess 350 to 400 were in Montreal. That's a guess.

OK. How many people have you got in Montreal working? What is your workforce here?

I think it's about 4,000, just under 4,000.

So, it is roughly 10% of the workforce over the last 13 months?

Exactly.

OK.

That would be a good rule of thumb.

What and the rest were --

Recognizing, (inaudible) as we said that some are on a temporary layoff basis.

Well, some of the 100 is that right that were laid off in January 2003?

Yes, perhaps.

About half of them of temporary lay-offs?

Yes.

And the 40 technicians why did you single them out? What is significant about them? Is it because they're technicians?

No, I'm just trying to understand why you mention them and -

We make a distinction between salaried employees and hourly employees. If you would like it better that way, the hourly employees were the guys that were a hundred. The salaried were the ones that were 40.

Do you expect any more than -- you would need any to cut any more staff over the next few months or year?

We certainly hope not. But if we are not successful in winning some of the orders that we're chasing, obviously that will have an impact unless we replace those with others. I mean, it's not -- it's a question of whether there's a demand for our products and our services. If the demand is there, we will be able to sustain our employment. If the demand shrinks, we will not be able to sustain employment levels. That is a hard rule of thumb for anybody in this kind of business today.

Great. Remind me what -- I guess I'm out of the loop a little bit here. What is the break down between the civil, the marine and the military in terms of sales revenues I guess, percentage?

I think that the way you would look at our business, you probably have between 40% to 45% for each of military and civil and then marine makes up about 15%.

OK. Thank you.

Thank you. There no further questions registered at this time. I would like to turn the meeting back over to you.

Thank you ladies and gentlemen of the media and the investment community. I would like to remind you that today's remarks and comments can be found on CAE's Web site at www.cae.com.

Conference has now ended. Please disconnect your lines at this time. Thank you for you participation and have a nice day.