CAE Inc (CAE) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the CAE fourth quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz, you may now proceed, Mr. Arnovitz.

Thank you. Good afternoon, everyone, and thank you for joining us today. Before we begin, I need to read the following. Certain statements made during this conference, including but not limited to statements that are historical facts, are forward-looking and are subject to important risks, uncertainties, and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any nonrecurring or special items or events that are announced or completed after the date of this conference, including mergers, acquisitions, or other business combinations and divestitures.

You'll find more information about the risks and uncertainties associated with our business in the MD&A section of our annual report and the annual information form for the year ended March 31, 2006. These documents have been filed with the Canadian Securities Commissions and are available on our Web site CAE.com and on SEDAR.com. They have also been filed with the U.S. Securities and Exchange Commission on form 40-F and are available on Edgar at SEC.gov. Forward-looking statements in this conference represent our expectations as of May 31, 2007, 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.

Robert E Brown, CAE's President and Chief Executive Officer, and Alain Raquepas, our Chief Financial Officer, are participating in the call today. Following their remarks, we will invite questions from financial analysts and institutional investors. Once we have concluded the question-and-answer period with analysts and institutional investors, we will then invite questions from the Media. For your convenience, this conference call will be archived on CAE's Web site.

Let me now turn the line over to Bob.

Thank you, Andrew, and thank you everyone, for joining us today. Let me begin with a few comments about the fourth quarter and our performance last year. Then Alain will walk you through some more specific financial highlights. After that, I will say a few words about the way forward.

In summary, we had a very good year. Our results reflect both the strength of our financial position and our renewed competitive position. With these advantages, we are benefiting more fully from the positive market conditions we have been experiencing. Our business is well-diversified between products and services across military and civil markets and geographically. All of our business segments have combined to contribute to a solid performance for the quarter and for the year as a whole.

We are making progress by leveraging our core capabilities to grow the company. Annual revenue increased 13% to reach $1.25 billion. We also delivered double digit growth in our order backlog and operating margin. On an apples to apples basis, net earnings from continuing operations increased 85% to reach $129 million, and we generated more than $90 million of free cash during the year. This is a testament to the quality of our earnings. We took in $1.45 billion of new orders and concluded the year with a backlog of nearly $2.8 billion.

Now let's look at the business segments and our activities for the quarter. In Simulation Product Civil, we signed orders for seven full flight simulators with customers in Asia and Europe, including an Airbus A-320 order from Lufthansa Flight Training. One of the launch customers for the new CAE 5000 series full flight simulator. We sold a total of 34 full flight simulators during the year, including a long lead time order from Ryanair for six Boeing 737 simulators. We also sold the first simulators ordered by airlines for the new Boeing 787 to Qantas and China Eastern Airlines. Since the start of the new fiscal year, we have announced another 10 simulator orders, including one recently from Nippon Cargo Airlines for the new Boeing 747-8. This is the first simulator contract to be awarded for the new aircraft model. We also sold two Boeing 787 simulators to Japan Airlines.

We are now two-thirds of the way through our first quarter, so it is still too early to accurately forecast the number of orders we expect to receive this year. At this point we expect to take orders for approximately 30 civil simulators. As we have done in the past, we intend to update you on this estimate as the year progresses. In keeping with the higher level of activity and our increased efficiencies, revenue for the year was up 35% and our operating margin reached 17.4%.

Training and Services/Civil was awarded more than $450 million in new trading contracts during the year, including 50 new business aviation contracts with many Fortune 1000 companies and government entities. We also signed 20 new commercial and regional aviation training contracts with airlines around the world. During the quarter, we announced plans to open CAE's first Indian flight training center in Bangalore and more recently we announced the addition of three new Alliance members to the CAE Global Academy, which is designed to address the global shortage of pilots.

Average revenue per simulator in fiscal 2007 was $3.4 million, on a basis of 99 revenue simulator equivalent units. We experienced strong demand for training, which saw revenue increase by 5% despite the disruption caused by the redeployment of simulators around our network. Note that the average number of RSEUs remained flat because of this redeployment. As well, we faced a stronger Canadian dollar for the year as a whole. The fourth quarter is typically our strongest for training and it contributed to a 19.1% operating margin for the year.

In the combined Military segments, our backlog reached a record $1.47 billion last year. We took in nearly $600 million worth of orders, involving a diverse range of product and service programs for the Australia, British, Canadian, German, Italian, and U.S. forces. The war on terror has presented unique requirements in terms of aircraft platforms and related training systems. We are well-positioned on the kinds of medium support and tactical aircraft that are most prevalent in these types of operations.

We continue to make progress in our goals to grow our presence in the U.S. defense market. We are now providing solutions to every branch of the U.S. Defense Forces. Notably, we received orders during the past year for the U.S. Navy MH60-S and the E6B Mercury aircraft. As well, we continued to strengthen our relationship with OEMs. Boeing recently recognized CAE with its outstanding supplier award for our responsiveness and support during the development of new business opportunities, and also for the execution of ongoing efforts.

On a combined basis, Military revenue for the year was up 7% and operating margins reached 12.9%. We made several acquisitions to further consolidate our market position in modeling and simulation. We purchased the Kesson International in Australia last year followed by acquisitions of Engenuity and MultiGen-Paradigm after the year end. We are building the capability to offer our customers a one-stop stop for their modeling and simulation needs.

With that, I will ask Alain to take you through some of our financial results.

Thank you, Bob. Good afternoon, ladies and gentlemen.

In the fourth quarter, consolidated revenue was $337 million, up 19% on the fourth quarter of fiscal 2006. For the year, revenue reached $1.25 billion, which is $144 million more than in fiscal 2006. All four of our business segments contributed to higher annual revenue. Net earnings for the quarter were $34.3 million, or $0.14 per share compared to $9.2 million or $0.04 per share in the same quarter the year before. For the year, net earnings were $127.4 million or $0.51 per share compared to $63.6 million or $0.25 per shares. Excluding nonrecurring items, earnings per share from continuing operations for the quarter were also $0.14, but compared to $0.09 in the fourth quarter of 2006. On the same basis, ABS for the year as a whole is still $0.51 but compares to a normalized $0.35 per share the year prior.

Income taxes were $50 million for the year, representing an effective tax rate of 28%. Excluding nonrecurring items, the effective tax rate was 29% for the year and 28% for the fourth quarter. We expect the average rate for fiscal 2008 will be about 30%. During the year we generated $240 million of net cash from continuing operations. We've invested $158 million in capital expenditures and we received $34 million in nonrecourse financing. As a result, we generated $94 million of free cash. Growth capital expenditure for the year totalled $119 million, mainly related to our Dassault and NH-90 program. Maintenance CapEx was another $39 million. We expect total CapEx will be comparable in fiscal 2008. The consolidated backlog was $2.77 billion, up 13% over the prior year and our book to sale ratio was 1.2 times.

Finally, I would like to mention that we have completed the review of our internal controls over financial reporting as required by Sarbanes-Oxley compliance. I am pleased to report that management and CAE's auditor have completed an assessment of the effectiveness of these controls and no significant deficiencies or material weaknesses exist. This achievement represents more than a year and a half of hard work and support to good governance and financial disciplines we value at CAE.

Thank you for your attention. Now I will turn it back to you, Bob.

Thanks, Alain.

Our outlook continues to be positive. On the Civil side, we believe that the current market expansion will continue through the end of the decade. International passenger traffic remains robust, particularly in the Middle East, Asia-Pacific, and Europe. Aircraft deliveries are expected to remain at a healthy level. The North American legacy carriers are coming out of restructuring and are likely to need new pilot training programs as they invest in their fleets. Our range of flight training solutions is the most complete on the market and we believe we are well-positioned to serve this market opportunity as it evolves. We have the required financial resources and plan to invest in our own network of training centers to increase our service offering.

During the previous market cycle, the majority of CAE's Civil business involved North American carriers. Since 9/11, there has only been one full flight simulator sale to a U.S. legacy carrier, which we sold to Continental Airlines in September, 2006. As for the emerging markets of China and India, we already have a solid foothold there to meet the fast-growing demand for airline crew training. Although revenue growth is expected to be more modest in the defense market, it is still expected to offer us profitable opportunities. Our technological leadership allows us to design and offer realistic training solutions that can be used for network or remote training programs. We expect more opportunities will arise from the ramp-up of the NH-90 programs in Europe and Australia.

In North America some opportunities should result from the programs announced by the Canadian government to reequip its forces. Our priority for fiscal 2008 is to execute our business plan and deploy our growth initiatives. As we increase investments in our business segments over the year ahead, we should begin to see appreciable and sustainable benefits in the periods that follow. Thank you for your attention. I think we're ready for questions now, Andrea.

Thank you. (OPERATOR INSTRUCTIONS). The first question is from James David from Scotia Capital. Please go ahead.

Thanks. Good afternoon, everyone. Just a quick housekeeping question, Alain. Why was the -- I think I saw there was some nonrecurrings embedded, $2.4 million, in the training, the civil, and then another $1.1, I think it was a reversal of a restructuring charge at the corporate level for a total of about $3.5 and after-tax it would be about $2.5, but it was not pulled out as a nonrecurring item. Just want to understand what the philosophy was there?

The items you mentioned in the civil training are not nonrecurring items. The first one that we've explained in the MD&E was in regard of a gain we've made in selling one of the old simulators in our fleet, which is part of what we do, managing the fleet when they're getting old. So it's nothing to do with nonrecurring items. The last one that you've mentioned, the reversal of the restructuring was the unusual items and we've not taken the benefit of that and we've put that in the table of the nonrecurring items.

Okay. What about the $1.3 million -- it says very ambiguously you're in negotiations with a business partner?

That's again coming out of contract we have with a partner training which is part of our day to day.

Okay.

So it might not reoccur in every quarter, but it's part of our regular operation.

Okay, fair enough. Bob, just you announced some Global Academy transactions recently. I'm just --if you could just remind us, what is the -- how are you structuring those deals exactly? And what's the philosophy behind that structure?

What we're doing is partnering with some Abenecio training schools where we're involved in the curriculum that's set up, the identification of candidates and essentially putting our stamp of approval on the quality of the training program that they undertake and then at the end of the exercise, they obviously require a type certification, so we use the capacity in our simulators wherever it is around the world to be able to give them a type certificate. If you look becoming a pilot probably costs generally around $100,000 and 20 of that $100,000 is generally associated with a type certificate. So that's what we're doing on that side. That's really on the supply side.

On the demand side, we're contracting with airlines to basically as part of our overall service offering, again trying to make sure we have the broadest service offering where these pilots then would go into the airlines, would be hired by the airlines, not our employees, hired by the airlines, the airlines makes the choice. Then as time goes by, depending on the relationship we have with the carrier that we get the recurring training, which they have to do every six months. So that's the concept behind it.

Okay. In terms of the relationship with the schools, I just want to understand the sort of P&L implications. In other words, you will, as you say, put your stamp of approval, but what you're ultimately seeking is that when it comes down to the actual physical training, they will be using your training centers?

Yes. So there's no real -- there's no investment there for us. The investments, the airplanes, except for the one school we own in Portugal, the assets are all held by the schools, not by us.

Okay. Many thanks.

Thanks.

Good quarter.

Thank you.

The next question is from Daniel Kim from Paradigm Capital. Please go ahead.

Thank you. Bob, just wondered if you could comment on the forecast you provided for full flight simulators, given the nature of what's going on in the broader macroenvironment, understanding you are going to be conservative, but could you give us some of your assumptions ? Are you assuming any U.S. carriers will be coming into the market this year? And can you share with us if you have the data available, what your assumed market share might be in terms of how the overall market is going to shake out for this year, please.

Very hard to be specific, Daniel, but I would say that we expect -- I will characterize it as a few simulators coming in from the U.S. market, so we see it starting, but not a large quantity. I think quite a bit of it will come from the traditional markets where we've been strong in Europe, Middle East, and Asia and India. I think that's where you're probably going to see the bulk of the orders coming from. So we're cautious, we're being cautious on what potentially could come out of North America at this time.

You don't believe that your 5000 Series is going to have a material impact on your order rates for this year, given the orders have already started to flow in?

I think it will have some impact, but I think we're just starting -- we'll be starting the build in the deliveries of these as we get towards the end of the fiscal year, so you may see a bit of lag on that as I it comes out, but it will depend how the market develops. We're well-positioned to capitalize on that. So I think it will be positive.

Okay. Two questions for Alain. There was some discussion in the MD&A with regards to operating income as being impacted by various third party funding coming through. Wondering if you can give us a sense of how that -- if that full impact is in fact seen in this quarter or if we're going to see further changes going forward.

Could you help me, Daniel, where in the MD&A you've seen --

Through various data points, when you talk about your four operating divisions, the operating income was discussed as being positively impacted by third party funding coming in from technology partnerships and Quebec-related funding.

Okay, I've got this.

Just sort of a one-liner in each of the four operating segments, so I'm wondering if you can quantify or maybe share with us if that in fact has now had the full impact and this -- and this is a more normalized operating margin we will see -- is this quarter indicative of how things will be going forward.

Like you said, we're probably right now at the -- we've ramped up where we think we're going to be in term of R&D. So what you see in the quarter is probably a good indication of what we're going to continue to do. There's a note on the cost sharing in the statement, but I think, yes, we're almost where we thought we would be for the next few years this is the level of R&D we'll continue to conduct.

Very good. Two last questions. Could you remind me again where you stand in terms of current capacity given you've added some platforms, and secondly, what is your sensitivity to the Canadian dollar on net earnings, please?

On capacity I think we still have lots more capacity to grow before we'd have to add assets. I think we're working at a shift and a half. I think the time is coming down on the cycle time for making the machines. I don't think that that is really is a concern going forward. As it relates to the Canadian dollar, Alain, would you like to take that one?

Sure. There's two major impacts on CAE on the movement of the Canadian dollar. You have a sensitivity in the MD&A, I think we mentioned there that it's 400K per movement -- (technical issues) -- on the book business, okay. So we do protect a contract when we win at CAE, we take a edge contract to protect the margins. That's the first impact.

The second impact is on our subsidiary around the world that operates in USD, so there might be a translation impact or a net profit being translated in Canadian dollar will be impacted if the Canadian dollar's trend sets. So this is the two main areas. The one that is very difficult for us to quantify is on the upcoming business. Will our competitiveness be impacted, and that's right now a difficulty.

But I would say in terms of bidding, you have to look at where our competitors are and if they're in a euro environment and how the euro has appreciated against the dollar as well. And as I've said in the past, you can assume that this is a problem or an opportunity that we've identified that's going to be presented to us and we have to take measures to make sure we can continue our performance and absorb anything that happens on exchange.

Thank you. Your next question is from Cameron Jeffreys from Credit Suisse. Please go ahead.

Operator, before we take the next question, I should remind everyone, if you could please limit yourself to a single, one-part question so that everyone has a chance to ask a question on the conference call. For additional questions, please do feel free to reenter the queue.

Thank you. Mr. Jeffreys, please go ahead.

Thanks very much. Just another housekeeping question. Can you give us some guidance on the number of revenue simulator equivalent units you would expect to have as we run through the year as the ones who which have been redeployed have come back on stream, and what you expect, and what kind of pricing benefit or pricing increase overall in general for the Civil training business? You got 5% this past year, do you have any sense as to whether that's a repeatable number or something higher, lower than that, or anything along those lines?

I think with a we'd see on the RSEUs, I think at the end of the year we were at 99. We've made statements in the past that we're trying to add about 10% to the network, so I would use that assumption for the year. The other thing I would say on pricing, it's something that's a bit dynamic as we're going through the year. Some of them may be business aircraft simulators so that generally those -- there's more revenue associated with them. Maybe we'll see a bit of an increase, but I would be conservative there as well.

Okay. Thank you very much. I'll jump back in queue.

Thank you.

Thank you. The next question is from Cameron Doerksen from Versant Partners. Please go ahead.

Good afternoon. My question is sort of related to the balance sheet. You've got a pretty healthy balance sheet now and you're generating a fair bit of free cash flow even though your CapEx is pretty high. Just wondering what the company's position might be on potentially increasing dividends or buying back stock and related to that, do you expect to make any additional tuck-in acquisitions this year?

I think that we'll probably continue with some small, bolt-on acquisitions. As it relates to what we might do with the cash, this is a newfound phenomenon for us at the company and we're going to go slowly, if I can describe it as a way of proceeding forward. We're looking at all of the opportunities that we might have. We really haven't landed on any single one right now, but we want to continue to demonstrate that in spite of the high level of CapEx that we have relates to growth that we can continue to grow our free cash and improve the quality of our earnings. So you're going to see us continuing to do that and we're looking at the options we have, but we really haven't decided which route we're going to take yet.

Okay, thank you.

You're welcome.

Thank you. The next question is from Nick Morton from RBC Capital Markets. Please go ahead.

Good afternoon. I wondered if you could talk about nonrecourse debt and how important that approach is to you and perhaps expand a little bit in the context on your acquisition strategy long-term?

I'll try and answer it and then I think Alain can kick in. I think nonrecourse debt, particularly as it relates the some of our training centers, if having people participate in that is a real show of confidence I think in the business model that we have come up with and the value of the assets that we've put into that particular facility. So it really increases our flexibility going forward and allows us to be able to grow I think in a less -- in a more risk-free fashion. So that's sort of the way we've looked at it from a conceptual point of view. Alain, you got anything to add?

No. In fact, Bob, it's exactly that. It's very important for us and more and more with the potential partnership JV we have around the world, we will ask to finance the center on a nonrecourse because we're part of it. So it needs to stand on its two feet. So it's important, it's part of our strategy, and it's contributing to fund the level of CapEx we have right now that we're thinking about this year.

Does that require government guarantees to get nonrecourse financing?

No .

I don't think so, no.

No?

Where are you getting that.

With that NH-90 contract, for example, the debt is nonrecourse, it's really supported by a government contract. Maybe not a government guarantee, but a government contract. I think in China you've got nonrecourse debt on a training facility. It may be that's a result of government policy that you've got or government support that allows you to do that nonrecourse, I don't know.

It's obviously much easier when you get these strong intake from a government to put a nonrecourse financing structure: but like you've pointed out, we've done it in China, that's an easy place to do it, and there might be more to come. We're trying to demonstrate that it's also feasible around a civil training center.

Okay, great. Thanks very much.

Thank you.

Thank you. The next question is from Claude Proulx from BMO Capital Markets. Please go ahead.

Thank you. Good afternoon. When we talk with manufacturers of aerospace products these days, the big issue is they'd like to produce more but they can't ramp up more because the supply chain can't follow. I understand in terms of your production capacity there, but what about the supply chain? That an issue for you?

It's not an issue for us, no. The main thing is you've got to get the data parts and equipment from the OEM. That I think is probably the biggest hurdle that we have to get over, but if you're assuming that people are selling airplanes, they've got to -- the customer has to be satisfied that they're going to be able to train in the simulators before the airplanes start arriving. Most of the -- on the ongoing products, it has not proved to be a problem.

And in terms of managing this growth inflation, is that a problem as you keep inflation in terms of your own cost. Is there a risk that as you ramp up rapidly, that we could see some inflation that would put pressure on your margins?

I don't think so.

Okay, thank you.

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

A question earlier about pricing, but I think you were really talking about revenue per sim. I want to ask the question about pricing specifically. What on the training side is happening with the hourly rates? And also, if you could make the same comment on the Civil equipment side?

I'd say that there has been some movement on the business aircraft side in terms of the pricing. There hasn't been a whole lot on the Civil side.

That's on training?

That's on training, per se, yes.

And on the equipment sales?

On equipment, it tends to be a very competitive market. I think, as we've said in the past, we're approaching margin profitability here by controlling our cost and the complete solutions that we're providing. So we're not really seeing any movement on the pricing of the equipment.

Okay. Can you give me your simulator utilization rate for the quarter?

It was 78%.

Thank you.

Thank you. The next question is from Brian Morrison from TD Newcrest. Please go ahead.

Good afternoon. Wondering if you might be able to tell us if you had outsourced any of your training demand during the quarter, like you did last quarter?

Outsourced our training demand, I think there might be a little bit in Europe, but that's it.

Just a follow-up. Wondering if you might be able to tell us what the unit deliveries were in your SP Civil Division for the fiscal year, both externally -- I guess just external, really?

Five and five.

I'm sorry, say that one more time, Bob?

I think it's about 25 for the outside and about 5 internally.

That's great. Thank you kindly.

Thank you. The next question is from Ihor Danyliuk from Merrill Lynch, please go ahead.

Quick question with regards to the cash flow statement. Two parts. You gave us your expected CapEx for the current year. Any thoughts in terms of increasing the dividend going forward?

I think we've given the CapEx number that's already there, have we not? We've made comments on that, that we would be about the same as the --

As this year?

As the last year completed. and as I think I mentioned before, we're considering all options but we haven't decided any route that we would take. We continue to make sure we concentrate on generating the free cash and we're looking for ideas of things that we can do to improve the profitability of the company, but we haven't reached any determinations yet. Thank you.

Thank you. The next question is from Robert Fay from Canaccord Adams. Please go ahead.

A question for Alain. In the civil sim products, you noted that the revenue increase in the year and also in the quarter were due because you had achieved some important milestones on several contracts. Can you comment on the numbers there and what that involved?

On the civil side?

Yes.

Robert.

It's on page 37 of the MD&A.

The rule is, as you know, we bring revenue on the POC formula, so as we incur costs we book revenue. As you get toward the end of a delivery, there might be more cost comping up, driving the revenue up. Just trying to figure out exactly how we phrase that in the MD&A.

Just that the revenues were higher because of orders and because we achieved some important mile stones on several projects.

I think what that was, Bob, is the -- it depends on the mix of the contracts in the quarter and how well you have done in those particular contracts and some may be better than others in different quarters. As Alain said, when you get-- we try to be conservative in the way that we do the POC accounting to make sure there's no problems at the end and sometimes you're able to take a little bit more in terms of what you've done to try and mitigate risk.

Can you quantify that in the year, the quarter?

We can't. It changes every quarter. Every contract is different. I think we're following well over 250 different contracts with the POC method. It would be hard to give a general rule.

Okay. The other quick question on the Project Phoenix financing as well as the Investment Quebec. When I looked at your R&D expenditures and your financial statements on page 25, R&D is pretty consistent year-in, year-out at around 90 to $95 million for the last three years. I guess the amount of financing that you've been getting or the amount of support that you've been getting under ProjectPhoenix has been up fairly significant. That would represent about -- a change of about 23, $24 million over the last two years in the net spending after the funding. Would that be the right number I'm looking at?

The $95 million, Robert, is at least this year the right figure for this year. Last year we were a bit lower than that. We've ramped up the R&D program this year and what you need to consider in terms of funding, don't forget that if you get more TPC in Quebec, you get less income tax credit because you cannot get both. I know TPC contribution were higher this year than last year, but you have to substitute back the IPCs we have not been able to get this year because of that.

When we looked at the chart that you have because of Project Phoenix, the funding in that, you net out those numbers for the ITC impacts and the funding net funding has gone up from 3 to 11 to 28 and your R&D spending has gone from 93 to 91 back to 95.

That makes sense, what you've described. We're using more of the TPC than the ITC at this particular point in time. As Alain said, we have ramped up a little bit last year for some of the R&D projects that we've been undertaking. But I don't think anything is unusual there.

Okay. I guess the last question, the training business, when we looked at the incremental margin, you had about an $8.6 million increase in revenue and you had a $5 million after we exclude the two one-time items, you had a $5.5 million increase in operating earnings, is that the type of leverage we should be looking now that you've sort of relocated all of the assets and stabilized that business going forward?

I think as I've said before, our goal is to try and get to 20, if we can, at some point in time on a consistent basis. That's our first goal.

20% over the year?

Yes.

Okay. Thank you.

Thank you. The next question is from Benoit Poirier from Desjardins Securities. Please go ahead.

Just in terms of cost-saving initiatives, you provided previously a goal of reaching $33 million by fiscal '08. Could you maybe provide an update about the goal and where do you stand right now?

You're almost bringing us back a year two and a half ago which I'm not so sure I want to do. But you're right. You've seen the progress on the P&L and the progress on the margin. We've delivered $60 more million of earnings than two years ago. So the $33 million of cost savings has been clocking to the bottom line.

Is there any more potential upside with respect to further cost saving? I think we're always looking for cost saving, it's part of a way of life here now, but I don't think we're going to provide any specific numbers on it right now.

Okay, thanks.

Thank you.

Thank you. Your next question is from Cameron Jeffreys from Credit Suisse. Please go ahead.

Thanks. I just wanted to clarify my first question, just when I spoke of pricing. What I meant was revenue per simulator, Bob. Was that what you were answering in that context in terms of being conservative on what we would expect on revenue per simulator going forward as well in the civil training business?

No, I was talking about the overall pricing on an hourly basis.

On an hourly basis, okay. What about the revenue per simulator in terms of your year over year -- should we expect similar 4 to 5%, which I think is what you got in the past fiscal year, if I'm not mistaken?

I'm not sure, Cameron. I think, obviously we have a goal to do that, but there's a whole bunch of factors surrounding it. Again, I would be -- I want to be careful on that. I think we're going to have to see the progress we make as we go forward.

Okay. My other follow-up question would be just on the Project Phoenix back to Bob's question. The differential, I think it was 18 -- $28 million versus $11 million last year if you net out some of the ITC things and so on. Is the proper way to think about that is a $0.07 contribution to the bottom line from an earnings perspective on an EPS basis, is that the right way to think about it or are there other things in there that I'm missing?

Never forget Uncle Same, take the tax out in your calculation, that's another one.

Okay.

And the increase this year also, you'll remember, we signed to Quebec government this year which explained the increase of the year.

Okay, thanks.

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

You commented in your civil equipment division the development activities on the Series 5000 simulator had an impact on the margins, a nonfavorable impact. Can you quantify what that would have been?

We don't want to give that number, Marko, to be very direct with you. It's not a real big number, but it's something we're not ready to provide at this particular point in time.

Okay. My second question is, to calculate your orders by segment for the fourth quarter, can I just take your -- the full-year numbers that you provided for order intake and subtract your nine months to date as of Q3 and that's going to be the right one for the quarter or are there some other intraquarterly adjustments that would not make that calculation correct?

The only one, Marko, that I'm thinking of is the foreign exchange, so what we had in the --

Is it possible for you then to send us your actual orders by segment for the fourth quarter then?

Yes, we couldn't put that -- we can make that data available.

Super. Thank you.

Thank you. We have a question from Robert Fay from Canaccord Adams. Please go ahead.

A couple of questions. Alain, one question on the foreign exchange. Your hedge book has gone up from 322 to 604 year over year. Has most of your deliveries this year been hedged on that? And at what rate year over year did you hedge them?

Like we said in the past, Robert, every contract we win, we do hedge, so at least we protect the margin. Everything coming in that is protected to at least deliver the margin we had when our marketeers is bringing back the sale.

What were the rates year over year, the average rates?

I don't have that data in front of me.

Sorry?

I don't have that data in front of me, Robert. I cannot answer it.

Last question, is the comment about the evolution of technology in the civil sim business and a potential impact of your fleet of flight simulators. Can you comment on what that impact is? The comment's on page 58 of the MD&A. It says the evolution of the technology could also have an impact of the value of our fleet of full flight simulators?

Yes, I think probably what's being referred to there is the -- there's been some talk of B-level simulators and how that might -- when they would come into the market. I think they're just stating that as a risk. I really don't see it as a big factor.

I'm sorry, it's just the first time I've seen that.

Good. Operator, I think we're out of questions from media and I want to thank all participants for joining us today and remind you as well that a transcript of today's remarks can be found on CAE's Web site www.CAE.com. Thank you.

Thank you, Mr. Arnovitz, the conference has now ended. Please disconnect your line at this time. We thank you for your participation, and have a great day.