CAE Inc. - Shareholder/Analyst Call

Aug. 8.13 | About: CAE Inc. (CAE)

CAE Inc. (NYSE:CAE)

August 08, 2013 10:30 am ET

Executives

Lynton Red Wilson - Chairman, Member of Executive Committee, Member of Corporate Governance Committee and Member of Human Resources Committee

Gennaro Colabatistto - Group President of Military Simulation Products, Training & Services

Bernard Cormier - Vice President of Human Resources

Andrew Arnovitz - Vice President of Investor Relations & Strategy

Nick Leontidis - Group President of Civil Simulation Products, Training and Services

Nathalie Bourque - Vice President of Public Affairs & Global Communications

Marc Parent - Chief Executive Officer, President, Director and Member of Executive Committee

Stephane Lefebvre - Chief Financial Officer and Vice President of Finance

Lynton Red Wilson

Good morning, ladies and gentlemen. It's now just past the hour of 10:30, and I'm happy to welcome you to this Annual Meeting of Shareholders. My name is Red Wilson, and I'm Chairman of CAE's Board of Directors. Also pleased to welcome those joining us for the live broadcast of this meeting on the Internet. [French] The meeting will be conducted in French and English. And equipment for simultaneous translation has been made available at the entrance. You may address the chair in French or in English. [French]

With me on the podium this morning is: Marc Parent, President and Chief Executive Officer and a Director; Hartland Paterson, General Counsel and Secretary of the corporation; and Stephane Lefebvre, CAE's Chief Financial Officer. This meeting gives shareholders an opportunity to not only see and hear from the board and management in this formal setting but also allows for informal discussions during the reception afterwards. Members of your board and the company's senior executives are in attendance. All are wearing name tags, and they look forward to spending time with you following our meeting.

At this time, I would like to introduce to you those of our Board of Directors, who are present today and are seated in the first row. I would ask them to stand and remain standing as their names are called. And I'd ask you to please withhold any recognition until all have been introduced. Mr. Brian Barents, who resides in Andover, Kansas; Ian Craig from Ottawa; the Honorable Michael Fortier from Montréal; Paul Gagné from Montréal; Jim Hankinson from Toronto; Randy Jayne II from McLean, Virginia; Dr. Robert Lacroix from Montréal; Gen. Pete Schoomaker from Tampa, Florida; Andrew Stevens from Gloucestershire, the United Kingdom; Katharine Stevenson from Toronto; Larry Stevenson from Toronto; and Catherine -- Kathleen Walsh from Boston, Massachusetts. These persons, along with Mr. Parent and myself, are your Board of Directors. Thank you.

Governance changes introduced this year have brought the age limit for directors to 72 and a term limit of 12 years. Regularized periodic board turnover and renewal along with smaller boards, in our case, 10 to 12 directors, are becoming key components of successful contemporary corporate governance. I'm pleased that your board and your company are in the vanguard. As a result of these new guidelines, my fellow directors, Ian Craig, Gar Emerson, Randy Jayne, Robert Lacroix, Larry Stevenson and I are not standing for reelection to CAE's board.

The dedication of each and every one of my board colleagues to CAE has been exemplary. And on your behalf, I wish to thank them sincerely for their support and their contributions. It's been an honor and a privilege for me to serve as the board's Chairman for the past 14 years. The company, management and shareholders will continue to benefit from the support and oversight of a seasoned Board of Directors and an award-winning governance structure. The continuing board members, as well as Andrew Stevens and Kate Walsh, who joined our board earlier this year, have nearly 5 decades of combined experience with CAE.

The independent directors of CAE U.S.A.'s board are also with us in today's meeting. And I'd like to introduce them to you. The Chairman of CAE U.S.A., Gen. Michael Ryan from Mount Pleasant, South Carolina; Vice Admiral Doug Katz from Annapolis, Maryland; Gen. Mike Williams from La Plata, Maryland; Gen. Doug Brown from Dade City, Florida; and Admiral Tim Keating from Virginia Beach, Virginia, who was recently appointed to our board and has just arrived in the room. Thank you, gentlemen.

Details of the business to come before the meeting are set out in the management proxy circular that was previously mailed to all shareholders entitled to receive it, copies of which are available at the reception desk. I'd now like to proceed with the formal portion of today's meeting. I now call to order the annual meeting of the corporation's shareholders. Mr. Hartland Paterson will act as Secretary of the meeting. I have here the certificate of our transfer agent, Computershare Trust Company of Canada, indicating that proper notice of the meeting has been given in accordance with the Canada Business Corporations Act and the bylaws of the corporation. I direct that a copy of the notice with proof of service be kept by the Secretary with the records of this meeting.

With the consent of the meeting, I appoint Mark Thompson and Martine Gauthier of Computershare as scrutineers for this meeting. I'm advised that there are persons in attendance holding or represented by proxy 5% and more of the issued shares to constitute a quorum in accordance with the bylaws of the corporation. And I now declare that this meeting is regularly called and properly constituted for the transaction of business.

Immediately following the formal agenda, the President's report will be presented by Marc Parent. An opportunity will be provided at the end of that presentation for shareholders to raise general questions. You're entitled to address the chair if you're a shareholder of record or a proxy holder of the company. Please make your way to a microphone and identify yourselves as either a shareholder or a proxy holder and give your name for the records of the meeting before asking the question. I would ask that you keep your questions and comments brief and to the point so that everyone wishing to participate in the meeting has an opportunity to do so. If you wish to speak directly to an executive, please do so after the meeting.

Mr. Secretary, if the scrutineers have completed their compilation, may I present their report to the meeting? This is the scrutineers' interim report. We have 12 shareholders in person representing 104,818 shares; 353 shareholders by proxy representing 194,328,319 shares; a total of 365 shareholders holding 194,433,137 shares. Our total outstanding shares as at the record date are 260,371,382, so the percentage represented at the meeting is 74.68% of the shares.

The agenda items today included the election of directors, the appointment of auditors, approval of the adoption of advance notice by-law and a resolution regarding executive compensation. The scrutineers have advised that the percentage of shares voted as withheld for all the agenda items is less than 5% of the votes cast. Accordingly, to expedite the voting today, I propose to conduct the votes on all those agenda items by a show of hands. In order to facilitate the flow of the meeting, we have asked particular shareholders or proxy holders to move or second motions placed before this meeting. Any shareholder or proxy holder present or in person at this meeting has the right to demand that a ballot be conducted on any resolution. I hereby table the minutes of the Annual Meeting of Shareholders held on August 9, 2012, which will be inserted in the minute book of the corporation. Copies of the minutes will be made available upon request.

The next matter is to place before the meeting the financial statements and auditor's report thereon for the year ended March 31, 2013, copies of which were mailed to shareholders of record and are available for consultation at the registration desk. I will entertain questions with respect to the financial statements of the corporation in the general question period.

Let me now turn to the next item of the business, the election of directors. I ask a meeting for nominees for the Board of Directors for the coming year. The term of office of the directors is from today until the next Annual Meeting of Shareholders or until such time as their successors have been elected or appointed. The management proxy circular contains a list of nominees recommended for election as director. The nominees are all presently members of the Board of Directors. I will ask Gene Colabatistto to present the nominations.

Gennaro Colabatistto

Thank you, sir. My name is Gene Colabatistto, and I'm a shareholder of the company. I nominate Brian Barents, Michael Fortier, Paul Gagné, James Hankinson, John Manley, Marc Parent, Peter Schoomaker, Andrew J. Stevens, Katharine Stevenson and Kathleen E. Walsh as directors of the corporation to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

Lynton Red Wilson

Thank you, Mr. Colabatistto. Pursuant by a resolution adopted by the Board of Directors, the number of directors has been set at 10. And 10 eligible candidates have been nominated. I declare the nominations closed. I will entertain a motion to elect the 10 persons, whose names have been read to this meeting, as directors of the corporation to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. Mr. Colabatistto?

Gennaro Colabatistto

I so move, sir.

Lynton Red Wilson

May I have a seconder?

Bernard Cormier

I second the motion.

Lynton Red Wilson

Thank you, Mr. Cormier. Does anyone wish to discuss the motion? All those in favor of the motion, signify by raising your hand. Contrary, if any?

[Voting]

Lynton Red Wilson

The motion is carried. I declare that the 10 directors identified in the management proxy circular are hereby elected for the next year.

Next item on the agenda is the appointment of auditors. I will ask Andrew Arnovitz to introduce the motion to appoint PricewaterhouseCoopers Chartered Accountants, auditors of the corporation, to hold office until the close of the next Annual Meeting of Shareholders and for authorization for the directors to fix their remuneration.

Andrew Arnovitz

Mr. Chairman, I so move.

Lynton Red Wilson

Thank you, Mr. Arnovitz. May I have a seconder?

Bernard Cormier

I second the motion.

Lynton Red Wilson

Thank you very much, Mr. Cormier. Any discussion of this motion? All those in favor of the motion, signify by raising your hand. Contrary, if any?

[Voting]

Lynton Red Wilson

Motion is carried. I declare that PricewaterhouseCoopers are hereby appointed as auditors of the corporation and the Board of Directors is authorized to fix their remuneration.

Next item of business is the resolution to approve the adoption of an advance notice by-law, as outlined in your proxy information circular. The advance notice by-law fixes a deadline by which shareholders must submit a notice of director nominations to CAE prior to any annual or special meeting of shareholders, where directors are to be elected, and sets forth the information that a shareholder must include in the notice for it to be valid. In the case of an Annual Meeting of Shareholders, notice to CAE must be given no less than 30, no more than 65 days prior to the date of the annual meeting, provided, however, that in the event that the annual meeting to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, a notice may be given no later than the close of business on the 10th day following such public announcement. Is that clear?

In the case of a special meeting of shareholders, which is not also an annual meeting, notice to CAE must be given no later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made. New section 10.14 of the CAE General By-Law will allow CAE to receive adequate prior notice of director nominations, as well as sufficient information on the nominees. CAE will thus be able to evaluate the proposed nominees' qualifications and suitability as directors. It will also facilitate an orderly and efficient meeting process.

Shareholders are asked to review and, if deemed appropriate, to adopt the resolution of the shareholders reproduced below to ratify new section 10.14 of the CAE General By-Law. To be adopted, this resolution must be approved by the majority of the votes cast by holders of common shares. CAE's Board of Directors recommends a vote for the adoption of advance notice by-law. And I understand Nick Leontidis wishes to propose a motion for approval.

Nick Leontidis

Mr. Chairman, I so move.

Lynton Red Wilson

Thank you, Mr. Leontidis. May I have a seconder?

Nathalie Bourque

Mr. Chairman, I second the motion.

Lynton Red Wilson

Merci, Madame Bourque. Any discussion of this motion? Does everybody understand the motion? All those in favor of the motion, signify by raising your hands. Contrary, if any?

[Voting]

Lynton Red Wilson

Motion is carried. CAE's management compensation is fully disclosed in the proxy circular made available to all shareholders in advance of this AGM. The CAE Board of Directors believes that the company's compensation system is appropriate and that it's directly linked to personal and corporate performance. We will now vote on the following resolution. Resolved, that on an advisory basis and not to diminish the roles and responsibilities of the Board of Directors, that the shareholders accept the approach to executive compensation disclosed in the management proxy circular. The Board of Directors recommends a vote for the resolution set out above. And I understand that Mr. Arnovitz wishes to propose a motion for approval.

Andrew Arnovitz

I so move.

Lynton Red Wilson

Thank you, Mr. Arnovitz. Do I have a seconder?

Nathalie Bourque

Mr. Chairman, I second the motion.

Lynton Red Wilson

Merci, Madame Bourque. Anyone wish to discuss the motion? About half of the management proxy circular is devoted to a discussion -- description of executive compensation at CAE. I'm sure all of you had a chance to read all of it and will understand our approach and will therefore vote in favor of the motion. All those in favor? Contrary, if any?

[Voting]

Lynton Red Wilson

Motion is carried. Let me now turn the podium over to our Chief Executive, Mr. Marc Parent.

Marc Parent

Thank you, Mr. Chairman. [French] Good morning, ladies and gentlemen. [French] Fiscal 2013 was an eventful year for the corporation. It was the first full year of the integration of our Oxford acquisition. And for the first time, we reached $2 billion of revenues and $4 billion of backlog.

As we seek to enter the next era in CAE's growth, I would like to share with you in some detail how we differentiate ourselves. A key tenet of our strategy in this increasingly globally competitive world is for CAE to be the partner of choice for our customers. It is at the heart of our vision and it is even more important as we grow our company.

Our customers tell us they want partners with whom they can build relationships based on mutual benefit and trust. They want flexibility and efficiency. They want solutions tailored to their needs. And finally, they want companies who are responsible at a social and environmental level. And it is indeed our vision to be the partner of choice for our customers. We believe our service and commitment, our global reach, innovation and technology leadership, our people and experience and our reputation and our brand help make CAE that partner of choice.

CAE is built on a culture of service and commitment. And it is this service and commitments that allows us to develop great relationships and trust with our customers. As you can see on the screen behind me, we have approximately 70 partnerships and long-term agreements, a testimony to the relationship and trust that we've developed with leading airlines and original equipment manufacturers around the world. And we nurture those relationships.

This year alone, we celebrated 3 10-year anniversaries, 1 for our joint venture training center with Emirates Airlines in Dubai; another for our joint venture with China Southern Airlines, the largest airline in China; and finally, 1 with JetBlue in Orlando, Florida. For the past 10 years, we've been operating JetBlue's training center, JetBlue University, in Orlando, which holds 7 CAE-built simulators. Lately, this past year, we've expanded that relationship and signed a groundbreaking, long-term service agreement to cover major upgrades and spare services on all of JetBlue's Airbus A320 and Embraer 190 simulators and training devices. Another example of partnership of a long-standing nature is with Etihad Airways in Abu Dhabi. In 2005, Etihad purchased 2 simulators from CAE. And just last month, it signed a contract with us for 7 simulators along with a 10-year exclusive service agreement. Overall, we served more than 3,000 civil aviation customers this fiscal year alone with our full range of products and training services around the world.

And we're the partner of choice of defense forces around the world as well for a series of aircraft platforms, from transport and maritime patrol aircraft to tankers, helicopters and lead-in fighter jet trainers. One such example is our relationship with the Lockheed Martin on the C-130J Super Hercules, which has brought us 26 full-mission simulator sales since 1994. Another great example involves the Seahawk helicopter. Over the past 10 years, we've sold 30 simulators of the Seahawk to the U.S. Navy alone. And in fiscal '13, thanks to that relationship, we were awarded a contract to build the Seahawk simulators for the Royal Australian Navy. And this is just the first of many export customers for the MH-60 Seahawk helicopter. And as part of CAE being on the U.S. Navy team on that platform, we expect to be developing simulators for many of those export customers.

The second way we're the partner of choice is through our unprecedented global reach. CAE has operations and training centers in more than 30 countries and customers in 190 countries. Our global reach is unmatched and it provides our customers with the flexibility and proximity that they need to run their business. In civil aviation training, we expanded our footprint with the acquisition of Oxford, which added 7 training centers and 4 flight schools to our network. We also opened 8 other training locations to serve our commercial aviation, business aviation and helicopter customers. Today, we train more than 100,000 pilots in 49 training locations and 11 flight schools worldwide, making CAE by far the largest civil training network in the world.

In defense, our global reach is also expanding. Today, we offer services in more than 40 -- in more than 80 military bases worldwide. Recently, we started construction of a new multipurpose training center in Brunei in partnership with the Brunei government. This center will include the development of the region's largest helicopter training center for the Sikorsky S-92 and S-70i Black Hawk helicopters. We'll also be offering training at that center for the Pilatus PC-7 trainer aircraft.

Innovation and technology leadership are also critical components to be partner of choice. Since inception, CAE has led the way on the evolution of simulation technology and training with a number of key strategic innovations. Over the past 10 years alone, we've invested $1.2 billion in research and development, enabling us to offer leading-edge products to our customers. And we remain true to that commitment as we invested $160 million in R&D in fiscal '13.

Innovation is truly the lifeblood of this company. It's allowed us to remain the world leader for simulator sales with more than 70% market share again this past year. We're also the world leader for developing the first simulators for new aircraft. Testimony to that, over the past 5 years, we've won all of the orders for new commercial aircraft simulators, a very strong statement about CAE's technical capability and dependability. Again this year, we were awarded contracts to build the world's first simulators for 3 companies: Bombardier for the Global 7000 and 8000 business aircraft; COMAC of China for the C919 airliner; and AVIC, also of China, for its medium-sized transport aircraft.

In defense, we are supporting decision-making capabilities for the Warfighter. We introduced last year an unmanned aerial system trainer and the CAE Dynamic Synthetic Environment. This will give our customers an even more realistic virtual world to train in while maintaining readiness at a lower cost, which is a key imperative in today's budgetary environment. In mining, we sold our first turnkey training solution based on aviation standards and the way we train pilots in 2013. This includes 2 CAE Terra simulators, an e-Learning courseware, to Fresnillo, the world's largest silver producer.

In healthcare, we sold 1,000 simulators just last year and launched our new VIMEDIX Women's Health simulator, bringing a new level of safety to pregnant women and their children. This revolutionary new simulator will speed the training of physicians, who perform prenatal ultrasound examinations, and help them assess the health of the fetus and diagnose abnormalities. That's the same kind of innovation that we brought to improve safety in our skies that will now be applied to improve patient safety in health care.

A third reason for being partner of choice is our people and experience. Today, we have 8,000 men and women working around the world. They have diverse experiences and speak more than 100 languages. They live and breathe the same culture as our customers, and that clearly helps them understand their needs and serve them better. We offer our customers with the broadest expertise in the field. And with our experience, we've developed the largest array of training equipment, services and integrated solutions on the largest range of aircraft types and defense platforms.

One such example is the new Air Mobility Training Centre in Trenton, Ontario, inaugurated just a few months ago, which showcases our capabilities. Canadian forces are now training on our simulators for the Hercules, the transport aircraft bought by the Canadian government. And CAE is also providing 20 years of in-service support on that platform.

Finally, our reputation and our brand are key components of being the partner of choice. Wherever you go in the world, the name CAE is regarded as the gold standard. We are the company that the aviation industry turns to, to help ensure that everyone flying gets home safely. This is a result of more than 65 years of hard work, excellence in training and great customer relationships.

And CAE's benefit to society is not limited to helping make air travel safer. Our products also help make our planet greener. For example, 6 million gallons of jet fuel are saved annually by training pilots in a full flight simulator and instead of a real aircraft. Since at CAE we operate 230 simulators at our network, the fuel we help save every year is equivalent to reducing the greenhouse gas emissions of more than 2 million cars.

A deep caring for our communities is a deeply rooted value at CAE. Every year, CAE employees support numerous causes and participate in activities that help make their communities better. Just last month, our employees in Montréal participated in the Enbridge Ride to Conquer Cancer and raised nearly $300,000 towards that great cause. Our employees in the U.K., the U.S. and Australia participated in marathons and activities to raise money for local charities. And in India, our employees there organized a medical camp and hired doctors to help check all the children out of school.

In summary, our long-standing commitment to our customers has helped us become leaders in all of our markets. We're proud to be the partner of choice. And over the years, we've built deep relationships that span the globe, which positions us well for the future.

I'll now invite Stephane Lefebvre, our Chief Financial Officer, to review the financial results for fiscal 2013 and the first quarter of fiscal 2014. Stephane?

Stephane Lefebvre

[French] Thank you, Marc. Good morning, ladies and gentlemen. Let us first look briefly at some financial highlights of fiscal 2013. Our total revenue increased to a record $2.1 billion and net income reached $142 million for the year. We had a strong order intake and ended the year with a record backlog of $4 billion.

In Civil, our revenue reached $1.16 billion and we delivered $195 million of operating income for an operating margin of 16.8%. We booked record orders with an expected value of $1.4 billion. In defense, our Military segments generated revenue of $834 million with a combined segment operating income of $113 million for an operating margin of 13.6%. We received total orders of $770 million. In New Core Markets, we targeted more than $100 million of revenue and became profitable. Revenue was up by 35% to $112 million with growth in both Healthcare and Mining businesses. Operating income was $6.4 million. Capital expenditures were $156 million during the year with $121 million for growth and the balance for maintenance. We converted 30 -- 83% rather of our net earnings into free cash flow, which was $119 million.

At the beginning of the year, [indiscernible] capital allocation priorities, targeting investment in select growth opportunities, deleveraging our balance sheet post the Oxford acquisition and enhancing cash returns for our shareholders. Since then, we've continued to fund growth on a selective basis. Our net debt is lower. And for the second time in as many years, we increased the dividend. Overall, we achieved operational and strategic milestones in fiscal 2013 that positions the company well for the year ahead and the long term.

Let's now look at our first quarter results for fiscal year 2014. Revenue was $530 million or 15% higher than in the first quarter of last year. Net income attributable to equity holders was $45.6 million or $0.18 per share. The quarter included a one-time tax benefit of $11 million and severance costs of $2.8 million after tax, excluding which earnings per share would have been $0.03 lower. Excluding restructuring, integration and acquisition costs last year, it was $46.9 million or $0.18 per share.

In Civil, the operating margin was 12.5% with revenue totaling $302 million. The lower margin performance in Civil was caused mainly by slower-than-expected ramp-up of recently deployed simulators and training centers, as well as the high number of already deployed simulators being relocated across our network. Combined Civil orders during the quarter totaled $314 million for a book-to-sales ratio of 1.04x and a trailing 12 months of 1.19x.

Defense revenue was $199 million, stable compared to last year, with a margin of 11.9%. This is a reflection of late timing of orders booked in fiscal 2013. We expect volume to ramp up in the second half of the year. During the quarter, we received orders valued at $154 million with book-to-sale ratio of 0.77x. For the last 12 months, the ratio was 0.95x. Our Healthcare and Mining businesses reached $29.8 million in revenue. We continue to increase profitability with an operating profit of $1.6 million as we continue to gain traction by penetrating global markets with our innovative products and services.

Income taxes this quarter were $300,000, representing an effective tax rate of 1% compared to 19% last year. The decrease in the effective tax rate from the first quarter last year was mainly due to a favorable decision by the Canadian Federal Court of Appeal as well as the change in the mix of income from various jurisdictions.

[French] In terms of cash performance, we had a $96.5 million improvement this quarter in free cash flow compared to the first quarter last year, which put us at a negative $11.5 million. Most of this improvement comes from a lower investment in noncash working capital. Our free cash flow is generally higher in the second half of the fiscal year. And we expect that to be the case again this year.

Net debt was $898 million, compared with $813 million last year -- or last quarter. Our net debt to total capitalization ratio remains stable at 42%. Capital expenditures were $29.9 million during the quarter with $22.7 million for growth initiatives and the balance for maintenance. This is down 13% from the expenditure level in Q1 last year.

Despite a disappointing Civil margin performance this quarter, we maintained our leadership with strong full flight simulator sales in Civil and higher orders in Military than last year. We have a solid backlog valued at $3.7 billion. And CAE is in a healthy financial position. We have strong cash flow, a solid balance sheet with investment-grade profile and strong earnings potential. Overall, we're well positioned for the future.

I thank you for your attention. I now turn over the podium to our CEO, Marc Parent.

Marc Parent

Thanks again, Stephane. Looking forward, the fundamentals of CAE's business is strong. The secular growth in air travel globally continues to drive demand for our training products and services. And the future is indeed promising.

Experts are forecasting that the number of passengers will increase 5% per year for the next 20 years. This effectively means that the global fleet of aircraft will double. And that will create a need to train 360,000 new pilots over the period. But what hasn't changed is that safety is paramount. And all of that translates into an increased need for aviation training. And that's good for CAE.

A testimony of this increased demand is the sale we announced today of 8 full flight simulators to 1 customer for a total year-to-date of 23. With that order book in hand this year, we now expect to make 40 sales by the end of this fiscal year, which would be an all-time record for this company.

[French] The market has been consolidating and competition is fiercer than ever. But I'm pleased with our success in winning business. Our broad portfolio and unique approach is enabling us to maintain our leading share of the market. Price competition is a factor definitely. But we are going to be disciplined and deliberate in our pursuit of market opportunities. Our strategy involves being our customers' partner of choice. And we are most successful when competing on the basis of differentiation with our broad solutions, offering superior technology and reliable long-term service. At the same time, we continue to address our cost base so that we can offer our customers the best possible value and continue to win our fair share.

We have had a book-to-sales ratio of 0.95x for the last 12 months. This demonstrates resiliency in the face of factors, like sequestration in the U.S. and widespread delays in procurement. Winning business in defense remains a key priority. And we've been active on all fronts around the world to develop our pipeline. We currently have $2.3 billion in submitted proposals waiting for decision by customers and another $780 million in process. That gives us the confidence in our ability to grow our backlog going forward in this environment.

Longer term, the fundamentals remain attractive for CAE with a well-diversified business geographically, with a customer base of over 50 different national defense forces and strategic positions on enduring aircraft platforms. Lately, we signed 2 strategic memorandums of understanding with original equipment manufacturers, first, with Lockheed Martin, which would have CAE become the preferred provider of Canadian F-35 training support, systems integration, operations and maintenance. This will give CAE a position on the latest fifth-generation fast jet program, should Canada ultimately select the F-35.

We also signed an MOU with General Atomics to pursue international opportunities for CAE to offer its simulation and training systems for the Predator family of remotely piloted vehicles. These aircraft systems are poised for long-term growth and represent an important segment for our defense business. We have a demonstrated capability in this space as testimonied by today's contract announcement that CAE will be conducting Predator UAV training for the United States Air Force. This key win is further confirmation of our ability to win large competitive contracts of this nature in the world's largest defense market. The contract has an expected value of approximately $100 million to be generated over a 5-year period. And it entrusts CAE to train the U.S. Air Force total population of about 1,500 pilot and sensor operators of the Predator and Reaper remotely piloted UAV aircraft.

Looking forward, a we continue to see evidence of militaries increasing their use of simulation-based training. One of the reasons, which is very compelling, is cost reduction especially when we're in an environment of budgetary constraints. For example, this year, the U.S. Air Force is adding boom operator trainers to our KC-135 Aircrew Training program. Why? Because the U.S. Air Force estimates that it costs approximately $20,000 to conduct a 3-hour refueling training mission that can now be accomplished with simulators for about $1,000 while delivering more and higher-quality training. In Healthcare and Mining, we're continuing to see increased use of simulation. And we expect to maintain our momentum with double-digit revenue and earnings growth.

As I conclude, CAE is well positioned for earnings growth in the period ahead with a leading position in growth markets and the strength of the best and most experienced professionals in our industry. [French] I wish to thank all members of our global family for their dedication to making our company the partner of choice for customers today and for the future. I also thank members of our board, especially our long-serving directors and our Chairman, who are retiring. Thank you for your guidance and support over the last several years. I want to make specific mention of Mr. Wilson, who has been on our board since 1997 and who has been our Chairman since 1999. And I wish to thank him for his personal mentorship. His leadership and his continued advice have helped CAE become the leader it is today.

But since he is retiring as a Chairman, I thought I'd put it out there. I'd like to highlight a couple of facts that to me exemplify Mr. Wilson's outstanding contribution to corporate Canada and the world of corporate governance in general. Effectively, with this meeting, which Mr. Wilson pointed out as his last at CAE, Mr. Wilson will now have chaired 35 annual general meetings of corporations and has been a member of 50 public and private boards in 8 countries. I don't know. But that has got to be some kind of record. It's been a privilege to work with you, Mr. Wilson. Congratulations.

[French] Finally, I want to thank you, our shareholders, for your confidence in our great company. Thank you for your attention. And we are now ready to take questions from the floor. I'm looking. Are there are no questions? I will return the podium to you, Mr. Chairman.

Lynton Red Wilson

Well, thank you very much, Marc. And thank you for those kind words. It's obvious that you've covered the affairs of the company in such detail that there are no remaining questions to be asked.

This concludes the formal business of the meeting. As one of and on behalf of my retiring board colleagues and the shareholders, I'd like to congratulate you, Marc, your leadership team and all CAE employees on your many successes. And I wish you all the very best for the future. [French] Good luck to all of you.

So thank you, all, for joining us today. I invite all of you to join us in the lobby for some, what are labeled, light refreshments. And I'm sure that members of the executive team and your board will be out there with you and will be happy to discuss the affairs of the company and answer any questions. Thank you, all, for joining us today. The meeting is terminated.

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