PO Box 30, Suite 3060, Royal Bank Pla za
Toronto, Ontario, Canada M5J 2J1
www.cae.com
C
A
E
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
M
a
r
c
h
3
1
,
2
0
0
1
Realizing Growth and Value
CAE Annual Report for the year ended March 31, 2001
CAE at a Glance
Information for Shareholders
Business Profile
CAE is the world’s premier provider of simulation and control technologies for training and opti-
mization solutions in Aerospace, Defence and Forestry. Headquartered in Canada and operating
globally, the Company employs approximately 7,000 people and has revenues in excess of
$1 billion (CAD.).
Commercial Simulation
and Training
CAE is the world leader in
the design and production of
commercial flight simulators
and visual systems. CAE is
making a major move into the
flight training market to fuel
future growth.
Military Simulation
and Training
CAE is the premier designer
and manufacturer of military
flight and land-based simulation
and training systems.
Marine Controls
CAE is the world leader in the
supply of control and training
systems for marine and power
plant applications.
Forestry Systems
CAE is the world leader in
providing optimization and
control solutions for the soft-
wood, engineered wood and
pulp and paper sectors.
All illustrations in CAE’s 2001 annual report were created by the CAE Creative Services group:
Zbynek Najser, Martin Petit, Jean-Marc Laverdure, Sean Poole, Keith Selevich, Graphic Designers and Gilles Guitard, Manager.
Version française
La version française du rapport
annuel est disponible sur demande
au service des relations d’entreprise,
Royal Bank Plaza, Bureau 3060,
C.P. 30, Toronto, Ontario M5J 2J1
Annual General Meeting
The Annual General Meeting will
be held at the Glenn Gould Studio,
CBC building, 250 Front Street West,
Toronto, Ontario, Wednesday,
June 20, 2001, at 11:30 a.m.
Auditors
PricewaterhouseCoopers,
Chartered Accountants
Toronto, Ontario
Transfer Agent and Registrar
Computershare Trust Company
of Canada
Toronto, Ontario
Montreal, Quebec
Vancouver, British Columbia
Trademarks
The CAE logo, and the terms
MAXVUE, ATMOS, Simfinity, Sim XXI,
Gladiator, Mill Host and PanelMSR
are all trademarks of CAE or
its subsidiaries.
CAE Common Shares
CAE’s shares are traded on the
Toronto Stock Exchange under
the symbol “CAE”.
Dividend Reinvestment Plan
Registered shareholders of CAE Inc.
wishing to receive dividends in the
form of CAE Inc. common shares
rather than a cash payment may
participate in CAE’s dividend
reinvestment plan.
Through this plan, quarterly
dividends can be reinvested in
CAE common shares at the average
market price. This price will be the
weighted average trading prices of
the common shares on the Toronto
Stock Exchange for the five (5) trading
days immediately preceding the
dividend payment date.
In order to obtain the dividend
reinvestment plan form or for
additional information regarding CAE’s
common shares, please contact:
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Tel: (416) 981-9633
1-800-663-9097
Fax: (416) 981-9507
caregistryinfo@computershare.com
www.computershare.com
Direct Deposit Dividend
Registered shareholders who receive
cash dividends may elect to have
the dividend payment deposited
directly to their bank accounts instead
of receiving a cheque. In order to
obtain the direct deposit dividend
form please contact:
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Tel: (416) 981-9633
1-800-663-9097
Fax: (416) 981-9507
caregistryinfo@computershare.com
www.computershare.com
Tentative Quarterly Results Release
Dates for Fiscal 2002
August 8, 2001
November 7, 2001
February 6, 2002
May 8, 2002
Additional Information
If you wish to receive additional
copies of CAE’s annual report or
copies of the annual information
form, please contact:
CAE Inc.
Corporate Relations
PO Box 30, Suite 3060
Royal Bank Plaza
Toronto, Ontario M5J 2J1
Tel: (416) 865-0070
1-800-760-0667
Fax: (416) 865-0337
www.cae.com
CAE Share Performance vs TSE 300 Index
Assumes $100 invested in the common shares of the Company on October 31, 1999
300
250
200
150
100
a
d
a
n
a
C
n
i
d
e
t
n
i
r
P
o
t
n
o
r
o
T
,
e
p
o
h
d
u
T
d
n
a
r
b
r
e
t
n
I
October
1999
CAE
TSE 300
March
2001
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 0 1
Financial Highlights
(amounts in millions except per share amounts)
2001
2000
Operating results
Continuing operations
Revenue
Earnings
Net earnings
Financial position
Total assets
Total debt, net of cash
Per share
Earnings from continuing operations
Net earnings
Dividends
Shareholders’ equity
$ 1,191.4
134.7
$
108.1
$
$ 1,164.3
90.7
$
98.5
$
$ 1,327.5
110.2
$
$ 1,224.2
108.1
$
$
$
$
$
1.25
1.00
0.20
4.29
$
$
$
$
0.83
0.90
0.19
3.53
Geographic Distribution of Revenue
Revenue by Business Segment
36% United States
35% Europe
15% Canada
9% Asia
5% Other
41% Commercial Simulation
and Training
34% Military Simulation
and Controls
25% Forestry Systems
Realizing Growth
and Value
During the first year of our “Repositioning for Value” strategy, CAE has delivered
record results and generated significant value for our shareholders.
Having divested our non-core businesses, we are now focused on our primary
activities:
> Commercial Simulation and Training
> Military Simulation and Training
> Marine Controls
> Forestry Systems
We are a global leader in each of these businesses and are determined to enhance
our position with a major move into pilot training and with an expansion of products
and services from all business units. These initiatives will be reinforced by invest-
ments and innovation in technology, a commitment to quality and by acquisitions
which offer strategic benefit.
/ D . H . B u r n e y / L . R . W i l s o n
p a g e . 0 3
B A E Ta m p a – C 1 3 0 F l i g h t S i m u l a t o r
U K Ta c t i c a l C o n t r o l C e n t r e F a c i l i t y
We are fixing the manner in which we operate all businesses: reducing costs,
consolidating management and streamlining our manufacturing processes. CAE’s
Operations and Engineering groups are reducing the cost and time of our produc-
tion while simultaneously improving the quality of what we produce. Taken
together, these achievements are contributing to a strong increase in our operating
margins (from 12% to 17% in fiscal 2001) and delivering substantial benefits to
our bottom line.
In February, CAE received American Airlines’ prestigious Platinum award as the
best in class supplier. This is a most welcome endorsement of the quality of our
core simulation product.
Our growth initiatives are well underway. Our first Flight Training Centre was
launched in Sa˜ o Paulo on budget and on schedule in April. Next in line are facilities
in Toronto and Madrid.
Our new generation simulator, Sim XXI™, will go into production later this year
and will reinforce our marketing efforts as well as our entry into training.
We are also developing interactive learning programmes to bolster training
solutions for all of our businesses, using simulation expertise as a catalyst for
state-of-the-art techniques.
CAE’s MAXVUE™ remains the dominant visual system in the commercial market
and we have equally high expectations for its innovative PC-based replacement
named ATMOS™. Our Medallion visual product aimed at the military market is also
best in class with the most realistic image in the market today.
The acquisition of BAE’s Simulation and Training business in Tampa, Florida, will
strengthen our access to the huge US defence market and the partnership with
Agusta/Westland will enhance our ability to win new contracts globally.
Meanwhile, our helicopter facility in the UK is a showcase of the very best technol-
ogy for military simulation and training.
B r a z i l F l i g h t Tr a i n i n g C e n t r e
Our Marine Controls business is expanding its market and product scope and will
provide training facilities and services to submarine crews of the Royal Navy.
Power Systems and Simulation continues to lead in the deployment of conven-
tional power plant simulators and is developing a Web-based simulation solution
to address the rapidly growing global fossil fuel power market.
Although the lumber segment of our Forestry business is weathering a severe
market downturn, the Pulp and Paper and Engineered Wood segments have
delivered record results this past year developing innovative products and new
global markets.
Most importantly, the combined performance of CAE business units in fiscal
2001 registered a 51% increase in earnings per share from continuing operations.
Reflecting this exceptional operational performance, the market cap of the
Company has more than doubled during the year to the benefit of all shareholders.
The Board and management remain fully committed to the “Repositioning for
Value” strategy which is already paying substantial dividends. We intend to build
on the success of our first full year and sustain the momentum of profitable
growth in fiscal 2002.
The effort and dedication of CAE’s employees around the globe assures our success,
now and in the future.
/ D.H. Burney
/ L.R. Wilson
President and Chief Executive Officer
Chairman
1
Reinforcing
Flight Training
2
Investing in
Core Technology
Stimulating
Growth
All CAE businesses operate in rigorous global markets where success comes from providing
state-of-the-art performance at a reasonable cost. That’s why constant innovation is key in every-
thing we do. In this respect, 2001 was a banner year and in the following pages we show a few of the
many technological breakthroughs that will build value for our shareholders in the years ahead.
3
Enhancing
Visual Systems
4
Initiating
Marine Training
5
Innovating
Forestry Products
1 Reinforcing
Flight Training
T h e S i m f i n i t y ™ S y s t e m / B a s e d o n t h e s a m e h i g h
f i d e l i t y s i m u l a t i o n s o f t w a r e
u s e d i n C A E ' s f u l l f l i g h t
s i m u l a t o r s , t h e S i m f i n i t y ™
S y s t e m d e l i v e r s i n n o v a t i v e
p i l o t a n d m a i n t e n a n c e
t r a i n i n g v i a a s t a n d a r d P C
e n v i r o n m e n t . Tr a i n i n g c a n
b e a c c e s s e d e i t h e r r e m o t e l y
o r l o c a l l y t o p r o v i d e a s e l f -
p a c e d l e a r n i n g e n v i r o n m e n t
w h e n e v e r a n d w h e r e v e r
n e e d e d .
O p t i m i z e d Tr a i n i n g S o l u t i o n s /
I n a d d i t i o n t o n e w d e s k t o p s i m u l a t i o n ,
o u r c e n t r e s p r o v i d e d e s i g n a n d d e l i v e r y
s e r v i c e s f o r c o u r s e w a r e a n d c u r r i c u l u m a s
p a r t o f C A E ’s o p t i m i z e d t r a i n i n g s o l u t i o n .
O u r Tr a i n i n g S e r v i c e s c u s t o m e r s a l s o b e n e f i t
f r o m a d v a n c e d t e c h n o l o g y f o r t h e m a n a g e m e n t
o f c e n t r e o p e r a t i o n s , a u t o m a t e d s t u d e n t
r e c o r d - k e e p i n g a n d a r c h i v i n g s e r v i c e s a t
C A E C e n t r e s .
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 0 7
T h e C A E F l i g h t Tr a i n i n g C e n t r e /
O u t f i t t e d w i t h o u r l e a d i n g e d g e f l i g h t
t r a i n i n g e q u i p m e n t a n d s t a t e - o f - t h e - a r t
c l a s s r o o m a n d d e b r i e f i n g f a c i l i t i e s ,
C A E Tr a i n i n g C e n t r e s d e l i v e r a f u l l p o r t f o l i o
o f a v i a t i o n t r a i n i n g s e r v i c e s p r o v i d i n g
l o n g - t e r m , h i g h q u a l i t y t r a i n i n g s o l u t i o n s
t h a t s e t a n e w s t a n d a r d i n c u s t o m e r c a r e .
“CAE’s capabilities in simulation-based interactive learning complement our traditional
strengths in full flight simulators and flight training devices. By teaming our growing network
of training centres around the world with our interactive learning programmes, we can offer
airlines a range of training options that is unrivalled for quality and cost efficiency.
The Simfinity™ System also allows pilots to make the most effective use of their time for
maintaining and upgrading their professional skills, while our strategically located training
centres will give airlines new accessibility to aviation training of the highest quality.”
Kamilia Sofia
Vice President, Interactive Learning Services, Commercial Simulation and Training
2 Investing in
Core Technology
M o d u l a r D e s i g n / T h e n e w s i m u l a t o r w i l l b e f u l l y
m o d u l a r a n d d e s i g n e d f o r e a s e
o f m a n u f a c t u r i n g , a s s e m b l y
a n d t e s t i n g .
E l e c t r i c M o t i o n S y s t e m / R e p l a c i n g t h e c o n v e n t i o n a l h y d r a u l i c
t e c h n o l o g y, t h e e l e c t r i c m o t i o n s y s t e m
w i l l a c c u r a t e l y s i m u l a t e a i r c r a f t m o t i o n
c u e s a n d w i l l r e s u l t i n s i g n i f i c a n t s a v i n g s
i n s i m u l a t o r p o w e r c o n s u m p t i o n f o r
C A E ’s c u s t o m e r s .
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 0 9
AT M O S ™ S p h e r e V i s u a l S y s t e m / T h e v i s u a l s y s t e m w i l l e m p l o y
a C A E d e s i g n e d P C I m a g e
G e n e r a t o r f r o m t h e n e w
AT M O S ™ S p h e r e v i s u a l f a m i l y.
T h e n e w v i s u a l s y s t e m w i l l
p r o v i d e u n s u r p a s s e d r e a l i s m
w h i c h w h e n c o m b i n e d w i t h
m o t i o n a n d s o u n d c u e s w i l l
p r o v i d e a c o s t - e f f e c t i v e ,
f u l l y e m e r s i v e t r a i n i n g e n v i r o n -
m e n t t o t h e t r a i n i n g c r e w .
S i m u l a t e d A i r c r a f t / T h e s i m u l a t e d a i r c r a f t w i l l r e p l i c a t e
a i r c r a f t p e r f o r m a n c e i n a l l a s p e c t s .
A r a d i c a l l y n e w m o d u l a r e l e c t r o n i c s
a r c h i t e c t u r e w i l l b e u s e d t o i n t e r f a c e
a l l c o c k p i t i n s t r u m e n t s . E l e c t r i c L o a d
U n i t s w i l l r e p l a c e t h e c o n v e n t i o n a l
h y d r a u l i c t e c h n o l o g y u s e d t o i n t e r f a c e
t o t h e a i r c r a f t f l i g h t c o n t r o l s .
“CAE is investing in a strategic research and development initiative to create Sim XXI™, the next
generation of full flight simulator. Enabling PC-based technology, an innovative modular
design and electric motion are being employed to produce a simulator design that will set
the standard for the simulation industry. By combining these technologies with advances in
design and production processes, we will achieve new levels of productivity, including shorter
production schedules. We expect Sim XXI™ to win significant share for CAE in the rapidly
growing regional and business jet training markets. It will also provide significant spin-off
benefits for our entire simulation and training product suite.”
Hugh Dunkley
Director, New Generation Simulator Development, Commercial Simulation and Training
3
Enhancing
Visual Systems
M e d a l l i o n / D e s i g n e d t o m e e t t h e n e e d s
o f t h e m i l i t a r y a i r c r a f t t r a i n i n g
c o m m u n i t y, t h e M e d a l l i o n
I m a g e G e n e r a t o r p r o v i d e s t h e
p i l o t w i t h h i g h l y r e a l i s t i c v i e w s
f r o m t h e c o c k p i t w i n d o w b y
c o m b i n i n g d i g i t a l d a t a s o u r c e s
w i t h a e r i a l o r s a t e l l i t e p h o t o -
g r a p h s o f t h e t r a i n i n g a r e a .
P i l o t C o c k p i t / T h e s i m u l a t o r c o c k p i t r e p l i c a t e s t h a t o f t h e r e a l
a i r c r a f t , p r o v i d i n g t h e p i l o t w i t h a l l t h e e x p e c t e d
c o n t r o l s a n d i n d i c a t o r s a n d s i m u l a t i n g t h e f o r c e s
f e l t b y a p i l o t c o n t r o l l i n g a n a i r c r a f t a s w e l l a s
c h a r a c t e r i s t i c a i r c r a f t v i b r a t i o n s .
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 1 1
D i s p l a y S y s t e m / S t a t e - o f - t h e - a r t v i d e o p r o j e c t o r s a r e
u s e d t o d i s p l a y t h e i m a g e p r o d u c e d
b y M e d a l l i o n o n e i g h t r e a r p r o j e c t i o n
s c r e e n s s u r r o u n d i n g t h e c o c k p i t .
T h e l a r g e f i e l d o f v i e w p r o v i d e s t h e
p i l o t w i t h t h e w h o l e r a n g e o f v i s u a l c u e s
r e q u i r e d t o p e r f o r m t h e t r a i n i n g m i s s i o n .
“The market for military simulators is extremely demanding with many unique training
requirements such as flying in formation, specific mission rehearsals and battle scenarios that
involve hostile aircraft and ground weapons. It’s a huge challenge to meet such demands.
Our visual systems team has pulled it off in spades with our state-of-the-art Medallion
Image Generator. With its high fidelity image rendering quality and configuration flexibility it is
ideal for fast jet, helicopter and transport applications. CAE is committed to remain at the
forefront of visual systems technology and to deliver the best training system on the market
to its customers.”
Martin Gagné
Vice President, Visual Systems
4 Initiating
Marine Training
C o m m a n d Te a m Tr a i n e r / T h e C o m m a n d Te a m Tr a i n e r
r e p l i c a t e s t h e s u b m a r i n e ’s
c o m b a t s y s t e m c o n s o l e s a n d
o t h e r a s s o c i a t e d e q u i p m e n t .
I t i s u s e d t o i m p a r t t e a m t r a i n i n g
o n o p e r a t i o n a l t a c t i c s a s w e l l a s
c o m b a t s y s t e m u s e .
S u b m a r i n e C o n t r o l Tr a i n e r / M o u n t e d o n a m o t i o n p l a t f o r m , t h e S u b m a r i n e
C o n t r o l Tr a i n e r p r o v i d e s a h i g h f i d e l i t y t r a i n i n g
e n v i r o n m e n t f o r t h e m a i n c o n s o l e o p e r a t o r s
r e s p o n s i b l e f o r s t e e r i n g a n d d i v i n g o p e r a t i o n s .
T h e s i m u l a t o r ’s c a b a l s o i n c o r p o r a t e s a
c o m p r e h e n s i v e i n s t r u c t o r s t a t i o n .
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 1 3
M a n o e u v r i n g R o o m Tr a i n e r / T h e M a n o e u v r i n g R o o m Tr a i n e r
r e p l i c a t e s t h e m a i n m a c h i n e r y
c o n t r o l r o o m e n v i r o n m e n t .
T h e i n s t r u c t o r s c a n s u p e r v i s e
a n d c o n d u c t t r a i n i n g s e s s i o n s
f r o m a m e z z a n i n e a r e a p r o v i d i n g
f u l l i n t e r a c t i o n w i t h t r a i n e e s v i a
v i s u a l , a u d i o a n d v i d e o s y s t e m s .
“CAE was a pioneer in modern marine control systems. With our on-board simulation-based
training capabilities we are now a leader in the global market for naval control and instrumenta-
tion systems. Our reputation for rigorous standards was recognized two years ago when we won
the contract for the control and instrumentation system for the United Kingdom Royal Navy’s
new Astute Class nuclear submarines. With our consortium partner Alenia Marconi we are now
the preferred bidder for a major 40-year training service programme for the Astute Class.
Looking ahead, we will leverage our skills and established reputation to enter the commercial
marine market, as well as the important markets for marine navigation and other ship systems.”
Rangesh Kasturi
Director, Marketing and Sales, Marine Systems
5 Innovating
Forestry Products
I n f l o w - O u t f l o w / A w a t e r s o l u t i o n o f p a p e r f i b r e i s
f e d t h r o u g h t h e f e e d p i p e c o n n e c t i o n
i n t o t h e s c r e e n . T h e r o t o r / s c r e e n
c y l i n d e r s e p a r a t e s t h e d i r t a n d d e b r i s
f r o m t h e s o l u t i o n . A c l e a n s o l u t i o n
s t r e a m a n d a w a s t e s t r e a m a r e t h e n
d i s c h a r g e d f r o m t h e s c r e e n .
C y l i n d e r / T h e s l o t t e d s c r e e n c y l i n d e r
s e p a r a t e s t h e u s e a b l e p u l p f i b r e s
f r o m t h e s t o c k , i m p r o v i n g t h e
q u a l i t y o f t h e f i n i s h e d p u l p a n d
t h e o v e r a l l p r o d u c t i v i t y o f t h e m i l l .
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 1 5
G l a d i a t o r ™ R o t o r / B y c r e a t i n g v e r y t i g h t
t o l e r a n c e s t h e G l a d i a t o r ™
R o t o r o p e r a t i n g i n t h e
s l o t t e d s c r e e n c y l i n d e r
a l l o w s a r e c o v e r y o f c l e a n ,
u s e a b l e p u l p f i b r e f r o m
t h e t e r t i a r y o r f i n e p o s i t i o n
w i t h i n a p u l p m i l l .
“In September 2000 CAE launched the Gladiator™, a highly innovative product that is CAE’s
first entry in the market for pulp and paper mill rotors. By combining a rotor with a screening
cylinder, the Gladiator™ runs at a tighter tolerance than traditional models, with no loss of
good quality useable fibre. This means higher productivity for the mills, fewer waste products
and ultimately, better profitability. The market for the Gladiator™ is worldwide and initial
response has been encouraging, while our new joint venture in Korea gives us a presence
in the important Asian market for this product.”
Robert Trochimchuk
Sales Engineer, Forestry Systems
Commitment and
Ingenuity = Value
Patrizia Caroselli
Benoit Durand
Andrew Fernie
Senior Production Planner
Senior Project Manager
Manager, Display Systems
Operations
Military Simulation and Training
Visual Systems
CEO Award Recipient
CEO Award Recipient
CEO Award Recipient
Patrizia’s initiatives have provided
Benoit’s proven leadership talents
Andrew’s experience on the team
continuous planning visibility through
have made him the leader of the cross-
bidding for the visual systems in the
the simulator manufacturing cycle.
functional team charged with bringing
Eurofighter simulators will serve him
Production cells work together more
home the important CF-18 networked
well in designing complete visual sys-
efficiently, shortening the cycle time
simulation training system contract.
tems that meet a customer’s specific
and bringing significantly lower costs.
A good choice, since he believes that
needs cost-effectively. “CAE gives you
“CAE values creativity” she says,
“It’s people who make the difference.
a chance to work on many different
“and personally, I enjoy working for
No matter what the challenge, we have the
products” he says. “I’ve already worked
a company that can compete with the
people to handle it – that’s what makes
in four separate fields within CAE and
best in the world.”
CAE such an exciting place to work in.”
look forward to working in many more.”
CA E / a r 2 0 01 / r e a l i z i n g g r o w t h a n d v a l u e / p a g e . 1 7
Olaf Knutson
Daniel Roy
Risto Weckroth
Manager, Marketing and Sales
Senior Technical Specialist
Technical Support Manager
Marine Systems
CEO Award Recipient
Commercial Simulation and Training
Forestry Systems
CEO Award Recipient
CEO Award Recipient
Olaf’s success in pursuing major sales
Daniel has been a leader in designing
Solution selling is the key to success in
opportunities has won him an assignment
the electronic interface of Sim XXI™,
the growing end-user market. Risto has
marketing customized solutions to key
CAE’s new generation simulator which
pioneered the concept at CAE and along
projects and customers in Europe and
combines greatly improved speed of
the way has learned that “Things happen
South America. “CAE’s competitive edge
throughput with ease of maintenance
faster at CAE. There is a lot of freedom,
is our human resources” in Olaf’s view.
and repair. “At CAE you have the chance
and a lot of responsibility – but you can
“The commitment and training of our
to use your own judgement” Daniel
see the results of your work and know
people allow us to meet customers’
reflects. “It’s demanding, but it also gives
that you are making a difference.”
needs with tailor-made solutions that
you the freedom to go full speed ahead.”
give them the best value for their money.”
Leading through
Innovation
Bob Bridgeman
Director, Electronic Engineering
Operations
CEO Innovation Award Recipient
“At CAE we get exposure to a lot of
different challenges” according to
electronic engineer Bob Bridgeman.
Bob’s work at CAE has ranged widely
but it is his analysis of production
systems and their impact on productivity
that has won him the CEO Innovation
Award. “I find it’s especially rewarding
to work with something all the way
from concept to a finished top-quality
product” he adds.
Financial Review
20
29
31
34
52
53
Review of
Management
Consolidated
Notes to
Board
Information for
Operations and
and Auditors’
Financial
Consolidated
of Directors
Shareholders
Management’s
Reports
Statements
Financial
and Officers
Discussion
and Analysis
Statements
Review of Operations and
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) of fiscal 2001’s financial results focuses on the
core businesses of CAE Inc. (CAE or the Company), Commercial Simulation and Training, Military
Simulation and Controls, and Forestry Systems and includes a review of the operations and financial
situation of each segment. This MD&A should be read in conjunction with the audited consolidated
financial statements on pages 31 to 50.
This MD&A contains forward-looking statements with respect to CAE and its subsidiaries based
on assumptions which CAE considers reasonable at the time they were prepared. These forward-
looking statements, by their nature, necessarily involve risks and uncertainties that could cause
actual results to differ materially from those contemplated by the forward-looking statements.
CAE cautions the reader that the assumptions regarding future events, many of which are beyond the
control of CAE and its subsidiaries, may ultimately prove to be incorrect. Factors that could cause
actual results or events to differ materially from current expectations are discussed on page 28.
/
Summary of Consolidated Results /
Continuing Operations
Earnings from Continuing Operations
Consolidated earnings from continuing operations climbed to $134.7 million, a 49% improvement
from last year’s level of $90.7 million. Earnings per share reached $1.25, an increase of 51% over
last year’s $0.83 per share, reflecting both the earnings improvement and the per share impact of the
Company’s common share purchases under the Normal Course Issuer Bid. The growth in earnings
is anchored by margin improvements across all business units arising from a combination of cost
savings from consolidation and integration, tangible productivity improvements in our core manu-
facturing and the growth in volume. Operating earnings for Commercial Simulation and Training
outpaced growth in revenue, as the incremental volume to meet demand for direct sales as well as
the manufacture of simulators for our own training centres combined with productivity improve-
ments contributed to a significant increase in margins. Operating earnings for Military Simulation
and Controls increased 127%, due to an improvement in the mix of programme activity and the
completion early in the year of certain higher cost programmes. Forestry Systems contributed a
6% increase in operating earnings on strong results in the Oriented Strand Board (OSB) and pulp
sectors, partially offset by low order intake, plant rationalization and employee layoffs, in the fourth
quarter, in the lumber sector.
CA E / a r 2 0 01 / m a n a g e m e n t ’s d i s c u s s i o n a n d a n a l y s i s / p a g e . 2 1
Revenue
Consolidated revenue for fiscal 2001, at $1,191 million, reflects an increase of 2% over the fiscal
2000 level of $1,164 million. Revenue for Military Simulation and Controls grew by 7% or $25 million
due to higher activity on certain US military simulation programmes, in marine controls applications
attributable to the Astute Class nuclear submarine and from the Medium Support Helicopter Aircrew
Training Facility (MSHATF) at Royal Air Force (RAF) base Benson in Oxfordshire, England. Commercial
Simulation and Training revenue increased slightly over fiscal 2000 reflecting the continued buoyant
market and CAE’s success in capturing a major share of full flight simulator orders. Forestry Systems
matched last year’s revenue level on strong results in the OSB and pulp sectors offset by low order
intake in the last half of the year, in the lumber sector.
Discontinued Operations
On February 2, 2000, the Board of Directors approved a plan to divest its Cleaning Technologies and
Energy Control Systems businesses. On May 31, the Company completed the sale of substantially
all of the assets of the Energy Control Systems businesses to SNC-Lavalin. CAE expects to conclude
the sale of the Cleaning Technologies group during the first quarter of fiscal 2002.
The results of these operating units along with the results of Railway Technologies and Services
have been reported as discontinued operations. The results of discontinued operations amounted
to a net loss of $26.6 million, relating primarily to the Cleaning Technologies business, as compared
to net earnings of $7.8 million in fiscal 2000, which included an after-tax gain of $13.6 million from
the sale of the Railway Technologies and Services group.
Net Earnings
Consolidated net earnings increased 10% to $108.1 million or $1.00 per share compared with con-
solidated net earnings of $98.5 million or $0.90 per share in fiscal 2000.
Cash Flow
CAE’s cash and short-term investments increased by a combined $45 million during the year to
$156.8 million and $122.8 million, respectively. The increase reflects the higher earnings and signi-
ficantly lower working capital, offset by higher capital expenditures in support of growth in com-
mercial flight training.
Backlog
Order backlog as at March 31, 2001, was unchanged at $1.8 billion.
/
Review of Operations /
Commercial Simulation and Training
CAE’s Commercial Simulation and Training business is the world leader in the design and produc-
tion of commercial flight simulators, visual systems and training systems. CAE’s move into the
flight training market to fuel growth has been successful. The Company officially opened its first
independent training centre – CAE South America Flight Training centre in São Paulo, Brazil,
on April 19, 2001. Two other centres, in Toronto, Canada, and Madrid, Spain, are scheduled to open
in the coming fiscal year. CAE will accelerate the establishment of independent training centres and
alliances with aircraft manufacturers and major airlines to address their individual flight training
needs, and will continue the pursuit of simulator maintenance and support activities.
Financial Results
(amounts in millions of dollars)
2001
2000
1999
1998
1997
Revenue
Operating earnings
Operating margin
Backlog
Capital expenditures
481.5
$
$
117.0
% 24.3
649.5
$
72.9
$
480.2
82.3
17.1
527.8
11.7
352.8
55.9
15.8
482.7
23.2
296.8
56.7
19.1
339.9
27.4
186.3
27.4
14.7
154.2
9.0
Operating earnings of Commercial Simulation and Training climbed 42% over last year’s level, to a
record $117.0 million. Revenue was up slightly over last year. The revenue reflects very little training
revenue as yet for the simulators we are building for our own training centres. Productivity improve-
ments and the leverage on costs resulting from the high volume level, from both external orders and
training centre requirements, has driven significant improvement in operating earnings.
Capital expenditures increased significantly in the fiscal year, the majority of which relates to the
construction of three training facilities.
Operational Highlights
Demand for flight training equipment remained strong during fiscal 2001 due to ongoing fleet
renewal, fleet expansion, strong demand in the regional and business jet markets and pilot attrition.
The use of simulators for training continues to expand due to improved technology and the signifi-
cant cost savings as compared with flight training aboard an actual aircraft. Furthermore, simulation
allows for training pilots to cope with high risk situations such as engine fires and windshear, which
cannot safely be attempted on the actual aircraft.
CAE continues to achieve outstanding results in the Commercial Flight Simulation and Visual
Systems market. In fiscal 2001, the Company won 35 of 42 competed full flight simulators (FFS),
representing a worldwide market share of 83%. CAE’s commercial MAXVUE™ visual system captured
29 out of 43 competed orders, or a 67% market share.
During the year CAE obtained FFS orders from five new customers, Air France, Air New Zealand,
Southwest Airlines, Ryan Air and WestJet. The Company won all FFS orders for regional jets.
CAE made significant progress in its strategic move into the commercial flight training business.
The training facility in São Paulo, Brazil, one of the fastest growing aviation markets worldwide, was
completed and is now in operation. During the year, agreements with Varig, Gol Transportes Aéreos
of Brazil and LAPA of Argentina were signed for B737 training. These agreements are in addition to
the long-term agreement, signed last year, with São Paulo-based Transportes Aéreos Regionais S.A.
(TAM) for Fokker 100 and Airbus A320 training in the new facility. Training centres in Toronto and
Madrid are targeted to become operational in fiscal 2002. In Toronto, Canada 3000 and Skyservice
are the anchor customers and discussions are ongoing with additional clients. In Madrid, Air Nostrum,
the regional feeder of Iberia, is our anchor customer.
Outlook
The market for commercial flight simulation equipment is expected to remain strong in fiscal 2002.
The factors which drove the market to record levels in recent years remain largely unchanged.
CA E / a r 2 0 01 / m a n a g e m e n t ’s d i s c u s s i o n a n d a n a l y s i s / p a g e . 2 3
These factors, combined with the anticipated continued growth in air travel, the generally strong
financial position of the airline industry and the order backlog for delivery of new aircraft, should lead
to a strong market for this equipment.
The Company plans to invest substantially over the next three years in expanding the scope of
its commercial simulation business through its entry into the flight training market. CAE will capi-
talize on its solid reputation and its strong relationship with the aircraft manufacturers and major
airlines to grow the flight training business worldwide in partnership with its customers and other
third party suppliers.
CAE expects to increase its advantage in lead-time, cost, quality and reputation for perfor-
mance through operational improvements and research and development (R&D) programmes.
The Company launched a large-scale R&D programme to improve its flight simulator products.
A next generation full flight simulator, Sim XXI™, which will employ innovative technologies and
advances in design and production processes will be introduced this fall. CAE is also developing an
interactive learning capability, which has the potential to revolutionize how pilot and maintenance
training is conducted. These projects are on track to initially generate incremental improvements to
existing products and in the longer term, lead to the introduction of new products with the potential
to significantly alter market dynamics.
In addition, CAE is investing in the development of a next generation visual system, capitalizing
on the improvements in off-the-shelf PC-based 3D graphics technology. These technical innovations
will enable the Company to develop a visual system at a lower cost while significantly improving the
realism of the virtual image. Incremental growth in this market is anticipated from demand for FFS
simulators and visual system upgrades required as the installed base of aging visual systems reach
the end of their economic life. This trend is occurring in the military market as well.
CAE expects to maintain its commanding leadership position in commercial simulation and
visual systems due to its focus on customer relationships, its commitment to innovation and tech-
nology, product quality, reliability and efficiency, and its continuing efforts to shorten delivery cycles
through process improvements.
Military Simulation and Controls
CAE’s Military Simulation and Controls business is a premier designer and manufacturer of military
flight and land-based simulation and training systems, and is the world leader in the supply of
marine control systems.
Financial Results
(amounts in millions of dollars)
2001
2000
1999
1998
1997
Revenue
Operating earnings
Operating margin
Backlog
Capital expenditures, net
$ 409.9
34.9
$
%
8.5
$ 1,103.3
3.4
$
384.9
15.4
4.0
1,219.3
10.1
355.7
25.2
7.1
1,242.6
45.7
334.2
20.6
6.2
1,242.2
25.4
370.1
30.9
8.3
489.4
16.2
Revenue increased by $25.0 million or 7% while operating earnings increased by $19.5 million or
127% in the fiscal year. The revenue increase reflects higher activity on the US Air Force E-3A
Airborne Warning and Control (AWAC) Flight Crew Training Programme and in marine control appli-
cations attributable to the UK Royal Navy on the Astute Class nuclear submarine. Higher revenues
were also generated from the Medium Support Helicopter Aircrew Training Facility (MSHATF) at
Royal Air Force (RAF) base Benson in Oxfordshire, England, which officially opened in July 2000.
The increase in operating earnings reflects the effect of the repositioning strategy whereby four inde-
pendent military simulation and training businesses were successfully integrated into one focused
profit centre.
Operational Highlights
CAE reached an agreement with BAE SYSTEMS North America to buy BAE SYSTEMS Flight
Simulation and Training of Tampa, Florida. This purchase was concluded on April 2, 2001.
The acquisition strengthens CAE’s access to the US defence market and a relationship with
BAE SYSTEMS PLC, which enhances CAE’s global position in the defence simulation and training sector.
CAE continued its efforts to establish itself as a significant training equipment provider.
CAE has been awarded contracts for the Holloman base Cockpit Procedure Trainer, C130J upgrade
for the Commonwealth of Australia, upgrade for NATO E3A, update for UK MoD Maintenance Training
System and Lynx Mk8 and Eurofighter 2000. CAE was also successful in enhancing its position as
a training service provider. CAE continues to focus on expanding its relationship with current
customers through long-term service agreements, upgrades of current devices and provision of
additional training equipment.
On July 17, 2000, His Royal Highness The Duke of York attended the inauguration of the
Medium Support Helicopter Aircrew Training Facility (MSHATF) at Royal Air Force (RAF) base Benson
in Oxfordshire, England. This showcase facility represents the first turnkey training services pro-
gramme for CAE. This achievement is an important milestone in relation to CAE’s entry into the mili-
tary and commercial training services business. For the inauguration, five of the six flight simulators
that form the core of the Medium Support Helicopter Aircrew Training Facility in the UK were deliv-
ered and certified Ready for Training. The one remaining flight simulator was delivered and certified
in April 2001. Recently, the Company signed its first contract for third party training with Canadian
Air Force pilots.
CAE won contracts to provide the Integrated Platform Management System for three of the
Korean Navy’s new KDX-II class Destroyers. The Korean Navy plans to build up to six of these
5,000-ton warships in a continuing modernization of its forces.
During the year the FAST Consortium, owned 50/50 by CAE and Alenia Marconi Systems,
was selected as the Preferred Bidder by the Defence Procurement Agency of the UK Ministry of
Defence for the Astute Class submarines Training Service. This Private Finance Initiative contract is
for the provision of comprehensive training services to the Royal Navy for up to 40 years in the oper-
ation and maintenance of the Astute Class submarines. A new training centre will be built in Scotland
to house the simulators and provide classroom-training facilities. Contract negotiations should be
completed in the first quarter of fiscal 2002 and will add over $250 million to backlog.
Outlook
The military simulation and training market is driven by the introduction of new aircraft platforms,
upgrades and life extensions to existing aircraft and a shift to greater use of simulation in flight train-
ing programmes due to the high degree of realism and the significantly lower cost. In addition to
technology and price, the customers’ – in most cases, governments – key purchase criteria include
the contractor’s local geographic presence. CAE is well positioned to capitalize on opportunities in
the international market, with operations in Canada, the United States, Germany, the United
Kingdom and Australia, as well as teaming and/or collaboration arrangements in other countries.
The procurement of helicopter and transport aircraft is expected to increase over the next few
years and this growth will translate into many simulation opportunities for CAE to pursue worldwide.
CA E / a r 2 0 01 / m a n a g e m e n t ’s d i s c u s s i o n a n d a n a l y s i s / p a g e . 2 5
Key upcoming programmes include simulators for the Chinook CH-47 helicopter and Infantry
Gunnery and Tactical Simulator (IGTS) programmes for Asia, Canadian CF-18 Advanced Distributed
Combat Training System (ADCTS) programme, US Army AH-64 Apache simulator upgrade pro-
gramme, the Italian Navy’s EH-101 helicopter and a range of training systems to support the NH-90
helicopter programme in Europe.
CAE is also targeting new opportunities for turnkey training centres in Europe, the Americas and
Australia based on the model developed for the Royal Air Force Medium Support Helicopter pro-
gramme in the UK. CAE’s capability to provide comprehensive tactical mission training is proving to
be a significant incentive as potential customers consider their options.
In addition, with hundreds of flight simulators deployed worldwide, the market for lifetime
support of training equipment and upgrades is a clear target market for CAE to pursue. CAE is
recognized as a leading company for upgrades and support, having successfully upgraded and/or
maintained its own and third party simulators worldwide.
CAE expects to increase its advantage in lead-time, cost, quality and reputation for performance
through continued operational improvements and research and development (R&D) programmes.
In particular, the Company launched an R&D programme to introduce Networked Tactical Training
Systems (NeTTS), a new PC-based architecture to address the requirement for scalable, reconfig-
urable, lower cost training devices.
With its leading edge technology solution, CAE is well positioned to capitalize on upcoming
international marine programmes in Europe, the US and Asia with the market expected to remain
strong in the coming years. In addition, CAE has launched initiatives to broaden its scope of supply
to include other key control systems within a ship and the utilization of its vast investments in war-
ship automation technology in the commercial marine sector.
Forestry Systems
CAE’s Forestry Systems business is the world leader in providing innovative solutions for the forest
products sector. The Company’s advanced technologies enable customers to increase the value of
products recovered from wood fibre resources. Forestry Systems is comprised of two profit centres:
Wood Products and Pulp and Paper.
The Wood Products division provides proprietary machinery and equipment for both softwood
and hardwood lumber and engineered wood producers. Operating out of British Columbia and
California, CAE combines proprietary software, sensors and control systems with advanced mechan-
ical design to provide leading edge optimization solutions to the global wood products industry.
The Pulp and Paper division provides advanced screening solutions for pulp and paper compa-
nies. CAE operates out of Quebec, Finland and South Korea and has market access worldwide via a
combination of regional offices, technical support engineers and strategic alliances.
Financial Results
(amounts in millions of dollars)
2001
2000
1999
1998
1997
Revenue
Operating earnings
Operating margin
Backlog
Capital expenditures, net
$
300.0
46.5
$
% 15.5
51.3
$
7.7
$
299.2
43.8
14.6
86.6
9.1
197.4
32.8
16.6
64.0
7.4
109.4
16.2
14.8
23.9
6.3
138.7
19.8
14.3
28.3
13.3
The recent softening of the lumber sector’s order book held revenue this year at the same level as
the prior year. Operating earnings, however, have increased by $2.7 million or 6% primarily due to
productivity and operational cost savings. This increase in operating earnings also covered the cost
of the closure of the Portland fabrication facility and the lay off of close to 100 employees in Salmon
Arm announced last January.
Operational Highlights
CAE demonstrated global reach for its sawmill optimization expertise with the start-up of an entire
sawmill for Balcas Timber in Northern Ireland during fiscal 2001. The project is significant as it show-
cases CAE’s Mill Host™ concept, whereby a single software solution is determined for each log in
relation to the sales order file before it reaches the first saw blade. This optimized solution is then
utilized throughout the mill until the resulting lumber is sorted and stacked for ultimate sale.
CAE captured 100% of the market this year for its flaking and stranding technology for the
Oriented Strand Board (OSB) market, including its first ever sale in South America. CAE continued its
tradition of introducing new technology to the wood products industry during fiscal 2001. The first of
seven new QuickScan Cant Optimizers was delivered during the year and the first PanelMSR®
(Machine Stress Rated) machine was installed at an OSB mill. The PanelMSR® measures panel stiff-
ness to ensure structural quality is maintained and will ultimately provide mill operators a tool for
process optimization.
Global pulp and paper operations were integrated during fiscal 2001. The resulting global focus
positions CAE well to service the rapidly consolidating pulp and paper industry.
New product development efforts have been directed at leveraging CAE’s core simulation and
control capabilities into the pulp and paper sector. The preliminary introduction of a pulp mill simula-
tion model that allows mill managers to assess the efficiency of their various screening applications
has been received enthusiastically.
The Pulp and Paper group entered into a joint venture agreement with the leading screen cylinder
manufacturer in the Asian market, Poong Nam Screens based in Inchon, South Korea. The Company’s
35% interest in the venture will add a third pulp and paper manufacturing base for CAE in the
fastest growing market in the world, Asia.
Outlook
The housing market in North America continues to be strong, with US housing starts forecast to
remain above 1.6 million during calendar 2001. However, the market has been overshadowed by low
prices for lumber which has dampened demand for sawmill capital equipment. Also in Canada, the
expiration of the Softwood Lumber Agreement on March 31, 2001, and the resulting American
charges of Canadian dumping and price subsidies have left the Canadian sawmill industry in a state
of confusion. These issues should be clarified by September 2001, with business returning to normal
shortly thereafter. Meanwhile, in the first quarter of fiscal 2002, lumber prices have increased signifi-
cantly. Engineered wood producers are continuing to take advantage of new technology to optimize
their wood fibre utilization and thereby improve competitiveness. CAE is well positioned as the lead-
ing supplier in North America to benefit from global demand for forestry products. Also, efforts are
focused on extending the Company’s reach more aggressively overseas as additional upside poten-
tial is identified.
Pulp prices rose during the first quarter of calendar 2000 to their highest levels in four years.
Asian pulp and paper producers have seen capacity utilization levels rise significantly as economic
conditions have improved. Both of these factors will contribute to a strong year for CAE in fiscal 2002
as a leading supplier to the pulp and paper industry. The planned introduction of new technology-
based solutions will further bolster the Company’s opportunities.
CA E / a r 2 0 01 / m a n a g e m e n t ’s d i s c u s s i o n a n d a n a l y s i s / p a g e . 2 7
/
Liquidity and Capital Resources /
CAE’s cash and short-term investment position increased by $45 million during the year. Throughout
the year surplus cash balances were invested in short-term investments ($122.8 million at March 31,
2001) comprised of high grade commercial paper with maturity under nine months. CAE’s higher
cash balances resulted from the increase in net earnings and a significant reduction in working cap-
ital, due to the achievement of several contract milestones, which more than offset the increase in
capital expenditures.
Capital expenditures totalled $84 million compared with $30.9 million in fiscal 2000, the majority
of which relates to the construction of the building and the manufacture of simulators for the São Paulo,
Toronto and Madrid training centres.
CAE employs foreign exchange forward contracts to manage the exposure created when sales
are made in foreign currencies. The amount and timing of forward contracts varies depending on a
number of factors, including milestone billings and the use of foreign materials and/or subcontractors
on the programme. As at March 31, 2001, CAE had $309.5 million in Canadian equivalent foreign
exchange contracts which, if marked to market at that date, would result in a foreign exchange loss
of $5.5 million. These would be equally offset by future gains of foreign denominated cash flows over
the balance of the contracts.
CAE also uses financial instruments to manage its exposure to changing interest rates and to
adjust its mix of fixed and floating interest rate debt. In order to benefit from the low short-term inter-
est rates prevailing in the Canadian market, CAE concluded interest rate swap agreements in 1997
with three Canadian financial institutions for periods of between eight and fifteen years. At March 31,
2001, CAE had interest rate swaps covering long-term debt amounting to $92 million, which if
marked to market at that date would result in a gain of $2.6 million. CAE deals only with sound coun-
terparties in executing any of its financial instruments.
As at March 31, 2001, CAE had US$143 million of accumulated non-capital loss carryforwards
that can be used to offset income taxes payable on future earnings from US operations. For financial
reporting purposes, a future tax asset of $15.8 million has been recognized in respect of these loss
carryforwards.
New Accounting Standards
On April 1, 2000, CAE adopted the recommendations of the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3465, Income Taxes and Section 3461, Employee Future
Benefits, without restating prior years. The cumulative effect of adopting the new recommendations
was to reduce retained earnings by $4.3 million and $1.7 million, respectively.
Business Risks and Uncertainties
CAE operates in different industry segments that involve various risk factors and uncertainties, which
are carefully considered in the Company’s management policies.
Market Cycles
CAE companies participate in competitive global markets that are subject to worldwide economic
trends and political influences. Many of the Company’s products are affected by industry market
cycles. The commercial simulation market generally follows the trend established in the commercial
airline industry, particularly the delivery of new aircraft. Military simulation programmes, awarded
mainly by governments, are dependent on price, technology, life cycle costs, delivery, quality and
government spending on defence programmes, and may also be influenced by in-country presence.
Lead times on military programmes can easily surpass 12 months. Forest product commodity prices
such as the price of pulp, sawn lumber and OSB panel board, which, in turn, are governed by the
demand for paper and the health of the construction industry, impact demand for various equipment
and services offered by Forestry Systems.
CAE has positioned itself in three core business segments, geographically and by industry
sector, and is expanding the scope of its product offerings to help moderate these risks.
Product Innovation
CAE emphasizes product innovation in all segments. Its success is dependent upon the advance-
ment of technology on existing products and the introduction of new products. In response, CAE
expends a significant amount on research and development, which in many cases is sponsored by
the customer. Certain initiatives also receive the support of the Canadian Government through the
Technology Partnerships Canada programme.
Changes in Contract Cost
CAE’s operating results may fluctuate from a change in the cost to complete long-term fixed-price
contracts. Typically these contracts incorporate new technological solutions, the costs of which are
difficult to estimate.
Key Personnel
CAE is dependent on the continued service of qualified technical personnel, and its ability to attract
and retain them. CAE applies a compensation philosophy designed to mitigate this risk.
CA E / a r 2 0 01 / m a n a g e m e n t a n d a u d i t o r s ’ r e p o r t / p a g e . 2 9
Management and Auditors’ Reports
/
Management Report /
Management is responsible for the integrity and objectivity of the information contained in this
annual report and for the consistency between the financial statements and other financial and
operating data contained elsewhere in the report. The accompanying financial statements have been
prepared by management in accordance with accounting principles generally accepted in Canada,
using policies and procedures established by management, and reflect the Company’s financial
position, results of operations and cash flow.
Management has established and maintains a system of internal control which is designed to
provide reasonable assurance that assets are safeguarded from loss or unauthorized use and that
financial information is reliable and accurate. The Company also maintains an internal audit function
that evaluates and formally reports to management and the Audit Committee on the adequacy and
effectiveness of internal controls.
The financial statements have been examined by external auditors appointed by the sharehold-
ers. Their examination provides an independent view as to management’s discharge of its responsi-
bilities insofar as they relate to the fairness of reported operating results and financial condition.
They obtain an understanding of the Company’s accounting systems and procedures and conduct
such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of
the financial statements.
Ultimate responsibility to the shareholders for the financial statements rests with the Board of
Directors. An Audit Committee is appointed by the Board to review the financial statements in detail
and to report to the Directors prior to such statements being approved for publication. The Audit
Committee meets regularly with management, the internal auditors and the external auditors to
discuss their evaluation of internal accounting controls, audit results and the quality of financial
reporting. The external auditors have free access to the Audit Committee, without management’s
presence, to discuss the results of their audit.
/ D.H. Burney
/ P.G. Renaud
President and Chief Executive Officer
Executive Vice President,
Chief Financial Officer and Secretary
/
Auditors’ Report to the Shareholders of CAE Inc. /
We have audited the Consolidated Balance Sheets of CAE Inc. as at March 31, 2001 and 2000,
and the Consolidated Statements of Earnings, Retained Earnings and Cash Flow for the years
then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable assurance as to
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the Company as at March 31, 2001 and 2000, and the results of its opera-
tions and cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
Montreal, Canada, April 30, 2001
CA E / a r 2 0 01 / c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 3 1
Consolidated Balance Sheets
as at march 31 (amounts in millions of dollars)
2001
2000
Assets
Current assets
Cash
Short-term investments
Accounts receivable
Inventories (note 3)
Prepaid expenses
Income taxes recoverable
Net assets of discontinued operations (note 2)
Property, plant and equipment, net (note 4)
Goodwill
Other assets (note 5)
Future income taxes (note 10)
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Deposits on contracts
Long-term debt due within one year (note 6)
Long-term debt (note 6)
Long-term liabilities
Future income taxes (note 10)
Shareholders’ equity
Capital stock (note 7)
Retained earnings
Currency translation adjustments
Approved by the Board:
$
156.8
122.8
286.1
136.6
9.8
5.0
717.1
91.3
277.9
141.0
83.6
16.6
$
163.5
71.1
325.3
108.1
14.5
28.6
711.1
105.2
214.8
144.1
49.0
–
$ 1,327.5
$ 1,224.2
$
$
375.4
181.5
2.4
559.3
264.6
24.6
14.9
863.4
159.4
321.2
(16.5)
306.7
219.2
0.9
526.8
270.7
40.6
6.8
844.9
152.3
241.9
(14.9)
464.1
379.3
$ 1,327.5
$ 1,224.2
/ D.H. Burney
Director
/ L.R. Wilson
Director
Consolidated Statements of Earnings
years ended march 31 (amounts in millions except per share amounts)
2001
2000
Revenue
Commercial Simulation and Training
Military Simulation and Controls
Forestry Systems
Operating earnings
Commercial Simulation and Training
Military Simulation and Controls
Forestry Systems
Earnings from continuing operations before interest and income taxes
Interest income (expense), net
Earnings from continuing operations before income taxes
Income taxes (note 10)
Earnings from continuing operations
Results of discontinued operations (note 2)
Net earnings
Earnings and diluted earnings per share from continuing operations
Net earnings and diluted net earnings per share
$
481.5
409.9
300.0
$
480.2
384.9
299.2
$ 1,191.4
$ 1,164.3
$
$
$
$
117.0
34.9
46.5
198.4
4.1
202.5
67.8
134.7
(26.6)
108.1
1.25
1.00
$
$
$
$
82.3
15.4
43.8
141.5
(10.0)
131.5
40.8
90.7
7.8
98.5
0.83
0.90
Average number of shares outstanding
107.8
109.5
Consolidated Statements of Retained Earnings
years ended march 31 (amounts in millions of dollars)
2001
2000
Retained earnings as previously stated at beginning of year
Adjustments for changes in accounting policies (note 1)
Excess of common share purchase price over amount
charged to capital stock (note 7(b))
Net earnings
Dividends
$
$
241.9
(6.0)
194.2
–
(1.2)
108.1
(21.6)
(30.2)
98.5
(20.6)
Retained earnings at end of year
$
321.2
$
241.9
CA E / a r 2 0 01 / c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 3 3
Consolidated Statements of Cash Flow
years ended march 31 (amounts in millions of dollars)
2001
2000
Operating activities
Earnings from continuing operations
Adjustments to reconcile earnings to cash flows
from operating activities:
Amortization
Future income taxes
Investment tax credit
Other
Decrease in non-cash working capital (note 11)
$
134.7
$
90.7
29.7
(11.3)
(22.5)
(10.9)
69.6
33.7
(7.6)
(18.3)
(0.3)
151.8
Net cash provided by continuing operating activities
189.3
250.0
Investing activities
Proceeds on disposition of business units (note 2)
Short-term investments
Capital expenditures
Proceeds from sale of leaseback assets
Other assets (note 5)
Net cash used in continuing investing activities
Financing activities
Repayments of long-term debt borrowings
Dividends paid
Purchase of capital stock
Common stock issuance
Other
Net cash used in continuing financing activities
Net cash used in discontinued activities (note 2)
Effect of foreign exchange rate changes on cash
Net (decrease) increase in cash
Cash at beginning of year
Cash at end of year
5.7
(51.7)
(84.0)
–
(25.7)
(155.7)
(17.6)
(21.2)
(1.3)
6.9
(7.8)
(41.0)
(5.3)
6.0
(6.7)
163.5
52.5
(71.1)
(30.9)
35.5
(11.4)
(25.4)
(5.5)
(20.4)
(36.3)
4.2
(4.0)
(62.0)
(21.6)
(3.1)
137.9
25.6
$
156.8
$
163.5
Notes to Consolidated Financial Statements
years ended march 31, 2001 and 2000 (amounts in millions of dollars)
Note.01 /
Summary of Significant Accounting Policies /
Accounting policies of CAE Inc. (CAE or the Company) and its subsidiaries conform with Canadian
generally accepted accounting principles (GAAP) and reflect practices appropriate to the industries
in which they operate.
New Accounting Standards
On April 1, 2000, CAE adopted the recommendations of the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3465, Income Taxes, which replaces the deferral method
with the liability method of tax allocation. CAE applied the new recommendations retroactively
without restating prior years. The cumulative effect of adopting the new recommendations as at
April 1, 2000, was to increase net future income tax assets by $12.8 million, increase net future
income tax liabilities by $27.0 million, increase other assets by $30.8 million, reduce income taxes
recoverable by $18.3 million, reduce net assets of discontinued operations by $2.8 million and
reduce retained earnings by $4.3 million.
On April 1, 2000, CAE adopted the recommendations of the CICA Handbook Section 3461,
Employee Future Benefits, which changes the accounting for pensions and other types of employee
future benefits. The new recommendations were adopted retroactively through an adjustment to
retained earnings and prior year results have not been restated. As a result, a liability for employee
future benefits of $1.7 million was recorded and a corresponding charge to retained earnings
was taken.
In the March 31, 2001, Consolidated Statements of Earnings, CAE adopted the new CICA recom-
mendations for earnings per share (EPS). The revised recommendations require the use of the
treasury method to compute the dilutive effect of options as opposed to the previously used
imputed earnings approach. These new recommendations were adopted retroactively, resulting in
the restatement of diluted EPS for 2000.
Consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries.
All inter-company accounts and transactions have been eliminated. Acquisitions are accounted for
by the purchase method and accordingly the results of operations of subsidiaries are included
from the dates of acquisition. Portfolio investments are accounted for using the cost method.
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 3 5
Revenue Recognition
Revenue from long-term contracts is recognized using the percentage of completion method,
where revenue, earnings and unbilled accounts receivable are recorded as related costs are
incurred. Revisions in cost and earnings estimates during the term of the contract are reflected in
the period in which the need for revision becomes known. Losses, if any, are recognized fully when
first anticipated.
All other revenue is recorded and related costs transferred to cost of sales at the time the
product is shipped or the service is provided.
Cash and Short-Term Investments
Cash consists of cash and cash equivalents which are short-term, highly liquid investments with
maturity of 90 days and less. Short-term investments include money market instruments and
commercial paper carried at the lower of cost or market value.
Inventories
Inventories are stated at the lower of average cost and net recoverable value.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. The declining balance and straight-line methods are
used in computing amortization of property, plant and equipment based on the following useful lives:
buildings and improvements, 20 to 40 years; and machinery and equipment, three to 10 years.
Foreign Currency Translation
Assets and liabilities denominated in currencies other than Canadian dollars are translated at
exchange rates in effect at the balance sheet date. Revenue and expense items are translated
at average rates of exchange for the year. Translation gains or losses are included in the determina-
tion of earnings, except for gains or losses arising on translation of accounts of foreign subsidiaries
considered self-sustaining and gains or losses arising from the translation of foreign currency debt
that has been designated as a hedge of the net investment in subsidiaries, which are deferred as a
separate component of shareholders’ equity. Gains or losses arising from the translation of foreign
currency debt not designated as a hedge of the net investment in subsidiaries are deferred, included
in other assets and amortized on a straight-line basis over the term of the debt.
Research and Development Costs
Research costs are charged to earnings in the periods in which they are incurred. Development
costs are also charged in the period incurred unless they meet the criteria for deferral. Government
assistance arising from research and development costs is deducted from the related cost.
Amortization of development costs deferred to future periods commences with the commercial pro-
duction of the product and is charged to earnings based on anticipated sales of the product,
over a period not exceeding five years.
Goodwill
The excess purchase price paid on the acquisition of businesses over the value assigned to identifi-
able net assets acquired is allocated to goodwill. Goodwill is stated at cost less accumulated amor-
tization and is being amortized on a straight-line basis over 40 years. The Company assesses
whether there has been impairment in the value of goodwill. This is accomplished in a number of
ways, including determining whether projected undiscounted future cash flows from operations
exceed the net book value of goodwill as of the assessment date.
Income Taxes
Future income taxes relate to the expected future tax consequences of differences between
the carrying amount of balance sheet items and their corresponding tax values. Future tax assets are
recognized only to the extent that, in the opinion of management, it is more likely than not that the
future income tax assets will be realized. Future income tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment or substantive enactment.
Investment tax credits arising from research and development are deducted from the related
costs and are accordingly included in the determination of earnings in the same year as the
related costs. Investment tax credits arising from the acquisition of property, plant and equipment
and deferred development costs are deducted from the cost of those assets with amortization
calculated on the net amount.
Pensions
The Company accrues its obligations under employee pension plans and the related costs, net of
plan assets. The cost of pensions is actuarially determined using the projected benefits method pro-
rated on service, expected plan investment performance, salary escalation and retirement ages of
employees. For the purpose of calculating the expected return on plan assets, those assets are
valued at fair market value.
The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and
the fair value of plan assets is amortized over the remaining service period of active employees.
Stock-Based Compensation Plans
The Company’s stock-based compensation plans consist primarily of the Employee Stock Option
Plan (ESOP) and the Employee Stock Purchase Plan (ESPP) which are described in note 8. No com-
pensation expense is recognized for the ESOP when stock options are issued to employees.
Consideration paid by employees on the exercise of stock options is credited to capital stock.
A compensation expense is recognized for the Company’s portion of the contributions made under
the ESPP.
Derivative Financial Instruments
The Company enters into forward, swap and option contracts to manage its exposure to fluctuations
in interest rates and foreign exchange rates. These derivative financial instruments are effective in
meeting the risk reduction objectives of the Company by generating offsetting cash flows related to
the underlying position in respect of amount and timing. CAE does not hold or issue derivative
financial instruments for trading purposes.
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 3 7
The foreign currency risk associated with purchase and sale commitments denominated in a foreign
currency is hedged through a combination of forward contracts and options. The foreign currency
gains and losses on these contracts are not recognized in the consolidated financial statements until
the underlying firm commitment is recorded in earnings. At that time, the gains or the losses on such
derivatives are recorded in earnings as an adjustment to the underlying transaction. Premiums paid
with respect to options are deferred and charged to net earnings over the contract period.
Interest rate swap contracts are designated as hedges of the interest rate of certain financial
instruments. The interest payments relating to swap contracts are recorded in net earnings over
the life of the underlying transaction on an accrual basis as an adjustment to interest income or
interest expense.
Earnings per Share
The calculation of earnings per share is based on the weighted average number of shares issued and
outstanding. Diluted earnings per share is calculated by dividing net earnings available to common
shareholders by the weighted average shares used in the basic earnings per share calculation plus
the number of common shares that would be issued assuming conversion of all potentially dilutive
common shares outstanding using the treasury stock method. Conversion of the outstanding stock
options would not materially dilute earnings per share.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make esti-
mates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of the contingent assets and liabilities at the date of the financial statements and revenue and
expenses for the period reported. Actual results could differ from those estimates.
Note.02 /
Discontinued Operations /
On February 2, 2000, the Board of Directors approved a plan to divest its Cleaning Technologies and
Energy Control Systems businesses. On May 31, the Company completed the sale of substantially
all the assets of the Energy Control Systems business to SNC-Lavalin. CAE expects to conclude the
sale of Cleaning Technologies during the first quarter of fiscal 2002.
The results of these operating units along with the results of Railway Technologies and Services,
which was sold on December 3, 1999, (together the “Discontinued Operations”) have been reported
as Discontinued Operations. The results prior to the measurement date (December 3, 1999, for
Railway Technologies – February 2, 2000, for the other Discontinued Operations) have been reported
separately in the Consolidated Statements of Earnings. The previously reported financial statements
have been reclassified. Interest expense has been allocated to the Discontinued Operations based
on their share of the Company’s net assets.
Summarized financial information for the Discontinued Operations is as follows:
Revenue
Results of operations prior to measurement dates,
net of income taxes recovery of $3.1
Net (loss) gain from discontinued operations,
net of income tax recovery of $18.9 (2000 – income taxes of $2.7)
Results of discontinued operations
Current assets
Property, plant and equipment, net
Goodwill
Deferred income taxes
Other assets
Total assets
Current liabilities
Other liabilities
Net assets of discontinued operations
Net cash used in operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
2001
2000
$
119.5
$
173.7
$
$
$
$
$
–
$
(6.0)
(26.6)
(26.6)
82.7
16.6
17.4
–
0.9
117.6
26.1
0.2
91.3
(5.3)
(4.4)
4.4
$
$
$
$
13.8
7.8
68.9
19.4
40.0
0.3
1.0
129.6
23.6
0.8
105.2
(10.4)
(10.5)
(0.7)
Net cash used in discontinued operations
$
(5.3)
$
(21.6)
Note.03 /
Inventories /
Work-in-progress
Raw materials, supplies and manufactured products
2001
2000
$
$
94.1
42.5
60.3
47.8
$
136.6
$
108.1
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 3 9
Note.04 /
Property, Plant and Equipment /
Land
Buildings and
improvements
Machinery and
equipment
Assets under
construction
Buildings
Equipment
2001
2000
Cost
Accumulated
Amortization
Net Book
Value
Cost
Accumulated
Amortization
Net Book
Value
$
11.8
$
–
$
11.8
$
9.9
$
–
$
9.9
154.9
41.0
113.9
152.9
42.4
110.5
208.6
130.3
78.3
213.8
119.4
94.4
5.8
68.1
–
–
5.8
68.1
–
–
–
–
–
–
$
449.2
$
171.3
$
277.9
$
376.6
$
161.8
$
214.8
Note.05 /
Other Assets /
Investment tax credits (i)
Investment in and advances to CVS Leasing Ltd. (ii)
Deferred charges (ii), (iii)
Deferred development costs (iv)
Other
$
2001
2000
$
25.4
21.0
13.7
13.7
9.8
14.8
16.4
10.4
–
7.4
$
83.6
$
49.0
(i)
Investment tax credits are available to reduce future federal income taxes payable in Canada.
(ii) The Company led a consortium which was contracted by the UK Ministry of Defence (MoD)
to design, construct, manage, finance and operate an integrated simulator-based aircrew train-
ing facility for the Medium Support Helicopter fleet of the Royal Air Force. The contract covers a
40-year period, which can be terminated by the MoD after 20 years, in 2018.
In connection with the contract, the Company has established a subsidiary, CAE Aircrew
Training Plc (Aircrew), of which it owns 74%, with the balance held by the other consortium part-
ners. This subsidiary has leased the land from the MoD, has built the facility and operates the
training centre, and has been consolidated with the accounts of the Company.
The pre-operating expenditures in connection with this contract were deferred until the
aircrew training facility commenced training on April 1, 2000, and are being amortized over
the remaining life of the initial 20-year period of the contract.
In addition, the Company has a minority shareholding of 11% in, and has advanced funds
to, CVS Leasing Ltd., a corporation established to acquire the simulators and other equipment
that is leased to Aircrew.
(iii) The pre-operating costs of the commercial training centres are being deferred and amortized
over a five-year period.
(iv) Research and development expenditures aggregated $111.4 million during the year (2000 –
$116.1 million). The Company has deferred the costs incurred to develop its next generation full
flight simulator.
Note.06 /
Debt Facilities /
A. Long-Term Debt
Senior notes (i)
Five-year revolving term loan, to a maximum of US$220.0
unsecured, due May 31, 2002 (note 18(ii))
Five-year revolving term loan, to a maximum of Deutschmark 100.0
unsecured, due May 31, 2002 (2001 – 65.0 DM; 2000 – 87.0 DM) (ii)
Eighteen-year term loan, to a maximum of £12.7 secured, maturing
April 1, 2001 to October 1, 2015 (2001 – £12.0; 2000 – £11.9) (iii)
Obligations under capital lease commitments (iv)
Less: Long-term debt due within one year
2001
2000
$
190.4
$
177.0
–
46.1
26.8
3.7
267.0
2.4
–
61.9
27.6
5.1
271.6
0.9
$
264.6
$
270.7
(i) Pursuant to a private placement with certain investors, the Company borrowed US$108 million
and $20 million. These unsecured senior notes, which rank equally with the term bank financing
with fixed repayment amounts in 2005, 2007, 2009 and 2012. Fixed interest of approximately
7.5% is payable semi-annually in June and December.
Interest on bank term loans is charged at rates approximating LIBOR.
(ii)
(iii) The Company arranged project financing for its subsidiary to finance the Company’s Medium
Support Helicopter programme for the Ministry of Defence in the United Kingdom. This term
loan is secured by the project assets of the subsidiary and is repayable over 18 years to
October 1, 2015. Interest on the loan is charged at a rate approximating LIBOR (note 5(ii)).
(iv) The effective interest rate on obligations under capital leases was approximately 5.2%
(2000 – 7.0%).
(v) Payments required in each of the next five years to meet the retirement provisions of the long-
term debt are as follows:
Year ending March 31,
2002
2003
2004
2005
2006
Thereafter
$
2.4
50.3
3.3
23.0
2.6
185.4
$
267.0
Interest expense on long-term debt was $17.7 million (2000 – $14.5 million).
B. Short-Term Debt
The Company has unsecured bank lines of credit available in various currencies totalling $85.0 million
(2000 – $80.4 million). The effective interest rate on short-term borrowings was 8.4% (2000 – 7.6%).
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 4 1
Note.07 /
Capital Stock /
i)
The Company’s articles of incorporation authorize the issue of an unlimited number of preferred
shares, issuable in series, and an unlimited number of common shares. To date the Company
has not issued any preferred shares.
ii) A reconciliation of the issued and outstanding common shares of the Company follows:
Number
of Shares
2001
Stated
Value
Number
of Shares
Balance at beginning of year
Stock options exercised
Stock dividends (a)
Purchase of Capital Stock (b)
$
107,579,185
706,538
17,205
(103,000)
$
152.3
6.9
0.3
(0.1)
111,466,032
414,637
34,016
(4,335,500)
2000
Stated
Value
154.2
3.9
0.3
(6.1)
Balance at end of year
108,199,928
$
159.4
107,579,185
$
152.3
(a) The Company provides that its shareholders may elect to receive common stock dividends in
lieu of cash dividends.
(b) During the first quarter the Company purchased 103,000 common shares on The Toronto Stock
Exchange under its normal course issuer bid. The Company has purchased 4,438,500 common
shares since the inception of the programme on June 21, 1999. Shares purchased by the
Company were cancelled. The bid expired on June 20, 2000.
(c) The Company has an amended and restated shareholder protection rights plan agreement
whereby one right has been issued for each outstanding common share of the Company.
The rights remain attached to the shares and are not exercisable until the occurrence of certain
designated events. Upon the occurence of such an event, the right entitles a shareholder of the
Company to acquire additional common shares from treasury at half their market value.
The rights expire on the date immediately after the Company’s Annual Meeting of Shareholders
to be held in 2003, unless terminated at an earlier date by the Board of Directors.
Note.08 /
Stock-Based Compensation Plans /
Employee Stock Option Plan
Under the long-term incentive programme of the Company, options may be granted to officers and
other key employees of the Company and of its subsidiaries to purchase common shares of the
Company at a subscription price of 100% of market value. Market value is determined as the clos-
ing price of the common shares on The Toronto Stock Exchange on the last day of trading prior to
the effective date of the grant.
At March 31, 2001, a total of 6,787,611 common shares remained authorized for issuance under
the Plan. The options are exercisable during a period not to exceed six years and are not exercisable
during the first 12 months after the date of the grant. The right to exercise all of the options accrues
over a period of four years of continuous employment. However, if there is a change of control of the
Company, the options become immediately exercisable.
A reconciliation of the outstanding options is as follows:
as at march 31
2001
2000
Options outstanding at beginning of year
Granted
Exercised
Forfeited/expired
Options outstanding at end of year
Options exercisable at March 31
Number
of Options
Weighted
Average
Exercise Price
Number
of Options
Weighted
Average
Exercise Price
2,739,663
1,009,200
(706,538)
(485,150)
2,557,175
634,250
$
$
$
$
$
$
9.92
13.68
9.79
10.12
2,500,800
1,307,000
(414,637)
(653,500)
11.40
2,739,663
10.68
787,000
$
$
$
$
$
$
10.68
8.41
9.33
10.16
9.92
10.77
The following table summarizes information about the Company’s ESOP as at March 31, 2001:
Range of
Exercise Prices
$8.20 to $11.40
$12.85 to $13.30
$18.40 to $18.80
Total
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life (years)
3.6
4.7
5.4
4.2
$
$
$
$
Weighted
Average
Exercise
Price
9.31
13.18
18.48
Weighted
Average
Exercise
Price
10.05
12.85
–
$
$
Number
Exercisable
514,500
119,750
–
11.40
634,250
$
10.68
Number
Outstanding
1,276,125
1,207,050
74,000
2,557,175
Employee Stock Purchase Plan
Effective April 1, 2000, the Company introduced an ESPP to enable employees of the Company and
its participating subsidiaries to acquire common shares of the Company through regular payroll
deductions plus employer contributions. The plan allows employees to contribute up to 10% of their
annual base salary. The Company and its participating subsidiaries match the first $500 employee
contribution and contribute $1 for every $3 on additional employee contributions, to a maximum of
2% of the employee’s base salary. Participation at March 31, 2001, was 2,639 employees.
Common shares of the Company are purchased by the ESPP trustee on behalf of the partic-
ipants on the open market, through the facilities of The Toronto Stock Exchange.
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 4 3
Note.09 /
Financial Instruments /
Foreign Currency Risk
The fair value of the forward foreign exchange contracts and foreign currency options is represented
by the estimated amounts that the Company would receive or pay to settle the contracts at the bal-
ance sheet date, taking into account the unrealized open gain or loss on open contracts.
The Company entered into currency rate swap contracts maturing on December 13, 2002, in
respect of certain inter-company loan transactions. The Company receives interest, calculated semi-
annually on a notional balance of US$21 million, at a weighted average interest rate of LIBOR plus
3.6% (effective rate of 10.3%). The Company pays interest, calculated semi-annually on notional
balances of Euro 16.5 million and SEK 27.4 million, at weighted average interest rates of EURIBOR
plus 3.4% (effective rate of 8.1%) and STIBOR plus 2.9% (effective rate of 7.2%) respectively.
Credit Risk
The Company is exposed to credit risk on billed and unbilled accounts receivable. However, its cus-
tomers are primarily established companies with good credit ratings or government agencies, fac-
tors that minimize the risk. In addition, the Company typically receives substantial nonrefundable
deposits on contracts.
The Company is exposed to credit risk in the event of non-performance by counterparties to its
derivatives financial instruments, but does not expect non-performance by any of the counterpar-
ties. The counterparties for financial instruments are major, highly rated financial institutions.
Interest Rate Risk
The Company is exposed to fixed interest rate risk with respect to its short-term investments and
long-term debt. The Company entered into interest rate swap agreements with two different financial
institutions to mitigate the risk with respect to $72 million of fixed rate long-term debt, whereby in
the first instance the Company will receive a fixed interest rate of 7.2% semi-annually for 8 years and
in the second instance the Company will receive a fixed interest rate of 7.7% semi-annually for 15
years. Correspondingly, the interest rate swap contracts require that the Company pay in the first
instance semi-annually and in the second instance quarterly.
Pursuant to the requirements of its long-term project financing, the Company’s subsidiary
entered into an interest rate swap agreement with two financial institutions for a maximum total
nominal value of £12.7 million whereby the subsidiary will receive payments of floating rate interest
and will pay a fixed interest rate of 6.8% semi-annually for 13 years.
Fair Value of Financial Instruments
The following methods and assumptions have been used to estimate the fair value of the financial
instruments:
• Cash and short-term investments, accounts receivable, accounts payable and accrued liabilities are
valued at their carrying amounts on the balance sheet, which represent an appropriate estimate of
their fair values due to their near-term maturities.
• Capital lease obligations are valued using the discounted cash flow method.
• Long-term debt value is estimated based on the quoted market price for the same or similar debt
instruments, as well as discounted cash flows using current interest rates for debt with similar terms,
company rating and remaining maturity.
• Interest rate and currency swap contracts reflect the present value of the potential gain or loss if
settlement were to take place on March 31, 2001.
The fair value of the financial instruments, as at March 31, is as follows:
Long-term debt
Capital lease obligation
Forward exchange contracts
Interest rate swap contracts
Currency swap contracts
$
$
Fair
Value
276.7
3.7
304.0
2.6
4.5
2001
Carrying
Amount
263.3
3.7
309.5
–
–
$
$
Fair
Value
277.3
5.1
355.3
2.1
3.7
2000
Carrying
Amount
266.5
5.1
350.4
–
–
Guarantees
CAE had outstanding as at March 31, 2001, letters of credit and performance guarantees in the
amount of $68 million issued in the normal course of business.
Note.10 /
Income Taxes /
A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is
as follows:
2001
2000
Liability
Method
Deferral
Method
Earnings from continuing operations before income taxes
$
202.5
$
131.5
Statutory income tax rates in Canada
Income taxes at Canadian statutory rates
Difference between Canadian statutory rates and those
applicable to foreign subsidiaries
Manufacturing and processing allowance
Losses not tax effected
Tax benefit of losses not previously recognized
Research and development investment tax credit
Reduction in Canadian statutory rate
Other
44.6%
90.3
44.6%
58.7
(7.9)
(11.1)
3.6
(4.7)
(1.1)
(0.6)
(0.7)
(7.3)
(9.0)
–
(3.2)
(0.7)
–
2.3
Total income tax expense
$
67.8
$
40.8
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 4 5
Significant components of the provision for income tax expense attributable to continuing opera-
tions are as follows:
Current tax expense
Change in temporary differences
Recognition of loss carryforwards
Tax rate changes
Future income tax benefit
Total income tax expense
2001
Liability
Method
$
79.1
(13.2)
2.5
(0.6)
(11.3)
$
67.8
The tax effects of temporary differences that gave rise to future tax liabilities and assets are
as follows:
at march 31
Non-capital loss carryforwards
Investment tax credits
Capital assets
Employee pension plans
Amounts not currently deductible
Percentage of completion versus completed contract
Other
Total future income taxes
Future income taxes comprise:
Future income tax asset – current portion
Future income tax asset – long-term portion
Future income tax liability – current portion
Future income tax liability – long-term portion
$
$
$
2001
49.6
(31.7)
(14.7)
(2.5)
20.2
(19.7)
0.5
1.7
16.6
16.0
(16.0)
(14.9)
Total future income taxes
$
1.7
As of March 31, 2001, the Company has accumulated non-capital tax losses carried forward relating
to operations in the United States for an amount of approximately US$142.6 million. The losses for
income tax purposes expire in 2005 through 2013. For financial reporting purposes, a future tax
asset of US$15.8 million has been recognized in respect of these loss carryforwards.
Note.11 /
Supplementary Cash Flow Information /
Cash provided by (used in) non-cash working capital:
Accounts receivable
Inventories
Prepaid expenses
Income taxes recoverable
Accounts payable and accrued liabilities
Deposits on contracts
Net cash paid during the year
Income taxes
Interest
Amortization costs of:
Property, plant and equipment
Goodwill
Note.12 /
Contingencies /
2001
2000
$
31.4
(41.9)
5.7
49.6
62.4
(37.6)
(54.6)
9.3
0.3
29.2
88.4
79.2
69.6
$
151.8
8.8
20.1
25.6
4.1
$
$
$
$
0.5
13.1
29.0
4.7
$
$
$
$
$
$
Through the normal course of operations, the Company is party to a number of lawsuits, claims and
contingencies. Accruals are made in instances where it is probable that liabilities will be incurred
and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be
incurred in instances for which no accruals have been made, the Company has no reason to believe
that the ultimate outcome of these matters will have a material impact on its financial position.
Note.13 /
Government Cost Sharing /
During fiscal 1997, the Company signed an agreement with the Government of Canada under which
the Government shares in the cost of certain visual research and development programmes.
Funding in the amount of $31.2 million was completed during 2001 and is repayable in the form of
royalties based on future sales levels related to the programmes funded. The royalty payments will
continue until March 31, 2012, up to an amount not to exceed $41.9 million.
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 4 7
Note.14 /
Operating Lease Commitments /
Future minimum lease payments under operating leases, the most significant of which relate to the
Medium Support Helicopter contract with the UK MoD as described in note 6(ii), are as follows:
Year ending March 31,
2002
2003
2004
2005
2006
Thereafter
$
33.7
35.9
34.2
33.3
29.1
201.8
$
368.0
Note.15 /
Pensions /
The Company has defined benefit plans that provide benefits based on length of service and final
average earnings. The Company has an obligation to ensure there are sufficient funds in the plans to
pay the benefits earned.
Contributions reflect actuarial assumptions concerning future investment returns, salary projec-
tions and future service benefits. Plan assets are represented primarily by Canadian and foreign
equities and government and corporate bonds.
For the year ended March 31, 2001, the changes in the pension obligations and in the fair value
of assets and the funded status of the defined benefit plans were as follows:
at march 31
Change in pension obligations
Pension obligation, beginning of year, as restated
Current service cost
Interest cost
Employee contributions
Loss on plan amendments
Pension benefits paid
Actuarial loss
Pension obligation, end of year
Change in fair value of plan assets
Fair value of plan assets, beginning of year
Return on plan assets
Pension benefits paid
Employee contribution
Actuarial loss
Fair value of plan assets, end of year
Funded status-plan deficit
Unamortized actuarial loss
Unamortized loss on plan amendments
Accrued pension asset
Pension Benefits
2001
$
111.5
3.3
7.8
2.3
1.6
(8.4)
7.9
$
126.0
$ 120.8
10.7
(7.7)
2.3
(4.6)
$
$
$
121.5
(4.5)
12.5
1.6
9.6
The actuarial present value of accrued pension benefits has been estimated taking into considera-
tion economic and demographic factors over an extended future period. Significant assumptions
used in the calculation are as follows:
Return on plan assets
Discount rate for pension benefit obligations
Compensation rate increases
9.0%
6.5%
2.75% to 5.25%
9.0%
8.0%
3.5% to 6.0%
2001
2000
The net pension expense for the year ended March 31, 2001, included the following components:
Current service cost
Interest cost on projected pension obligations
Expected return on plan assets
Net pension expense
Pension Benefits
2001
$
$
3.3
7.8
(10.7)
0.4
The following table summarizes the components of CAE’s net pension credit for fiscal 2000:
Current service cost
Interest cost on projected plan benefits
Expected return on plan assets
Net amortization and other
Net pension credit
$
2000
2.3
7.7
(10.2)
(1.5)
$
(1.7)
Note.16 /
Business Segments
/
The Company’s significant business segments include:
(i) Commercial Simulation and Training – the world-leading supplier of commercial flight simulators
and visual systems, and training systems.
(ii) Military Simulation and Controls – a premier supplier of military flight simulators, visual systems
and training systems. The segment also supplies a variety of other land-based military simula-
tion and training systems and marine control systems.
(iii) Forestry Systems – the world leader in providing solutions for the forest products sector.
The business segment is comprised of two divisions, Wood Products and Pulp and Paper,
supplying proprietary machinery and equipment for softwood lumber and engineered wood
producers and advanced screening solutions for pulp and paper companies.
Each operating segment is led by a senior executive and offers different products and uses different
technology and marketing strategies. The Company evaluates performance based on operating
earnings before interest and income taxes and uses capital employed to assess resources allocated
to each segment. Capital employed includes accounts receivable, inventories, prepaid expenses,
property, plant and equipment, goodwill and other assets less accounts payable and accrued
liabilities, deposits on contracts and contingent consideration due on acquisitions included in
other long-term liabilities.
CA E / a r 2 0 01 / n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s / p a g e . 4 9
Financial information on the Company’s operating and geographic segments is shown in the
following tables:
Business Segments
Capital employed
Commercial Simulation and Training
Military Simulation and Controls
Forestry Systems
Other
Total capital employed
Cash
Short-term investments
Income taxes recoverable
Accounts payable and accrued liabilities
Deposits on contract
Future income taxes – long-term
Long-term liabilities
Net assets of discontinued operations
Total assets
Capital expenditures
Commercial Simulation and Training
Military Simulation and Controls
Forestry Systems
Amortization
Commercial Simulation and Training
Military Simulation and Controls
Forestry Systems
Deletions to goodwill
Forestry Systems
$
$
2001
2000
74.5
79.0
181.6
18.4
353.5
156.8
122.8
5.0
375.4
181.5
16.6
24.6
91.3
$
36.7
68.8
165.6
18.2
$ 289.3
163.5
71.1
28.6
306.7
219.2
–
40.6
105.2
$ 1,327.5
$ 1,224.2
$
$
$
$
$
$
72.9
3.4
7.7
11.7
10.1
9.1
84.0
$
30.9
$
9.3
9.8
10.6
11.3
11.0
11.4
29.7
$
33.7
–
$
( 11.0)
Geographic Segments
Revenue from external customers
Canada
US
Europe
Other countries
Capital assets and goodwill
Canada
US
Europe
Other countries
2001
2000
$
181.3
434.1
418.4
157.6
$
168.2
450.1
391.6
154.4
$ 1,191.4
$ 1,164.3
$
194.4
56.3
104.7
63.5
$
205.8
52.1
85.4
15.6
$
418.9
$
358.9
Note.17 /
Comparative Financial Statements /
Certain comparative figures for 2000 have been reclassified to conform to the presentation adopted
in 2001.
Note.18 /
Subsequent Events /
(i) On April 2, 2001, the Company acquired all the outstanding shares of BAE SYSTEMS Flight
Simulation and Training Inc. of Tampa, Florida, for total cash consideration of approximately
US$80 million. BAE SYSTEMS has a well-established position in the US defence market for the
manufacture of transport and helicopter simulation equipment and has significant training and
support services activities for both the commercial and military markets. BAE SYSTEMS
recorded annual revenues of approximately US$80 million for its fiscal year ended December 31,
2000. The purchase price is subject to adjustment to reflect the final determination of BAE SYS-
TEMS’ net asset values based on the closing balance sheet.
(ii) On April 26, 2001, CAE concluded a new five-year global revolving credit facility of US$350 mil-
lion and Euro 100 million, to replace its existing facilities due to expire in May 2002 (note 6).
The new facility expires in April 2006.
CA E / a r 2 0 01 / f i v e - y e a r r e v i e w / p a g e . 5 1
Five-Year Review
(amounts in millions of dollars
except where indicated by *)
Continuing operations
Revenue
Amortization
Earnings
Earnings per share*
Net earnings
Net earnings per share*
Ratio of current assets
to current liabilities*
Number of registered
shareholders*
Cash dividends paid
per common share*
2001
2000
1999
1998
1997
$ 1,191.4
29.7
$
134.7
$
1.25
$
108.1
$
1.00
$
1,164.3
33.7
90.7
0.83
98.5
0.90
905.9
28.6
73.7
0.66
77.3
0.70
799.2
25.9
73.4
0.67
70.2
0.64
762.4
25.1
57.8
0.53
60.3
0.55
1.3
1.4
1.4
1.7
1.4
2,130
2,392
2,600
2,800
3,100
$
0.20
0.19
0.16
0.16
0.16
Quarterly Financial Information
(amounts in millions of dollars
except per share amounts)
2001
Continuing operations
Revenue
Earnings
Earnings per share
Net earnings
Net earnings per share
Common share trading range:
High
Low
(amounts in millions of dollars
except per share amounts)
2000
Continuing operations
Revenue
Earnings
Earnings per share
Net earnings
Net earnings per share
Common share trading range:
High
Low
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
286.4
30.5
0.28
13.0
0.12
15.75
12.75
295.0
35.7
0.33
34.6
0.32
20.75
15.00
318.9
34.5
0.32
31.5
0.29
25.30
17.75
291.1
34.0
0.32
29.0
0.27
25.95
19.90
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
240.5
19.1
0.18
16.7
0.15
9.45
7.80
257.8
21.4
0.20
20.7
0.19
9.75
8.00
342.9
25.7
0.23
37.5
0.34
10.60
7.30
323.1
24.5
0.22
23.6
0.22
17.00
9.65
Board of Directors
Left to right (seated): D.H. Burney, G.K. Petty, J.W. McCutcheon, J.A. Grant, R.F. Elliott, L.R. Wilson
Left to right (standing): J.F. Hankinson, H.G. Emerson, A.S. Fell, L.N. Stevenson, J.A. Craig
Lynton R. Wilson, O.C.1,2,4
Chairman of the Board,
CAE Inc.
Oakville, Ontario
R. Fraser Elliott, C.M., Q.C.1
Senior Partner,
Stikeman Elliott
Toronto, Ontario
Derek H. Burney, O.C.1
President and
Chief Executive Officer,
CAE Inc.
Toronto, Ontario
John A. (Ian) Craig 3
Business Consultant
Wilmington, North Carolina
H. Garfield Emerson, Q.C.2
President and
Chief Executive Officer,
NM Rothschild & Sons
Canada Limited
Toronto, Ontario
Anthony S. Fell 3,4
Chairman,
RBC Dominion Securities Inc.
Toronto, Ontario
The Honourable
James A.Grant, P.C., Q.C.1,2
Partner,
Stikeman Elliott
Montreal, Quebec
James F. Hankinson 3
President and
Chief Executive Officer,
New Brunswick Power
Corporation
Fredericton, New Brunswick
James W. McCutcheon,
Q.C. 3
Counsel,
McCarthy Tétrault
Toronto, Ontario
George K. Petty 2,4
Business Consultant
San Luis Obispo, California
Lawrence N. Stevenson 4
President and
Chief Executive Officer,
Pathfinder Capital Inc.
Toronto, Ontario
1 Member of the Executive Committee
2 Member of the Compensation
Committee
3 Member of the Audit Committee
4 Member of the Governance
Committee
Officers
Lynton R. Wilson
Chairman of the Board
Derek H. Burney
President and
Chief Executive Officer
Donald W. Campbell
Executive Vice President,
Military Simulation and
Training
Glenn R. Frederick
Executive Vice President,
Business Processes and
Human Resources
Paul G. Renaud
Executive Vice President,
Chief Financial Officer
and Secretary
Darrell S. Madill
President, Forestry Systems,
Wood Products
Rashid A. Khan
Executive Vice President,
Marine Controls
Hani R. Macramallah
Executive Vice President,
Operations
Stephen E. Wilson
Executive Vice President,
Commercial Simulation
and Training
Roch Leblanc
President, Forestry Systems,
Pulp and Paper
Michael A. Cossar
Treasurer
Robert C. Hedges
Controller and
Assistant Secretary
CAE at a Glance
Information for Shareholders
Business Profile
CAE is the world’s premier provider of simulation and control technologies for training and opti-
mization solutions in Aerospace, Defence and Forestry. Headquartered in Canada and operating
globally, the Company employs approximately 7,000 people and has revenues in excess of
$1 billion (CAD.).
Commercial Simulation
and Training
CAE is the world leader in
the design and production of
commercial flight simulators
and visual systems. CAE is
making a major move into the
flight training market to fuel
future growth.
Military Simulation
and Training
CAE is the premier designer
and manufacturer of military
flight and land-based simulation
and training systems.
Marine Controls
CAE is the world leader in the
supply of control and training
systems for marine and power
plant applications.
Forestry Systems
CAE is the world leader in
providing optimization and
control solutions for the soft-
wood, engineered wood and
pulp and paper sectors.
All illustrations in CAE’s 2001 annual report were created by the CAE Creative Services group:
Zbynek Najser, Martin Petit, Jean-Marc Laverdure, Sean Poole, Keith Selevich, Graphic Designers and Gilles Guitard, Manager.
Version française
La version française du rapport
annuel est disponible sur demande
au service des relations d’entreprise,
Royal Bank Plaza, Bureau 3060,
C.P. 30, Toronto, Ontario M5J 2J1
Annual General Meeting
The Annual General Meeting will
be held at the Glenn Gould Studio,
CBC building, 250 Front Street West,
Toronto, Ontario, Wednesday,
June 20, 2001, at 11:30 a.m.
Auditors
PricewaterhouseCoopers,
Chartered Accountants
Toronto, Ontario
Transfer Agent and Registrar
Computershare Trust Company
of Canada
Toronto, Ontario
Montreal, Quebec
Vancouver, British Columbia
Trademarks
The CAE logo, and the terms
MAXVUE, ATMOS, Simfinity, Sim XXI,
Gladiator, Mill Host and PanelMSR
are all trademarks of CAE or
its subsidiaries.
CAE Common Shares
CAE’s shares are traded on the
Toronto Stock Exchange under
the symbol “CAE”.
Dividend Reinvestment Plan
Registered shareholders of CAE Inc.
wishing to receive dividends in the
form of CAE Inc. common shares
rather than a cash payment may
participate in CAE’s dividend
reinvestment plan.
Through this plan, quarterly
dividends can be reinvested in
CAE common shares at the average
market price. This price will be the
weighted average trading prices of
the common shares on the Toronto
Stock Exchange for the five (5) trading
days immediately preceding the
dividend payment date.
In order to obtain the dividend
reinvestment plan form or for
additional information regarding CAE’s
common shares, please contact:
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Tel: (416) 981-9633
1-800-663-9097
Fax: (416) 981-9507
caregistryinfo@computershare.com
www.computershare.com
Direct Deposit Dividend
Registered shareholders who receive
cash dividends may elect to have
the dividend payment deposited
directly to their bank accounts instead
of receiving a cheque. In order to
obtain the direct deposit dividend
form please contact:
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Tel: (416) 981-9633
1-800-663-9097
Fax: (416) 981-9507
caregistryinfo@computershare.com
www.computershare.com
Tentative Quarterly Results Release
Dates for Fiscal 2002
August 8, 2001
November 7, 2001
February 6, 2002
May 8, 2002
Additional Information
If you wish to receive additional
copies of CAE’s annual report or
copies of the annual information
form, please contact:
CAE Inc.
Corporate Relations
PO Box 30, Suite 3060
Royal Bank Plaza
Toronto, Ontario M5J 2J1
Tel: (416) 865-0070
1-800-760-0667
Fax: (416) 865-0337
www.cae.com
CAE Share Performance vs TSE 300 Index
Assumes $100 invested in the common shares of the Company on October 31, 1999
300
250
200
150
100
a
d
a
n
a
C
n
i
d
e
t
n
i
r
P
o
t
n
o
r
o
T
,
e
p
o
h
d
u
T
d
n
a
r
b
r
e
t
n
I
October
1999
CAE
TSE 300
March
2001
PO Box 30, Suite 3060, Royal Bank Pla za
Toronto, Ontario, Canada M5J 2J1
www.cae.com
C
A
E
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
M
a
r
c
h
3
1
,
2
0
0
1
Realizing Growth and Value
CAE Annual Report for the year ended March 31, 2001