cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021 Training partner of choice.
Training partner of choice.
CAE is a high technology company, at the leading edge of digital
CAE is a high technology company, at the leading edge of digital
immersion, providing solutions to make the world a safer place.
immersion, providing solutions to make the world a safer place.
Backed by a record of more than 70 years of industry firsts, we
Backed by a record of more than 70 years of industry firsts, we
continue to reimagine the customer experience and revolutionize
continue to reimagine the customer experience and revolutionize
training and operational support solutions in civil aviation, defence
training and operational support solutions in civil aviation, defence
and security, and healthcare. We are the partner of choice to
and security, and healthcare. We are the partner of choice to
customers worldwide who operate in complex, high-stakes and
customers worldwide who operate in complex, high-stakes and
largely regulated environments, where successful outcomes are
largely regulated environments, where successful outcomes are
critical. As testament to our customers’ ongoing needs for our
critical. As testament to our customers’ ongoing needs for our
solutions, over 60 percent of CAE’s revenue is recurring in nature.
solutions, over 60 percent of CAE’s revenue is recurring in nature.
We have the broadest global presence in our industry, with
We have the broadest global presence in our industry, with
approximately 10,000 employees, 160 sites, and training locations
approximately 10,000 employees, 160 sites, and training locations
in over 35 countries.
in over 35 countries.
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Follow us on Twitter @CAE_Inc.
Follow us on Twitter @CAE_Inc.
Check out our Annual Activity and
Check out our Annual Activity and
Corporate Social Responsibility Report!
Corporate Social Responsibility Report!
Our Annual Activity and Corporate Social Responsibility Report
Our Annual Activity and Corporate Social Responsibility Report
is available online. It consolidates information on our company
is available online. It consolidates information on our company
strategy, fiscal year 2021 performance and corporate social
strategy, fiscal year 2021 performance and corporate social
responsibility (CSR) into one document.
responsibility (CSR) into one document.
Integrating our reporting in this way enables us to provide
Integrating our reporting in this way enables us to provide
stakeholders with a single source of information in key areas. It
stakeholders with a single source of information in key areas. It
also signals that CSR is inseparable from our core business strategy
also signals that CSR is inseparable from our core business strategy
and activities.
and activities.
cae.com/social-responsibility/
cae.com/social-responsibility/
As an eTree member, CAE Inc. is committed to meeting shareholder needs
As an eTree member, CAE Inc. is committed to meeting shareholder needs
while being environmentally friendly. For each shareholder that receives
while being environmentally friendly. For each shareholder that receives
electronic copies of shareholder communications, CAE will plant a tree
electronic copies of shareholder communications, CAE will plant a tree
through Tree Canada, the leader in Canadian urban reforestation. To date
through Tree Canada, the leader in Canadian urban reforestation. To date
CAE has helped plant 5,274 trees.
CAE has helped plant 5,274 trees.
Contains FSC® certified post-consumer and 70% virgin fibre
Contains FSC® certified post-consumer and 70% virgin fibre
Certified EcoLogo and FSC® Mixed Sources
Certified EcoLogo and FSC® Mixed Sources
Manufactured using biogas energy
Manufactured using biogas energy
Accelerating our transformation through acquisitionsCAE has consistently acted as a wise steward of capital. For the first time in nearly 20 years, we completed public and private equity offerings that secured more than $1.5B to support the execution of five acquisitions announced over a six-month period – one representing the largest in CAE’s 74-year history. With the four acquisitions in Civil, we further our vision of an end-to-end crew performance optimization ecosystem, while the addition of L3Harris Technologies’ Military Training business in Defence will contribute greater balance to CAE.These capital allocations, made with the full support of the Board, align with the company’s high-level growth strategy going forward and position CAE to pursue future expansion opportunities.Corporate Social ResponsibilityCAE views Corporate Social Responsibility (CSR) as central to its values, with people at the heart of its culture. As COVID-19 stretched from weeks to months, CAE leadership also made significant efforts to ensure employees remained connected and engaged as everyone adjusted to the new ‘normal.’ The Board acknowledges the dedication, innovation and indomitable spirit of CAE employees, attributes that set our organization apart.We delivered on our commitment to become carbon neutral in 2020, becoming the first Canadian aerospace company to achieve this status, with more milestones to follow as we progress on our climate journey. To further transparency in our disclosure and incorporate the best practices reporting standards valued by our stakeholders, CAE now reports on two industrial categories identified by the Sustainability Accounting Standards Board (SASB): Resource Transformation (Aerospace & Defence) and Services (Professional & Commercial Services). The majority of issues identified by the SASB are already part of our disclosures.Board renewal In our approach to Board renewal, we are increasingly looking at diversity and have made good progress. We are also looking at ways to increase diversity beyond gender.I would like to extend a warm welcome to Mary Lou Maher, who joined CAE’s Board of Directors. As the former Global Head of Inclusion and Diversity for KPMG International and founder of KPMG Canada’s first-ever National Diversity Council, Mary Lou brings abundant experience in diversity and inclusion, and will contribute additional diversity of thought and background to CAE.To provide continuity over the troubled times of the pandemic, the Board made the decision to extend my mandate one year beyond CAE’s 12-year term limit. As a further measure, the Board confirmed Alan N. MacGibbon as my successor to allow for a well-orchestrated transfer in leadership. Alan has been a corporate director at CAE since 2015 and currently serves on the Board’s Audit and Human Resource Committees.In closing, I would like to congratulate our President and CEO, Marc Parent, for the recognition he received this year. In addition to his appointment to the Order of Canada, one of the country’s highest honours, Marc was the recipient of the Bernard-Landry innovation award from the Quebec Association for the Development of Research and Innovation. He also received the PROSPÈRE Entrepreneur Award from the Quebec Employers’ Council for his contribution to the growth of CAE and the aerospace industry in Quebec and Canada, as well as for his central role in enlisting the collaboration of companies for workplace COVID-19 vaccination. Marc is an exemplary ambassador for our organization and these honours are well deserved.Finally, on behalf of the Board, I thank our shareholders and our employees. Your trust and support have never been so important. The societal engagement, corporate citizenship, and ingenuity consistently demonstrated by CAE through unprecedented circumstances evidence the sound character of this organization and the exciting future that lies ahead.CAE took extraordinary actions through the year, not only to navigate the organization safely and securely through the COVID-19 pandemic, but to fundamentally shift our strategy towards high technology, as reflected in CAE’s new mission and vision. Our noble endeavour to make the world a safer place took on added depth and meaning through the overall social impact the company had this year – including producing the life-saving CAE Air1 ventilator in record time, developing an innovative app for vaccine administration, spearheading a coalition to accelerate vaccination in Quebec and Canada, and opening the CAE Montreal Vaccination Centre to serve employees, their families and the community. During what were challenging times for businesses worldwide, CAE’s leadership made sound decisions to secure the financial health and perennity of the company over the pandemic and beyond.Message from the Chair of the BoardThe Honourable John Manley, P.C., O.C.Chair of the Board Message to shareholders
Despite the headwinds,
CAE is emerging stronger and better
CAE began its fiscal year confronting industry reversals unlike any before in its 74-year history. We were deeply concerned
about the rapid global spread of COVID-19, and remained resolute about ensuring the safety of our employees, our customers
and our suppliers, while challenging our thinking about the future.
Who could have foreseen the plummeting 90% drop in global air travel and border closures worldwide – all of which served
instant sharp blows to Civil, our biggest business unit – and the aftereffects of the pandemic that swept across the defence
and healthcare markets? In these unsettling circumstances, we swiftly mobilized to take the necessary immediate measures
to secure CAE’s stability.
While seizing on the first and secondary challenges of COVID-19,
we identified opportunities to apply our innovative skills and agility
in the midst of these disruptions. We lent a strong hand to our
customers around the world, offering critical support, often gratis
or at cost, in this shared crisis of humanity. In parallel, we identified
ways to emerge stronger and position the company even more
solidly for higher growth and profitability.
In a market that levelled the same or similar challenges to our
competitors, CAE responded differently. We raised equity for the
first time in nearly 20 years, using the proceeds to heighten our
positioning in our civil and defence key markets. We acquired
four companies in core and related markets in Civil and became
a defence training systems integrator with a pending acquisition
in Defence. We launched new products and expanded into new
growth adjacencies while embarking on numerous initiatives to
lower our cost structure. We leveraged highly connected, digitally
enabled software solutions to address our customers’ urgent needs
and advance their competitive advantage amidst the morass of
global health, social and financial turbulence. All the while, we
stayed connected with our teams working dispersed and in far
flung regions.
Our Civil acquisitions provided the building blocks necessary
to jump-start our vision of providing an end-to-end offering of
crew performance software that extends from training through
Marc Parent, C.M.
President and
Chief Executive Officer
optimized crew operations. We believe these connected capabilities
will soon become unrivalled in the industry. We also positioned
ourselves in advanced air mobility, a rapidly blossoming market
with over 200 Original Equipment Manufacturers (OEMs). We
recognize this market as a potential secular driver for a new kind
of pilot training, with CAE’s expertise in modeling and simulation
playing a pivotal role in its acceptance and success. To execute our
adjacent market strategy, we succeeded in securing acquisitions at
uniquely attractive value and optimal use of capital.
We announced our definitive agreement to acquire L3Harris
Technologies’ Military Training business, a significant
complementary fit with our core military training business that
accelerates our Defence growth strategy and brings us into close
alignment with U.S. national defense priorities. We expect to close
the acquisition in the second half of calendar year 2021.
Healthcare, our smallest business unit, continued to broaden its
position as the innovation leader in simulation-based healthcare
education and training through the launch of new AI-enhanced
training tools and digital management solutions, in support of
our customers’ training needs during the pandemic. A unique
testament to our corporate citizenship, COVID-19 humanitarian
efforts and passion for safety, the successful delivery of thousands
of CAE Air1 ventilators to the Government of Canada represents
our best at work. We quickly brought together CAE’s industrial
technological capabilities and deep healthcare subject matter
expertise to develop and manufacture this critical care, life-saving
medical device.
We took the opportunity this year to further strengthen our
leadership with the addition of Daniel Gelston as Defence & Security
Group President and Heidi Wood, as President of CAE Healthcare
and Executive Vice President, Business Development & Growth
Initiatives. We created the business development and growth
initiatives role as a new cross-collaboration leadership position
to ensure future growth investments, capture joint opportunities
across our business units, and accelerate our industrial technology
leadership with digitally based solutions. This role, originally
created before the pandemic, became all the more important to
power up new initiatives as our core civil markets addressed sliced
profitability.
We also boosted our presence in the U.S., strengthening our
Washington, D.C., operations to gain visibility and representation
for our three business units on Capitol Hill.
No one would have predicted or expected our ability to turn
adversity into major strategic advantage. But we did. We went
through extraordinary measures to protect CAE, our employees and
our customers, and I remain extremely proud of how our company
performed under challenging circumstances and the nobility with
which CAE rose up under such exceptional circumstances. Against
the tide, we took bold, forward-thinking, proactive measures to
consolidate in our core markets and expand into adjacent markets.
Turning now to our results, I am especially pleased with what
we accomplished financially. Despite the brunt of major global
disruptions in all our markets, CAE returned to quarterly profitability
and positive free cash flow after our first quarter.
Our recovery continued through the year and into the fourth
quarter. On a consolidated basis, we generated $0.22 adjusted
earnings per share1 (EPS) in this last quarter and $0.47 adjusted
EPS1 for the year. Order intake1 was $928 million for the quarter
and $2.7 billion for the year, yielding a solid backlog1 of $8.2 billion.
This is striking given the challenges faced by the global aviation
industry over this yearlong crisis and the hundreds of millions in
defence contracts that slipped into next year or beyond.
We generated strong annual free cash flow1 of $347 million,
a singular indicator of CAE’s position as a sustainable growth
company. In addition to having the benefits of secular tailwinds
and a cash generative profile, this year well evidenced that CAE has
been and remains a safe port in a storm.
Underscoring our resilience
Today, our strategy and positioning are more favourably aligned
with a post-COVID business and geopolitical landscape, with
expected secular trends favourable for all three of our business
units.
In Civil, we project greater willingness to outsource training by
airlines, even higher expected pilot demand (attrition and crisis-
induced career shifts) and strong demand for business jet travel,
which are enduring positives. Tourist air travel will likely recover
more rapidly than business travel, but we project great stimulus on
behalf of airlines worldwide and a prevailing need for pilot training.
In Defence, we witnessed a paradigm shift from asymmetric to
near-peer threats, coupled with a sharp increase in the demand
for immersive, synthetic solutions. These tailwinds strongly favour
CAE’s Defence & Security business. Additionally, the complementary
fit of L3Harris Technologies’ Military Training capabilities in fast jets,
bombers and remotely piloted aircraft, atop our cargo and tanker
strengths, plus joint helicopter capabilities, position CAE to provide
a unique suite of training capabilities for our military customers in
the U.S., Canada, NATO and around the world.
We also see an attractive growth outlook for Healthcare through
our new digital and virtual learning products, COVID-19 training
solutions, and the overall increased recognition of the value of
simulation-based preparedness. Investments of the past several
years to augment our nursing suite of products have proven to
be the right bet, as this last year has only further exacerbated the
growing nursing shortage.
Civil Aviation Training Solutions
Over the course of FY21, the Civil Aviation team was confronted by
the concurrent, severe challenges of a plummet in global air travel
(down a historic 90% globally), coupled with severe, sweeping and
ever-changing government restrictions that included travel bans,
border restrictions, lockdown protocols and self-isolation measures
that forced closures and disruptions to Civil operations worldwide.
Civil training centre utilization initially plunged, but has since
recovered modestly. While still well below pre-pandemic levels of
70%, usage stabilized at around 50% through most of the year.
Despite these setbacks, we remained the training partner of choice
for airlines, business jet operators and pilots worldwide, signing
multiple long-term training services agreements this past year.
We consolidated Civil training capacity with the acquisitions of
Flight Simulation Company and TRU Simulation + Training Canada
Inc. and executed partnerships with numerous airlines.
Over the past few years, CAE has steadily unified the digital flight
operations ecosystem with the goal of delivering a holistic suite of
solutions designed to improve operations and enhance the crew
experience to further increase our large addressable market in
Civil. With the acquisition of Merlot Aero Limited and RB Group,
we accelerated our expansion into software-enabled civil aviation
services. Looking ahead, we will continue to expand our reach
beyond pilot training solutions into the rapidly growing market for
digitally enabled crew optimization services.
We stayed on course for planned launches of new programs and
products, including the Airside™ digital platform for pilots grounded
due to COVID-19 (adding an important job finder element) and a
financing initiative coordinated with banking institutions worldwide
to help make the profession more accessible to aspiring pilots. As
the global training partner of choice, we are pleased to be able to
make it easier for these future pilots to train with us — especially
relevant given the pending shortages predicted in the 2020-2029
CAE Pilot Demand Outlook we released in November 2020.
Annual revenue for Civil Aviation Training Solutions was
$1,412.9 million, down 35% compared to FY20. Annual operating
income1 was $6.5 million compared to $473.3 million last year, and
annual adjusted segment operating income1 was $164.3 million
(11.6% of revenue) compared to $479.4 million (22.1% of revenue)
last year. Annual Civil training centre utilization1 was 47%, a sharp
contrast to last year’s 70%.
Defence & Security
We introduced a new leader and new defence strategy in FY20 to
bring CAE in even greater alignment with the needs and priorities
of National Defence Departments, from the U.S., to Canada, to
NATO allies worldwide. With the pending acquisition of L3Harris
Technologies’ Military Training business, CAE will now double its
U.S. defence presence to become the largest non-OEM training
provider to the U.S. military. Our entry into mission and operations
support likewise opens adjacent market growth opportunities for
CAE’s Defence & Security business.
As is the case in our Civil markets, our defence platform agnosticism
remains a key strength. During the year, we won 100% of all our
foundational recompetes, and won significant new competitions
as well. We expanded our position in digital immersion, operational
support and security. Notable wins include a contract with the U.S.
Air Force for the base year of the new KC-135 Training System
contract, which now includes training support services for the Air
National Guard boom operator simulation systems. Defence also
won a flagship award from the U.S. Special Operations Command
to lead the integration efforts for the Special Operations Force
Global Situational Awareness initiative.
We expanded in key training growth segments (air, maritime,
unmanned/remotely piloted), and secured positions on major
U.S. and U.K. military programs. We also enhanced our OEM
relationships worldwide resulting in several key successes. We
deployed components of the CAE Trax Academy and adaptive
learning into the U.S. Air Force Defense Innovation Unit Pilot
Training Transformation, and further developed our Single
Synthetic Environment (SSE) technology — resulting in deliveries
to customers in the U.K. and positioning CAE for future National
Synthetic Environment opportunities. Through our SSE capability to
support mission systems integration, CAE won contracts for mission
operations-focused programs that leverage digital immersion
development in synthetic environments.
Annual Defence & Security revenue was $1,217.1 million, down
9% over last year. Annual operating income1 was $15.5 million
compared to $104.8 million last year, and annual adjusted segment
operating income1 was $87.0 million (7.1% of revenue) compared to
$114.5 million (8.6% of revenue) last year.
Healthcare
While the healthcare global community struggled to grasp and then
manage the knowns and unknowns of COVID-19, our Healthcare
training and simulation market experienced a massive downward
shock with sweeping cancellations of tradeshows and conferences
(the major pipeline for generating healthcare sales); a steep 40%
drop in hospital profitability; a focus away from training, given the
strain on hospital systems confronting urgent patient crises taking
place; and the abrupt shutdown of university and school training
programs.
We put a new leader in place in Healthcare amid the severity of
this environment, and our Healthcare business quickly went into
overdrive to provide vital support through innovative training
solutions that furthered the global preparedness of frontline
healthcare and critical care unit workers. CAE Healthcare offered
free online training modules on personal protection equipment
use, point-of-care ultrasound scanning and COVID-19 assessment
to spread the much-needed understanding throughout the world.
Throughout FY21, CAE Healthcare prevailed on plans to launch new
tools and training capabilities, including introducing the first-of-its-
kind CAE Blue Phantom COVID-19 Lung Simulator and an adaptive
Ventilator Reskilling course, the latter winning both the EMS World
Innovation Award and Attendees’ Choice Award.
The CAE Air1 ventilator, a milestone achievement, went from
concept to design, development, testing, certification and ultimate
delivery of thousands of ventilators to the Government of Canada
in under twelve months. That agility alone serves as an eye-opening
testament to the strength of CAE’s innovation, engineering talent
and advanced manufacturing capabilities.
We expanded our capabilities with the introduction of CAE Maestro
Evolve, together with other new offerings that are detailed in the
Healthcare business highlights section. Collaboration with leading
OEMs continued, including projects with Edwards Lifesciences and
Cordis, a Cardinal Health Company, to develop transformative
digital training solutions.
Annual Healthcare revenue was $351.9 million, up 183% compared
to last year, and included $230.6 million from the CAE Air1 ventilator
contract. Annual operating income1 was $26.4 million compared
to a loss of $41.0 million last year, and annual adjusted segment
operating income1 was $29.3 million (8.3% of revenue) compared
to a loss of $3.5 million last year.
Achieving carbon neutrality and taking bold steps in the fight
against climate change
CAE became the first Canadian aerospace company to become
carbon neutral, a significant milestone for our organization.
This represents a bold achievement, and we hope that CAE’s
commitment in the fight against climate change will inspire other
companies to take tangible action today.
We honoured our pre-pandemic commitment despite a whirlwind
year full of unpredictable elements, a further demonstration of
CAE’s environmental leadership and commitment toward future
generations. We continue to identify further measures to reduce
our overall emissions through our Climate Change Committee and,
through our Innovation and Global Strategic Sourcing teams, not
only to reduce our carbon footprint, but to contribute to reducing
those of our suppliers and customers.
CAE is also partnering with industry on a number of projects,
including the development of electric aircraft. Our target is to have
50% of our aircraft fleet be either hybrid or electric in the next five
years to further reduce carbon emissions at the source. As one of
five industrial partners in SA2GE Phase 2, we led a project to develop
simulation training technology to reduce the environmental
footprint of the aeronautical industry. CAE also has the distinction
of being among the 30 companies selected to contribute to the
creation of an Urban Air Mobility ecosystem in France.
that 23 workplace vaccination hubs would be created across the
province with the shared objective to collectively vaccinate 500,000
people. On April 26, we opened the CAE Montreal Vaccination
Centre, the first of these one-of-a-kind hubs, to CAE employees,
partner companies, their families and the local community.
CAE is now included in the Jantzi Social Index (JSI), as one of
50 Canadian companies to meet a set of broad-based ESG rating
criteria. The JSI index is used by institutional investors to benchmark
the performance of socially screened portfolios and by financial
institutions to develop investment products.
In taking stock of all our organization achieved throughout the very
long year of FY21, confronting highly unique challenges and not
only surmounting them, but taking CAE into an all-new terrain of
global esteem, we have every reason to feel proud of what we have
accomplished and emboldened about our future.
Diversity and inclusion
A year where new challenges catalyzed bold action
I firmly believe there has never been a more exciting time to be at
CAE. We have an excellent team, clarity of focus on what we need
to do to execute our plans successfully and bold aspirations for our
future – all of which are within our reach.
We made several important advances in diversity and inclusion
(D&I), which continue to be among our top strategic priorities.
CAE’s D&I commitment not only is the right thing to do, it is smart
business.
While pleased with the advances made in our D&I roadmap and in
Employment Equity – measures of ongoing progress on identified
diversity targets in each business unit/function across CAE – there
is always more to achieve. Our efforts are recognized internally and
externally, as evidenced by our inclusion in the Bloomberg Gender-
Equality Index for a third consecutive year.
We received excellent results in our drive to identify and develop
current and future women leaders. In FY21, 31% of all high
potentials are women and 30% of senior executives are women.
However, I continue to press hard on our diversity initiatives. In
signing the BlackNorth Initiative pledge, I proudly committed
myself and CAE to taking deliberate action to attract more talent
from the Black community, and to create a workplace where
black employees have the support to grow, an organization that
celebrates the vibrancy and richness that diversity brings, and most
of all, a company where every member of our team can succeed
and thrive — with no exception. We welcome people of all races,
ethnicity, religious views, sexual orientation, all walks of life and
diverse backgrounds and education; this very diversity is crucial to
CAE’s strength. Our D&I imperative says it all in a mere five words,
“Thousands of differences. One CAE.”
Meaningful progress along lines of furthering social impact
I am proud of the many contributions CAE makes to the communities
in which we operate. Our 10,000-plus employees worldwide rallied
to achieve incredible results through their ingenuity, resiliency,
unfaltering customer support and humanitarian efforts.
It is worth highlighting the extent of our organization’s social impact
in the vaccination effort. CAE took leadership in a crisis, playing
an instrumental role by spearheading the Industry for Vaccination
coalition to gather support from companies and their CEOs across
Canada. Our goal was two-fold: accelerate mass vaccination
through the private sector, in turn, restarting the economy as soon
as possible.
We worked with the Quebec Government to leverage the support
the private sector had to offer, which led to the announcement
1 Non-GAAP and other financial measures, see Appendix
In conclusion, the sharp industry headwinds that confronted us
forced all-new thinking in some respects and we galvanized into
action ensuring we played both strong defence and offence to
ensure a winning year. We think the financial results, the employee
satisfaction scores internally, our many external recognitions and
the stock price together paint an accurate picture of an excellent
year up despite the unusually unfavorable business climate. Our
conviction is all the higher that we are emerging into this post
COVID-19 world strategically well positioned in our key industries
that retain highly attractive fundamentals; Civil aviation, Defence
& Security and Healthcare each feature compelling long-term
demand drivers. We used this past fiscal year to make our company
even stronger, driving deeper technological edge in each of these
verticals, with a goal to drive further improvements in market
share and expansion into fast growing adjacent markets. We’ve
dramatically increased our U.S. defence market presence via the
proposed L3Harris Technologies’ Military training acquisition and
stepped up efforts in our Washington Operations presence. We
issued equity using the proceeds to further our existing strategies
while deepening our shareholder base. We were a trusted resource
to our customers, to many aircraft OEMs, to our employees whom
we strove conscientiously to keep safe and we delivered attractive
shareholder value for our stock owners. Atop this, we met
milestones on our environmental and social responsibility goals,
with even further aspirations ahead. In short, we met the face of
global shortfall with compassion, thoughtfulness and proactively
used the global risks to transform into long-term opportunity for
CAE. We look forward to the years ahead with confidence.
In recognition of the Honourable John Manley
For the second year, I close my message with congratulations to
CAE Board Chair, the Honourable John Manley, P.C., O.C., who was
named a recipient of the 2021 Institute of Corporate Directors
(ICD) Fellowship Award. The ICD Fellowship Award is the highest
distinction for corporate directors in Canada and it is presented
annually to individuals who have made outstanding contributions
to Canadian enterprises by bringing sound corporate governance
leadership to boardrooms across the country.
Finally, on behalf of CAE’s management, I thank our employees
for their dedication and ingenuity through unprecedented
circumstances. Their resilience and hard work have enabled us to
succeed and positioned us for the future.
Table of Contents
Management’s Discussion and Analysis
1. HIGHLIGHTS
2.
3. ABOUT CAE
INTRODUCTION
3.1 Who we are
3.2 Our mission
3.3 Our vision
3.4 Our strategy
3.5 Our operations
3.6
3.7 Non-GAAP and other financial measures
3.8 Non-GAAP measure reconciliations
Foreign exchange
4. CONSOLIDATED RESULTS
4.1 Results from operations – fourth quarter of fiscal 2021
4.2 Results from operations – fiscal 2021
4.3 Restructuring, integration and acquisition costs
4.4 Consolidated orders and total backlog
5. RESULTS BY SEGMENT
5.1 Civil Aviation Training Solutions
5.2 Defence and Security
5.3 Healthcare
6. CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY
6.1 Consolidated cash movements
6.2 Sources of liquidity
6.3 Government participation
6.4 Contractual obligations
7. CONSOLIDATED FINANCIAL POSITION
7.1 Consolidated capital employed
7.2 Off balance sheet arrangements
7.3
Financial instruments
8. BUSINESS COMBINATIONS
8.1 Acquisitions completed during the year ended March 31, 2021
8.2 Acquisitions announced but not yet completed during the year ended March 31, 2021
9. BUSINESS RISK AND UNCERTAINTY
9.1 Risks relating to the COVID-19 pandemic
9.2 Risks relating to the industry
9.3 Risks relating to the Company
9.4 Risks relating to the market
9.5 Risks relating to mergers, acquisitions, joint ventures, strategic alliances or divestitures
10. RELATED PARTY TRANSACTIONS
11. CHANGES IN ACCOUNTING POLICIES
11.1 New and amended standards adopted
11.2 New and amended standards not yet adopted
11.3 Use of judgements, estimates and assumptions
12. CONTROLS AND PROCEDURES
12.1 Evaluation of disclosure controls and procedures
12.2 Internal control over financial reporting
13. OVERSIGHT ROLE OF AUDIT COMMITTEE AND BOARD OF DIRECTORS
14. ADDITIONAL INFORMATION
15. SELECTED FINANCIAL INFORMATION
Consolidated Financial Statements
Board of Directors and Officers
Shareholder and Investor Information
Forward-Looking Statements
1
4
6
6
6
6
7
8
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20
23
25
25
27
29
29
30
30
33
36
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136
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138
Management’s Discussion and Analysis
for the fourth quarter and year ended March 31, 2021
1. HIGHLIGHTS
FINANCIAL1
FOURTH QUARTER OF FISCAL 2021
(amounts in millions, except per share amounts, ROCE and book-to-sales)
Q4-2021
Q4-2020
Variance $ Variance %
Income Statement
Revenue
Operating income1
Adjusted segment operating income (SOI)1
Adjusted SOI excluding COVID-19 government support programs1
Net income attributable to equity holders of the Company
Basic and diluted earnings per share (EPS)
Adjusted net income1
Adjusted EPS1
Adjusted net income excluding COVID-19 government support programs1
Adjusted EPS excluding COVID-19 government support programs1
Cash Flows
Free cash flow1
Net cash provided by operating activities
Financial Position
Capital employed1
Non-cash working capital1
Net debt1
Return on capital employed (ROCE)1
Adjusted ROCE1
Adjusted ROCE excluding COVID-19 government support programs1
Backlog
Total backlog1
Order intake1
Book-to-sales ratio1
Book-to-sales ratio for the last 12 months
FISCAL 2021
$
$
$
$
$
$
$
$
$
$
$
$
894.3
47.6
106.2
69.0
19.8
0.07
63.2
0.22
35.9
0.12
170.6
174.6
$
$
$
$
$
$
$
$
$
$
$
$
977.3
146.5
193.9
193.9
78.4
0.29
122.3
0.46
122.3
0.46
185.1
246.3
$ 4,638.2
$
35.5
$ 1,425.4
%
%
%
1.7 %
5.0 %
3.1 %
$ 4,944.0
$
6.0
$ 2,365.7
9.1
10.7
10.7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(83.0)
(98.9)
(87.7)
(124.9)
(58.6)
(0.22)
(59.1)
(0.24)
(86.4)
(0.34)
(14.5)
(71.7)
(305.8)
29.5
(940.3)
(8 %)
(68 %)
(45 %)
(64 %)
(75 %)
(76 %)
(48 %)
(52 %)
(71 %)
(74 %)
(8 %)
(29 %)
(6 %)
492 %
(40 %)
$ 8,201.1
927.9
$
1.04
0.91
$ 9,458.1
778.8
$
0.80
1.05
$ (1,257.0)
149.1
$
(13 %)
19 %
(amounts in millions, except per share amounts)
FY2021
FY2020
Variance $ Variance %
(Loss) Income Statement
Revenue
Operating income
Adjusted segment operating income
Adjusted SOI excluding COVID-19 government support programs
Net (loss) income attributable to equity holders of the Company
Basic (loss) earnings per share
Diluted (loss) earnings per share
Adjusted net income
Adjusted EPS
Adjusted net income excluding COVID-19 government support programs
Adjusted EPS excluding COVID-19 government support programs
Cash Flows
Free cash flow
Net cash provided by operating activities
$ 3,623.2
$ 2,981.9
537.1
$
48.4
$
590.4
$
280.6
$
590.4
153.2
$
$
311.4
(47.2) $
$
1.17
(0.17) $
$
1.16
(0.17) $
$
359.7
$
127.1
$
1.34
$
0.47
$
359.7
$
33.6
$
1.34
$
0.12
$
$
$
346.8
366.6
$
$
351.2
545.1
$
$
$
$
$
$
$
$
$
$
$
$
$
(641.3)
(488.7)
(309.8)
(437.2)
(358.6)
(1.34)
(1.33)
(232.6)
(0.87)
(326.1)
(1.22)
(4.4)
(178.5)
(18 %)
(91 %)
(52 %)
(74 %)
(115 %)
(115 %)
(115 %)
(65 %)
(65 %)
(91 %)
(91 %)
(1 %)
(33 %)
1 Non-GAAP and other financial measures (see Section 3.7).
CAE Financial Report 2021 I 1
Management’s Discussion and Analysis
CHANGES IN NON-GAAP MEASURES AND COMPARATIVE FIGURES
In the fourth quarter of fiscal 2021, we have changed the designation of the following profitability measures, without changing the
composition of these financial measures:
– Operating income (formerly operating profit);
– Adjusted segment operating income (formerly segment operating income before specific items);
– Adjusted EBITDA (formerly EBITDA before specific items);
– Adjusted net income (formerly net income before specific items); and
– Adjusted earnings per share (formerly earnings per share before specific items).
We have also introduced new non-GAAP measures to reflect the impact of COVID-19 government support programs on the above
metrics in order to incorporate recently published and evolving guidance by the Canadian Securities Administrators. These measures
do not adjust for COVID-19 heightened operating costs that we have been carrying and that have been included in our results, as
discussed in section 3.8 “Non‑GAAP measure reconciliations” of this MD&A. In addition, we no longer use segment operating income
as a non-GAAP measure as it has been replaced with adjusted segment operating income. Comparative figures have been
reclassified to conform to these adopted changes in presentation.
IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic has created unprecedented uncertainty in the global economy, the global air transportation environment, air
passenger travel and CAE's business. Several of our customers are facing significant challenges, with airlines and, to a lesser extent,
business jet operators having to ground many aircraft in response to travel bans, border restrictions, and lower demand for air travel.
We continue to take measures to protect the health and safety of our employees, work with our customers to minimize potential
disruptions and support our community in addressing the challenges posed by this global pandemic. This outbreak has had an
important and immediate impact on all our businesses throughout fiscal 2021, especially in the Civil Aviation Training Solutions
segment, as a result of an unprecedented shock to demand together with significant disruptions to our own operations, including
temporary facility closures, supply chain disruptions, program execution delays, slower procurement decisions and changes to our
customers’ acquisition priorities. The global roll-out of vaccines to combat COVID-19 is encouraging, however, renewed quarantine
measures and border restrictions to contain the spread of the virus continue to impact our customers and our businesses.
For the Civil Aviation Training Solutions segment, the impacts of the COVID-19 pandemic started at the end of the fourth quarter of
fiscal 2020 and resulted in the temporary closure of certain training centre operations, lower utilization of our simulators in the network
due to reduced demand from aviation customers and interruptions in the execution of our backlog. At the worst point during the first
quarter of fiscal 2021, more than half of our Civil training locations worldwide had totally suspended operations or operated at
significantly reduced capacity. However, by the end of June 2020, all previously closed training locations had re-opened at full or
reduced capacities, and opening hours gradually resumed to normal. We began to see some recoveries in training utilization starting
in the second quarter of fiscal 2021 with gradual improvements continuing through the fourth quarter, especially in our business
aviation training business, but certain training locations curtailed operating activities temporarily throughout the fiscal year as local
authorities implemented measures to contain the spread of COVID-19. Accordingly, we remain operating at significantly lower levels
than the prior year, as evidenced by the Civil simulator training network utilization rate decreasing to an average of 47% during fiscal
2021, compared to an average of 70% during fiscal 2020, and the number of full-flight simulator deliveries dropping to 36 during fiscal
2021 compared to 56 in the previous fiscal year.
For the Defence and Security segment, although we were awarded several strategic contracts during fiscal 2021, delays in the
awarding of additional contracts and in the execution and advancement of certain programs continue to be experienced as the
book‑to‑sales ratio for the last 12 months was 0.91x and backlog is down 5% compared to last year. Additionally, travel restrictions to
certain countries and border closures have impacted our ability to deliver training for some international pilots that cannot travel to our
training facilities.
For the Healthcare segment, customers continue to be focused on managing the acute operational demands of this healthcare crisis,
which resulted in less budget for normal operations and training projects. Furthermore, as institutions begin to reopen, they have
switched their focus to remote education and, while we have provided new distance learning solutions, we have seen a reduction in
demand for on-site training in universities and hospitals resulting in delays of training events and simulator patient deliveries.
However, the healthcare business looks well positioned to experience a change in the appreciation of the importance, relevancy and
benefits of healthcare simulation and training to help save lives.
Throughout the year, we operated with several flexible measures implemented to protect our financial position and preserve liquidity,
including the reduction of capital expenditures by approximately $175 million compared to fiscal 2020, the reduction of R&D
investments, strict cost containment measures, salary freezes, temporary salary reductions in the first half of fiscal 2021, reduced
work weeks, layoffs, a suspension of our common share dividend and share repurchase plan conserving approximately $160 million in
cash compared to these disbursements in fiscal 2020, obtaining payment deferrals on certain government royalty and R&D obligations
for approximately $35 million, as well as applying for government support programs where eligible for which we received cash of
approximately $135 million throughout the fiscal year. Additionally, we have worked with defence customers to secure more favorable
terms for milestone payments and with suppliers for extended payment terms.
You will find more details on the impacts of the COVID-19 pandemic on our business in About CAE, Results by segment, Business
risk and uncertainty and Use of judgements, estimates and assumptions.
2 I CAE Financial Report 2021
Management’s Discussion and Analysis
BUSINESS COMBINATIONS
– On November 16, 2020, we acquired the shares of Flight Simulation Company B.V. (FSC) for cash consideration (net of cash
acquired) of $105.2 million. FSC is a provider of training solutions as well as instructor provisioning in Europe for airline and cargo
operators. The acquisition provides CAE with an expanded portfolio of customers and an established recurring training business
which is complementary to CAE’s network;
– On December 22, 2020 we acquired the shares of Merlot Aero Limited (Merlot) for cash consideration (net of cash acquired) of
$31.7 million and a long-term contingent cash consideration payable of up to US$10 million if certain criteria are met. Merlot is a
leading civil aviation crew management and optimization software company based in Auckland, New Zealand. This acquisition
expands our reach beyond pilot training and into the market for digitally-enabled crew optimization services;
– On January 26, 2021, we acquired the shares of TRU Simulation + Training Canada Inc. (TRU Canada), a manufacturer of
full‑flight simulators and flight training devices, for cash consideration (net of cash acquired) of $49.6 million. This acquisition
expands CAE’s global installed base of commercial flight simulators and customers, and the addressable market for simulator
lifecycle support services and also provides CAE with a backlog of simulator orders, full-flight simulators and access to a number
of airline customers globally;
– On March 1, 2021, we announced that we have entered into a definitive agreement to acquire L3Harris’ Military Training business
(L3H MT) for US$1.05 billion, subject to purchase price adjustments. L3H MT includes Link Simulation & Training, Doss Aviation
and AMI. Link Simulation & Training is one of the leading providers of military training solutions in the U.S., Doss Aviation is the
provider of initial flight training to the United States Air Force, and AMI is a design and manufacturing facility for simulator
hardware. Subject to completion, the acquisition will expand our position as a platform-agnostic training systems integrator by
diversifying our training and simulation leadership in the air domain, complementing land and naval training solutions, and
enhancing our training and simulation capabilities in space and cyber. The closing of the acquisition is expected in the second half
of calendar year 2021, subject to regulatory approvals and other customary closing conditions.
OTHER
– On April 6, 2020, we announced a series of flexible measures to protect our financial position in response to the COVID-19
pandemic and to mitigate the impact on our employees. The measures include temporarily laying off 2,600 of our 10,500
employees and placing another 900 employees on a reduced work week and the suspension of our common share dividend and
normal course issuer bid (NCIB). On April 20, 2020, we announced that we have recalled all remaining temporarily laid-off
employees in Canada through the Canada Emergency Wage Subsidy (CEWS) program;
– On April 9, 2020, we concluded a new two-year $500.0 million unsecured revolving credit facility which provides access to
additional liquidity and further strengthens our financial position;
– On April 10, 2020, we concluded an agreement with the Government of Canada to design and manufacture CAE Air1 ventilators to
provide life support to patients in intensive care to support the COVID-19 pandemic;
– On May 19, 2020, we concluded an agreement to increase the limit of our receivable purchase program from US$300.0 million to
US$400.0 million;
– During the first quarter of fiscal 2021, we recorded non-operational costs of $108.2 million relating mainly to impairment charges
on property, plant and equipment, intangible assets, and certain financial assets as a result of the continued negative impacts of
the COVID-19 pandemic;
– On August 12, 2020, we announced that we would be taking additional measures to best serve the market by optimizing our global
asset base and footprint, adapting our global workforce and adjusting our business to correspond with the expected lower level of
demand for certain of our products and services. We announced that we expect to record restructuring expenses of approximately
$170 million, which has been carried out throughout fiscal 2021 and will continue into fiscal 2022, and to realize annual recurring
cost savings ramping up to approximately $65 to $70 million by the end of fiscal 2022. We started executing the restructuring
program in the second quarter of fiscal 2021 and have incurred $124.0 million of restructuring, integration and acquisition costs as
at March 31, 2021;
– On November 30, 2020, we completed a public equity offering and a concurrent private placement of 16,594,126 common shares
at a price of $29.85 per share for aggregate gross proceeds of $495.3 million. The proceeds of the equity offering are for general
corporate purposes, including to fund our recently completed acquisitions, disclosed above, and other future potential acquisition
and growth opportunities;
– On March 4, 2021, we completed a private placement of 22,400,000 subscription receipts at a price of $31.25 per receipt for
aggregate gross proceeds of $700.0 million. As at March 31, 2021, the cash proceeds from the issuance of the subscription
receipts were held by an escrow agent, in a restricted account, pending the fulfilment or waiver of all outstanding conditions
precedent to the closing of the L3H MT acquisition;
– On March 12, 2021, we completed a marketed public equity offering of 10,454,545 common shares at a price of $34.29
[US$27.50] per share for gross proceeds of $358.5 million. The proceeds of the equity offering are for financing a portion of the
purchase price and related costs of the L3H MT acquisition.
CAE Financial Report 2021 I 3
Management’s Discussion and Analysis
2. INTRODUCTION
In this report, we, us, our, CAE and Company refer to CAE Inc. and its subsidiaries. Unless we have indicated otherwise:
– This year and 2021 mean the fiscal year ending March 31, 2021;
– Last year, prior year and a year ago mean the fiscal year ended March 31, 2020;
– Dollar amounts are in Canadian dollars.
This report was prepared as of May 19, 2021 and includes our management’s discussion and analysis (MD&A) for the year and the
three‑month period ended March 31, 2021 and the consolidated financial statements and notes for the year ended March 31, 2021.
We have prepared it to help you understand our business, performance and financial condition for fiscal 2021. Except as otherwise
indicated, all financial information has been reported in accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB). All quarterly information disclosed in the MD&A is based on unaudited
figures.
For additional information, please refer to our annual consolidated financial statements for this fiscal year, which you will find in the
financial report for the year ended March 31, 2021. The MD&A provides you with a view of CAE as seen through the eyes of
management and helps you understand the Company from a variety of perspectives:
– Our mission;
– Our vision;
– Our strategy;
– Our operations;
– Foreign exchange;
– Non-GAAP and other financial measures;
– Consolidated results;
– Results by segment;
– Consolidated cash movements and liquidity;
– Consolidated financial position;
– Business combinations;
– Events after the reporting period;
– Business risk and uncertainty;
– Related party transactions;
– Changes in accounting policies;
– Controls and procedures;
– Oversight role of Audit Committee and Board of Directors.
You will find our most recent financial report and Annual Information Form (AIF) on our website at www.cae.com, on SEDAR at
www.sedar.com or on EDGAR at www.sec.gov. Holders of CAE’s securities may also request a printed copy of the Company’s
consolidated financial statements and MD&A free of charge by contacting Investor Relations (investor.relations@cae.com).
ABOUT MATERIAL INFORMATION
This report includes the information we believe is material to investors after considering all circumstances, including potential market
sensitivity. We consider something to be material if:
– It results in, or would reasonably be expected to result in, a significant change in the market price or value of our shares, or;
– It is likely that a reasonable investor would consider the information to be important in making an investment decision.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements about our activities, events and developments that we expect to or anticipate may
occur in the future including, for example, statements about our vision, strategies, market trends and outlook, future revenues, capital
spending, expansions and new initiatives, financial obligations, available liquidities, expected sales, general economic outlook,
prospects and trends of an industry, expected annual recurring cost savings from operational excellence programs, estimated
addressable markets, statements relating to our proposed acquisition of L3H MT, the attractiveness of the L3H MT acquisition from a
financial perspective and expected accretion in various financial metrics, expectations regarding anticipated cost savings and
synergies, the strength, complementarity and compatibility of the L3H MT acquisition with our existing business and teams, other
anticipated benefits of the L3H MT acquisition and their impact on our future growth, results of operations, performance, business,
prospects and opportunities, our business outlook, objectives, development, plans, growth strategies and other strategic priorities, and
our leadership position in our markets and other statements that are not historical facts. Forward-looking statements normally contain
words like believe, expect, anticipate, plan, intend, continue, estimate, may, will, should, strategy, future and similar expressions. By
their nature, forward‑looking statements require us to make assumptions and are subject to inherent risks and uncertainties
associated with our business which may cause actual results in future periods to differ materially from results indicated in
forward‑looking statements. While these statements are based on management’s expectations and assumptions regarding historical
trends, current conditions and expected future developments, as well as other factors that we believe are reasonable and appropriate
in the circumstances, readers are cautioned not to place undue reliance on these forward-looking statements as there is a risk that
they may not be accurate.
4 I CAE Financial Report 2021
Management’s Discussion and Analysis
Important risks that could cause such differences include, but are not limited to, risks relating to the COVID-19 pandemic such as
health and safety, reduction and suspension of operations, global economic conditions, diversions of management attention,
heightened IT risks, liquidity risks and credit risks, risks relating to the industry such as competition, business development and
awarding of new contracts, level and timing of defence spending, government-funded defence and security programs, constraints
within the civil aviation industry, regulatory matters, natural or other disasters, environmental laws and regulations, climate change,
risks relating to CAE such as evolving standards and technology innovation, our ability to penetrate new markets, our estimates of the
size of our addressable markets and market opportunity may not prove accurate, R&D activities, fixed-price and long‑term supply
contracts, strategic partnerships and long-term contracts, backlog, procurement and original equipment manufacturer (OEM) leverage,
product integration and program management, protection of our intellectual property and brand, third-party intellectual property, loss of
key personnel, labour relations, liability risks that may not be covered by indemnity or insurance, warranty or other product-related
claims, reputational risk, U.S. foreign ownership, control or influence mitigation measures, foreign private issuer status, enforceability
of civil liabilities against our directors and officers, length of sales cycle, seasonality, continued returns to shareholders, information
technology and cybersecurity, our reliance on technology and third‑party providers, data privacy, risks relating to the market such as
foreign exchange, availability of capital, sales of additional common shares, market price and volatility of our common shares, credit
risk, impairment risk, pension plan funding, doing business in foreign countries, geopolitical uncertainty, anti-corruption laws, taxation
matters, and risks relating to mergers, acquisitions, joint ventures, strategic alliances or divestitures such as the risk that we will not
effectively manage our growth, risks relating to the acquisition of L3H MT, including the integration of the L3H MT business, possible
delay or failure to achieve the anticipated benefits and cost synergies, the continued reliance on L3Harris Technologies following the
completion of the acquisition, possible delay or failure to complete the acquisition, the receipt of applicable regulatory approvals and
satisfaction of closing conditions for the acquisition, currency exchange risk and foreign currency exposure on the purchase price,
potential undisclosed liabilities related to the acquisition, reliance on information provided by L3Harris Technologies, CAE or L3H MT
being adversely impacted during the pendency of the acquisition, change of control and other similar provisions and fees,
unanticipated acquisition and integration costs, increased indebtedness of CAE after closing of the acquisition, and risks relating to the
post-acquisition of the operations of L3H MT, including the fact that the combined company will continue to face the same risks that
CAE currently faces, but would also face increased risks relating to increasing Defence business and operations, dependence on U.S.
Government contracts for a significant portion of revenue, which are often only partially funded, subject to immediate termination and
heavily regulated and audited, U.S. Government’s budget deficit and national debt, fixed-price contracts, ability to successfully obtain
export licenses, reliance on subcontractors, uncertain economic conditions in the markets L3H MT participates in, government
investigations, and liability risks that may not be covered by indemnity or insurance. The foregoing list is not exhaustive and other
unknown or unpredictable factors could also have a material adverse effect on the performance or results of CAE or the L3H MT
business. The completion of the L3H MT acquisition is subject to customary closing conditions, termination rights and other risks and
uncertainties, including, without limitation, regulatory approvals, and there can be no assurance that the L3H MT acquisition will be
completed. There can also be no assurance that if the L3H MT acquisition is completed, the strategic and financial benefits expected
to result from the L3H MT acquisition will be realized. Additionally, differences could arise because of events announced or completed
after the date of this report. You will find more information in the Business risk and uncertainty section of the MD&A. Any one or more
of the factors described above and elsewhere in this MD&A may be exacerbated by the continuing COVID-19 pandemic and may
have a heightened negative impact on CAE’s business, results of operations and financial condition. Accordingly, readers are
cautioned that any of the disclosed risks could have a material adverse effect on CAE’s forward-looking statements. Readers are also
cautioned that the risks described above and elsewhere in this MD&A are not necessarily the only ones we face; additional risks and
uncertainties that are presently unknown to us or that we may currently deem immaterial may adversely affect our business.
Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a
result of new information, future events or otherwise. The forward-looking information and statements contained in this report are
expressly qualified by this cautionary statement.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based on information available to us as of the date of this report. While we believe that information provides a
reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain,
and investors are cautioned not to unduly rely on these statements.
CAE Financial Report 2021 I 5
Management’s Discussion and Analysis
MATERIAL ASSUMPTIONS
The forward-looking statements set out in this report are based on certain assumptions including, without limitation: the anticipated
negative impacts of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial condition, including the
intended effect of mitigation measures implemented as a result of the COVID-19 pandemic and the timing and degree of easing of
global COVID-19-related mobility restrictions, the prevailing market conditions, customer receptivity to CAE’s training and operational
support solutions, the accuracy of our estimates of addressable markets and market opportunity, the realization of anticipated annual
recurring cost savings and other intended benefits from recent restructuring initiatives and operational excellence programs, the
stability of foreign exchange rates, the ability to hedge exposures to fluctuations in interest rates and foreign exchange rates, the
availability of borrowings to be drawn down under, and the utilization, of one or more of our senior credit agreements, our available
liquidity from cash and cash equivalents, undrawn amounts on our revolving credit facilities, the balance available under our
receivable purchase program, our cash flows from operations and continued access to debt funding will be sufficient to meet financial
requirements in the foreseeable future, no material financial, operational or competitive consequences from changes in regulations
affecting our business, the satisfaction of all closing conditions of the L3H MT acquisition, including receipt of all regulatory approvals
in a timely manner and on terms acceptable to CAE, our ability to retain and attract new business, achieve synergies and maintain
market position arising from successful integration plans relating to the L3H MT acquisition, our ability to otherwise complete the
integration of the L3H MT business acquired within anticipated time periods and at expected cost levels, our ability to attract and retain
key employees in connection with the L3H MT acquisition, management's estimates and expectations in relation to future economic
and business conditions and other factors in relation to the L3H MT acquisition and resulting impact on growth and accretion in
various financial metrics, the realization of the expected strategic, financial and other benefits of the L3H MT acquisition in the
timeframe anticipated, economic and political environments and industry conditions, the accuracy and completeness of public and
other disclosure, including financial disclosure, by L3Harris Technologies, absence of significant undisclosed costs or liabilities
associated with the L3H MT acquisition, the ability of CAE to opportunistically access the capital markets before or after the L3H MT
acquisition closing and absence of material change in market conditions. For additional information, including with respect to other
assumptions underlying the forward-looking statements made in this report, refer to “Business Risk and Uncertainty” in this report.
Given the impact of the changing circumstances surrounding the COVID-19 pandemic and the related response from CAE,
governments, regulatory authorities, businesses and customers, there is inherently more uncertainty associated with CAE’s
assumptions. Accordingly, the assumptions outlined in this report and, consequently, the forward-looking statements based on such
assumptions, may turn out to be inaccurate.
3. ABOUT CAE
3.1 Who we are
CAE is a high technology company, at the leading edge of digital immersion, providing solutions to make the world a safer place.
Backed by a record of more than 70 years of industry firsts, we continue to reimagine the customer experience and revolutionize
training and operational support solutions in civil aviation, defence and security, and healthcare. We are the partner of choice to
customers worldwide who operate in complex, high-stakes and largely regulated environments, where successful outcomes are
critical. Testament to our customers’ ongoing needs for our solutions, over 60 percent of CAE’s revenue is recurring in nature. We
have the broadest global presence in our industry, with approximately 10,000 employees, 160 sites and training locations in over 35
countries.
CAE’s common shares are listed on the Toronto and New York stock exchanges (TSX / NYSE) under the symbol CAE.
3.2 Our mission
To lead at the frontier of digital immersion with high-tech training and operational support solutions to make the world a safer place.
3.3 Our vision
To be the worldwide partner of choice in civil aviation, defence and security and healthcare by revolutionizing our customers’ training
and critical operations with digitally immersive solutions to elevate safety, efficiency and readiness.
6 I CAE Financial Report 2021
Management’s Discussion and Analysis
3.4 Our strategy
CAE's eight pillars of strength
We believe there are eight fundamental strengths that underpin our strategy and investment thesis:
– High degree of recurring business;
– Industry leader with a strong competitive moat;
– Headroom in large markets;
– Technology and industry thought leader;
– Potential for compound growth and superior returns over the long-term;
– Culture of innovation, empowerment, excellence and integrity;
– Excellent and diverse team with a unique social impact on safety;
– Solid financial position and highly cash generative business model.
High degree of recurring business
We operate in highly regulated industries with mandatory and recurring training requirements for maintaining professional
certifications. Over 60% of our business is derived from the provision of technology enabled services, which is an important source of
recurring business, and largely involves long-term agreements with many airlines, business aircraft operators and defence forces.
Industry leader with a strong competitive moat
We are an industry leader in each of our three segments by way of scale, the range of our technological solutions and services, and
our global reach. We benefit from a strong competitive moat, fortified by seven decades of industry firsts and by continuously pushing
the boundaries using digitally immersive, high-tech training and operational support solutions. Our broad global training network,
unique end‑to‑end cadet to captain training capacities, technology-intensive training and operational support solutions, deep subject
matter expertise and industry thought leadership, unrivaled customer intimacy and strong, recognizable brand further strengthen our
competitive moat.
Headroom in large markets
We provide innovative training and operational support solutions to customers in large addressable markets in civil aviation, defence
and security and healthcare. We believe significant untapped market opportunities exist in these three core businesses, with
substantial headroom to grow our market share over the long-term.
Technology and industry thought leader
CAE is a high-tech training and operational support solutions company and an industry thought leader in the application of modelling
and simulation, virtual reality and advanced analytics to create highly innovative and digitally immersive training and operational
support solutions for customers in civil aviation, defence and security and healthcare.
Potential for compound growth and superior returns over the long-term
In each of our businesses, we believe we have the potential to grow at a rate superior to our underlying markets because of our
potential to gain share within the markets we serve. Our rising proportion of recurring revenue is largely driven by our customers'
ongoing training, operational support requirements and our ability to assist them with these critical activities. We leverage our leading
market position to deepen and expand our customer relationships and gain more share of their critical responsibilities. We expect to
optimize and increase the utilization of our global training network and to deploy new assets with accretive returns, over the long-term.
Culture of innovation, empowerment, excellence and integrity
One CAE is the internal mantra that represents our culture of innovation, empowerment, excellence and integrity. It is the combination
of these four key attributes that provides CAE with its market leadership, strong reputation and high degree of customer intimacy.
Excellent and diverse team with a unique social impact on safety
CAE prides itself in having an excellent and diverse team with a unique social impact on safety. Each day, our employees support our
customers’ most critical operations with the most innovative solutions and in doing so, they help make the world a safer place. We
help make air travel and healthcare safer and help our defence forces maintain security.
Solid financial position and highly cash generative business model
A constant priority for CAE is the maintenance of a solid financial position and we use established criteria to evaluate capital allocation
opportunities. Our business model and training network, specifically, is highly cash generative by nature.
CAE Financial Report 2021 I 7
Management’s Discussion and Analysis
3.5 Our operations
We provide digitally immersive training and operational support solutions to three markets globally:
– The civil aviation market includes major commercial airlines, regional airlines, business aircraft operators, civil helicopter
operators, aircraft manufacturers, third-party training centres, flight training organizations, maintenance repair and overhaul
organizations (MRO) and aircraft finance leasing companies;
– The defence and security market includes defence forces, OEMs, government agencies and public safety organizations
worldwide;
– The healthcare market includes hospital and university simulation centres, medical and nursing schools, paramedic organizations,
defence forces, medical societies, public health agencies and OEMs.
IMPACT OF THE COVID-19 PANDEMIC
In late December 2019, a novel coronavirus (SARS-CoV-2/COVID-19) was identified and cases subsequently confirmed in multiple
countries throughout the world. The outbreak was declared a Public Health Emergency of International Concern on January 30, 2020
and was subsequently categorized as a pandemic by the World Health Organization (WHO) on March 11, 2020. The outbreak of the
COVID-19 pandemic has resulted in governments and businesses worldwide adopting emergency measures to combat the spread of
the virus while seeking to maintain essential services. These measures have included, without limitation, travel bans, border
restrictions, lockdown protocols and self-isolation measures.
COVID-19 has created unprecedented uncertainty in the global economy, the global air transportation environment and air passenger
travel, disrupted global supply chains, created significant economic downturn and disruption of financial markets. These adverse
economic conditions are expected to continue for as long as the measures taken to contain the spread of the COVID-19 virus persist
and certain adverse economic conditions could continue even upon the gradual removal of such measures and thereafter, especially
in the global air transportation environment and air passenger travel. These measures and conditions have adversely affected, and
are expected to continue to adversely affect, our business and financial results, for at least as long as the measures adopted in
response to the COVID-19 pandemic remain in place or are re-introduced.
The COVID-19 pandemic started impacting several operational locations and markets in January and February in Asia, and through
the rest of the world in March 2020. The impacts widened in April, and although some recoveries were experienced starting in June,
especially in our business aviation training business, we remain operating at significantly lower levels than the prior year. The global
roll-out of vaccines to combat COVID-19 is encouraging, as evidenced by the increased TSA checkpoint travel throughput in the U.S.,
which has recovered to approximately 63% of calendar 2019 levels by the end of March 2021. Additionally, the commercial flight
activity has shown an increase at the end of the fourth quarter of fiscal 2021 compared to earlier in the year with flight hours
approximately 44% lower than the March 2019 average compared to 80% lower at the end of the fourth quarter last year. These two
increases are driven mainly by domestic flights in the U.S. as international travel restrictions continue. While encouraging, renewed
quarantine measures and border restrictions to contain the spread of the virus have contributed to industry expectations for a
potentially more protracted recovery period for commercial air travel, particularly for cross-border and transcontinental operations. As
such, several of our customers are continuing to face significant challenges, with airlines and, to a lesser extent, business jet
operators having to ground many aircraft in response to travel bans, border restrictions, and lower demand for air travel. This outbreak
has had an important and immediate impact on all our businesses, especially in Civil Aviation where commercial airlines are
experiencing significant financial challenges, as a result of an unprecedented shock to demand together with significant disruptions to
our own operations, including temporary facility closures, supply chain disruptions, program execution delays, slower procurement
decisions and changes to our customers’ acquisition priorities. We continue to take measures to protect the health and safety of our
employees, work with our customers to minimize potential disruptions and support our community in addressing the challenges posed
by this global pandemic.
Impacts to CAE's operations
Civil Aviation
Pilot, maintenance and cabin crew training is an essential service and critical to maintaining our customers' operations, however, with
the global airline industry facing a severe and abrupt drop in air passenger travel and with airlines and business jet operators having to
ground many aircraft and furlough employees, we have experienced a significant drop in demand for our training services. Reduction
in demand combined with public directives resulted in more than half of our civil aviation training locations suspending operations or
operating at significantly reduced capacity at our lowest point in April 2020. By the end of June 2020, all previously closed training
locations had re‑opened at full or reduced capacities, and opening hours gradually resumed to normal. We continue to operate on an
adaptive basis and in accordance with the local COVID-19 situation and government protocols, accordingly certain training locations
curtailed operating activities temporarily throughout the fiscal year as local authorities implemented measures to contain the spread of
COVID-19. In addition to disruptions to our civil training centre network, under public directives, we also had to suspend most
manufacturing operations of civil simulator products starting on March 25, 2020; with gradual recommencement of manufacturing
operations in May 2020.
8 I CAE Financial Report 2021
Management’s Discussion and Analysis
Reductions in domestic and international passenger demand have severely impacted the aviation industry. For calendar 2020,
passenger traffic decreased by 66% compared to calendar 2019. For the first three months of calendar 2021, passenger traffic
decreased by 62% compared to the first three months of calendar 2020. As per the International Air Transport Association's (IATA)
latest forecast issued April 21, 2021, they predict that, for the year, domestic and international passenger demand is expected to be
43% of calendar 2019 pre-COVID levels, which would be a 26% improvement over calendar 2020, however IATA still expects
passenger traffic to recover to 2019 levels by calendar 2024. As a result, our commercial airline customers are deferring initial training
for new pilots and in some cases, airlines sought temporary deferrals of pilot recurrent training requirements from local authorities. In
business aviation, while activity was also reduced due to self-isolation measures, travel bans, border restrictions and lockdown
protocols, we have seen gradual recovery in training utilization throughout the fiscal year. Since the end of the first quarter of fiscal
2021, business jet traffic has shown improvements from the April lows with the U.S. Federal Aviation Administration (FAA) reporting a
year‑over‑year increase of 47% for the total number of business jet flights for the month of March 2021 compared to a decline of 75%
for the month of April 2020, respectively. Similarly, Eurocontrol, the European Organisation for the Safety of Air Navigation, reported a
year-over-year increase of 23% in March 2021 compared to a decline of 71% in April 2020. To preserve resources, airlines are also
deferring new aircraft deliveries, planning early retirements for certain aircraft fleet types and seeking financial help from local
governments. This will likely result in lower simulator orders when compared to the pre-pandemic period and some impacts on the
timing of the delivery of our current backlog. Additionally, we have reassessed certain estimated contract values included in our Civil
training backlog, resulting in a negative backlog adjustment of approximately $600 million recorded throughout the year, to reflect the
change in estimates of our customers' training requirements during the downturn caused by the COVID-19 pandemic. CAE continues
to work closely with our customers to monitor the situation and support their needs.
As the market continues to recover, the financial impact from the decreased training utilization, production slowdown, reduced orders
and deliveries and other disruptions is expected to continue to negatively impact the operations and financial performance of the
upcoming fiscal year when compared to pre-pandemic levels. However, with the increase of commercial and business traffic, the
upcoming fiscal year should show improvements compared to fiscal 2021, but the resumption of our recovery remains highly
dependent on the timing and rate at which travel restrictions and quarantines can eventually be safely lifted and normal activities
resume.
Defence and Security
While the COVID-19 pandemic has severely impacted all sectors of society, governments have reaffirmed the critical role played by
the military and are taking measures to minimize impacts to both defence forces and the defence industrial base. In countries where
we have significant operations, most of those governments have classified the defence market as an essential service and determined
that some level of training must continue to meet readiness requirements in support of national security. Consequently, almost all of
the sites where we provide services are operational with most back to full or near-full capacity. Manufacturing operations for defence
simulator products have continued during the pandemic, however, timing of execution and deliveries have been disrupted by mobility
limitations and client access restrictions.
Despite some of the mitigating initiatives taken by governments, there have been and continues to be negative implications on CAE’s
defence business segment due to the pandemic. We have a range of programs with defence and OEM customers globally that have
experienced project advancement delays due to travel bans, border restrictions, client access restrictions and supply chain
disruptions. Some of the required progress and acceptance testing has continued with virtual meetings and remote work procedures,
but delays have impacted some key milestones and on-site upgrade work, thus negatively affecting revenue and operating profit. In
addition, the level of fiscal stimulus by governments worldwide to counter the economic fallout of the COVID-19 pandemic may lead to
increased pressures on defence spending. In the Middle East, CAE’s customers are currently contending with the negative impacts of
the pandemic and lower oil prices, which is currently slowing the rate of progress on existing CAE programs and the awarding of new
ones from our pipeline. We have also experienced delays in the awarding of new contracts due to reduced bandwidth within
government procurement agencies as well as government authorities following directives in their respective countries to
shelter‑in‑place and eliminate travel. These delays are continuing to impact order intake and, although we were awarded several
strategic contracts this fiscal year, we expect the already lengthy defence procurement processes to result in ongoing delays in the
awarding of additional contracts until travel bans, access restrictions and quarantine measures can be safely removed and normal
customer engagement activities resume, which will affect the rate at which orders can be converted to revenue for the upcoming fiscal
year.
Healthcare
In Healthcare, a large contingent of the market for simulation products are medical and nursing schools who have also come under
lockdown protocols, which has negatively affected our ability to conclude contracts and to deliver on existing orders. To accommodate
our customers and offer remote education options, CAE Healthcare provided new tools and training on how to implement distance
learning with our solutions, and we developed a transformative clinical learning platform with a virtual patient, virtual medical
equipment and Simulated Clinical Experience (SCEs) for teaching. We offered new remote learning tools for clinical educators within
our LearningSpace centre management solution, including a virtual examination room. In the hospital market, our customers continue
to be focused on managing the acute operational demands of this healthcare crisis rather than focusing on their training needs, which
resulted in less focus and budget for normal operations and training projects. Manufacturing operations for healthcare products also
continued during the pandemic.
CAE Financial Report 2021 I 9
Management’s Discussion and Analysis
To provide support during the COVID-19 pandemic, our engineers and scientists have designed an easy-to-use, maintainable,
easy‑to-manufacture ventilator to provide life support to patients in intensive care. In April 2020, CAE was selected by the Canadian
government to design and manufacture CAE Air1 ventilators, and deliveries were completed in the fourth quarter of fiscal 2021. We
continue to find ways to contribute in the fight against COVID-19 and offer solutions that enhance safety, such as the contract with
PYURE to develop, assemble and distribute air sanitizers that was announced in February 2021. Furthermore, CAE played a pivotal
role to help the Quebec government in accelerating mass vaccination against COVID-19 and reducing the pressure on the healthcare
system by initiating an effort to create workplace vaccination hubs in Quebec, with CAE's COVID-19 Vaccination Centre opening in
April 2021. We have also provided complimentary training seminars on how to prepare healthcare workers in the fight against
COVID-19. The CAE team launched simulation-based training solutions, both web and hardware based, to train personnel in the safe
practice of ventilation and intubation, which is key to saving lives.
You will find more details on the financial impacts of COVID-19 on our businesses in Results by segment.
Measures to bolster liquidity and mitigate the impacts to our business
To address the negative impact of COVID-19, CAE has been closely monitoring and actively implementing and updating our response
to the evolving COVID-19 pandemic to attenuate the impact on our employees, to ensure we preserve the necessary liquidity through
this downturn and to ensure that we will be in a position of strength to serve our customers when the markets begin to recover from
this pandemic. We have formed a committee composed of the senior leadership team and key leaders in the organization to monitor
the evolution of the pandemic, to evaluate the measures being put in place by local and national governments and the resulting
impacts on CAE and to implement necessary contingency plans in real time as the current situation continues to unfold, with a focus
on three priorities: protecting employees’ health and safety, supporting customers’ critical operations and ensuring business continuity.
Throughout the year, we operated with several flexible measures implemented to protect our financial position, preserve liquidity and
reduce operating costs, including the reduction of capital expenditures and R&D investments, strict cost containment measures, salary
freezes, temporary salary reductions in the first half of fiscal 2021, reduced work weeks, layoffs, a suspension of our common share
dividend and share repurchase plan, obtaining payment deferrals on certain government royalty and R&D obligations, as well as
applying for government support programs where eligible. At the same time, we have taken initiatives to renegotiate contracts with
defence customers to secure more favorable terms for milestone payments and with suppliers for extended payment terms. In the first
quarter of fiscal 2021, we concluded a new two-year $500.0 million senior unsecured revolving credit facility and we increased our
receivable purchase program from US$300.0 million to US$400.0 million. These transactions provide access to additional liquidity and
further strengthen our financial position. We have also successfully completed two equity offerings and a private placement of
subscription receipts allowing us to complete certain strategic transactions and expand our position in the markets we serve.
Total available liquidity as at March 31, 2021 was approximately $2.7 billion, including $926.1 million in cash and cash equivalents,
undrawn amounts on our revolving credit facility and the balance available under our receivable purchase program. We believe that
our cash and cash equivalents, the availability under our committed revolving credit facility and cash generated from our operations
will be sufficient to provide liquidity for our operations over the foreseeable future. As at March 31, 2021, we had a higher cash and
cash equivalents balance on hand from recent equity issuances, these proceeds will be used to fund the proposed L3H MT acquisition
that was recently announced and other growth investments in our pipeline.
To minimize the impact on employees through this difficult period, CAE has accessed government emergency relief measures and
wage subsidy programs available around the world including the CEWS program. CAE was eligible for the CEWS subsidy program
throughout fiscal 2021, which allowed us to recall employees previously placed on furlough or reduced work weeks. The wage
subsidies were applied as a substitute for some of the cost saving measures previously taken and to alleviate some of the impact on
affected employees. The Government of Canada has proposed to extend the CEWS program to September 2021, although
continuation in the program is subject to meeting the eligibility requirements and the conditions of the program. Additionally, the
subsidy amounts available to CAE are expected to be significantly less in the upcoming fiscal year due to changes announced to date.
Although these subsidies have added to our liquidity, we have carried higher operating costs than we otherwise would have absent
these subsidies as a result of revoking some of our initial cost saving measures and additional costs incurred. While these additional
costs are in certain cases estimated, they almost entirely neutralize the positive impacts of the COVID-19 government support
programs.
In August 2020, we announced that we would be taking additional measures to best serve the market by optimizing our global asset
base and footprint, adapting our global workforce and adjusting our business to correspond with the expected lower level of demand
for certain of our products and services. These measures also include the introduction and acceleration of new digitally enhanced
processes. As a result of these measures, we expect to record restructuring expenses of approximately $170 million for the entire
program, consisting mainly of real estate costs, asset relocations and other direct costs related to the optimization of our footprint and
employee termination benefits, which has been carried out throughout fiscal 2021 and will continue into fiscal 2022. We expect to
realize annual recurring cost savings ramping up to approximately $65 to $70 million by the end of fiscal 2022. We started executing
the restructuring program in the second quarter of fiscal 2021 and have incurred $124.0 million of restructuring, integration and
acquisition costs as at March 31, 2021.
10 I CAE Financial Report 2021
Management’s Discussion and Analysis
Resiliency of CAE's business
We entered this pandemic from a position of strength with a global leading market position, a balanced business with recurring
revenue streams, and a solid financial position. We are a highly agile organization and we have taken decisive yet flexible actions to
help protect our people and operations over the short-term. Our world class operational and functional processes, best-in-class global
supply chain, broad global footprint and short prototype-to-production cycle time underscore our unique capabilities. Together, we
believe this gives us the necessary agility to resume long-term growth when global air travel fully recovers.
In Civil aviation, training is highly regulated, and for pilots to remain active and to continue to hold their certifications, they must train
regularly to demonstrate proficiency, usually every six to nine months. While training activities related to growth of the global pilot
population and movements of pilots to new positions, have been curtailed significantly, recurrent training to maintain certification is
non‑discretionary. To adapt to these new circumstances, we have already introduced new virtual service offerings to support our
customers such as obtaining FAA and other Civil Aviation Authority approvals for virtual training in certain of our flight training
organizations and remote support for the installation, acceptance and qualification of full-flight simulators. We believe our capacity to
adapt and the increasing need for airlines to come up with cost containment measures as a result of this pandemic could act as a
catalyst for potential customers who may come to realize the benefits of outsourcing their training needs to CAE as a means to reduce
their in-house training costs. Another important contributor to our resiliency is the solid backlog of Civil full-flight simulator orders,
which have been pre-funded by customer deposits and progress payments. While we received some requests for deferrals, full-flight
simulator order cancellations are not common given the capital customers have deployed and since the orders are closely linked to
airline operational requirements. During the second half of the fiscal year, we closed three acquisitions within the Civil aviation market
demonstrating that we are focused on deploying the capital we recently raised to bolster our position and expand our addressable
markets, our global customer base and our suite of solutions for our aviation customers during this unprecedented period of
disruption.
In November 2020, we released our 2020-2029 Pilot Demand Outlook in which we estimate an expected global requirement of
264,000 new pilots in the civil aviation industry to sustain growth and support mandatory retirements over the next ten years. In the
short-term, we estimate that approximately 27,000 of these new professional pilots are expected to be needed starting in late
calendar 2021.
For Defence, governments recognize the critical importance of national defence and have been proactive in implementing measures
to maintain and protect the defence industry and its suppliers, evidenced by many governments who are using defence programs as a
mechanism to maintain and stimulate the economy. For example, countries such as Canada, the United Kingdom and Australia have
implemented measures such as accelerated payments to support supplier cash flows on existing programs. This, combined with our
Defence backlog, provides an additional layer of diversification for our business. We have also demonstrated during the fiscal year our
ability to adapt in these challenging circumstances with, for example, the delivery and installation of a new NH90 flight training device
to the Royal New Zealand Air Force (RNZAF) which was commissioned using local staff supported virtually and remotely by CAE
personnel in Canada and Australia. In fact, we were recognized as the winner of the 2020 New Zealand Minister of Defence Award of
Excellence to Industry in the Provision of Product or Service category for the delivery and installation of this NH90 helicopter simulator
during the pandemic. Also, during the fourth quarter of fiscal 2021 we announced our proposed acquisition of L3H MT, which
represents the largest acquisition in CAE’s history and demonstrates our focus on bolstering and expanding CAE’s position in all the
markets we serve. Once completed, the acquisition will enable us to add new customers, experience on new platforms and build our
depth of expertise to address all defence domains – air, land, maritime, space and cyber – as well as support our expansion into
adjacent markets such as mission and operations support.
We see future opportunities arising in the Healthcare business including our new digital and virtual learning products, COVID-19
related training solutions, and increased recognition of the value of simulation-based preparedness for pandemics and other high-risk
scenarios. This is supported by professional organizations such as the International Nursing Association of Clinical Simulation and
Learning (INACSL) and the Society for Simulation in Healthcare (SSH) who are proposing that regulatory bodies and policymakers
demonstrate flexibility by allowing the replacement of clinical hours usually completed in a live healthcare setting with that of virtually
simulated experiences as a result of this pandemic. On this topic, starting in April 2020, we launched a series of Simulation Debrief
podcasts featuring pioneers and experts in the field discussing the future of healthcare simulation. Our goal is to provide the highest
quality training experience by offering innovative clinical learning solutions that can be quickly and easily implemented within today’s
healthcare education environment. As a testament to Healthcare's innovation, our adaptive Ventilator Reskilling Course won both the
Emergency Medical Services (EMS) World Innovation Award and Attendees’ Choice Award at the annual EMS World conference.
CAE Financial Report 2021 I 11
Management’s Discussion and Analysis
CIVIL AVIATION MARKET
We provide comprehensive training solutions for flight, cabin, maintenance and ground personnel in commercial, business and
helicopter aviation, a complete range of flight simulation training devices, ab initio pilot training and crew sourcing services, as well
as end to end digitally-enabled crew management, training operations solutions and optimization software.
We have the unique capability and global scale to address the total lifecycle needs of the professional pilot, from cadet to captain, with
our comprehensive aviation training solutions. We are the world’s largest provider of civil aviation training services. Our deep industry
experience and thought leadership, large installed base, strong relationships and reputation as a trusted partner, enable us to access
a broader share of the market than any other company in our industry. We provide aviation training services in more than 35 countries
and through our broad global network of more than 60 training locations, we serve all sectors of civil aviation including airlines and
other commercial, business and helicopter aviation operators.
Among our thousands of customers, we have long-term training centre operations and training services agreements and joint ventures
with approximately 40 major airlines and aircraft operators around the world. Our range of training solutions includes product and
service offerings for pilot, cabin crew and aircraft maintenance technician training, training centre operations, curriculum development,
courseware solutions and consulting services. We currently manage 317 full-flight simulators (FFSs)2, including those operating in our
joint ventures. We offer industry-leading technology, and we are shaping the future of training through innovations such as our next
generation training systems, including CAE Real-time Insights and Standardized Evaluations (CAE RiseTM), which improves training
quality, objectivity and efficiency through the integration of untapped flight and simulator data-driven insights into training. In the
development of new pilots, CAE operates the largest ab initio flight training network in the world and has over 20 cadet training
programs globally. In resource management, CAE is the global market leader in the provision of flight crew and technical personnel to
airlines, aircraft leasing companies, manufacturers and MRO companies worldwide. And in crew management, CAE provides robust
crew operations and optimization software, helping airlines and business aircraft operators make optimal data-driven decisions.
Quality, fidelity, reliability and innovation are hallmarks of the CAE brand in flight simulation and we are the world leader in the
development of civil flight simulators. We continuously innovate our processes and lead the market in the design, manufacture and
integration of civil FFSs for major and regional commercial airlines, business aircraft operators, third-party training centres and OEMs.
For example, in response to the recent clearing from the FAA, European Aviation Safety Agency (EASA) and other National Aviation
Authorities across the globe for its return to flight and following Boeing's recommendation that all 737 MAX pilots undergo training in a
simulator prior to flying the aircraft, CAE is supporting operators around the world with 737 MAX simulators, updated with the latest
software package from Boeing, including five 737 MAX simulators installed at our training centres in Toronto, Dallas, Dubai and
Singapore. We have established a wealth of experience in developing first-to-market simulators for more than 35 types of aircraft
models. Our flight simulation equipment, including FFSs, are designed to meet the rigorous demands of their long and active service
lives, often spanning several decades of continuous use. Our global reach enables us to provide best-in-class support services such
as real-time, remote monitoring and enables us to leverage our extensive worldwide network of spare parts and service teams.
We believe CAE’s Civil Aviation Training Solutions segment is positioned as a gateway in a highly regulated, secular growth market,
with an addressable market estimated at approximately $6.2 billion, and headroom for growth.
Market drivers
Demand for training solutions in the civil aviation market is driven by the following:
– Pilot training and industry regulations;
– Safety and efficiency imperatives of commercial airlines and business aircraft operators;
– Expected long-term secular global growth in air travel;
– Expected long-term growth, including new aircraft deliveries and renewal of the active fleet of commercial and business aircraft;
– Demand for trained aviation professionals.
Profitability drivers
We believe profitability drivers for CAE’s civil aviation market include the following:
– Favourable business mix drivers, including large market headroom in training services;
– Potential to increase the ratio of wet versus dry training in commercial training;
– Expansion of operational support offering by using advanced analytics, software solutions and digital technology to enhance our
value offering across the whole organization;
– Operational excellence programs expected to realize significant annual recurring cost savings;
– Training outsourcing and partnerships.
Pilot training and industry regulations
Civil aviation training is a largely recurring business driven by a highly-regulated environment through global and domestic standards
for pilot licensing and certification, amongst other regulatory requirements. These recurring training requirements are mandatory and
are regulated by national and international aviation regulatory authorities such as the International Civil Aviation Organization, EASA,
and the FAA.
2 Non-GAAP and other financial measures (see Section 3.7).
12 I CAE Financial Report 2021
Management’s Discussion and Analysis
In recent years, pilot certification processes and regulatory requirements have become increasingly stringent. Simulation-based pilot
certification training is taking on a greater role internationally with the Multi-Crew Pilot License (MPL), with the Airline Transport Pilot
certification requirements in the U.S. and with Upset Prevention and Recovery Training (UPRT) requirements mandated by both
EASA and the FAA.
Safety and efficiency imperatives of commercial airlines and business aircraft operators
The commercial airline industry is competitive, requiring operators to continuously pursue operational excellence and efficiency
initiatives to achieve satisfactory returns while continuing to maintain the highest safety standards and the confidence of air travelers.
Airlines are finding it increasingly more effective to seek expertise in training from trusted partners such as CAE to address growing
efficiency gaps, pilot capability gaps, evolving regulatory and training environments, and on-going aircraft programs. Partnering with a
training provider like CAE gives airlines immediate access to a world-wide fleet of simulators, courses, programs and instruction
capabilities, and allows them flexibility in pursuing aircraft fleet options that suit their business.
Our newest innovation in pilot training systems, CAE Rise™, is well positioned to elevate the pilot training experience. Backed by
industry‑leading technology, this system enables instructors to deliver training in accordance with airlines’ Standard Operating
Procedures and enables instructors to objectively assess pilot competencies using live data during training sessions. Furthermore,
CAE Rise™ augments instructors’ capability to identify pilot proficiency gaps and evolve airline training programs to the most
advanced aviation safety standards, including Advanced Qualification Program and Evidence Based Training methodologies.
Expected long-term secular global growth in air travel
The secular growth in air travel results in long-term demand for flight, cabin, maintenance and ground personnel, which in turn drives
demand for training solutions.
In the short-term, as airlines adjust their fleets to accommodate demand for air travel, we anticipate some measure of pent up training
demand as pilots are reassigned to different aircraft types in accordance with their seniority.
Looking ahead, once travel restrictions and lockdown protocols are lifted and as worldwide demand for air travel regains strength, both
the commercial and business aviation industries are expected to level out and return to growth over the medium to long-term due to
demand recovery combined with the introduction of new aircraft models and technologies and the need for innovative solutions to
drive greater operational efficiency.
Expected long-term growth, including new aircraft deliveries and renewal of the active fleet of commercial and business
aircraft
As an integrated training solutions provider, our long-term growth is closely tied to the active commercial and business aircraft fleet.
Short and medium-term growth in aircraft fleets will experience pressure as airlines realign fleet capacity to meet new demand levels
and OEMs reduced production.
Major business jet OEMs are continuing with plans to introduce a variety of new aircraft models in the upcoming years including
Dassault's Falcon 6X and Gulfstream’s G700.
Our business aviation training network, comprehensive suite of training programs, key long-term OEM partnerships and ongoing
network investments, position us well to effectively address the training demand arising from the entry-into-service of these new
aircraft programs.
Our strong competitive moat in the aviation market, as defined by our extensive global training network, best-in-class instructors,
comprehensive training programs and strength in training partnerships with airlines and business aircraft operators, allows us to
effectively address training needs that arise from a growing active fleet of aircraft.
We are well positioned to leverage our technology leadership and expertise, including CAE 7000XR Series FFSs, CAE 400XR,
500XR, and 600XR Series Flight Training Devices and CAE Simfinity™ ground school solutions, in delivering training equipment
solutions that address the growing training needs of airlines, business jet operators, and helicopter operators.
Demand for trained aviation professionals
Demand for trained aviation professionals is driven by air traffic growth, pilot retirements and by the number of aircraft deliveries. As
global economies and airlines resume expansion following the COVID-19 pandemic disruption, we are well positioned in the training
services market to address the training requirements of airline customers.
CAE Financial Report 2021 I 13
Management’s Discussion and Analysis
DEFENCE AND SECURITY MARKET
We are a training and mission support solutions provider for defence forces across multi-domain operations, and for government
organizations responsible for public safety.
We are adapting our Defence and Security business to confront the realities our customers are facing and aligning the business so
that we are best positioned to address the needs of our defence and security customers. First and foremost is the shift in the nature of
warfare for the United States and its allies from focusing on an asymmetric, counterterrorism engagement to the need to prepare for a
near-peer threat across multi-domain operations – air, land, maritime, space and cyber. This shift, combined with the budget
challenges that will be manifested because of higher deficits, will push more training towards cost-effective virtual environments. In
addition, these immersive virtual and synthetic environments will become much more prevalent as the only way for defence forces to
“train like they fight” across multi-domain operations.
To address the market requirements, we have established a clear strategy for the Defence and Security business unit that outlines the
strategic imperatives we are focusing on. We are aligning to the U.S. National Defense Strategy that demands training and readiness
across multi-domain operations, developing strategic partnerships on next-generation platforms, expanding and extending our
addressable markets, and positioning to pursue larger opportunities globally. Our proposed acquisition of L3H MT is expected to
accelerate our strategy and capability for each of these strategic imperatives.
We are a global leader in the development and delivery of training and mission support solutions for defence forces. Increasingly, we
are focused on digital technologies and data-driven solutions that help our defence customers plan, prepare and analyze to enhance
performance and make better decisions across multi-domain operations. Most militaries use a combination of live training on actual
platforms, virtual training in simulators, and constructive training using computer-generated simulations. While militaries will always do
some level of live training exercises, we believe there will be an increasing reliance on immersive synthetic environments and virtual
training in order to prepare for the peer versus peer threat across multi-domain operations. Importantly, these immersive synthetic
environments will also be used for mission and operational support by enabling course of action analysis and decision support.
Training Solutions
We are a platform-agnostic training systems integrator capable of helping defence forces achieve an optimal balance of integrated
live-virtual-constructive training to achieve mission preparedness. With our proposed acquisition of L3H MT, we aim to solidify our
leadership in the air domain, augment our capabilities in land and maritime, and establish an entrée to space and cyber. Our expertise
in training, which is expected to be further enhanced by our proposed acquisition of L3H MT, spans a broad variety of aircraft,
including fighters, bombers, helicopters, trainer aircraft, maritime patrol, tanker/transport aircraft and remotely piloted aircraft, also
called unmanned aerial systems. We are continuing to leverage our training systems integration capabilities in the maritime domain to
provide training solutions, as evidenced by the program to provide the United Arab Emirates Navy with a comprehensive Naval
Training Centre. Our proposed acquisition of L3H MT is expected to bring experience on submarine training to complement CAE’s
existing experience on surface ship training. We offer training solutions for land forces, including a range of driver, gunnery and
maintenance trainers for tanks and armoured fighting vehicles as well as constructive simulation for command and staff training. The
proposed acquisition of L3H MT, once completed, will bring an entrée into the space domain, as evidenced by their position on the
Ground Based Strategic Deterrent program for the U.S. Air Force, as well as additional cyber capabilities through programs such as
the U.S. Air Force’s Simulator Common Architecture Requirements and Standards (SCARS).
As a training systems integrator, we can offer our customers a comprehensive range of innovative training solutions, ranging from
digital learning environments and mixed reality capabilities to integrated live, virtual and constructive training in a secure networked
environment. Our solutions typically include a combination of training services, products and software tools designed to
cost‑effectively maintain and enhance safety, efficiency, and readiness. We have a wealth of experience delivering and operating
outsourced
that are government‑owned government-operated; government-owned
contractor‑operated; or contractor-owned contractor‑operated. We offer training needs analysis, training media analysis, courseware,
instructional systems design, facilities, tactical control centres, synthetic environments, mixed reality solutions, a range of simulators
and training devices, live assets, digital media classrooms, distributed training, scenario development, instructors, training centre
operations, and a continuous training improvement process leveraging big data analytics.
solutions with
facilities
training
We have delivered simulation products and training services to approximately 60 defence forces in over 50 countries. We provide
training support services such as contractor logistics support, maintenance services, systems engineering, staff augmentation,
classroom instruction and simulator training at over 100 sites around the world, including our joint ventures. We also support live flying
training, such as the live training delivered as part of the North Atlantic Treaty Organization (NATO) Flying Training in Canada, the
International Flight Training School (IFTS) in Italy, a joint venture between CAE and Leonardo, and the Army Fixed-Wing Flight
Training programs in the U.S., as we help our customers achieve an optimal balance across their training enterprise.
Mission and Operational Support Solutions
Increasingly, we are engaged with defence customers to leverage synthetic environments and digital immersion technologies to
provide a range of mission support solutions, including analytics and systems engineering, decision support and staff augmentation.
For example, we are part of the development of a Single Synthetic Environment for the United Kingdom’s Strategic Command, the
major organization of the British Armed Forces responsible for leading integration across all domains — cyber, space, maritime, land
and air. We are continuing to expand and extend our addressable market into mission and operational support as we leverage our
modeling and simulation expertise to enable defence forces to use synthetic environments for planning, analysis and operational
decision support.
14 I CAE Financial Report 2021
We believe CAE’s Defence & Security business unit is positioned as the partner of choice for training and operational support across
multi-domain operations and is focused on becoming a global leader in digitally immersive training and operational support solutions.
We estimate our addressable Defence market opportunity across all five operational domains to be approximately $14 billion with the
largest opportunity still remaining in the air domain where CAE is the platform‑agnostic leader, a position which is expected to be
further solidified with the proposed acquisition of L3H MT.
Management’s Discussion and Analysis
Market drivers
Demand for training and operational support solutions in the defence and security markets is driven by the following:
–
–
–
–
–
–
–
Defence budgets;
Installed base of enduring defence platforms and new customers;
Attractiveness of outsourcing training, maintenance and operational support services;
Pilot and aircrew recruitment, training and retention challenges faced by militaries globally;
Desire to integrate training systems to achieve efficiencies and mission readiness;
Need for synthetic environments to conduct complex and integrated multi-domain exercises;
Desire of governments and defence forces to increase the use of synthetic environments for training, planning, analysis and
decision support;
Adoption of new and innovative digital technologies for training;
Relationships with OEMs for simulation and training.
–
–
Profitability drivers
We believe profitability drivers for CAE’s defence and security market include the following:
–
–
–
–
Increasing mix of international business opportunities, including foreign military sales (FMS);
Operational focus on improving contracting, sub-contracting and program delivery quality processes;
Expansion of mission and operational support offering by using advanced analytics and synthetic environment software solutions;
Operational excellence programs expected to realize significant annual recurring cost savings.
Defence budgets
Despite the COVID-19 pandemic impacting most of calendar 2020, the International Institute for Strategic Studies estimates global
defence spending at more than US$1.8 trillion during calendar 2020, an increase of 3.9% over calendar 2019 and a record high to
date. The U.S. continued to pace global defence spending at approximately 40% of this total amount. In addition, defence spending
among the 30 members of NATO grew for the sixth consecutive year and now 10 NATO members meet the defence spending
threshold of two percent of their Gross Domestic Product. With the U.S., NATO, and allied nations continuing to confront the
immediate challenges posed by security threats and pivoting to being prepared for a near-peer threat across multi-domain operations,
defence budgets are expected to remain largely stable over the next year. According to Deloitte's 2021 aerospace and defence
industry outlook, global defence spending is expected to grow about 2.8% in calendar 2021. The fiscal pressures due to COVID-19
and a potential need to reverse current levels of deficit spending, though, could impact global defence budgets from calendar 2022
onward. However, training is fundamental for defence forces to achieve and maintain mission readiness and budget pressures will
push more training into the more cost-effective virtual environment, thus creating increased opportunities for CAE’s products, services
and digital capabilities.
Installed base of enduring defence platforms and new customers
CAE generates a high degree of recurring business from its strong position on enduring platforms, including long-term services
contracts. Most defence forces in mature markets are required to maximize use of their existing platforms. Upgrades, updates, and life
extension programs allow defence forces to leverage existing assets while creating a range of opportunities for simulator upgrades
and training support services. Given our extensive installed base of simulators worldwide, our prime contractor position on programs
such as the U.S. Air Force (USAF) KC-135 Training System and C-130H Aircrew Training System, and our experience on key
enduring platforms, we are well-positioned for recurring product upgrades or updates as well as maintenance and support services. In
addition, there is strong demand for enduring platforms such as the C-130, P-8, C295, MH-60R, NH90 and MQ-9 in global defence
markets, thus creating opportunities to provide new training systems and services for platforms where CAE has significant experience.
The proposed acquisition of L3H MT is expected to further enhance CAE’s installed base of enduring platforms, such as the training
systems for the F-16 fighter.
Attractiveness of outsourcing training, maintenance and operational support services
Another driver for CAE’s expertise and capabilities is the efficiency gained by our customers from outsourcing training and support
services. Defence forces and governments continue to find ways to maximize efficiency and enhance readiness, which includes
allowing active‑duty personnel to focus on operational requirements. There has been a growing trend among defence forces to
consider outsourcing a variety of training and operational support services and we expect this trend to continue, which aligns directly
with our strategy to grow long‑term, recurring services business. We believe governments will increasingly look to industry for training
and operational support solutions to achieve faster delivery, lower capital investment requirements, and for support required to meet
the demand for producing aircrews and achieve desired readiness levels. For example, we are delivering fixed-wing flight training to
the U.S. Army at the CAE Dothan Training Center in Dothan, Alabama. At this training centre, we offer comprehensive classroom,
simulator and live-flying training and we believe this type of training service delivery program will become increasingly attractive to
defence forces globally.
CAE Financial Report 2021 I 15
Management’s Discussion and Analysis
Pilot and aircrew recruitment, training and retention challenges faced by militaries globally
The COVID-19 pandemic has introduced uncertainty across the commercial aviation landscape. This demand from the civil and
business aviation sector has a direct impact on the recruitment, training and retention of military pilots. For example, the USAF has
acknowledged that the pandemic’s impact on the commercial airline industry has meant pilot retention improved during 2020, but the
USAF is still preparing for a future where retention is challenged as the economy comes back. The challenge has led to militaries
looking at numerous initiatives designed to address the future potential pilot shortage, including initiatives specifically related to
training such as the U.S. Air Force Pilot Training Transformation project. Militaries are considering further outsourcing as well as
adopting new technologies that help make pilot training more streamlined and efficient, which will create opportunities for CAE’s
products, services and solutions.
Desire to integrate training systems to achieve efficiencies and mission readiness
Global tensions and the pivot to preparing for a near-peer threat combined with limited personnel and budget pressures have
prompted defence forces around the world to seek reliable partners who can help develop, manage and deliver the training systems
required to support today’s complex platforms and multi-domain operations. Increasingly, defence forces are considering a more
integrated and holistic approach to training across all the battlespace domains – air, land, maritime, space and cyber. To help manage
the complexities and challenges, many training programs are calling for industry partners to help design and manage a total training
system. Our approach has positioned us globally as a platform-agnostic training and mission systems integrator. The overall intent for
defence forces is to maximize commonality for increased efficiencies, cost savings, and most importantly, enhanced capability for
mission preparedness. This will continue to take on added relevance as the United States and its allies pivot to preparing for a
near‑peer adversary, which will require integrated and immersive training across multi-domain operations. As a training systems
integrator, we address the overall training enterprise to deliver comprehensive solutions, from platform-centric individual training all the
way through to operational, multi-service and multi-domain mission training.
Need for synthetic environments to conduct complex and integrated multi-domain exercises
There is a growing trend among defence forces to use synthetic training to meet more of their mission training requirements, and to
integrate and network various training systems so military forces can train in a virtual world. Simulation-based technology solutions
enable defence customers to plan sophisticated missions and carry out full-mission rehearsals in a synthetic environment as a
complement to traditional live training for mission preparation. Allies are cooperating and creating joint and coalition forces, which are
driving the demand for networked training and operations. Training devices that can be networked to train different crews and allow for
networked training across a range of platforms are increasingly important as the desire to conduct mission rehearsal exercises in a
synthetic environment increases. For example, we are part of the team selected to support the U.S. Air Force SCARS program, which
will see the USAF lay the foundation for networking more than 50 different platforms to enable virtual training across multi-domain
operations in a cybersecure environment. We are strong proponents of open, standard simulation architectures, such as the Open
Geospatial Consortium Common Database, to better enable integrated and networked mission training.
Desire of governments and defence forces to increase the use of synthetic environments for training, planning, analysis and
decision support
One of the underlying drivers for our expertise and capabilities is the increasing use of synthetic training throughout the defence
community. More defence forces and governments are increasingly adopting synthetic environments for a greater percentage of their
overall approach because it improves training effectiveness, reduces operational demands on platforms, lowers risk compared to
operating actual platforms and significantly lowers costs. Synthetic environments offer defence forces a cost-effective way to provide a
realistic environment for a wide variety of scenarios while contributing to preparedness and readiness. The higher cost of live
activities, the desire to save platforms for operational use, and the advanced simulation technologies delivering more realism are
several factors prompting a greater adoption of the use of synthetic environments for training. At the same time, these digitally
immersive synthetic environments, when combined with artificial intelligence and cloud computing, can provide a tool for planning,
course of action analysis, and mission support. For example, the UK Single Synthetic Environment technology demonstrator aims to
create a digital twin with the scale and complexity necessary to provide the UK Strategic Command with a tool for operational planning
and decision support.
Adoption of new and innovative mediums of training
Militaries are beginning to adopt a range of new technologies that will transform how defence forces train. These new technologies
include immersive training devices connected to a digital ecosystem using a combination of virtual reality, artificial intelligence and
machine learning as part of the training continuum. For example, the U.S. Air Force’s Pilot Training Transformation initiative is doing
exactly this as they completely transform undergraduate pilot training in an effort to accelerate the production of pilots. CAE is part of
the U.S. Air Force’s Pilot Training Transformation program and will provide elements of the CAE Trax Academy. Specifically, CAE has
the responsibility for developing and delivering the learning management system that will monitor the competencies that the students
learn, adapt the learning to individual student pilots, and manage the overall training process. Digital innovations such as the CAE
Trax Academy integrate virtual-reality enhanced courseware, artificial intelligence virtual coaching, mixed reality capabilities and big
data analytics to deliver a comprehensive training continuum for military student pilots. The growing adoption of new digital
technologies and innovations for training will drive opportunities for CAE’s offerings.
16 I CAE Financial Report 2021
Management’s Discussion and Analysis
Relationships with OEMs for simulation and training
We are an important partner to OEMs because of our experience, global presence, and innovative technologies. We partner with
manufacturers in the defence and security market to strengthen relationships and position for future opportunities. OEMs have
introduced new platforms and continue to upgrade and extend the life of existing platforms, which drives worldwide demand for
training systems. For example, Boeing has developed the P-8 maritime patrol aircraft and has subcontracted CAE to design and
develop P-8 operational flight trainers for the U.S. Navy and other international customers. Boeing continues to market the P-8
internationally, which will create further opportunities for us. Other examples of our relationships with OEMs on specific platforms
creating opportunities for training systems include Airbus Defence & Space on the C295, which is being delivered to the Royal
Canadian Air Force for the Fixed-Wing Search and Rescue program; Leonardo on the M-346 lead-in fighter trainer; Lockheed Martin
on the C-130J Super Hercules transport aircraft, which continues to be acquired by several branches of the USAF as well as
international militaries; and General Atomics on the Predator family of remotely piloted aircraft. We are also part of Team Seahawk in
partnership with the U.S. Navy and companies such as Lockheed Martin/Sikorsky which is offering the MH-60R helicopter under the
foreign military sales program to international customers.
HEALTHCARE MARKET
We offer integrated education and training solutions including surgical and imaging simulations, curriculum, audiovisual and centre
management platforms and patient simulators to healthcare students and clinical professionals across the professional life cycle.
Simulation-based training is one of the most effective ways to prepare healthcare practitioners to care for patients and respond to
critical situations while reducing medical errors. We are leveraging our experience and best practices in simulation-based aviation
training to deliver innovative solutions to improve the safety and efficiency in the delivery of patient care. As such, we have established
three CAE Healthcare Centres of Excellence to date to improve clinical education and develop new training technologies and
curriculum for healthcare professionals and students. We see the healthcare simulation market is expanding, with a shift in the U.S.
from fee-for-service to value-based care in hospitals, and with simulation centres becoming increasingly more prevalent in nursing and
medical schools.
We offer one of the broadest and most innovative portfolio of medical training solutions, including patient, ultrasound and
interventional (surgical) simulators, audiovisual and centre management platforms, augmented reality applications, e-learning and
curriculum for simulation‑based healthcare education and training. We have provided training solutions to customers in more than 80
countries that are currently supported by our global network. We are a leader in patient simulators which are based on advanced
models of human physiology that realistically mimic human responses to clinical interventions. For example, our high-fidelity childbirth
simulator, CAE Lucina, was designed to offer exceptional realism for simulated scenarios of both normal deliveries and rare maternal
emergencies. During the last two years, we continued to invest in the development of new products to address growing demand in the
healthcare simulation market. We launched the CAE Juno clinical skills manikin which enables nursing programs to adapt to the
decreased access to live patients due to the complex conditions of hospital patients and the liability concerns in healthcare, the CAE
Ares emergency care manikin designed for advanced life support and American Heart Association (AHA) training and the CAE Luna
neonatal simulator which is an innovative critical care simulation for newborns and infants. With these solutions, we are providing
some of the industry's most innovative learning tools to healthcare academic institutes, which represent the largest segment of the
healthcare simulation market. We continue to push the boundaries of technology and we were the first to bring a commercial Microsoft
HoloLens mixed reality application to the medical simulation market. We continue to integrate augmented and virtual reality into our
advanced software platforms to deliver custom training solutions and ground-breaking products.
Through our Healthcare Academy, we deliver peer-to-peer training at customer sites as well as in our training centres in Canada,
Germany, the U.K. and U.S. Our Healthcare Academy includes more than 50 adjunct faculties consisting of nurses, respiratory
therapists, physicians, paramedics and sonographers who, in collaboration with leading healthcare institutions, have developed more
than 200 Learning Modules and over 3,500 SCE courseware packages for our customers across all of our platforms.
We offer turnkey solutions, project management and professional services for healthcare simulation programs. We also collaborate
with medical device companies and scientific societies to develop innovative and custom training solutions. In collaboration with the
American Society of Anesthesiologists, we have released five online modules for Anesthesia SimSTAT, a virtual healthcare training
environment for practicing physicians. This new platform provides continuing medical education for Maintenance of Certification in
Anesthesiology (MOCA) and has allowed us to expand access to simulation-based clinical training among the anesthesia community.
Furthermore, through industry partnerships with medical device companies, we have developed a specialized interventional simulator
to train physicians to implant a new generation of pacemakers as well as a modular, portable catheterization laboratory interventional
simulator, CAE CathLabVR, which was introduced to the cardiac simulation community in September 2018. In January 2018, we
announced a collaboration with the AHA to establish a network of International Training Sites to deliver lifesaving AHA courses in
countries that are currently underserved.
We believe CAE’s Healthcare segment is positioned as a leader in developing healthcare professionals through technology,
educational content and training, with an estimated healthcare simulation market of approximately US$1.7 billion. North America is the
largest market for healthcare simulation, followed by Europe and Asia.
CAE Financial Report 2021 I 17
Management’s Discussion and Analysis
Limited access to live patients during training;
Market drivers
Demand for our simulation products and services in the healthcare market is driven by the following:
–
– Medical and mixed reality technology revolution;
–
–
–
Rising use of simulation, with a demand for innovative and custom training approaches to prevent medical errors;
Refocus on disaster preparedness, alongside chronic shortage of medical professionals;
Growing emphasis on patient safety and outcomes.
Limited access to live patients during training
Traditionally, medical education has been an apprenticeship model in which students care for patients under the supervision of more
experienced staff. In this model, students have limited access to high-risk procedures, rare complications and critical decision‑making
skills. The use of simulation in professional training programs complements traditional learning and allows students to hone their
clinical and critical thinking skills for high risk, low frequency events. In 2014, the U.S. National Council of State Boards of Nursing
(NCSBN) released a ground-breaking study on the effectiveness of simulation training in pre-licensure nursing programs. Among the
findings, nursing students who spent up to 50 percent of clinical hours in high‑quality simulation were as well-prepared for professional
practice as those whose experiences were drawn from traditional clinical practice. The NCSBN's national simulation guidelines, which
are still in use today, highlight the need for nursing education programs to increase the use of simulation training. Nursing Regulatory
Bodies have begun to evaluate the substitution of simulation instead of live clinical practice based on these guidelines to create
effective simulated clinical experiences. In the U.K., the Nursing and Midwifery Council announced in April 2018 that it has lifted the
cap on the number of hours nursing students can spend in simulation-based training in place of clinical hours. In addition, during the
COVID-19 pandemic, SSH and INACSL called for more flexibility in replacing required clinical training hours for health science
students with simulation hours, emphasizing that virtual simulation is an effective teaching method that results in improved student
learning outcomes. State boards of nursing have begun to change requirements to help ensure that learners and new graduates can
continue their education and would be ready to enter the workforce.
Simulation provides consistent, repeatable training and exposure to a broader range of patients and scenarios than one may
experience in normal clinical practice. As an example, our CAE Vimedix ultrasound simulator offers more than 200 patient pathologies
for cardiac, emergency and obstetrics and gynaecology medicine. The training and education model is evolving, as evidenced by 22
NATO countries prohibiting the use of live animals in military medical training. CAE Healthcare simulators provide a low-risk
alternative for practicing life-saving procedures, inter-professional team training and major disaster response.
Medical and mixed reality technology revolution
Advancements in medical technology are driving the use of simulation and greater acceptance of remote and virtual delivery methods.
New medical devices and advanced procedures, such as intra‑cardiac echocardiography, cardiac assist devices, and mechanical
ventilation enhancements, require advanced training solutions, such as simulation, for internal product development and customer
training. Regulatory and certification agencies are increasingly stringent in requesting that clinicians be trained before adopting new
disruptive technologies, an undertaking for which simulation is well suited. As a training partner of choice with leading OEMs, we
continue to collaborate to deliver innovative and custom training for the introduction of new interventional procedures. We were the
first to bring a commercial Microsoft HoloLens mixed reality application to the medical simulation market and, in January 2020, we
released multiple HoloLens 2 applications which will integrate holographic, modeled physiology into our emergency care, ultrasound
and childbirth simulators that allow learners to envision human anatomy.
Rising use of simulation, with a demand for innovative and custom training approaches to prevent medical errors
The majority of product and service sales in healthcare simulation involve healthcare education. Together with our global distribution
network, we are reaching new and emerging markets and addressing the international demand potential for simulation-based training.
CAE segments the healthcare simulation market by virtual, augmented and mixed reality simulators, high-fidelity patient simulators,
interventional simulators, task trainers, ultrasound simulators, audiovisual and simulation centre management solutions, simulated
clinical environments and training services. There is a growing body of evidence demonstrating that medical simulation improves
clinical competency, patient outcomes and reduces medical errors, which can help mitigate the rate of increase in healthcare costs.
Healthcare is expected to become increasingly relevant in a world more acutely aware of the benefits of healthcare simulation and
training to help save lives at a steady state and in a healthcare crisis.
Refocus on disaster preparedness, alongside chronic shortage of medical professionals
The COVID-19 pandemic has highlighted the importance of preparedness in all sectors, including healthcare, and has underscored
the vital role of health professionals in global crises. The WHO estimates a projected shortfall of 18 million health workers by 2030,
mostly in low- and lower-middle income countries. However, countries at all levels of socioeconomic development face, to varying
degrees, difficulties in the education, employment, deployment, retention, and performance of their workforce.
According to the Association of American Medical Colleges (AAMC), the U.S. faces a projected physician shortage of between 54,100
and 139,000 doctors by 2033, and the COVID-19 pandemic has put additional serious strains on this workforce. In addition, AAMC
data shows that 40% of the country’s practicing physicians felt burnt out at least once a week before the COVID-19 crisis began,
which could cause doctors and other health professionals to cut back their hours or even accelerate their plans for retirement. This
situation will exacerbate the need for accessible, effective and affordable training solutions for healthcare professionals.
18 I CAE Financial Report 2021
Management’s Discussion and Analysis
Growing emphasis on patient safety and outcomes
CAE expects increased adoption of simulation-based training and certification of healthcare professionals as a means to improve
patient safety and outcomes. We believe this would result in a significantly larger addressable market than the current market which is
primarily education-based. According to a study by patient-safety researchers published in the British Medical Journal in May 2016,
medical errors are the third-leading cause of death in U.S. hospitals and the WHO reported in 2018 that there is a 1 in 300 chance of
being harmed during health care. Training using simulation can help clinicians gain confidence, knowledge and expertise for improving
patient safety in a risk-free environment. As the Medicare and Medicaid reimbursement structure in U.S. hospitals shifts from being
based solely on quantity of services to the quality of services (value-based care), including safety and patient outcomes, CAE expects
more hospitals to implement simulation-based training to improve performance and reduce the risk of medical errors.
Simulation is a required or recommended element in a growing movement towards High Stakes Assessment and Certification.
Examples in the U.S. include MOCA, Fundamentals of Laparoscopic Surgery and Advanced Trauma Life Support. Moreover, the
Accreditation Council for Graduate Medical Education is evolving towards outcome-based assessment with specific benchmarks to
measure and compare performance which favours the adoption of simulation products and training.
3.6 Foreign exchange
We report all dollar amounts in Canadian dollars. We value assets, liabilities and transactions that are measured in foreign currencies
using various exchange rates as required by IFRS.
The tables below show the variations of the closing and average exchange rates for the three main currencies in which we operate.
We used the closing foreign exchange rates below to value our assets, liabilities and backlog in Canadian dollars at the end of each of
the following periods:
U.S. dollar (US$ or USD)
Euro (€ or EUR)
British pound (£ or GBP)
2021
1.26
1.47
1.73
We used the average foreign exchange rates below to value our revenues and expenses:
U.S. dollar (US$ or USD)
Euro (€ or EUR)
British pound (£ or GBP)
2021
1.32
1.54
1.73
2020
1.41
1.55
1.75
2020
1.33
1.48
1.69
Increase /
(decrease)
(11%)
(5%)
(1%)
Increase /
(decrease)
(1%)
4%
2%
For fiscal 2021, the effect of translating the results of our foreign operations into Canadian dollars resulted in an increase in revenue of
$8.1 million and a decrease in net income of $0.3 million, when compared to fiscal 2020. We calculated this by translating the current
year’s foreign currency revenue and net income using the average monthly exchange rates from the previous year and comparing
these adjusted amounts to our current year reported results.
You will find more details about our foreign exchange exposure and hedging strategies in Business Risk and Uncertainty. A sensitivity
analysis for foreign currency risk is included in Note 33 of our consolidated financial statements.
CAE Financial Report 2021 I 19
Management’s Discussion and Analysis
3.7 Non-GAAP and other financial measure definitions
This MD&A includes non-GAAP and other financial measures. Non-GAAP measures are useful supplemental information but do not
have a standardized meaning according to GAAP. These measures should not be confused with, or used as an alternative for,
performance measures calculated according to GAAP. Furthermore, these non-GAAP measures should not be compared with
similarly titled measures provided or used by other companies.
Changes in non-GAAP measures and comparative figures
In the fourth quarter of fiscal 2021, we have changed the designation of the following profitability measures, without changing the
composition of these financial measures:
– Operating income (formerly operating profit);
– Adjusted segment operating income (formerly segment operating income before specific items);
– Adjusted EBITDA (formerly EBITDA before specific items);
– Adjusted net income (formerly net income before specific items); and
– Adjusted earnings per share (formerly earnings per share before specific items).
We have also introduced new non-GAAP measures to reflect the impact of COVID-19 government support programs on the above
metrics in order to incorporate recently published and evolving guidance by the Canadian Securities Administrators. These measures
do not adjust for COVID-19 heightened operating costs that we have been carrying and that have been included in our results, as
discussed in section 3.8 “Non‑GAAP measure reconciliations” of this MD&A.
In addition, we no longer use segment operating income as a non-GAAP measure as it has been replaced with adjusted segment
operating income.
Comparative figures have been reclassified to conform to these adopted changes in presentation.
Adjusted earnings or loss per share (EPS)
Adjusted earnings or loss per share is a non-GAAP measure calculated by excluding restructuring, integration and acquisition costs,
and impairments and other gains and losses arising from significant strategic transactions or material events, after tax, as well as
significant one-time tax items from the diluted earnings per share from continuing operations attributable to equity holders of the
Company. The effect per share is obtained by dividing these restructuring, integration and acquisition costs and other gains and
losses, after tax, as well as one-time tax items by the average number of diluted shares. We track it because we believe it provides a
better indication of our operating performance on a per share basis and facilitates the comparison across reporting periods.
Adjusted earnings or loss per share excluding COVID-19 government support programs further excludes the impacts of government
contributions related to COVID-19 support programs that were credited to income, after tax, but does not adjust for COVID-19
heightened operating costs that we have been carrying and that have been included in our results. Refer to section 3.8 “Non-GAAP
measure reconciliations” of this MD&A for a reconciliation of these non-GAAP measures to the most directly comparable measure
under GAAP.
Adjusted net income or loss
Adjusted net income or loss is a non-GAAP measure we use as an alternate view of our operating results. We calculate it by taking
our net income attributable to equity holders of the Company from continuing operations and excluding restructuring, integration and
acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or material events, after
tax, as well as significant one-time tax items. We track it because we believe it provides a better indication of our operating
performance and facilitates the comparison across reporting periods.
Adjusted net income or loss excluding COVID-19 government support programs further excludes the impacts of government
contributions related to COVID-19 support programs that were credited to income, after tax, but does not adjust for COVID-19
heightened operating costs that we have been carrying and that have been included in our results. Refer to section 3.8 “Non-GAAP
measure reconciliations” of this MD&A for a reconciliation of these non-GAAP measures to the most directly comparable measure
under GAAP.
Adjusted segment operating income or loss (SOI)
Adjusted segment operating income or loss is a non-GAAP measure and is the sum of our key indicators of each segment’s financial
performance. Adjusted segment operating income or loss gives us an indication of the profitability of each segment because it does
not include the impact of any items not specifically related to the segment’s performance. We calculate adjusted segment operating
income by taking operating income and excluding restructuring, integration and acquisition costs, and impairments and other gains
and losses arising from significant strategic transactions or material events. We track it because we believe it provides a better
indication of our operating performance and facilitates the comparison across reporting periods. Additionally, adjusted segment
operating income or loss is the profitability measure employed by management for making decisions about allocating resources to
segments and assessing segment performance.
20 I CAE Financial Report 2021
Management’s Discussion and Analysis
Adjusted segment operating income or loss excluding COVID-19 government support programs further excludes the impacts of
government contributions related to COVID-19 support programs that were credited to income but does not adjust for COVID-19
heightened operating costs that we have been carrying and that have been included in our results. While management is aware of
such further adjusted measure, it is not specifically employed by management as a profitability measure for making decisions about
allocating resources to segments and assessing segment performance. Refer to section 3.8 “Non‑GAAP measure reconciliations” of
this MD&A for a reconciliation of these non-GAAP measures to the most directly comparable measure under GAAP.
Capital employed
Capital employed
Capital employed is a non-GAAP measure we use to evaluate and monitor how much we are investing in our business. We measure it
from two perspectives:
Capital used:
– For the Company as a whole, we take total assets (not including cash and cash equivalents), and subtract total liabilities (not
including long-term debt and the current portion of long-term debt);
– For each segment, we take the total assets (not including cash and cash equivalents, tax accounts and other non-operating
assets), and subtract total liabilities (not including tax accounts, long-term debt and the current portion of long-term debt, royalty
obligations, employee benefit obligations and other non-operating liabilities).
Source of capital:
– In order to understand our source of capital, we add net debt to total equity.
Refer to section 7.1 “Consolidated capital employed” of this MD&A for a reconciliation of this non-GAAP measure to the most directly
comparable measure under GAAP.
Return on capital employed (ROCE)
ROCE is used to evaluate the profitability of our invested capital. We calculate this ratio over a rolling four-quarter period by taking net
income attributable to equity holders of the Company excluding net finance expense, after tax, divided by the average capital
employed.
Capital expenditures (maintenance and growth) from property, plant and equipment
Maintenance capital expenditure is a non-GAAP measure we use to calculate the investment needed to sustain the current level of
economic activity.
Growth capital expenditure is a non-GAAP measure we use to calculate the investment needed to increase the current level of
economic activity.
Free cash flow
Free cash flow is a non-GAAP measure that shows us how much cash we have available to invest in growth opportunities, repay debt
and meet ongoing financial obligations. We use it as an indicator of our financial strength and liquidity. We calculate it by taking the
net cash generated by our continuing operating activities, subtracting maintenance capital expenditures, investment in other assets
not related to growth and dividends paid and adding proceeds from the disposal of property, plant and equipment, dividends received
from equity accounted investees and proceeds, net of payments, from equity accounted investees. Refer to section 6.1 “Consolidated
cash movements” of this MD&A for a reconciliation of this non-GAAP measure to the most directly comparable measure under GAAP.
Gross profit
Gross profit is a non-GAAP measure equivalent to the operating income excluding research and development expenses, selling,
general and administrative expenses, other gains and losses, after tax share in profit or loss of equity accounted investees and
restructuring, integration and acquisition costs. We believe it is useful to management and investors in evaluating our ongoing
operational performance.
Net debt
Net debt is a non-GAAP measure we use to monitor how much debt we have after taking into account cash and cash equivalents. We
use it as an indicator of our overall financial position, and calculate it by taking our total long-term debt, including the current portion of
long-term debt, and subtracting cash and cash equivalents. Refer to section 7.1 “Consolidated capital employed” of this MD&A for a
reconciliation of this non-GAAP measure to the most directly comparable measure under GAAP.
Net debt-to-capital is calculated as net debt divided by the sum of total equity plus net debt.
Net debt-to-EBITDA is calculated as net debt divided by the last twelve months EBITDA. EBITDA comprises earnings before income
taxes, finance expense – net, depreciation and amortization. Adjusted EBITDA further excludes restructuring, integration and
acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or material events. Refer
to section 3.8 “Non-GAAP measure reconciliations” of this MD&A for a reconciliation of these non-GAAP measures to the most directly
comparable measure under GAAP.
CAE Financial Report 2021 I 21
Management’s Discussion and Analysis
Non-cash working capital
Non-cash working capital is a non-GAAP measure we use to monitor how much money we have committed in the day-to-day
operation of our business. We calculate it by taking current assets (not including cash and cash equivalents and assets held for sale)
and subtracting current liabilities (not including the current portion of long-term debt and liabilities held for sale). Refer to section
7.1 “Consolidated capital employed” of this MD&A for a reconciliation of this non-GAAP measure to the most directly comparable
measure under GAAP.
Operating income or loss
Operating income or loss is an additional GAAP measure that shows us how we have performed before the effects of certain financing
decisions, tax structures and discontinued operations. We track it because we believe it facilitates the comparison across reporting
periods, and with companies and industries that do not have the same capital structure or tax laws.
Order intake and Backlog
Order intake
Order intake is a non-GAAP measure that represents the expected value of orders we have received:
– For the Civil Aviation Training Solutions segment, we consider an item part of our order intake when we have a legally binding
commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract.
Additionally, expected future revenues from customers under short-term and long-term training contracts are included when these
customers commit to pay us training fees, or when we reasonably expect the revenue to be generated;
– For the Defence and Security segment, we consider an item part of our order intake when we have a legally binding commercial
agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Defence and
Security contracts are usually executed over a long-term period but some of them must be renewed each year. For this segment,
we only include a contract item in order intake when the customer has authorized the contract item and has received funding for it;
– For the Healthcare segment, order intake is typically converted into revenue within one year, therefore we assume that order
intake is equal to revenue.
The book-to-sales ratio is the total orders divided by total revenue in a given period.
Backlog
Total backlog is a non-GAAP measure that represents expected future revenues and includes obligated backlog, joint venture backlog
and unfunded backlog and options:
– Obligated backlog represents the value of our order intake not yet executed and is calculated by adding the order intake of the
current period to the balance of the obligated backlog at the end of the previous fiscal year, subtracting the revenue recognized in
the current period and adding or subtracting backlog adjustments. If the amount of an order already recognized in a previous fiscal
year is modified, the backlog is revised through adjustments;
– Joint venture backlog is obligated backlog that represents the expected value of our share of orders that our joint ventures have
received but have not yet executed. Joint venture backlog is determined on the same basis as obligated backlog described above;
– Unfunded backlog represents firm Defence and Security orders we have received but have not yet executed and for which funding
authorization has not yet been obtained. Options are included in backlog when there is a high probability of being exercised, but
indefinite-delivery/indefinite-quantity (ID/IQ) contracts are excluded. When an option is exercised, it is considered order intake in
that period and it is removed from unfunded backlog and options.
Refer to section 4.3 “Consolidated orders and total backlog” of this MD&A for a reconciliation of this non-GAAP measure to the most
directly comparable measure under GAAP.
Remaining performance obligations
Remaining performance obligations is a GAAP measure, introduced under the application of IFRS 15, which represents the
cumulative balance of unsatisfied promises to transfer a distinct good or service to customers as part of a legally binding commercial
agreement. This measure is similar to our definition of backlog, however excludes joint venture balances, options and estimated
contract values:
– Estimated contract values represent estimated future revenue from customers under exclusive short-term and long-term training
contracts when we expect the revenue to be generated, based on regulated customer training requirements but for which no
training sessions have yet been booked.
Research and development expenses (R&D)
Research and development expenses are a financial measure we use to measure the amount of expenditures directly attributable to
research and development activities that we have expensed during the period, net of investment tax credits and government
contributions.
22 I CAE Financial Report 2021
Management’s Discussion and Analysis
Simulator equivalent unit (SEU)
Simulator equivalent unit
SEU is an operating measure we use to show the total average number of FFSs available to generate earnings during the period. For
example, in the case of a 50/50 flight training joint venture, we will report only 50% of the FFSs under this joint venture as a SEU. If a
FFS is being powered down and relocated, it will not be included as a SEU until the FFS is re-installed and available to generate
earnings.
Full-flight simulators (FFSs) in CAE's network
A FFS is a full size replica of a specific make, model and series of an aircraft cockpit, including a motion system. In our count of FFSs
in the network, we generally only include FFSs that are of the highest fidelity and do not include any fixed based training devices, or
other lower-level devices, as these are typically used in addition to FFSs in the same approved training programs.
Utilization rate
Utilization rate is one of the operating measures we use to assess the performance of our Civil simulator training network. While
utilization rate does not perfectly correlate to revenue recognized, we track it, together with other measures, because we believe it is
an indicator of our operating performance. We calculate it by taking the number of training hours sold on our simulators during the
period divided by the practical training capacity available for the same period.
3.8 Non-GAAP measure reconciliations
Reconciliation of adjusted segment operating income
Three months ended March 31
Operating income (loss)
Civil Aviation
Defence
Training Solutions
and Security
Healthcare
2021
2020
2021
2020
2021
2020
2021
Total
2020
$ 40.5 $ 151.5 $
(8.5) $ 32.4 $ 15.6 $ (37.4) $ 47.6 $ 146.5
Restructuring, integration and acquisition costs
26.1
2.1
31.7
Impairment of goodwill
—
—
—
7.8
—
0.8
—
58.6
9.9
—
37.5
—
37.5
Adjusted segment operating income
$ 66.6 $ 153.6 $ 23.2 $ 40.2 $ 16.4 $
0.1 $ 106.2 $ 193.9
COVID-19 government support programs
$ 19.7
— $ 16.4
— $
1.1
— $ 37.2 $ —
Adjusted SOI excluding COVID-19 government
support programs
$ 46.9 $ 153.6 $
6.8 $ 40.2 $ 15.3 $
0.1 $ 69.0 $ 193.9
Twelve months ended March 31
Operating income (loss)
Civil Aviation
Defence
Training Solutions
and Security
Healthcare
2021
2020
2021
2020
2021
2020
2021
Total
2020
$
6.5 $ 473.3 $ 15.5 $ 104.8 $ 26.4 $ (41.0) $ 48.4 $ 537.1
Restructuring, integration and acquisition costs
76.1
6.1
45.0
Impairment of goodwill
—
—
—
9.7
—
2.9
— 124.0
—
37.5
—
15.8
37.5
Impairments and other gains and losses incurred
in relation to the COVID-19 pandemic(1)
Adjusted segment operating income (loss)
81.7
—
26.5
—
—
— 108.2
—
$ 164.3 $ 479.4 $ 87.0 $ 114.5 $ 29.3 $
(3.5) $ 280.6 $ 590.4
COVID-19 government support programs
$ 63.6 $ — $ 60.3 $ — $
3.5 $ — $ 127.4 $ —
Adjusted SOI excluding COVID-19 government
support programs
$ 100.7 $ 479.4 $ 26.7 $ 114.5 $ 25.8 $
(3.5) $ 153.2 $ 590.4
CAE Financial Report 2021 I 23
Management’s Discussion and Analysis
Reconciliation of adjusted net income and adjusted earnings per share
(amounts in millions, except per share amounts)
Three months ended
Twelve months ended
March 31
March 31
2021
2020
2021
2020
Net income (loss) attributable to equity holders of the Company
$
19.8 $
78.4
$
(47.2) $
311.4
Restructuring, integration and acquisition costs, after tax
43.4
7.2
94.0
11.6
Impairments and other gains and losses incurred in relation
to the COVID-19 pandemic(1), after tax
Impairment of goodwill, after tax
Adjusted net income
COVID-19 government support programs, after tax
Adjusted net income excluding COVID-19 government support programs
Average number of shares outstanding (diluted)
Adjusted EPS
Adjusted EPS excluding COVID-19 government support programs
—
—
—
36.7
80.3
—
—
36.7
63.2 $
122.3
27.3 $
—
35.9 $
122.3
$
$
$
127.1 $
359.7
93.5 $
—
33.6 $
359.7
287.3
267.7
272.0
267.6
0.22 $
0.12 $
0.46
0.46
$
$
0.47 $
0.12 $
1.34
1.34
$
$
$
$
$
Reconciliation of EBITDA and adjusted EBITDA
(amounts in millions)
Operating income
Depreciation and amortization
EBITDA
Restructuring, integration and acquisition costs
Impairments and other gains and losses incurred in relation to the COVID-19 pandemic(1)
Impairment of goodwill
Adjusted EBITDA
COVID-19 government support programs
Adjusted EBITDA excluding COVID-19 government support programs
Last twelve months ending
March 31
2021
48.4 $
319.5
367.9 $
124.0
108.2
—
2020
537.1
305.4
842.5
15.8
—
37.5
600.1 $
895.8
127.4 $
—
472.7 $
895.8
$
$
$
$
$
(1) Mainly from impairment charges on non-financial assets and amounts owed from customers. This reconciling item does not adjust for any
operational elements, including COVID-19 heightened employee costs. During the period, we carried higher employee costs than we would
have otherwise been carrying as amounts received under COVID-19 government support programs either flowed through directly to
employees according to the objective of the subsidy programs and the way they were designed in certain countries, or the amounts were offset
by the increased costs we incurred in revoking some of our initial cost saving measures including eliminating salary reductions and bringing
back employees who were previously placed on furlough or reduced work weeks. We also incurred additional operating costs including the
purchase of personal protective equipment, increased sanitary measures to protect the health and safety of our employees and costs of safety
protocols implemented. These higher costs have been included in our results. While these additional costs are in certain cases estimated, they
almost entirely neutralize the positive impacts of the COVID-19 government support programs.
24 I CAE Financial Report 2021
4. CONSOLIDATED RESULTS
4.1 Results from operations – fourth quarter of fiscal 2021
(amounts in millions, except per share amounts)
Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020
Management’s Discussion and Analysis
Revenue
Cost of sales
Gross profit3
As a % of revenue
Research and development expenses3
Selling, general and administrative expenses
Other (gains) and losses
After tax share in (profit) loss of equity accounted investees
Restructuring, integration and acquisition costs
Operating income (loss)3
As a % of revenue
Finance expense – net
Earnings (loss) before income taxes
Income tax (recovery) expense
As a % of earnings (loss) before income taxes
(income tax rate)
Net income (loss)
Attributable to:
Equity holders of the Company
Non-controlling interests
$
$
$
%
$
$
$
$
$
$
%
$
$
$
%
$
$
$
$
894.3
657.2
237.1
26.5
22.5
832.4
603.5
228.9
27.5
36.5
111.5
105.3
(0.7)
(2.4)
58.6
47.6
5.3
32.0
15.6
(3.2)
(21)
18.8
19.8
(1.0)
18.8
(1.5)
(8.6)
14.3
82.9
10.0
33.3
49.6
(0.1)
—
49.7
48.8
0.9
49.7
704.7
513.7
191.0
27.1
25.6
88.2
(2.7)
0.6
51.1
28.2
4.0
35.2
(7.0)
(1.0)
550.5
442.5
108.0
19.6
20.1
93.9
96.6
7.7
—
977.3
665.6
311.7
31.9
36.2
107.9
4.4
6.8
9.9
(110.3)
146.5
—
35.1
15.0
38.5
(145.4)
108.0
(35.4)
26.9
14
24
(6.0)
(110.0)
(5.2)
(0.8)
(110.6)
0.6
(6.0)
(110.0)
25
81.1
78.4
2.7
81.1
EPS attributable to equity holders of the Company
Basic and diluted
$
0.07
0.18
(0.02)
(0.42)
0.29
Adjusted segment operating income (loss)3
Adjusted SOI excluding COVID-19 government support programs3
Adjusted net income (loss)3
Adjusted net income (loss) excluding COVID-19 government
support programs3
Adjusted EPS3
Adjusted EPS excluding COVID-19 government support programs3
$
$
$
$
$
$
106.2
69.0
63.2
35.9
0.22
0.12
97.2
86.6
60.0
52.2
0.22
0.19
79.3
44.1
34.2
8.4
0.13
0.03
(2.1)
(46.5)
(30.3)
(62.9)
(0.11)
(0.24)
193.9
193.9
122.3
122.3
0.46
0.46
Revenue was 8% lower compared to the fourth quarter of fiscal 2020
Revenue was $83.0 million lower than the fourth quarter of fiscal 2020. Decreases in revenue were $213.7 million and $7.4 million for
Civil Aviation Training Solutions and Defence and Security respectively, partially offset by an increase of $138.1 million in Healthcare.
You will find more details in Results by segment.
Gross profit was $74.6 million lower compared to the fourth quarter of fiscal 2020
Gross profit was $237.1 million this quarter, or 26.5% of revenue compared to $311.7 million, or 31.9% of revenue in the fourth quarter
of fiscal 2020.
3 Non-GAAP and other financial measures (see Section 3.7).
CAE Financial Report 2021 I 25
Management’s Discussion and Analysis
Adjusted segment operating income was $87.7 million lower compared to the fourth quarter of fiscal 2020
Operating income this quarter was $47.6 million (5.3% of revenue), compared to $146.5 million (15.0% of revenue) in the fourth
quarter of fiscal 2020. Adjusted segment operating income was $106.2 million this quarter (11.9% of revenue) compared to
$193.9 million (19.8% of revenue) in the fourth quarter of fiscal 2020. Decreases in adjusted segment operating income were
$87.0 million and $17.0 million in Civil Aviation Training Solutions and Defence and Security respectively, partially offset by an
increase of $16.3 million for Healthcare.
Adjusted segment operating income excluding COVID-19 government support programs was $124.9 million lower compared
to the fourth quarter of fiscal 2020
Adjusted segment operating income excluding COVID-19 government support programs was $69.0 million (7.7% of revenue),
representing a decrease of $124.9 million compared to the same period last year. The decrease was $106.7 million and $33.4 million
for Civil Aviation Training Solutions and Defence and Security respectively, partially offset by an increase of $15.2 million for
Healthcare. During the quarter we also carried higher employee costs than we would have otherwise been carrying as amounts
received under these programs either flowed through directly to employees according to the objective of the subsidy programs and the
way they were designed in certain countries, or the amounts were offset by the increased costs we incurred in revoking some of our
initial cost saving measures including eliminating salary reductions and bringing back employees who were previously placed on
furlough or reduced work weeks. We also incurred additional operating costs including the purchase of personal protective equipment,
increased sanitary measures to protect the health and safety of our employees and costs of safety protocols implemented. While
these additional costs are in certain cases estimated, they almost entirely neutralize the positive impacts of the COVID-19 government
support programs.
You will find more details in Results by segment.
Research and development expenses were $13.7 million lower compared to the fourth quarter of fiscal 2020
The decrease compared to the fourth quarter of fiscal 2020 was mainly due to the recognition of additional investment tax credits and
the benefit of cost containment measures taken and government support programs obtained in relation to the COVID-19 pandemic,
partially offset by the amortization of development costs incurred in relation to the design and manufacturing of the CAE Air1
ventilators.
Net finance expense was $6.5 million lower than the fourth quarter of fiscal 2020
The decrease compared to the fourth quarter of fiscal 2020 was mainly due to lower interest expense on long-term debt and lower
interest expense on lease liabilities.
Income tax rate was negative 21% this quarter
Income tax recovery this quarter amounted to $3.2 million, representing a negative effective tax rate of 21%, compared to an effective
tax rate of 25% for the fourth quarter of fiscal 2020.
In the fourth quarter last year, the income tax rate was higher due to the goodwill impairment charge for the Healthcare segment.
Excluding the effect of the goodwill impairment, the income tax rate would have been 19% last year.
In the fourth quarter this year, the income tax rate was impacted by the restructuring costs. Excluding the effect of the restructuring
costs, the income tax rate would have been 16% this quarter. On this basis, the decrease in the tax rate from the fourth quarter of
fiscal 2020 was mainly due to a change in the mix of income from various jurisdictions.
26 I CAE Financial Report 2021
4.2 Results from operations – fiscal 2021
(amounts in millions, except per share amounts)
Revenue
Cost of sales
Gross profit
As a % of revenue
Research and development expenses
Selling, general and administrative expenses
Other (gains) and losses
After tax share in profit of equity accounted investees
Restructuring, integration and acquisition costs
Operating income
As a % of revenue
Finance expense – net
(Loss) earnings before income taxes
Income tax (recovery) expense
As a % of (loss) earnings before income taxes (income tax rate)
Net (loss) income
Attributable to:
Equity holders of the Company
Non-controlling interests
EPS attributable to equity holders of the Company
Basic
Diluted
Adjusted segment operating income
Adjusted SOI excluding COVID-19 government support programs
Adjusted net income
Adjusted net income excluding COVID-19 government support programs
Adjusted EPS
Adjusted EPS excluding COVID-19 government support programs
Management’s Discussion and Analysis
$
$
$
%
$
$
$
$
$
$
%
$
$
$
%
$
$
$
$
$
$
$
$
$
$
$
$
FY2021
2,981.9
2,216.9
765.0
25.7
104.7
398.9
91.7
(2.7)
124.0
48.4
1.6
135.6
(87.2)
(39.7)
46
(47.5)
(47.2)
(0.3)
(47.5)
(0.17)
(0.17)
280.6
153.2
127.1
33.6
0.47
0.12
FY2020
3,623.2
2,539.6
1,083.6
29.9
137.5
437.5
(16.8)
(27.5)
15.8
537.1
14.8
144.4
392.7
73.8
19
318.9
311.4
7.5
318.9
1.17
1.16
590.4
590.4
359.7
359.7
1.34
1.34
Revenue was $641.3 million or 18% lower than last year
Decreases in revenue were $754.6 million and $114.1 million for Civil Aviation Training Solutions and Defence and Security
respectively, partially offset by an increase of $227.4 million for Healthcare.
You will find more details in Results by segment.
Gross profit was $318.6 million lower than last year
Gross profit was $765.0 million this year, or 25.7% of revenue compared to $1,083.6 million, or 29.9% of revenue last year.
Adjusted segment operating income was $309.8 million lower than last year
Operating income for the year was $48.4 million (1.6% of revenue), compared to $537.1 million (14.8% of revenue) last year. Adjusted
segment operating income was $280.6 million this year (9.4% of revenue) compared to $590.4 million (16.3% of revenue) last year.
Decreases in adjusted segment operating income were $315.1 million and $27.5 million in Civil Aviation Training Solutions and
Defence and Security respectively, partially offset by an increase of $32.8 million for Healthcare.
CAE Financial Report 2021 I 27
Management’s Discussion and Analysis
Adjusted segment operating income excluding COVID-19 government support programs was $437.2 million lower than last
year
Adjusted segment operating income excluding COVID-19 government support programs for the year was $153.2 million (5.1% of
revenue), representing a decrease of $437.2 million compared to last year. The decrease was $378.7 million and $87.8 million for Civil
Aviation Training Solutions and Defence and Security respectively, partially offset by an increase of $29.3 million for Healthcare.
During the year we also carried higher employee costs than we would have otherwise been carrying as amounts received under these
programs either flowed through directly to employees according to the objective of the subsidy programs and the way they were
designed in certain countries, or the amounts were offset by the increased costs we incurred in revoking some of our initial cost saving
measures including eliminating salary reductions and bringing back employees who were previously placed on furlough or reduced
work weeks. We also incurred additional operating costs including the purchase of personal protective equipment, increased sanitary
measures to protect the health and safety of our employees and costs of safety protocols implemented. While these additional costs
are in certain cases estimated, they almost entirely neutralize the positive impacts of the COVID-19 government support programs.
You will find more details in Results by segment.
Research and development expenses were $32.8 million lower than last year
Research and development expenses were $32.8 million lower compared to the same period last year. The decrease was due to the
benefit of cost containment measures taken and government support programs obtained in relation to the COVID-19 pandemic and
the recognition of additional investment tax credits, partially offset by the amortization of development costs incurred in relation to the
design and manufacturing of the CAE Air1 ventilators.
Net finance expense was $8.8 million lower than last year
(amounts in millions)
Net finance expense, prior period
Change in finance expense from the prior period:
Decrease in finance expense on long-term debt (other than lease liabilities)
Decrease in finance expense on royalty obligations
Decrease in finance expense on lease liabilities
Decrease in other finance expense
Decrease in borrowing costs capitalized
Decrease in finance expense from the prior period
Change in finance income from the prior period:
Increase in interest income on loans and finance lease contracts
Decrease in other finance income
Increase in finance income from the prior period
Net finance expense, current period
FY2020 to
FY2021
144.4
(4.9)
(0.2)
(1.9)
(0.9)
0.7
(7.2)
(2.3)
0.7
(1.6)
135.6
$
$
$
$
$
$
Net finance expense was $135.6 million this year, $8.8 million or 6% lower than last year. The decrease was mainly due to lower
interest expense on long-term debt, lower interest expense on lease liabilities and higher finance income.
Income tax rate was 46% this year
Income tax recovery this year amounted to $39.7 million, representing an effective tax rate of 46%, compared to an income tax
expense of $73.8 million for the same period last year, representing an effective tax rate of 19%.
Last year, the income tax rate was impacted by a goodwill impairment charge for the Healthcare segment. Excluding the effect of the
goodwill impairment, the income tax rate would have been 17% last year.
This year, the income tax rate was impacted by impairment charges on non-financial assets and amounts owed from customers
incurred in relation to the COVID-19 pandemic, restructuring costs and positive impact of tax audits. Excluding the effect of these
elements, the income tax rate would have been 19% this year. On this basis, the increase in the tax rate compared to last year was
mainly due to the change in the mix of income from various jurisdictions.
28 I CAE Financial Report 2021
Management’s Discussion and Analysis
4.3 Restructuring, integration and acquisition costs
Integration and acquisition costs
Impairment of non-financial assets
Severances and other employee related costs
Other costs
Total restructuring, integration and acquisition costs
FY2021
6.9
59.5
42.9
14.7
124.0
$
$
FY2020
6.1
7.0
2.7
—
15.8
$
$
Q4-2021
6.9
26.0
21.2
4.5
58.6
$
$
Q4-2020
2.1
7.0
0.8
—
9.9
$
$
On August 12, 2020, we announced that we would be taking additional measures to best serve the market by optimizing our global
asset base and footprint, adapting our global workforce and adjusting our business to correspond with the expected lower level of
demand for certain of our products and services.
As a result of these measures, we expect to record restructuring expenses of approximately $170 million for the entire program,
consisting mainly of real estate costs, asset relocations and other direct costs related to the optimization of our footprint and employee
termination benefits, which have been carried out throughout fiscal 2021 and will continue into fiscal 2022.
Impairment of non-financial assets incurred in relation to this restructuring program primarily includes impairment of property, plant
and equipment of training devices determined to be in surplus, intangible assets related to the termination of certain product offerings
and buildings and right-of-use assets related to leased real estate facilities to align with the optimization of our footprint and asset
base.
For the year ended March 31, 2021, restructuring, integration and acquisition costs also include $4.3 million of acquisition-related
costs associated with the L3H MT acquisition, which is expected to close in the second half of calendar year 2021.
For the year ended March 31, 2020, restructuring, integration and acquisition costs are composed of $6.1 million related to the
integration of Bombardier's Business Aircraft Training Business acquired in fiscal 2019 and costs of $9.7 million incurred in the
Defence and Security segment following changes made in the segment organization and the review of certain product offerings.
4.4 Consolidated orders and total backlog
Total backlog4 13% lower compared to last year
(amounts in millions)
Obligated backlog4, beginning of period
+ order intake4
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog4 (all obligated)
Unfunded backlog and options4
Total backlog
Reconciliation of total backlog to remaining performance obligations
Total backlog
Less: Joint venture backlog
Less: Options
Less: Estimated contract value4
Remaining performance obligations
FY2021
7,631.0
2,723.5
(2,981.9)
(960.0)
6,412.6
328.2
1,460.3
8,201.1
8,201.1
(328.2)
(476.5)
(2,957.7)
4,438.7
FY2020
7,461.4
3,821.6
(3,623.2)
(28.8)
7,631.0
441.4
1,385.7
9,458.1
9,458.1
(441.4)
(516.4)
(3,636.7)
4,863.6
$
$
$
$
$
Fiscal 2021 adjustments include reassessments to estimated contract values to reflect the change in estimates of our customers'
training requirements as a result of the downturn caused by the COVID-19 pandemic and negative foreign exchange movements,
partially offset by backlog acquired from the business acquisitions completed during the year.
Fiscal 2020 adjustments include positive foreign exchange movements, partially offset by the revaluation of prior year contracts and
the cancellation of orders from a previous year.
The book-to-sales ratio for the quarter was 1.04x. The ratio for the last 12 months was 0.91x.
You will find more details in Results by segment.
4 Non-GAAP and other financial measures (see Section 3.7).
CAE Financial Report 2021 I 29
Management’s Discussion and Analysis
5. RESULTS BY SEGMENT
We manage our business and report our results in three segments:
– Civil Aviation Training Solutions;
– Defence and Security;
– Healthcare.
The method used for the allocation of assets jointly used by the operating segments and costs and liabilities jointly incurred (mostly
corporate costs) between operating segments is based on the level of utilization when determinable and measurable, otherwise the
allocation is based on a proportion of each segment’s cost of sales.
Unless otherwise indicated, elements within our segment revenue and adjusted segment operating income analysis are presented in
order of magnitude.
5.1 Civil Aviation Training Solutions
FISCAL 2021 EXPANSIONS AND NEW INITIATIVES
Acquisitions
– On November 16, 2020, we acquired the shares of FSC, a provider of training solutions as well as instructor provisioning in
Europe for airline and cargo operators. The acquisition provides CAE with an expanded portfolio of customers and an established
recurring training business which is complementary to CAE’s network;
– On December 22, 2020 we acquired the shares of Merlot, a leading civil aviation crew management and optimization software
company based in Auckland, New Zealand. This acquisition expands our reach beyond pilot training and into the market for
digitally-enabled crew optimization services;
– On January 26, 2021, we acquired the shares of TRU Canada, a manufacturer of full-flight simulators and flight training devices,
which expands CAE’s global installed base of commercial flight simulators and customers, and the addressable market for
simulator lifecycle support services and also provides CAE with a backlog of simulator orders, FFSs and access to a number of
airline customers globally.
Expansions
– We announced, together with Cebu Pacific Air, the expansion of our training capacity in Asia with the addition of the first
ATR 72-600 FFS at the Philippine Academy for Aviation Training joint venture in Pampanga, Philippines;
– We expanded our Boeing 737MAX training capacity in North America with the deployment of a second B737MAX FFS in our
Dallas training centre in the U.S., and third in North America;
– We expanded our business aviation network in North America with the deployment of a new Bombardier Challenger 350 and an
Embraer Phenom 300 at the SIMCOM Aviation Training centre in Orlando, Florida, a joint venture between CAE and Directional
Aviation Capital.
New programs and products
– We have introduced new virtual service offerings to support our customers as a response to border restrictions arising from the
COVID-19 pandemic including offering remote support for the installation, acceptance and qualification of FFSs, obtaining FAA
and other Civil Aviation Authority approvals for virtual training in certain of our flight training organizations, and developing remote
IOS solutions for live instructor interactions during training sessions;
– We developed Airside, a new digital platform that provides training and career resources to pilots grounded due to COVID-19. The
platform features articles and tools that were created on the subjects that matter the most to thousands of pilots surveyed around
the world during this pandemic;
– We launched instructor-led online courses for aviation maintenance training;
– We launched a new financing initiative for aspiring pilots in collaboration with financial institutions around the world to help make
the profession more accessible;
– We announced a partnership with the LOSA Collaborative to enhance our evidence-based training offering by performing Line
Operations Safety Audits (LOSA) of our customer-operators. The insights and data obtained from these audits will allow us to offer
tailored pilot training programs and benchmarked operational and training performance insights to operators.
FISCAL 2021 ORDERS
Civil Aviation Training Solutions obtained contracts this quarter expected to generate future revenues of $385.8 million, including
contracts for 4 FFSs. This brings the total civil order intake to $1,261.9 million and 11 FFSs for the year.
Notable FFS contract awards for the year included:
– One Airbus A220 and one Airbus A330neo to Delta Air Lines;
– One Boeing 737NG to Beijing Sagacity Flight Aviation Technical Service Co.;
– One Airbus A320neo to Northwest Rocwings Flight Training Co.;
– One Airbus A320 FFS to China Express;
– One Airbus A350 to Airbus SAS;
– One Phenom 100/300 to Embraer-CAE Training Services, a joint venture between Embraer and CAE;
– Four FFSs to undisclosed customers.
30 I CAE Financial Report 2021
Management’s Discussion and Analysis
Notable contract awards for fiscal 2021 included:
– A 5-year business aviation training agreement with an undisclosed private business jet charter company in the U.S.;
– A 5-year exclusive pilot training agreement with Iberia, Líneas Aéreas de España;
– A 10-year exclusive commercial aviation training agreement with Azul Brazilian Airlines;
– A 5-year business aviation training agreement with Bundeswehr in Germany;
– A 7-year exclusive commercial aviation training agreement with an undisclosed regional airline in the U.S.;
– A 5-year exclusive training extension with Virgin Atlantic;
– A 4-year pilot training agreement with Alitalia;
– An 8-year commercial aviation training agreement with Air France.
FINANCIAL RESULTS5
(amounts in millions, except SEU, FFSs,
utilization rate and FFS deliveries)
FY2021
FY2020
Q4-2021
Q3-2021
Q2-2021
Q1-2021
Q4-2020
Revenue
Operating income (loss)
Adjusted SOI
As a % of revenue
Adjusted SOI excluding COVID-19
government support programs
As a % of revenue
Depreciation and amortization
Property, plant and equipment
$
$
$
%
$
%
$
1,412.9
2,167.5
388.2
412.2
364.5
6.5
164.3
11.6
100.7
7.1
242.9
473.3
479.4
22.1
479.4
22.1
232.8
40.5
66.6
17.2
46.9
12.1
58.2
48.4
62.0
15.0
58.4
14.2
58.2
15.5
51.9
14.2
34.2
9.4
58.9
248.0
(97.9)
(16.2)
—
601.9
151.5
153.6
25.5
(38.8)
153.6
—
67.6
25.5
59.8
expenditures
$
88.8
259.9
40.7
21.2
11.7
15.2
78.1
Intangible assets and other
assets expenditures
Capital employed5
Total backlog
SEU5
FFSs in CAE's network5
Utilization rate5
FFS deliveries
$
$
$
%
27.9
36.4
9.9
8.4
4.8
4.8
13.7
3,808.1
3,869.6
3,808.1
3,792.6
3,737.6
3,771.3
3,869.6
4,293.1
5,341.3
4,293.1
4,198.1
4,399.4
4,541.1
5,341.3
246
317
47
36
247
306
70
56
240
317
55
14
245
320
50
10
251
308
49
10
246
304
33
2
250
306
67
21
Revenue down 36% over the fourth quarter of fiscal 2020
While we have seen gradual improvements in utilization, mainly in our business aviation training business, the COVID-19 pandemic
continued to negatively affect our training revenues during the quarter due to a significant decrease in demand for training products
and services as a result of the reduction in airlines’ global operations, disruption to the global air transportation environment and
diminished commercial air passenger travel.
The decrease in revenue from the fourth quarter of fiscal 2020 was due to lower revenue recognized from simulator sales mainly due
to lower deliveries, lower utilization mainly in the Americas and Europe and lower revenue from simulator lifecycle support services.
Revenue was $1,412.9 million this year, 35% or $754.6 million lower than last year
The decrease in revenue from the same period of fiscal 2020 is due to lower utilization in all regions, lower revenue recognized from
simulator sales mainly due to lower deliveries, lower revenue from simulator lifecycle support services and decreased demand for our
crew sourcing business.
Adjusted segment operating income down 57% over the fourth quarter of fiscal 2020
Adjusted segment operating income was $66.6 million (17.2% of revenue) this quarter, compared to $153.6 million (25.5% of revenue)
in the fourth quarter of fiscal 2020.
Adjusted segment operating income decreased by $87.0 million, or 57%, from the fourth quarter of fiscal 2020. The decrease was
mainly due to lower revenues, as described above. The decrease was partially offset by the benefit of cost containment measures
taken and government support programs obtained in relation to the COVID-19 pandemic.
5 Non-GAAP and other financial measures (see Section 3.7).
CAE Financial Report 2021 I 31
Management’s Discussion and Analysis
Adjusted segment operating income excluding COVID-19 government support programs down 69% over fourth quarter of
fiscal 2020
During the quarter, $19.7 million of COVID-19 government support programs were credited to income. On this basis, and without
adjusting for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding
COVID-19 government support programs was down 69% over the same period last year.
Adjusted segment operating income was $164.3 million, 66% or $315.1 million lower than last year
Adjusted segment operating income was $164.3 million (11.6% of revenue) this year, compared to $479.4 million (22.1% of revenue)
last year.
The decrease was mainly due to lower revenues, as described above. The decrease was partially offset by the benefit of cost
containment measures taken and government support programs obtained in relation to the COVID-19 pandemic.
Adjusted segment operating income excluding COVID-19 government support programs was $100.7 million this year, 79% or
$378.7 million lower than last year
During the year, $63.6 million of COVID-19 government support programs were credited to income. On this basis, and without
adjusting for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding
COVID-19 government support programs was down 79% over last year.
Property, plant and equipment expenditures at $40.7 million this quarter and $88.8 million for the year
Maintenance capital expenditures were $13.7 million for the quarter and $25.6 million for the year. Growth capital expenditures were
$27.0 million for the quarter and $63.2 million for the year.
Capital employed increased $15.5 million over last quarter and decreased $61.5 million over last year
The increase in capital employed from last quarter was due to higher intangible assets mainly as a result of the business acquisition
completed during the quarter and higher non-cash working capital driven by higher inventories and higher accounts receivable,
partially offset by higher contract liabilities. The increase was partially offset by movements in foreign exchange rates.
The decrease in capital employed from last year was due to movements in foreign exchange rates and lower right-of-use assets and
lower property, plant and equipment due to impairment charges recognized during the year. The decrease was partially offset by
higher intangible assets mainly as a result of the business acquisitions completed during the year and higher non-cash working capital
driven by lower accounts payable and accrued liabilities and higher inventories, partially offset by lower accounts receivable.
Total backlog was down 20% compared to last year
(amounts in millions)
Obligated backlog, beginning of period
+ order intake
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog (all obligated)
Total backlog
FY2021
$
4,993.5 $
1,261.9
FY2020
4,679.2
2,471.5
(1,412.9)
(2,167.5)
(795.1)
10.3
4,047.4 $
4,993.5
245.7
347.8
4,293.1 $
5,341.3
$
$
Fiscal 2021 adjustments include reassessments to estimated contract values to reflect the change in estimates of our customers'
training requirements as a result of the downturn caused by the COVID-19 pandemic and negative foreign exchange movements,
partially offset by backlog acquired from the business acquisitions completed during the year.
Fiscal 2020 adjustments include positive foreign exchange movements, partially offset by the revaluation of prior year contracts and
the cancellation of orders from a previous year.
This quarter's book-to-sales ratio was 0.99x. The ratio for the last 12 months was 0.89x.
32 I CAE Financial Report 2021
Management’s Discussion and Analysis
5.2 Defence and Security
FISCAL 2021 EXPANSIONS AND NEW INITIATIVES
Acquisitions
– On March 1, 2021, we announced that we have entered into a definitive agreement to acquire L3Harris’ Military Training (L3H MT)
business. The acquisition is highly complementary to CAE’s core military training business in the U.S. and is expected to broaden
CAE’s position in training and simulation across multi-domain operations. The closing of the acquisition is expected in the second
half of calendar year 2021, subject to regulatory approvals and other customary closing conditions.
Expansions
– We were contracted by the U.S. Army to provide advanced helicopter flight training support services at Fort Rucker, Alabama.
Although delayed by the protest of unsuccessful bidders, as at January 2021 the program has been successfully transferred from
the incumbent and we are executing on the contract;
– We delivered a NH90 flight simulator to the RNZAF and are providing ongoing maintenance and support services;
– We established the Leonardo CAE Advanced Jet Training Srl joint venture with Leonardo to support the operations of the
International Flight Training School (IFTS) in Italy. The joint venture will provide training support services, including full
maintenance and operation of the M-346 aircraft and its ground-based training system, as well as operation of the IFTS base
facilities;
– We were contracted to train the Irish Air Corps as the first international students at our state-of-the-art Dothan Training Center in
Alabama.
New programs and products
– We developed a range of offboard instructor operator station (IOS) solutions that are now being offered to military customers
globally, including a quick and deployable offboard IOS for customers requiring an immediate solution or a full-fidelity offboard IOS
for customers requiring an advanced solution. Our offboard IOS solutions can be implemented on CAE-built simulators and
training devices as well as those built by other manufacturers;
– We implemented a range of virtual classroom and distance learning solutions to sustain training for global defence and security
customers, including a Remote Ground School Refresher course for NATO Flying Training in Canada pilots and instructor-led
virtual emergency management courses delivered remotely for the Brunei National Disaster Management Centre;
– We were contracted by the Defense Innovation Unit to support the USAF Air Education and Training Command and its
Undergraduate Pilot Training Transformation initiative with elements of the CAE Trax Academy pilot training continuum;
– We are part of the team selected to support the USAF’s Simulators Common Architecture Requirements and Standards program,
which will integrate and standardize the USAF’s aircraft training simulators;
– We were contracted by BAE Systems to support the prototype development of a new Wargaming Center to be built at Marine
Corps Base Quantico;
– We were selected, following a competitive recompete, to continue providing comprehensive KC-135 training services to the USAF
and the contract now also includes training support services for the Air National Guard boom operator simulation systems;
– We were awarded a contract to provide United States Customs and Border Protection with Aircraft Pilot Training Services
leveraging both CAE Civil and Defence and Security training centres.
Awards and achievements
– CAE USA received the highest-level Platinum Medallion distinction in the HIRE Vets Medallion Award program, a U.S. government
initiative recognizing company efforts to recruit, employ and retain military veterans;
– CAE New Zealand was the winner of the 2020 Minister of Defence Award of Excellence to Industry in the Provision of Product or
Service category for the delivery and installation of the NH90 simulator during the pandemic.
FISCAL 2021 ORDERS
Defence and Security was awarded $370.4 million in orders this quarter and $1,109.7 million in total for fiscal 2021, including notable
contract awards from:
– The USAF for upgrades and enhancements to both the KC-135 and C-130H aircrew training system programs and for the base
year of the new KC-135 Training System contract;
– The U.S. Special Operations Command to lead the integration and architecture development efforts for the Mission Command
System / Common Operational Picture program;
– Lockheed Martin to support the design, development and manufacture of a suite of C-130J training devices for the binational
French and German C-130J training facility;
– The U.S. Navy to continue providing contract instruction services for the Chief of Naval Air Training at five naval air stations;
– The U.S. Army to continue providing fixed-wing flight training and support services at the CAE Dothan Training Center;
– Airbus Defence and Space to support the development of new and upgraded training capabilities for Germany’s Eurofighter
program and to continue to provide a range of maintenance and logistics support services for their training devices;
– L-3 MAS to continue providing a range of in-service support solutions for the Royal Canadian Air Force's CF-18 aircraft;
– Boeing to provide P-8A training support services;
– General Atomics Aeronautical Systems to continue development of a comprehensive synthetic training system for the United
Kingdom’s Protector remotely piloted aircraft program.
CAE Financial Report 2021 I 33
Management’s Discussion and Analysis
FINANCIAL RESULTS
(amounts in millions)
Revenue
Operating income (loss)
Adjusted SOI
As a % of revenue
Adjusted SOI excluding COVID-19
government support programs
As a % of revenue
Depreciation and amortization
Property, plant and equipment
FY2021
FY2020
Q4-2021
Q3-2021
Q2-2021
Q1-2021
Q4-2020
1,217.1
1,331.2
334.4
299.3
303.2
280.2
341.8
15.5
87.0
7.1
26.7
2.2
54.3
104.8
114.5
8.6
114.5
8.6
58.2
(8.5)
23.2
6.9
6.8
2.0
13.8
21.8
22.3
7.5
15.9
5.3
12.9
11.4
24.2
8.0
7.3
2.4
13.3
(9.2)
17.3
6.2
(3.3)
—
14.3
32.4
40.2
11.8
40.2
11.8
15.4
$
$
$
%
$
%
$
expenditures
$
17.3
21.3
9.3
2.1
3.2
2.7
5.2
Intangible assets and other
assets expenditures
Capital employed
Total backlog
$
$
$
10.2
53.5
0.5
3.9
3.8
2.0
15.0
1,021.4
1,154.0
1,021.4
945.2
1,147.9
1,109.9
1,154.0
3,908.0
4,116.8
3,908.0
3,622.0
3,896.8
4,009.8
4,116.8
Revenue down 2% from the fourth quarter of fiscal 2020
Although we were awarded several strategic contracts and experienced an increased level of activity on North American programs this
quarter, revenue decreased from the fourth quarter of fiscal 2020 mainly due to an unfavourable foreign exchange impact on the
translation of our foreign operations and a lower level of activity on Middle Eastern programs, which were affected by the impacts of
the COVID-19 pandemic. The pandemic contributed to delays in the execution of programs from backlog and impacted a range of
global defence programs involving government and OEM customers due to travel bans, border restrictions, client access restrictions
and supply chain disruptions in all our regions.
Revenue was $1,217.1 million this year, 9% or $114.1 million lower than last year
The decrease was mainly due to program delays and a lower level of activity on North American and Middle Eastern programs. While
we were awarded several strategic contracts in fiscal 2021, there have been delays in the awarding of additional contracts as
government acquisition authorities follow directives in their respective countries to shelter-in-place and eliminate travel.
Adjusted segment operating income down 42% from the fourth quarter of fiscal 2020
Adjusted segment operating income was $23.2 million (6.9% of revenue) this quarter, compared to $40.2 million (11.8% of revenue) in
the fourth quarter of fiscal 2020.
The decrease from the fourth quarter of fiscal 2020 was mainly due to the recognition last year of net gains on foreign exchange
differences, lower contributions from our European and Middle Eastern programs due to a lower level of activity and the execution of
program milestones for certain contracts in backlog. The decrease was also due to lower profitability in our joint ventures. The
decrease was partially offset by the government support programs obtained in relation to the COVID-19 pandemic.
Adjusted segment operating income excluding COVID-19 government support programs down 83% over fourth quarter of
fiscal 2020
During the quarter, $16.4 million of COVID-19 government support programs were credited to income. On this basis, and without
adjusting for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding
COVID-19 government support programs was down 83% over the same period last year.
Adjusted segment operating income was $87.0 million this year, 24% or $27.5 million lower than last year
Adjusted segment operating income was $87.0 million (7.1% of revenue) this year, compared to $114.5 million (8.6% of revenue) last
year.
The decrease was mainly due to lower contributions from our North American, European and Middle Eastern programs, which were
affected by the COVID-19 pandemic and the execution of program milestones for certain contracts in backlog and from the recognition
last year of net gains on foreign exchange differences. The decrease was partially offset by the government support programs
obtained in relation to the COVID-19 pandemic and the benefit of the cost containment measures taken.
Adjusted segment operating income excluding COVID-19 government support programs was $26.7 million this year, 77% or
$87.8 million lower than last year
During the year, $60.3 million of COVID-19 government support programs were credited to income. On this basis, and without
adjusting for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding
COVID-19 government support programs was down 77% over last year.
34 I CAE Financial Report 2021
Capital employed increased $76.2 million over last quarter and decreased $132.6 million over last year
The increase over last quarter was mainly due to higher non-cash working capital, primarily resulting from lower accounts payable and
accrued liabilities and contract liabilities, in addition to higher contract assets. The increase was partially offset by lower intangible
assets and movements in foreign exchange rates.
The decrease from last year was mainly due to movements in foreign exchange rates and the impairment charges of non-financial
assets recognized during the year.
Management’s Discussion and Analysis
Total backlog down 5% compared to last year
(amounts in millions)
Obligated backlog, beginning of period
+ order intake
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog (all obligated)
Unfunded backlog and options
Total backlog
FY2021
$
2,637.5 $
1,109.7
FY2020
2,782.2
1,225.6
(1,217.1)
(1,331.2)
(164.9)
(39.1)
$
2,365.2 $
2,637.5
82.5
1,460.3
$
3,908.0 $
93.6
1,385.7
4,116.8
Fiscal 2021 adjustments include negative foreign exchange movements and the amendment of a prior year contract.
Fiscal 2020 adjustments include the revaluation of prior year contracts, partially offset by positive foreign exchange movements.
This quarter's book-to-sales ratio was 1.11x. The ratio for the last 12 months was 0.91x.
In fiscal 2021, $461.4 million of unfunded backlog was transferred to obligated backlog and $678.9 million was added to the unfunded
backlog.
CAE Financial Report 2021 I 35
Management’s Discussion and Analysis
5.3 Healthcare
FISCAL 2021 EXPANSIONS AND NEW INITIATIVES
New programs and products
– We were awarded a contract with the Government of Canada to manufacture and supply CAE Air1 ventilators to provide life
support to patients in intensive care, for which we completed deliveries in the fourth quarter of fiscal 2021;
– As part of the fight against COVID-19, we offered several new digital and virtual learning products and COVID-19 related training
solutions, including adaptive digital learning courses for ventilator reskilling and mechanical ventilation, an ultrasound training suite
for emergency care physicians and intensivists, and a Pathogens of High Consequence learning module to help prepare clinicians
for infectious disease outbreaks;
– We released a Distance Learning Suite for Nursing at the INACSL conference which includes multiple SCEs and two MultiPad
Clinical Skills Trainer options for specific, hands-on practice in a range of core nursing procedures;
– We released CAE Maestro Evolve, an interactive virtual learning platform featuring CAE Embody, the virtual patient with the most
advanced physiology, virtual medical equipment and integrated SCEs;
– We released the cloud version of our CAE LearningSpace centre management solution and offered new remote and distance
learning capabilities via LearningSpace for virtual Objective Structured Clinical Examination and telehealth training;
– We released CAE Vimedix 3.1, our ultrasound education platform with new remote learning and screen sharing capabilities for
faculty and students, curriculum development tools for distance learning and our Microsoft HoloLens 2 mixed reality interface for
remote education;
– We were awarded a contract with the PYURE Company, a private U.S. company, to assemble, develop and distribute air
sanitizers which have been demonstrated to significantly destroy the COVID-19 virus in the air and on surfaces;
– We launched CAE SimEquip simulated medical equipment, which expertly mimic the management of a variety of medical devices
for realistic and reliable hands-on training for resuscitation, ventilation and anesthesia for use with CAE patient simulators or for
standalone training;
– We continued to work with leading OEMs in developing transformative digital training solutions, including Edwards Lifesciences for
a custom training solution for the IntraClude aortic device, and Cordis, a Cardinal Health Company, for a mobile application which
enables users to expand and master skills through a series of procedurally based coronary and endovascular modules in a
simulated virtual environment.
Innovation Awards
– Our adaptive Ventilator Reskilling Course won both the EMS World Innovation Award and Attendees’ Choice Award at the annual
EMS World conference.
FINANCIAL RESULTS
(amounts in millions)
Revenue
Operating income (loss)
Adjusted SOI
As a % of revenue
Adjusted SOI excluding COVID-19
government support programs
As a % of revenue
Depreciation and amortization
Property, plant and equipment
expenditures
Intangible assets and other
assets expenditures
Capital employed
$
$
$
%
$
%
$
$
$
$
FY2021
FY2020
Q4-2021
Q3-2021
Q2-2021
Q1-2021
Q4-2020
351.9
26.4
29.3
8.3
25.8
7.3
22.3
124.5
(41.0)
(3.5)
—
(3.5)
—
14.4
171.7
120.9
37.0
15.6
16.4
9.6
15.3
8.9
6.5
12.7
12.9
10.7
12.3
10.2
8.1
1.3
3.2
8.6
2.6
7.0
4.0
22.3
(3.2)
(3.2)
—
(4.4)
—
3.7
1.5
2.2
0.5
0.6
0.3
0.1
33.6
(37.4)
0.1
0.3
0.1
0.3
3.3
0.7
17.9
90.9
10.7
208.0
0.6
90.9
4.0
2.3
261.1
152.1
11.0
204.8
2.2
208.0
36 I CAE Financial Report 2021
Management’s Discussion and Analysis
Revenue up 411% over the fourth quarter of fiscal 2020
The increase over the fourth quarter of fiscal 2020 was due to revenue recognized on the CAE Air1 ventilator contract of
$130.0 million, for which all remaining deliveries to the Canadian government were completed during the quarter. Excluding the sales
of the CAE Air1 ventilators, revenues were up compared to the same quarter last year, driven by higher revenue from patient
simulators, centre management solutions and interventional simulators, partially offset by lower revenue from key partnerships with
OEMs.
Revenue was $351.9 million this year, 183% or $227.4 million higher than last year
The increase was due to revenue recognized on the CAE Air1 ventilator contract of $230.6 million and higher revenue from patient
simulators, partially offset by lower revenue from key partnerships with OEMs and centre management solutions and decreased
volume on interventional simulators stemming mainly from the negative impacts of the COVID-19 pandemic. Although improvements
were seen towards the latter part of the fiscal year, some customers continue to be negatively affected by the COVID-19 pandemic
thereby affecting our ability to conclude contracts and deliver on existing orders as customers continue to manage the acute
operational and budgetary demands of the healthcare crisis rather than addressing their usual training needs.
Adjusted segment operating income higher over the fourth quarter of fiscal 2020
Adjusted segment operating income was $16.4 million (9.6% of revenue) this quarter, compared to $0.1 million (0.3% of revenue) in
the fourth quarter of fiscal 2020.
The increase over the fourth quarter of fiscal 2020 was primarily driven by the contribution from the CAE Air1 ventilator sales,
including the research and development expenses from the amortization of development costs incurred in relation to the design and
manufacturing of the CAE Air1 ventilators. The increase was also driven by higher revenue from patient simulators, centre
management solutions and interventional simulators.
Adjusted segment operating income excluding COVID-19 government support programs up over the fourth quarter of fiscal
2020
During the quarter, $1.1 million of COVID-19 government support programs were credited to income. On this basis, and without
adjusting for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding
COVID-19 government support programs was up $15.2 million over the same period last year.
Adjusted segment operating income was $29.3 million this year, an increase of $32.8 million compared to last year
Adjusted segment operating income was $29.3 million (8.3% of revenue) this year, compared to an adjusted segment operating loss
of $3.5 million last year.
The $32.8 million increase over last year was primarily driven by the contribution from the CAE Air1 ventilator sales, as described
above, reduced selling, general and administrative expenses due to the benefit of cost containment measures taken and government
support programs obtained in relation to the COVID-19 pandemic and a more favourable product mix. The increase was partially
offset by lower revenue from key partnerships with OEMs and centre management solutions and decreased volume on interventional
simulators stemming mainly from the negative impacts of the COVID-19 pandemic.
Adjusted segment operating income excluding COVID-19 government support programs was $25.8 million this year,
$29.3 million higher than last year
During the year, $3.5 million of COVID-19 government support programs were credited to income. On this basis, and without adjusting
for the COVID-19 heightened operating costs that we have been carrying, adjusted segment operating income excluding COVID-19
government support programs was up $29.3 million over last year.
Capital employed decreased by $170.2 million over last quarter and decreased by $117.1 million from last year
The decrease over last quarter was mainly due to lower non-cash working capital, driven by higher accounts payable and accrued
liabilities and lower CAE Air1 ventilator inventories as a result of deliveries made in the quarter, partially offset by higher accounts
receivable. The decrease was also due to lower intangible assets.
The decrease over last year was mainly due to lower non-cash working capital, driven by higher accounts payable and accrued
liabilities, partially offset by higher accounts receivable. The decrease was also due to lower intangible assets primarily due to
movements in foreign exchange rates.
CAE Financial Report 2021 I 37
Management’s Discussion and Analysis
6. CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY
We manage liquidity and regularly monitor the factors that could affect it, including:
– Cash generated from operations, including timing of milestone payments and management of working capital;
– Capital expenditure requirements;
– Scheduled repayments of long-term debt obligations, our credit capacity and expected future debt market conditions.
6.1 Consolidated cash movements6
(amounts in millions)
Cash provided by operating activities*
Changes in non-cash working capital
Net cash provided by operating activities
Maintenance capital expenditures6
Change in other assets
Proceeds from the disposal of property, plant and equipment
Net proceeds from (payments to) equity accounted investees
Dividends received from equity accounted investees
Dividends paid
Free cash flow6
Growth capital expenditures6
Capitalized development costs
Net proceeds from the issuance of common shares
Common shares repurchased
Other cash movements, net
Business combinations, net of cash acquired
Acquisition of investment in equity accounted investees
Effect of foreign exchange rate changes on cash and cash equivalents
FY2021
FY2020
Q4-2021
Q4-2020
$
$
416.1
$
597.3
$
149.6
$
165.2
(49.5)
(52.2)
25.0
81.1
366.6
$
545.1
$
174.6
$
246.3
(37.8)
0.7
4.5
0.7
12.1
—
(80.3)
(15.9)
0.5
(9.9)
22.6
(110.9)
(18.9)
12.4
2.8
(0.7)
0.4
—
(25.0)
(8.0)
0.1
0.4
—
(28.7)
$
346.8
$
351.2
$
170.6
$
185.1
(69.8)
(48.6)
820.8
—
(0.7)
(186.5)
(18.7)
(22.3)
(203.1)
(86.2)
26.6
(49.6)
14.3
(10.1)
(113.5)
7.8
(31.6)
(10.2)
338.2
—
—
(51.8)
(18.7)
(9.5)
(59.0)
(25.2)
4.1
(16.8)
(0.1)
—
—
19.5
Net change in cash before proceeds and repayment of long-term debt
$
821.0
$
(62.6)
$
387.0
$
107.6
* before changes in non-cash working capital
Free cash flow of $170.6 million this quarter
Free cash flow was $14.5 million lower compared to the fourth quarter of fiscal 2020 mainly due to a higher investment in non-cash
working capital and a decrease in cash provided by operating activities, partially offset by lower dividends paid as a result of the
suspension of our common share dividends and a return from other assets.
Free cash flow of $346.8 million this year
Free cash flow was $4.4 million lower compared to last year mainly due to a decrease in cash provided by operating activities, partially
offset by lower dividends paid as a result of the suspension of our common share dividends, lower maintenance capital expenditures
and a return from other assets.
Capital expenditures were $50.5 million this quarter and $107.6 million for the year
Growth capital expenditures were $31.6 million this quarter and $69.8 million for the year. Our growth capital allocation decisions are
market-driven in nature and are intended to keep pace with the demand of our existing and new customers. Maintenance capital
expenditures were $18.9 million this quarter and $37.8 million for the year.
COVID-19 government support programs
Cash received from COVID-19 government support programs amounted to $34.6 million this quarter and $137.1 million for the year.
6 Non-GAAP and other financial measures (see Section 3.7).
38 I CAE Financial Report 2021
6.2 Sources of liquidity
We have a committed line of credit at floating rates, provided by a syndicate of lenders. We and some of our subsidiaries can borrow
funds directly from this credit facility to cover operating and general corporate expenses and to issue letters of credit.
Management’s Discussion and Analysis
In April 2020, we concluded a new two-year $500.0 million unsecured revolving credit facility to provide access to additional liquidity
during the COVID-19 pandemic as a supplement to our current committed line of credit of US$850.0 million. The total amount
available
(2020 – US$850.0 million). There was no amount drawn under the facility as at March 31, 2021 (2020 – $505.5 million) and
US$30.9 million was used for letters of credit (2020 – US$21.3 million). The applicable interest rate on these revolving credit facilities
is variable, based on the bank’s prime rate, bankers’ acceptance rates or LIBOR plus a margin based on the private credit rating.
revolving credit
through
these
facilities at March 31, 2021 was US$850.0 million and $500.0 million
We have an unsecured Export Development Canada (EDC) Performance Security Guarantee (PSG) account for US$225.0 million
(2020 – US$225.0 million). This is an uncommitted revolving facility strictly for the issuance of performance bonds, advance payment
guarantees or similar instruments. As at March 31, 2021 the total outstanding for these instruments was $157.4 million
(2020 – $159.5 million).
We manage a program in which we sell interests in certain of our accounts receivable (receivable purchase facility) to third parties for
cash consideration for amounts up to US$400.0 million (2020 – US$300.0 million). As at March 31, 2021, the carrying amount of the
original accounts receivable sold to financial institutions pursuant to the receivable purchase program totaled a Canadian dollar
equivalent of $298.8 million (2020 – $333.1 million) of which $26.4 million (2020 – $38.8 million), corresponding to the extent of our
continuing involvement, remains in accounts receivable with a corresponding liability included in accounts payable and accrued
liabilities.
As at March 31, 2021, we are compliant with all our financial covenants.
Total available liquidity as at March 31, 2021 was approximately $2.7 billion, including $926.1 million in cash and cash equivalents,
undrawn amounts on our revolving credit facility and the balance available under our receivable purchase program.
We expect COVID-19 to continue to have a negative impact on the amount and timing of cash generated from operations. The
management of consolidated liquidity requires a regular monitoring of expected cash inflows and outflows, which is achieved through
a forecast of our consolidated liquidity position, to ensure adequacy and efficient use of cash resources. Liquidity adequacy is
assessed in view of seasonal needs, stress-test results, growth requirements and capital expenditures, and the maturity profile of
indebtedness, including availability of credit facilities, working capital requirements, compliance with financial covenants and the
funding of financial commitments. Based on our scenario analysis, we believe that our cash and cash equivalents, the availability
under our committed revolving credit facility and cash we expect to generate from our operations will be sufficient to meet financial
requirements in the foreseeable future. To preserve liquidity and reduce operating costs, we enacted initiatives such as the reduction
of capital expenditures and R&D investments, strict cost containment measures, salary freezes, temporary salary reductions in the
first half of fiscal 2021, reduced work weeks, layoffs, a suspension of our common share dividends and share repurchase plan,
obtaining payment deferrals on certain government royalty and R&D obligations, as well as applying for government support programs
where eligible.
The following table summarizes the long-term debt:
(amounts in millions)
Total long-term debt
Less:
Current portion of long-term debt
Current portion of lease liabilities
Long-term portion of long-term debt
As at March 31
As at March 31
2021
$
2,351.5 $
128.5
87.8
2020
3,312.2
93.5
112.7
$
2,135.2 $
3,106.0
In March 2021, we repaid a term loan amounting to US$50.0 million and replaced it with a term loan amounting to US$50.0 million
maturing in 2022, bearing interest at a variable rate.
Also in March 2021, we entered into a term loan amounting to €31.7 million to refinance leased assets acquired as part of the FSC
acquisition, and we purchased other various assets under lease for a total of US$42.7 million.
CAE Financial Report 2021 I 39
Management’s Discussion and Analysis
6.3 Government participation
We have agreements with various governments whereby the latter contribute a portion of the cost, based on expenditures incurred by
CAE, of certain R&D programs for modeling, simulation and training services technology.
During fiscal 2019, we announced a plan to invest in R&D innovations over the next five years, including Project Digital Intelligence.
The aim is to develop the next generation training solutions for aviation, defence and security and healthcare to leverage digital
technologies. The Government of Canada, through the Strategic Innovation Fund (SIF), and the Government of Québec, through IQ,
agreed to participate in the project through interest free loans of up to $150.0 million and $47.5 million, respectively, in relation to
eligible costs incurred from fiscal 2019 to fiscal 2023.
During fiscal 2021, we concluded a new financial participation agreement with IQ. Under this agreement, IQ agreed to invest up to
$30.0 million in repayable contributions on eligible CAE spending of $82.4 million related to Healthcare R&D programs which will
support CAE's continued development of technologies, products and services that will allow to make healthcare safer.
During fiscal 2021, we, along with other industry partners, entered into a new financial participation agreement with the government of
Quebec, through the Ministry of Economy and Innovation for the L'aéronef de demain project. The project will focus on the
acceleration of technology development, digital transformation and knowledge for the advancement of the aircraft of the future, in
particular those with hybrid electric propulsion, and implementation of associated services. The government of Quebec has committed
to contribute amounts up to 50% of eligible costs incurred by CAE to fiscal 2022, up to a maximum of $10 million in non-refundable
grants.
As part of our mitigation measures and to minimize the impact on employees, CAE has accessed government emergency relief
measures and wage subsidy programs available around the world, where we have operations.
On April 11, 2020, the Canada Emergency Wage Subsidy (CEWS) was brought into law in Canada, which is intended to help
Canadian businesses keep employees on their payroll through the challenges posed by the COVID-19 pandemic. We were eligible for
the CEWS subsidy program throughout the fiscal year ended March 31, 2021, which allowed us to recall employees previously placed
on furlough or reduced work weeks. The wage subsidies were applied as a substitute for some of the cost saving measures previously
taken and to alleviate some of the impact on affected employees. The Government of Canada has proposed to extend the CEWS
program to September 2021, although continuation in the program is subject to meeting the eligibility requirements and the conditions
of the program. Additionally, the subsidy amounts available to CAE are expected to be significantly less in the upcoming fiscal year
due to changes announced to date. Although these subsidies have added to our liquidity, we have carried higher operating costs than
we otherwise would have absent these subsidies as a result of revoking some of our initial cost saving measures and additional costs
incurred. While these additional costs are in certain cases estimated, they almost entirely neutralize the positive impacts of the
COVID-19 government support programs.
6.4 Contractual obligations
We enter into contractual obligations and commercial commitments in the normal course of our business. The table below represents
our contractual obligations and commitments for the next five years and thereafter:
Contractual obligations
(amounts in millions)
2022
2023
2024
2025
2026 Thereafter
Total
Long-term debt (excluding interest)
$
128.5 $
125.1 $
124.9 $
234.3 $
76.7 $ 1,314.8 $ 2,004.3
Lease liabilities (excluding interest)
Purchase commitments
87.8
195.9
43.5
55.5
39.6
22.0
25.3
8.1
21.2
129.8
7.2
—
347.2
288.7
$
412.2 $
224.1 $
186.5 $
267.7 $
105.1 $ 1,444.6 $ 2,640.2
We also had total availability under the committed revolving credit facility of US$1,217.0 million as at March 31, 2021 compared to
US$323.2 million at March 31, 2020.
We have purchase commitments related to agreements that are enforceable and legally binding. Most are agreements with
subcontractors to provide services for long-term contracts that we have with our clients. The terms of the agreements are significant
because they set out obligations to buy goods or services in fixed or minimum amounts, at fixed, minimum or variable prices and at
various points in time.
As at March 31, 2021, we had other long-term liabilities that are not included in the table above. These include some accrued pension
liabilities, deferred revenue and various other long-term liabilities. CAE’s cash obligation in respect of the accrued employee pension
liability depends on various elements including market returns, actuarial gains and losses and interest rates. We did not include
deferred tax liabilities since future payments of income taxes depend on the amount of taxable earnings and on whether there are tax
loss carry‑forwards available.
40 I CAE Financial Report 2021
7. CONSOLIDATED FINANCIAL POSITION
7.1 Consolidated capital employed
(amounts in millions)
Use of capital:
Current assets
Less: cash and cash equivalents
Current liabilities
Less: current portion of long-term debt
Non-cash working capital7
Property, plant and equipment
Other long-term assets
Other long-term liabilities
Total capital employed
Source of capital7:
Current portion of long-term debt
Long-term debt
Less: cash and cash equivalents
Net debt7
Equity attributable to equity holders of the Company
Non-controlling interests
Source of capital
Management’s Discussion and Analysis
As at March 31
As at March 31
2021
2020
$
3,378.6
$
(926.1)
(2,633.3)
216.3
35.5
1,969.4
3,400.4
(767.1)
4,638.2
216.3
2,135.2
(926.1)
1,425.4
3,140.5
72.3
$
$
$
$
4,638.2
$
$
$
$
$
$
2,808.6
(946.5)
(2,062.3)
206.2
6.0
2,154.0
3,521.0
(737.0)
4,944.0
206.2
3,106.0
(946.5)
2,365.7
2,489.7
88.6
4,944.0
Capital employed decreased $305.8 million, or 6%, from last year
The decrease over last year was mainly due to lower property, plant and equipment, lower other long-term assets and higher other
long-term liabilities, partially offset by higher non-cash working capital.
Return on capital employed (ROCE)7
Our ROCE was 1.7% this quarter. Adjusted ROCE was 5.0% this quarter, which compares to 10.7% in the fourth quarter of last year
and 6.4% last quarter. Adjusted ROCE excluding COVID-19 government support programs was 3.1% this quarter.
Non-cash working capital increased by $29.5 million over last year
The increase was mainly due to lower derivative financial liabilities and contract liabilities, partially offset by lower contract assets and
accounts receivable.
Property, plant and equipment decreased by $184.6 million from last year
The decrease was mainly due to movements in foreign exchange rates, impairment charges recognized during the year and
depreciation in excess of capital expenditures, partially offset by the purchase of certain assets previously under lease.
Other long-term assets decreased by $120.6 million from last year
The decrease was mainly due to lower right-of-use assets driven by the purchase of certain leased assets, movements in foreign
exchange rates and depreciation in excess of additions, partially offset by leased assets acquired as a result of business acquisitions
completed during the year.
Other long-term liabilities increased by $30.1 million over last year
The increase was mainly due to higher deferred gains and other non-current liabilities, partially offset by lower deferred tax liabilities.
Net debt lower than last year
The decrease was mainly due to the net proceeds of the issuance of common shares under equity offerings completed during the
year and movements in foreign exchange rates, partially offset by debt acquired as a result of business acquisitions completed during
the year.
7 Non-GAAP and other financial measures (see Section 3.7).
CAE Financial Report 2021 I 41
Management’s Discussion and Analysis
Change in net debt8
(amounts in millions, except net debt-to-capital and net debt-to-EBITDA)
Net debt, beginning of period
Lease liabilities added on April 1, 2019 as a result of the adoption of IFRS 16
$
$
FY2021
2,365.7 $
— $
Impact of cash movements on net debt
(see table in the consolidated cash movements section)
Effect of foreign exchange rate changes on long-term debt
Impact from business combinations
Non-cash lease liability movements
Other
Change in net debt during the period
Net debt, end of period
Net debt-to-capital8
EBITDA8
Net debt-to-EBITDA8
Adjusted EBITDA8
Net debt-to-adjusted EBITDA8
Adjusted EBITDA excluding COVID-19 government support programs8
Net debt-to-adjusted EBITDA excluding COVID-19 government support programs8
(821.0)
(220.8)
73.0
26.9
1.6
(940.3) $
1,425.4 $
30.7 %
367.9 $
3.87
600.1 $
2.38
472.7 $
3.02
$
$
%
$
$
$
FY2020
1,882.2
265.8
62.6
108.8
1.6
27.3
17.4
483.5
2,365.7
47.8
842.5
2.81
895.8
2.64
895.8
2.64
Total equity increased by $634.5 million this year
The increase in equity was mainly due to the issuance of common shares under equity offerings completed during the year, partially
offset by an unfavourable foreign currency translation and the net loss realized this year.
Outstanding share data
Our articles of incorporation authorize the issue of an unlimited number of common shares and an unlimited number of preferred
shares issued in series. We had a total of 293,355,463 common shares issued and outstanding as at March 31, 2021 with total share
capital of $1,516.2 million. In addition, we had 7,476,902 options outstanding under the Employee Stock Option Plan (ESOP).
As at April 30, 2021, we had a total of 293,377,348 common shares issued and outstanding and 7,455,017 options outstanding under
the ESOP.
Common share issuance
On November 30, 2020, we completed a public equity offering and a concurrent private placement of 16,594,126 common shares at a
price of $29.85 per share for aggregate gross proceeds of $495.3 million. The net proceeds of the equity offering are for general
corporate purposes, including to fund our recently completed acquisitions and other future potential acquisition and growth
opportunities. Pending such uses, the proceeds have been used to repay indebtedness outstanding under our credit facilities and held
as cash or cash equivalents.
On March 12, 2021, we completed a marketed public equity offering of 10,454,545 common shares at a price of $34.29 (US$27.50)
per share for gross proceeds of $358.5 million. The proceeds of the equity offering are for financing a portion of the purchase price
and related costs of the proposed L3H MT acquisition.
Total issuance-related costs of the equity offerings amounted to $42.3 million, less income tax recovery of $11.2 million.
The issuance of 22,400,000 subscription receipts did not have an impact on total equity or our common shares outstanding as at
March 31, 2021. Each subscription receipt will entitle the holder to receive one common share subject to closing of the L3H MT
acquisition. You will find more details in Acquisitions announced but not yet completed.
8 Non-GAAP and other financial measures (see Section 3.7).
42 I CAE Financial Report 2021
Management’s Discussion and Analysis
Repurchase and cancellation of common shares
On February 7, 2020, we announced the renewal of the NCIB to purchase up to 5,321,474 of our common shares. The NCIB began
on February 25, 2020 and ended on February 24, 2021. Purchases were made on the open market plus brokerage fees through the
facilities of the TSX and/or alternative trading systems at the prevailing market price at the time of the transaction, in accordance with
the TSX’s applicable policies. All common shares purchased pursuant to the NCIB were cancelled. Share repurchases under our
NCIB program were suspended as part of our COVID-19 pandemic mitigation measures on April 6, 2020. The NCIB has since expired
and has not been renewed.
In fiscal 2021, no common shares were repurchased and cancelled under the NCIB (2020 – 1,493,331 common shares at a weighted
average price of $33.22 per share, for a total consideration of $49.6 million).
Dividends
On April 6, 2020, dividend payments to common shareholders were suspended as part of our COVID-19 pandemic mitigation
measures.
Our Board of Directors (the Board) has the discretion to set the amount and timing of any dividend. The Board reviews the dividend
policy annually based on the cash requirements of our operating activities, liquidity requirements and projected financial position.
Guarantees
As at March 31, 2021, we have a total of $196.2 million outstanding letters of credit which are not recognized in the consolidated
statement of financial position, compared to $189.6 million last fiscal year.
Pension obligations
We maintain defined benefit and defined contribution pension plans. Subsequent to recent legislative changes, the defined benefit
pension plans are considered sufficiently funded. We expect to contribute $28.8 million in fiscal 2022.
7.2 Off balance sheet arrangements
In the normal course of business, we manage a program in which we sell interests in certain of our accounts receivable (receivable
purchase facility) to financial institutions for cash consideration with limited recourse to CAE.
You will find more details about our financial assets program in Sources of Liquidity.
7.3 Financial instruments
We are exposed to various financial risks in the normal course of business. We enter into forward contracts and swap agreements to
manage our exposure to fluctuations in foreign exchange rates, interest rates and share price which have an effect on our
share‑based payments costs. We formally assess, both at inception of the hedge relationship and on an ongoing basis, whether the
derivatives we use in hedging transactions are highly effective in offsetting changes in cash flows of hedged items in relation to the
hedged risk. We enter into these transactions to reduce our exposure to risk and volatility, and not for trading or speculative purposes.
We only enter into contracts with counterparties that are of high credit quality.
Classification of financial instruments
We have made the following classifications for our financial instruments:
Financial assets:
– Cash and cash equivalents, restricted cash, restricted funds for subscription receipts deposit and derivative instruments not
designated as hedging instrument in a hedge relationship, are classified at fair value through profit and loss (FVTPL);
– Accounts receivable, non-current receivables, net investment in finance leases and advances are classified at amortized cost,
except for those that are acquired for the purpose of selling or repurchasing in the near term and classified as held for trading
which are measured at FVTPL;
– Equity investments are classified at fair value through OCI (FVOCI).
Financial liabilities:
– Accounts payable and accrued liabilities, liabilities for subscription receipts, long-term debt, including interest payable, as well as
lease liabilities and royalty obligations are classified at amortized cost;
– Contingent consideration arising on business combinations and derivative instruments not designated as hedging instrument in a
hedge relationship are is classified at FVTPL.
Fair value of financial instruments
The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no
active market exists for a financial instrument, we determine the fair value of that instrument based on valuation methodologies as
discussed below. In determining assumptions required under a valuation model, we primarily use external, readily observable market
data inputs. Assumptions or inputs that are not based on observable market data incorporate our best estimates of market participant
assumptions. Counterparty credit risk and our own credit risk are taken into account in estimating the fair value of financial assets and
financial liabilities.
CAE Financial Report 2021 I 43
Management’s Discussion and Analysis
The following assumptions and valuation methodologies have been used to measure the fair value of financial instruments:
– The fair value of cash and cash equivalents, restricted funds for subscription receipts deposit, accounts receivable, accounts
payable and accrued liabilities and liabilities for subscription receipts approximate their carrying values due to their short-term
maturities;
– The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted
for separately and is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield
curve and forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date. The fair
value of derivative instruments reflect the estimated amounts that we would receive or pay to settle the contracts at the reporting
date;
– The fair value of the equity investments, which does not have a readily available market value, is estimated using a discounted
cash flow model, which includes some assumptions that are not based on observable market prices or rates;
– The fair value of non-current receivables is estimated based on discounted cash flows using current interest rates for instruments
with similar risks and remaining maturities;
– The fair value of long-term debts, royalties obligations and other non-current liabilities are estimated based on discounted cash
flows using current interest rates for instruments with similar risks and remaining maturities;
– The fair value of the contingent considerations arising on business combinations are based on the estimated amount and timing of
projected cash flows, the probability of the achievement of the criteria on which the contingency is based and the risk-adjusted
discount rate used to present value the probability-weighted cash flows.
A description of the fair value hierarchy is discussed in Note 31 of our consolidated financial statements.
Financial risk management
Due to the nature of the activities that we carry out and as a result of holding financial instruments, we are exposed to credit risk,
liquidity risk and market risk, including foreign currency risk and interest rate risk. Our exposure to credit risk, liquidity risk and market
risk is managed within risk management parameters documented in corporate policies. These risk management parameters remain
unchanged since the previous period, unless otherwise indicated.
Credit risk
Credit risk is defined as our exposure to a financial loss if a debtor fails to meet its obligations in accordance with the terms and
conditions of its arrangements with CAE. We are exposed to credit risk on our accounts receivable and certain other assets through
our normal commercial activities. We are also exposed to credit risk through our normal treasury activities on our cash and cash
equivalents and derivative financial assets. Credit risks arising from our normal commercial activities are managed with regards to
customer credit risk.
Our customers are mainly established companies, some of which have publicly available credit ratings, as well as government
agencies, which facilitates risk assessment and monitoring. In addition, we typically receive substantial non-refundable advance
payments for contracts with customers. We closely monitor our exposure to major airline companies in order to mitigate our risk to the
extent possible. Furthermore, our trade receivables are not concentrated with specific customers but are held with a wide range of
commercial and government organizations. As well, our credit exposure is further reduced by the sale of certain of our accounts
receivable to third-party financial institutions for cash consideration on a limited recourse basis (receivable purchase program). We do
not hold any collateral as security. The credit risk on cash and cash equivalents is mitigated by the fact that they are mainly in place
with a diverse group of major North American and European financial institutions.
We are exposed to credit risk in the event of non-performance by counterparties to our derivative financial instruments. We use
several measures to minimize this exposure. First, we enter into contracts with counterparties that are of high credit quality. We signed
International Swaps & Derivatives Association, Inc. (ISDA) Master Agreements with all the counterparties with whom we trade
derivative financial instruments. These agreements make it possible to offset when a contracting party defaults on the agreement, for
each of the transactions covered by the agreement and in force at the time of default. Also, collateral or other security to support
derivative financial instruments subject to credit risk can be requested by CAE or our counterparties (or both parties, if need be) when
the net balance of gains and losses on each transaction exceeds a threshold defined in the ISDA Master Agreement. Finally, we
monitor the credit standing of counterparties on a regular basis to help minimize credit risk exposure.
The carrying amounts presented in Note 12 and Note 31 of our consolidated financial statements represent the maximum exposure to
credit risk for each respective financial asset as at the relevant dates. A summary of our exposure to credit risk and credit loss
allowances for accounts receivable and contract assets by segments is included in Note 33 of our consolidated financial statements.
44 I CAE Financial Report 2021
Management’s Discussion and Analysis
Liquidity risk
Liquidity risk is defined as the potential risk that we cannot meet our cash obligations as they become due. We manage this risk by
establishing cash forecasts, as well as long-term operating and strategic plans. The management of consolidated liquidity requires a
regular monitoring of expected cash inflows and outflows which is achieved through a forecast of our consolidated liquidity position, for
efficient use of cash resources. Liquidity adequacy is assessed in view of seasonal needs, stress-test results, growth requirements
and capital expenditures, and the maturity profile of indebtedness, including availability of credit facilities, working capital
requirements, compliance with financial covenants and the funding of financial commitments. We manage our liquidity risk to maintain
sufficient liquid financial resources to fund our operations and meet our commitments and obligations. We also regularly monitor any
financing opportunities to optimize our capital structure and maintain appropriate financial flexibility.
Market risk
Market risk is defined as our exposure to a gain or a loss in the value of our financial instruments as a result of changes in market
prices, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting all
similar financial instruments traded in the market. We are mainly exposed to foreign currency risk and interest rate risk.
We use derivative instruments to manage market risk against the volatility in foreign exchange rates, interest rates and share-based
payments in order to minimize their impact on our results and financial position. Our policy is not to utilize any derivative financial
instruments for trading or speculative purposes.
Foreign currency risk
Foreign currency risk is defined as our exposure to a gain or a loss in the value of our financial instruments as a result of fluctuations
in foreign exchange rates. We are exposed to foreign exchange rate variability primarily in relation to certain sale commitments,
expected purchase transactions and debt denominated in a foreign currency, as well as on our net investment from our foreign
operations which have functional currencies other than the Canadian dollar (in particular the U.S. dollar, Euro and British pound). In
addition, these operations have exposures to foreign exchange rates primarily through cash and cash equivalents and other working
capital accounts denominated in currencies other than their functional currencies.
We mitigate foreign currency risks by having our foreign operations transact in their functional currency for material procurement, sale
contracts and financing activities.
We use forward foreign currency contracts and foreign currency swap agreements to manage our exposure from transactions in
foreign currencies. These transactions include forecasted transactions and firm commitments denominated in foreign currencies,
including firm commitments to acquire a business in a business combination such as the L3H MT acquisition. Our foreign currency
hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally
held until their maturity, consistent with the objective to fix currency rates on the hedged item.
Interest rate risk
Interest rate risk is defined as our exposure to a gain or a loss to the value of our financial instruments as a result of fluctuations in
interest rates. We bear some interest rate fluctuation risk on our floating rate long-term debt and some fair value risk on our fixed
interest long‑term debt. We mainly manage interest rate risk by fixing project-specific floating rate debt in order to reduce cash flow
variability. We have floating rate debts through our revolving credit facilities and other specific floating rate debts. A mix of fixed and
floating interest rate debt is sought to reduce the net impact of fluctuating interest rates. Derivative financial instruments used to
manage interest rate exposures are mainly interest rate swap agreements. As at March 31, 2021, 94% (2020 – 74%) of the long-term
debt bears fixed interest rates.
Our interest rate hedging programs are typically unaffected by changes in market conditions, as related derivative financial
instruments are generally held until their maturity to establish asset and liability management matching, consistent with the objective to
reduce risks arising from interest rate movements.
Hedge of share-based payments expense
We have entered into equity swap agreements with major Canadian financial institutions to reduce our exposure to fluctuations in our
share price relating to the deferred share units (DSU) plans, restricted share units (RSU) plans and the performance share units
(PSU) plan. Pursuant to the agreement, we receive the economic benefit of dividends and share price appreciation while providing
payments to the financial institutions for the institution’s cost of funds and any share price depreciation. The net effect of the equity
swap agreements partly offset movements in our share price impacting the cost of the DSU, RSU and PSU plans.
Hedge of net investments in foreign operations
As at March 31, 2021, we have designated a portion of our unsecured senior notes and term loans and a portion of our lease liabilities
as a hedge of our net investments in U.S. entities. Gains or losses on the translation of the designated portion of these USD long-term
debts are recognized in OCI to offset any foreign exchange gains or losses on translation of the financial statements of those U.S.
entities.
A sensitivity analysis for foreign currency risk and interest rate risk is included in Note 33 of our consolidated financial statements.
CAE Financial Report 2021 I 45
Management’s Discussion and Analysis
8. BUSINESS COMBINATIONS
8.1 Acquisitions completed during the year ended March 31, 2021
Flight Simulation Company B.V.
On November 16, 2020, we acquired the shares of Flight Simulation Company B.V. (FSC) for cash consideration (net of cash
acquired) of $105.2 million, subject to purchase price adjustments. FSC is a provider of training solutions as well as instructor
provisioning in Europe for airline and cargo operators. The acquisition provides CAE with an expanded portfolio of customers and an
established recurring training business which is complementary to CAE’s network.
Merlot Aero Limited
On December 22, 2020, we acquired the shares of Merlot Aero Limited (Merlot) for cash consideration (net of cash acquired) of
$31.7 million and a long-term contingent cash consideration payable of up to US$10 million if certain criteria are met. Merlot is a
leading civil aviation crew management and optimization software company based in Auckland, New Zealand. This acquisition
expands our reach beyond pilot training and into the market for digitally-enabled crew optimization services.
TRU Simulation + Training Canada Inc.
On January 26, 2021, we acquired the shares of TRU Simulation + Training Canada Inc. (TRU Canada) for cash consideration (net of
cash acquired) of $49.6 million, subject to purchase price adjustments. TRU Canada is a manufacturer of full‑flight simulators and
flight training devices. The acquisition expands CAE’s global installed base of commercial flight simulators and customers, and the
addressable market for simulator lifecycle support services and also provides CAE with a backlog of simulator orders, full‑flight
simulators and access to a number of airline customers globally, as well as a 33.3% equity interest in TRU Flight Training Iceland ehf,
a joint venture training centre with Iceland Air, located in Iceland.
The net assets acquired, including intangible assets, of FSC, Merlot and TRU Canada are included in the Civil Aviation Training
Solutions segment. The goodwill arising from these acquisitions is mainly attributable to the expansion of CAE’s installed base of
commercial flight simulators, the expansion of our reach into the market for digitally-enabled crew optimization services, market
capacity consolidation and expected synergies from combining operations.
As at March 31, 2021, the purchase price allocation for FSC, Merlot and TRU Canada were preliminary.
You will find more details in Note 4 of our consolidated financial statements.
8.2 Acquisitions announced but not yet completed during the year ended March 31, 2021
L3Harris’ Military Training business
On March 1, 2021, we announced that we have entered into a definitive agreement to acquire L3Harris’ Military Training (L3H MT)
business for US$1.05 billion, subject to purchase price adjustments. The L3H MT business includes Link Simulation & Training, Doss
Aviation and AMI. Link Simulation & Training is one of the leading providers of military training solutions in the U.S., Doss Aviation is
the provider of initial flight training to the United States Air Force, and AMI is a design and manufacturing facility for simulator
hardware. Subject to completion, the acquisition will expand our position as a platform-agnostic training systems integrator by
diversifying our training and simulation leadership in the air domain, complementing land and naval training solutions, and enhancing
our training and simulation capabilities in space and cyber. The closing of the acquisition is expected in the second half of calendar
year 2021, subject to regulatory approvals and other customary closing conditions.
Financing of the acquisition
The purchase price and related costs of the acquisition of L3H MT will be financed with the net proceeds from our private placement of
subscription receipts, the net proceeds from our marketed public offering that was completed in March 2021, and from currently
available liquidities, including cash on hand and/or advances or drawdowns under one or more of our senior credit facilities or other
debt financing.
Private placements of subscription receipts
On March 4, 2021, we completed a private placement of 22,400,000 subscription receipts at a price of $31.25 per receipt for
aggregate gross proceeds of $700.0 million. As at March 31, 2021, the cash proceeds from the issuance of the subscription receipts
were held by an escrow agent, in a restricted account, pending the fulfilment or waiver of all outstanding conditions precedent to the
closing of the L3H MT acquisition. The restricted account is included in Restricted funds for subscription receipts deposit with a
corresponding Liabilities for subscription receipts in the consolidated statement of financial position. As the funds were not directly
received by CAE, they were not presented in our consolidated statement of cash flows.
(amounts in millions)
Gross proceeds
Interest earned on escrowed proceeds
Restricted funds for subscription receipts deposit
Accrued commitment fee
Liabilities for subscription receipts
46 I CAE Financial Report 2021
As at March 31
$
$
$
2021
700.0
0.1
700.1
14.0
714.1
Management’s Discussion and Analysis
Each subscription receipt will entitle the holder to receive one common share as well as a commitment fee of 4% of the aggregate
gross proceeds upon and subject to closing of the L3H MT acquisition. In the event the acquisition does not close, holders of the
subscription receipts will be entitled to a full return of their gross proceeds together with any interest earned thereon and a portion of
the commitment fee. The accrued commitment fee, which amounts to $14.0 million, represents the portion of the fee that is not
contingent on the closing of the acquisition, and has been recorded as a deduction from equity, less income tax recovery of
$3.7 million. An additional $14.0 million is contingent on, and payable at, the closing of the acquisition and therefore was not accrued
as at March 31, 2021. Other issuance-related costs amounted to $3.0 million and have been recorded as a deduction from equity, less
income tax recovery of $0.8 million.
Hedging
In order to mitigate the potential impact on the purchase price of variations in the foreign exchange rate, we entered into forward
foreign currency contracts to hedge a portion of the purchase price of the L3H MT acquisition (US$800 million). We applied hedge
accounting and the change in fair value of these financial instruments, which resulted in a loss of $7.7 million, was recorded in other
comprehensive income as at March 31, 2021.
9. BUSINESS RISK AND UNCERTAINTY
We operate in several industry segments that have various risks and uncertainties. Our risk management strategy is forward-looking
and aligned with our business strategy. CAE’s risk-taking activities are undertaken with the understanding that risk-taking and effective
management of risks are necessary and integral to achieving strategic objectives and managing business operations.
When making decisions about risk-taking and risk management, we place the highest priority on the following objectives:
– To protect the health and safety of our employees, customers, stakeholders and the general public;
– To protect our reputation and brand;
– To maintain financial strength;
– To effectively and prudently deploy capital invested by our shareholders; and
– To safeguard the expectations we have established with our shareholders, customers and creditors.
The risks and uncertainties described below are risks that could materially affect our business, financial condition and results of
operation. These risks are categorized as risks arising from the COVID-19 pandemic, industry-related risks, risks specific to CAE,
risks related to the current market environment and risks relating to mergers, acquisitions, joint ventures, strategic alliances or
divestitures. These are not necessarily the only risks we face; additional risks and uncertainties that are presently unknown to us or
that we may currently deem immaterial may adversely affect our business. One should carefully consider the following risk factors, in
addition to the other information contained herein, before deciding to purchase CAE securities.
Risk governance
We maintain strong risk governance and oversight practices. Management and the Board discuss the principal risks facing our
business quarterly and annually during the strategic planning and budgeting processes. To mitigate the risks that may impact our
future performance, management has established an enterprise risk management (ERM) policy and a framework that provides a
structured approach to assess, identify and prioritize risks.
This framework relies on a three lines of defence (LoD) model where the business segments, the risk management function and our
internal audit function work together to manage these risks and continuously improve the risk management process:
– The first line is our leaders who are accountable for the risks they assume and for the daily management of their risks and
controls. They are responsible for implementing corrective actions and maintaining and executing effective internal controls on a
day‑to‑day basis;
– The second line of defence involves various risk management, compliance, and controllership functions. This group helps facilitate
and monitor the implementation of effective risk management practices and assist risk owners in defining the target risk exposure
and reporting adequate risk-related information throughout CAE. The second line provides risk oversight across the enterprise and
advises senior management in connection with ERM. Led by the Senior Vice President, Strategy and Investor Relations with the
support of the General Counsel, Chief Compliance Officer and Corporate Secretary, the second line manages the ERM process
and is supported as required by experts, risk champions, consultants and any other resources deemed appropriate to achieve the
desired level of risk management;
– At the third level, Internal Audit provides to the Audit Committee and management an independent appraisal of our risk
management framework, control environment and internal control systems. They advise and recommend to senior management
opportunities for improvements in internal controls, risk management systems as well as bring to management’s attention
organizational and operational benefits to be derived from engagements. Internal Audit is governed by the Internal Audit Charter.
Management develops and deploys risk mitigation strategies that align with our strategic objectives and business processes.
Management continuously reviews the evolution of the principal risks facing our business and the Board oversees the risk
management process and validates it through procedures performed by our internal auditors, when it deems necessary.
CAE Financial Report 2021 I 47
Management’s Discussion and Analysis
Risk approach and implementation
CAE promotes a strong risk culture that allows individuals and groups to make better risk-based decisions aligned with our strategic
objectives and risk appetite. A strong risk culture also allows us to maximize opportunities. Early identification of risks also helps CAE
be more proactive and prevent major incidents. A strong risk culture and common approach to risk management are integral to our
risk management practices.
Each business unit and functional group identifies and assesses key and emerging risks on an ongoing basis. Risk owners are
responsible to report, via the chain of command, the evolution of the risk profile that they own. All risks are either measured
quantitatively or assessed qualitatively and aggregated at an enterprise level. Risk assessment criteria provides a consistent risk
assessment process and risk ratings.
CAE’s comprehensive risk profile is updated on a regular basis and when a major shift occurs, such as significant M&A activity. It is
prepared considering CAE’s strategic and business plans and identifies an “owner” of each risk. It is presented to the Executive
Management Committee, and a summary thereof to the Board, together with risk management activities to address those risks. All
risk issues or weaknesses are reported to the Executive Management Committee or the Senior Vice President, Strategy and Investor
Relations, who assesses their severity and potential impact. Corrective action plans are developed, monitored and reported on a
timely basis.
9.1 Risks relating to the COVID-19 pandemic
In conducting our activities, CAE is exposed to operational risk events, including biological events. Such external events have
occurred in the past such as the Ebola virus, Severe Acute Respiratory Syndrome, H1N1 influenza virus, Avian flu, or the Zika virus,
and although not frequent, can have high adverse impacts on our industry and our business. COVID-19 has created unprecedented
uncertainty in the global economy, the global air transportation environment and air passenger travel, disrupted global supply chains,
created significant economic downturn and disruption of financial markets. The pandemic began to affect market demand in Asia early
in the fourth quarter of fiscal 2020 as border restrictions were implemented and through the rest of the world in March 2020. Several of
our customers are continuing to face significant challenges, with airlines and, to a lesser extent, business jet operators having to
ground many aircraft in response to travel bans, border restrictions, and lower demand for air travel. This outbreak has had an
important and immediate impact on all our businesses, especially in Civil Aviation where certain commercial airlines are experiencing
financial difficulties.
It is difficult to accurately predict the duration or severity of the pandemic and it is extremely challenging for CAE to accurately
estimate or quantify the magnitude of the pandemic’s impact on our operations, financial condition and strategic plan. Due to the
unprecedented and ongoing nature of COVID-19 and the fact that the response to the pandemic is evolving in real time and differs
geographically from one region to another, estimates of the economic impacts of the COVID-19 pandemic remain inherently highly
uncertain and speculative. Even after the COVID-19 pandemic is over, we may continue to experience material adverse effects to our
business, financial condition and strategic plans as a result of the continued disruption in the global economy and any resulting
recession, the effects of which may persist beyond that time.
CAE has been closely monitoring and actively implementing and updating our response to the evolving COVID-19 pandemic and its
impacts on employees, operations, the global economy and the demand for our products and services. We have formed a committee
composed of the senior leadership team and key leaders in the organization to monitor the evolution of the pandemic, to evaluate the
measures being put in place by local and national governments and the resulting impacts on CAE. As needed, the committee
implements necessary contingency plans in real time as the current situation continues to unfold, with a focus on three
priorities: protecting employees’ health and safety; supporting customers' critical operations and ensuring business continuity.
However, there is no certainty that such measures will be sufficient to mitigate the direct and indirect effects of the virus and its impact
on our business, financial condition and results of operations going forward. Additionally, the impact on our business, financial
condition and results of operations of new technologies and initiatives we have launched, or may launch, in response to the COVID-19
pandemic is uncertain and we may be subject to additional risks in connection with such technologies and initiatives.
The COVID-19 pandemic and related restrictions may also disrupt or delay the ability of employees to work because they become sick
or are required to care for those who become sick, cause delays or disruptions in our supply chain, increase our vulnerability and that
of our partners and service providers to security breaches, denial of service attacks or other hacking or phishing attacks, or cause
other unpredictable events. Additionally, although we have attempted to identify the COVID-19-related risks faced by our business, the
uncertainty and lack of predictability around the COVID-19 pandemic means there may be other risks not presently known to us or
that we presently believe are not material that could also affect our business, financial condition and results of operations.
48 I CAE Financial Report 2021
Management’s Discussion and Analysis
Since the impact of COVID-19 is ongoing, the effect of the COVID-19 outbreak and the related impact on the global economy may not
be fully reflected in our results of operations until future periods. It is difficult to predict the duration or severity of the pandemic and it is
extremely challenging for CAE to estimate or quantify the magnitude of the pandemic’s impact on our operations, financial condition
and strategic plan, though the impact may continue to be material. Due to the unprecedented and ongoing nature of COVID-19 and
the fact that the response to the pandemic is evolving in real time and differs geographically from one region to another, estimates of
the economic impacts of the COVID-19 pandemic remain inherently highly uncertain and speculative. In the short-term; however, the
Company expects the COVID-19 pandemic to continue to have a significant negative impact on its performance relative to
pre‑pandemic levels. COVID-19 remains a global reality and the resumption of CAE’s recovery remains highly dependent on the
timing and rate at which travel restrictions and quarantines can eventually be safely lifted and normal activities resume in our end
markets. Even after the COVID-19 pandemic is over, we may continue to experience material adverse effects on our business,
financial condition and strategic plans as a result of the continued disruption in the global economy and any resulting recession, the
effects of which may persist beyond that time. Moreover, a material adverse effect on our employees, customers, suppliers, partners
and/or other stakeholders could have a material adverse effect on us.
Health and Safety
The spread of COVID-19 may impact the health of our personnel, partners and contractors, including members of our management
team, and may make it difficult to recruit, attract and retain skilled personnel, reducing the availability of our workforce and causing
human impacts that may, in turn, negatively impact our business. Prolonged illness of our senior executives could also have an
adverse effect on the management of our business and financial results. Since safety is one of our main priorities at CAE, we
implemented mitigation measures to reduce the risk of potential outbreaks, including compelling most employees to work from home,
where possible, initiating production shifts, creating protocols, policies and guidelines for employees, suppliers, customers and
visitors, and closing certain areas in our facilities to facilitate maintenance. We also have in place an emergency succession plan to
deal with any situation which requires the immediate replacement of our key senior executives.
Reduction and Suspension of Operations
The pandemic is causing a slowdown and temporary restrictions to our operations in certain geographic locations impacted by the
outbreak, including significantly lower training utilization and delays in the execution of backlog due to travel bans, border restrictions,
client access restrictions and supply chain disruptions. At the beginning of the fiscal year, several of our training locations worldwide
suspended operations or were operating at significantly reduced capacities as a result of the severe and abrupt drop in air passenger
travel and airlines and business jet operators having to ground many aircraft. While all previously closed training locations have
re‑opened at full or reduced capacities, we continue to operate on an adaptive basis and in accordance with the local COVID-19
situation and government protocols.
Delay in the production of goods and completion of CAE’s services may require us to incur additional non-compensable costs,
including overtime work, that are necessary to meet clients’ schedules. Due to various factors, a delay in the commencement or
completion of a project may also result in penalties or sanctions under contracts or even the cancellation of some contracts.
Additionally, some of our customers, including governments, airlines and hospitals around the world, could delay contract awards as
they are dealing with the pandemic and their own cash conservation measures.
Global Economy
As an emerging risk, the economic impact could be severe to global economies depending on the duration of the pandemic, the
likelihood and scope of any subsequent waves of COVID-19 and the continued measures put in place to contain the outbreak. Global
financial markets have experienced, and could continue to experience, significant volatility and weakness. Governments and central
banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions and financial markets.
However, the efficacy of the government and central bank interventions is uncertain. Uncertainties related to, and perceived or
experienced negative effects from, COVID-19 may continue to cause significant volatility or decline in the trading price of our
securities, capital market conditions and general economic conditions. In addition, severe disruption and instability in the global
financial markets and continued deteriorations in credit and financing conditions may increase the likelihood of litigation, increase the
cost of or limit or restrict our ability to access debt and equity capital or other sources of funding on favourable terms, or at all, lead to
consolidation that negatively impacts our business, increased competition, result in reductions in our work force, cause us to further
reduce our capital spending or otherwise disrupt our business or make it more difficult to implement our strategic plans. Sustained
adverse effects may also prevent us from satisfying debt financial covenants or result in possible credit ratings watch or downgrades.
Also, the return on our pension plan assets and/or the discount rate used for valuing our post-employment benefit obligations may
both be negatively impacted in the near to medium term. This could have an adverse effect on our post-employment benefit plan
obligations and pension contributions in future years.
Several governments have implemented temporary measures to help offset the negative economic impacts such as the CEWS
program in Canada and deferred tax filings for businesses and individuals worldwide. While these measures are beneficial for CAE
and our employees, should the negative economic impacts exceed the period for which these relief measures have been granted, it
can lead to increased cost containment policies such as job reductions and capital spending reductions in our own network.
Diversion of management attention
Preparing for and responding to the continuing pandemic and new technologies and initiatives we have launched or may launch in
response to the COVID-19 pandemic, has and may continue to divert management’s attention from our key strategic priorities,
increase costs as we prioritize health and safety matters for our personnel and the continuation of critical ongoing projects, and cause
us to reduce, delay, or alter initiatives that may otherwise increase our long-term value.
CAE Financial Report 2021 I 49
Management’s Discussion and Analysis
We may implement additional restructuring, cost reduction or other business process initiatives that might result in extraordinary
charges and expenses, failures to achieve our desired objectives, or unintended consequences. This includes, but is not limited to,
distraction of our management and employees, business disruption, attrition beyond any planned reduction in workforce, inability to
attract or retain key personnel and reduced employee productivity. Any of these risks might have a materially adverse impact on our
business operations and our financial position or results of operations.
Heightened IT risks and inefficiencies
The immediate unanticipated rise in remote work arrangements implemented by CAE in response to the COVID-19 outbreak may
cause inefficiencies and increased pressure on our information technology infrastructure and may increase CAE’s vulnerability to
information technology and cybersecurity related risks and disruption to our information systems.
Liquidity risk
The continuing pandemic has increased the risk that we may encounter difficulty in meeting our obligations associated with financial
liabilities. To preserve liquidity throughout the pandemic, we enacted strict cost containment measures and suspended dividend
payments to common shareholders and share buybacks under the NCIB program. In addition, at the beginning of the fiscal year, we
concluded a new two-year $500.0 million senior unsecured revolving credit facility and expanded our receivable purchase program
from US$300.0 million to US$400.0 million. These transactions provide us access to additional liquidity and further strengthen our
financial position. We believe that our cash and cash equivalents, the availability of cash under our committed revolving credit facility
and the cash we expect to generate from our operations, is sufficient to meet financial requirements in the foreseeable future.
Credit risk
There is uncertainty regarding the duration of the COVID-19 pandemic and how it will impact the sufficiency of our customers' liquidity
during the period where their operations are significantly impacted by a significant and abrupt reduction in air travel, self-isolation
measures, travel bans, border restrictions and lockdown protocols. There is an increased credit risk for our airline customers due to
the reduction of their operations and uncertainty relating to air travel recovery and the increased risk of airline bankruptcies. We are,
however, a provider of regulated training services which are critical to airline operations, and therefore if any of our customers engage
in reorganization or bankruptcy proceedings we are often designated as a critical supplier.
Overall, adverse changes in a customer's financial condition, including those resulting from the COVID-19 pandemic, could cause us
to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer's future business, or
result in uncollectible trade accounts receivable from that customer. Future credit losses relating to any one of our major customers
could be material and could result in a material charge to our financial results.
9.2 Risks relating to the industry
Competition
We sell our simulation products and training services in highly competitive international markets. New participants have emerged in
recent years and the competitive environment is intense, with aerospace and defence companies positioning themselves to try to take
greater market share by consolidating through mergers and acquisitions and vertical integration strategies and by developing their
own internal capabilities. Most of our competitors in the simulation and training markets are also involved in other major segments of
the aerospace and defence industry beyond simulation and training. As such, some of them are larger than we are, and may have
greater financial, technical, marketing, manufacturing and distribution resources and market share which could adversely affect CAE’s
ability to compete successfully. In addition, our main competitors are either aircraft manufacturers, or have well-established
relationships with aircraft manufacturers, airlines and governments, which may give them an advantage when competing for projects.
OEMs have certain advantages in competing with independent training service providers. An OEM controls the pricing for the data,
parts and equipment packages that are often required to manufacture a simulator specific to that OEM’s aircraft, which in turn, is a
critical capital cost for any simulation-based training service provider. OEMs may be in a position to demand licence fees or royalties
to permit the manufacturing of simulators based on the OEM’s aircraft, and/or permit any training on their respective simulators.
However, CAE may have some advantages, as an independent training provider and simulator manufacturer, having the ability to
replicate certain aircraft without data, parts and equipment packages from an OEM, as well as our global reach and diversified training
network that includes joint ventures with large airline operators, who are aircraft customers for OEMs. In addition, we work with some
OEMs on business opportunities related to equipment and training services.
Economic growth and pressure underlie the demand for all of our products and services. Periods of economic recession, constrained
credit, government austerity and/or international commercial sanctions generally lead to heightened competition for demand of our
services and products. This in turn, typically leads to a reduction in profit on sales won during such a period. Should such conditions
occur, we could experience price and margin erosion.
50 I CAE Financial Report 2021
Management’s Discussion and Analysis
Business development and awarding of new contracts
We obtain most of our contracts through competitive bidding processes that subject us to the risk of spending a substantial amount of
time and effort on proposals for contracts that may not be awarded to CAE. A significant portion of our revenue is dependent on
obtaining new orders and continued replenishment of our backlog. We cannot be certain that we will continue to win contracts through
competitive bidding processes at the same rate as we have in the past, additionally, the impacts of the COVID-19 pandemic could
cause a delay in the awarding of orders. The presence of new market participants as noted above, and their efforts to gain market
share, creates heightened competition in bidding which may negatively impact pricing and margins. We intend to continue to grow
market share by leveraging a high level of customer satisfaction and operational and organizational productivity.
Level and timing of defence spending
A significant portion of our revenues is generated by sales to defence and security customers around the world. We provide products
and services for numerous programs to Australian, Canadian, European, UAE, U.S., and other foreign governments as both the prime
and/or subcontractor. As defence spending comes from public funds and is always competing with other public interests for funding,
there is a risk associated with the level of spending a particular country may devote to defence as well as the timing of defence
contract awards, which can be very difficult to predict and may be impacted by numerous factors such as the political environment,
foreign policy, macroeconomic conditions and nature of the international threat environment. Significant reductions to defence
spending by mature markets such as in Australia, Canada, Europe, the UAE, and the U.S. or a significant delay in the timing of
defence procurement could have a material negative impact on our future revenue, earnings and operations. Particularly, with the
increased focus on COVID-19 relief measures around the globe, governments may be forced to reduce their defence spending.
Additionally, the precipitous drop in oil prices, at the start of the pandemic, has further impacted opportunity flow in the Middle East. In
order to mitigate the level and timing of defence procurements, we have established a diversified global business and a strong
position on enduring platforms.
Government-funded defence and security programs
Like most companies that supply products and services to governments, government agencies routinely audit and investigate
government contractors. These agencies may review our performance under our contracts, business processes, cost structure, and
compliance with applicable laws, regulations and standards. Our incurred costs for each year are subject to audit by government
agencies, which can result in payment demands related to costs they believe should be disallowed. We work with governments to
assess the merits of claims and where appropriate reserve for amounts disputed. We could be required to provide repayments to
governments and may have a negative effect on our results of operations. Contrary to cost-reimbursable contracts, some costs may
not be reimbursed or allowed under fixed-price contracts, which may have a negative effect on our results of operations if we
experience costs overruns.
Civil aviation industry
A significant portion of our revenue comes from supplying equipment and training services to the commercial and business airline
industries. The civil aviation market is predominantly driven by long-term trends in airline passenger and cargo traffic. The principal
factors underlying long-term traffic growth are sustained economic growth and political stability both in developed and emerging
markets. Air travel experienced a sharp deterioration with passenger traffic decreasing 66% in calendar 2020 compared to the prior
year. There is a risk that we may experience a delayed recovery in air travel demand due to the unprecedented worldwide travel
restrictions, expected higher unemployment rates, and a fall in consumer spending. Currently, IATA forecasts that domestic and
international passenger demand for calendar 2021 is expected to be 43% of calendar 2019 pre‑COVID levels and they expect
passenger traffic to recover to 2019 levels by 2024. Decreased airline passenger and cargo traffic for an extended period of time
could have a material and adverse effect on our financial and operating performance. Specifically, as airlines struggle with reduced
capacities or bankruptcies, CAE could experience the cancellation of FFS orders, reduction in FFS demand and lower demand for
pilot recruitment, placement, and training. Despite the temporary global shock caused by the COVID-19 pandemic, the business
aviation industry is expected to grow in the long term due to demand recovery combined with the introduction of new aircraft models
and technologies.
Demand for training solutions in the civil aviation market is further influenced by airline profitability, availability of aircraft financing,
OEMs ability to supply aircraft, world trade policies, technological advances, government-to-government relations, national aviation
authority regulations, price and other competitive factors, fuel prices and geopolitical environment. Potential impediments to steady
growth in air travel include major disruptions such as regional political instability, acts of terrorism, epidemics, pandemics, the
prolonged continuation or future waves of the novel coronavirus, natural disasters, prolonged economic recessions, the interruption of
global mobility including travel bans and border restrictions, oil price volatility, increased global environmental regulations or other
major world events.
Constraints in the credit market may reduce the ability of airlines and others to purchase new aircraft, negatively affecting the demand
for our training equipment and services, and the purchase of our products. In addition, airline consolidations, fleet decisions or
financial challenges involving any of our major commercial airline customers could impact our revenues and limit our opportunity to
generate profits from those customers. Finally, prolonged reduction in operations as a result of COVID-19 could drive an increase of
bankruptcies amongst airlines.
CAE Financial Report 2021 I 51
Management’s Discussion and Analysis
Regulatory matters
Our businesses are heavily regulated. We deal with many government agencies and entities and are subject to laws and regulations
such as export controls, health and medical devices, national security and aviation authority of each country. These regulations may
change without notice, which could impact our sales and operations. Any changes imposed by a regulatory agency, including changes
to safety standards imposed by aviation authorities such as the U.S. FAA, could mean that we have to make unplanned modifications
to our products and services, causing delays, higher inventory levels or resulting in postponed or cancelled sales or changes to sales
predictions.
The export of CAE’s technology and services is subject to export permit approvals and regulatory requirements, which can sometimes
take several months to go through the approval process. These can result in delays in obtaining export permits or even prevent us
from exporting to certain countries, entities or people in or from a country, and result in negative financial impacts.
We cannot predict the impact that changing laws or regulations might have on our operations. Any changes could present
opportunities or, to the contrary, have a materially negative effect on our results of operations or financial condition and we cannot be
certain that we will be permitted to sell or licence certain products to customers or otherwise export CAE’s technology and services,
which could cause a potential loss of revenue for us. Any changes in governmental policy or government actions resulting from the
COVID-19 pandemic could disrupt our supply chain, prevent the sale or delivery of our products, or result in export license delays.
If we fail to comply with government laws and regulations related to export controls and national security requirements, we could be
fined and/or suspended or barred from government contracts or subcontracts for a period of time, which would negatively affect our
revenue from operations and profitability and could have a negative effect on our reputation and ability to procure other government
contracts in the future.
Natural or other disasters
Extreme weather conditions or natural or other disasters, such as earthquakes, fires, floods, pandemics, epidemics (such as
COVID-19) and similar events could disrupt our operations, damage our infrastructure or properties, endanger our employee's health
and safety, impact the availability and cost of materials and resources, increase insurance and other operating costs and have a
material adverse effect on our operating results, financial position or liquidity. In addition, we cannot be certain that our insurance
coverage will be sufficient to cover all significant risk exposures. We are exposed to liabilities that are unique to the products and
services that we provide. CAE maintains insurance for certain risks and may be adequately covered for said risks, however, insurance
may not be available, or limits may not be adequate to cover all significant risk exposures. For example, CAE is not covered from the
financial losses caused by communicable disease, including viruses and other epidemics, as certain coverages are not available for
commercially reasonable terms. It is not certain whether there will be any insurance products in the future covering the risks of
communicable disease.
Environmental laws and regulations
CAE is exposed to various environmental risks and is subject to complying with environmental laws and regulations which vary from
country to country and are subject to change. CAE’s inability to comply with environmental laws and regulations could result in
penalties, lawsuits and potential harm to its reputation.
New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination,
new clean-up requirements or claims on environmental indemnities we committed to may result in us having to incur substantial costs.
This could have a materially negative effect on our financial condition and results of operations.
Climate changes
Increased public awareness and growing concerns about climate change and the global transition to a low carbon economy result in a
broad range of impacts, including potential strategic, reputational and structural related risks for CAE and its business partners and
the emergence and evolvement of additional environmental and climate change regulations, frameworks, and guidance. Increasing
regulatory expectations create a new set of compliance risks that need to be managed. Global climate change also results in
regulatory risks which vary according to the national and local requirements implemented by each jurisdiction where we are present.
In addition, concerns about the environmental impacts of air travel, the “anti-flying” movement and tendencies towards “green” travel
initiatives have contributed to higher levels of scrutiny with respect to emissions which could have the effect of reducing demand for air
travel and could materially adversely impact our aviation business and reputation. As a result of these increased concerns, we
achieved carbon neutrality in September 2020 by continuing to reduce our own emissions and by making investments in projects that
offset our remaining annual carbon emissions.
52 I CAE Financial Report 2021
Management’s Discussion and Analysis
9.3 Risks relating to the Company
Evolving standards and technology innovation
The civil aviation and defence and security markets in which we operate are characterized by changes in customer requirements, new
aircraft models, evolving industry standards, increased power to analyze data and evolving customer expectations influenced by
global trends such as climate change, pandemics, the growth of developing markets, population growth and demographic factors. If
we do not accurately predict the needs of our existing and prospective customers, develop new products, enhance existing products
and services and invest in and develop new technologies that address those evolving standards and technologies, we may lose
current customers and be unable to attract new customers. This could reduce our revenue and market share.
The evolution of technology could also have a negative impact on the value of our fleet of FFSs or require significant investments to
our fleet to update to the evolving technology. The adoption of new technologies, such as artificial intelligence, machine learning and
unmanned aerial systems or remotely piloted aircraft, presents opportunities for us, but may result in new and complex risks that
would need to be managed effectively.
Our ability to penetrate new markets
Penetration of the new markets, including as a result of new technologies and initiatives we have launched or may launch in response
to the COVID-19 pandemic, represents both a risk and an opportunity for CAE. Success in these markets is by no means assured. As
we operate in new markets, unforeseen difficulties, major investments and additional expenditures could arise, which may have an
adverse effect on our operations, financial position, profitability and reputation. Penetrating a new market is inherently more difficult
than managing within our already established markets. New products and technologies introduced in new markets could also generate
unanticipated safety or other concerns resulting in expanded product liability risks, potential product recalls and other regulatory
issues that could have an adverse impact on us.
In particular, we may be exposed to increased risks as a result of the development, manufacturing and distribution of our CAE Air1
ventilator and PYURE air purifiers. Such new products that we sell and distribute could become subject to mislabeling, recall or other
damage. Product liability or personal injury claims may be asserted against us with respect to any of the products we distribute, sell or
services we provide. Such claims can include claims about the failure of the products we sell and distribute, or a deterioration in their
quality or effectiveness (including their effectiveness to detect, treat or destroy microbial infections and viruses, including COVID-19),
or any insufficiency or inadequacy in their labelling or in their directions for operation, which led or could lead to the death or a
deterioration in the state of health of a patient, user or other person. Should a product or other liability issue arise, the coverage
available under our insurance programs and the indemnification amounts available to us from third parties may not be adequate to
protect us against the financial impact of the related claims. A product liability or personal injury issue or judgment against us or a
product recall could damage our reputation and have a significant adverse effect on our businesses, reputation, operating results
and/or financial condition.
Estimates of market opportunity
The estimates of market opportunity included in this report, including those we have generated ourselves, are subject to significant
uncertainty and are based on assumptions and estimates that may prove to be inaccurate and may not be indicative of our future
growth. While our estimates of the addressable markets included in this report were made in good faith and are based on
assumptions and estimates we believe to be reasonable, these estimates may not prove to be accurate. Further, even if the estimates
of our market opportunity do prove to be accurate, we could fail to capture a significant portion, or any portion, of the available
markets.
Research and development activities
We carry out some of our R&D initiatives with the financial participation of governments, including the Government of Quebec and the
Government of Canada. The level of government financial participation reflects government policy, fiscal policy and other political and
economic factors. We may not, in the future, be able to replace these existing programs with programs of comparable benefit to us,
which could have a negative impact on our financial performance and research and development activities.
We receive investment tax credits from federal and provincial governments in Canada and from the federal government in the U.S.
and the U.K. on eligible R&D activities that we undertake. The credits we receive are based on legislation currently enacted. The
investment tax credits available to us can be reduced by changes to the respective governments’ legislation which could have a
negative impact on our financial performance and research and development activities.
Furthermore, our R&D investments in new products or technologies may or may not be successful. Our results may be impacted if we
invest in products that are not accepted on the market, if customer demand or preferences change, if new products are not brought to
market in a timely manner, if we lack commercial or procurement experience, if we experience delays in obtaining regulatory
approvals, or if our products become obsolete. We may incur cost overruns in developing new products.
CAE Financial Report 2021 I 53
Management’s Discussion and Analysis
Fixed-price and long-term supply contracts
We provide our products and services mainly through fixed-price contracts that enable us, contrary to cost-reimbursable contracts, to
benefit from performance improvements, cost reductions and efficiencies, but also require us to absorb cost overruns reducing profit
margins or incurring losses if we are unable to achieve estimated costs and revenues. It can be difficult to estimate all of the costs
associated with these contracts or to accurately project the level of sales we may ultimately achieve. In addition, a number of
contracts to supply equipment and services to commercial airlines and defence organizations are long-term agreements that can run
up to 25 years. While some of these contracts can be adjusted for increases in inflation and costs, the adjustments may not fully offset
the increases, which could negatively affect the results of our operations. While we believe we have recorded adequate provisions for
risks of losses on fixed-price contracts, it is possible that fixed-price and long-term supply contracts could subject us to additional
losses that exceed obligations under the terms of the contracts.
Strategic partnerships and long-term contracts
We have long-term strategic partnerships and contracts with major airlines, aircraft operators and defence forces around the world,
including Authorized Training Provider agreements. These long-term contracts are included in our backlog at the awarded amount but
could be subject to unexpected adjustments or cancellations and therefore do not represent a guarantee of our future revenues. We
cannot be certain that these partnerships and contracts will be renewed on similar terms, or at all, when they expire, and our financial
results could be adversely affected by our partners' level of operations and revenue, financial health, contribution and
indemnifications. We can make no assurance that customers will fulfill existing purchase commitments, exercise purchase options or
purchase additional products or services from CAE.
Backlog
Backlog represents management’s estimate of the aggregate amount of the revenues expected to be realized in the future. The
termination, modification, delay, or suspension of multiple contracts may have a material and adverse effect on future revenues and
profitability. We cannot guarantee that the revenues initially anticipated in our new orders will be realized in full, in a timely manner, or
at all, or that, even if realized, such revenues will result in profits or cash generation as expected, and any shortfall may be significant.
Procurement and OEM leverage
We secure data, parts, equipment and many other inputs from a wide variety of OEMs, subcontractors and other sources. We are not
always able to find two or more sources for inputs that we require, and, in the case of specific aircraft simulators and other training
equipment, significant inputs can only be sole-sourced. We may therefore be vulnerable to delivery schedule delays, the financial
condition of the sole-source suppliers and their willingness to deal with us. Within their corporate groups, some sole-source suppliers
include businesses that compete with parts of our business. This could lead to onerous licencing terms, high licence fees or even
refusal to licence to us the data, parts and equipment packages that are often required to manufacture and operate a simulator based
on an OEM’s aircraft.
Where we use an internally produced simulation model for an aircraft or develop courseware without using OEM-sourced and licenced
data, parts and equipment, the OEM in question may attempt retaliatory or obstructive actions against us to block the provision of
training services or manufacturing, sale and/or deployment for training of a simulator for such aircraft, claiming breach of its intellectual
property rights or other legal basis. Such actions may cause us to incur material legal fees and/or may delay or prevent completion of
the simulator development project or provision of training services, which may negatively impact our financial results.
Similarly, where we use open source software, freeware or commercial off-the-shelf software from a third party, the third party in
question or other persons may attempt retaliatory or obstructive actions against us to block the use of such software or freeware,
claiming breach of licence rights or other legal basis. Such actions may cause us to incur material legal fees and/or may delay or
prevent completion of the simulator development project or provision of training services, which may negatively impact our financial
results.
Product integration and program management
Our business could be negatively affected if our products do not successfully integrate or operate with other sophisticated software,
hardware, computing and communications systems that are also continually evolving. If we experience difficulties on a project or do
not meet project milestones, we may have to devote more engineering and other resources than originally anticipated which may
impact timing and profitability.
Protection of our intellectual property and brand
We rely, in part, on trade secrets, copyrights and contractual restrictions, such as confidentiality agreements, patents and licences to
establish and protect our proprietary rights. These may not be effective in preventing a misuse of our technology or in deterring others
from developing similar technologies. We may be limited in our ability to acquire or enforce our intellectual property rights in some
countries. Litigation related to our intellectual property rights could be lengthy and costly and could negatively affect our operations or
financial results, whether or not we are successful in defending a claim.
As the training partner of choice to enhance safety, efficiency and readiness, our brand is a significant asset. From time to time, we
may authorize the use of our brand, under third party license agreements, such as our partnership with the Saudi National Company
of Aviation to create a CAE Authorized Training Centre in the Middle East. Additionally, in certain of our flight training organizations,
we outsource some flying to third-party providers, but ultimately remain accountable for their performance operating for our brand. We
control and manage the use of our brand and ensure that our partners and suppliers meet rigorous standards to ensure that our brand
value is preserved. Adverse publicity related to incidents or litigation involving us, our partners or suppliers may impact the value of
our brand.
54 I CAE Financial Report 2021
Management’s Discussion and Analysis
Third-party intellectual property
Our products contain sophisticated software and computer systems that are supplied to us by third parties. These may not always be
available to us. Our production of simulators often depends on receiving confidential or proprietary data on the functions, design and
performance of a product or system that our simulators are intended to simulate. Our training systems may also involve the collection
and analysis of customer performance data in connection with the use of our training systems. We may not be able to obtain access
to these multiple data sets on reasonable terms, or at all.
Infringement claims could be brought against us or against our customers. We may not be successful in defending these claims and
we may not be able to develop processes that do not infringe on the rights of third parties, or obtain licences on terms that are
commercially acceptable, if at all.
The markets in which we operate are subject to extensive patenting by third parties. Our ability to modify existing products or to
develop new products and services may be constrained by third-party patents such that we incur incremental costs to licence the use
of the patent or design around the claims made therein.
Key personnel
Our continued success will depend in part on our ability to attract, recruit and retain key personnel and management with relevant
skills, expertise and experience, including technology developers of our intellectual property. Our compensation policy is designed to
mitigate this risk, however, the temporary compensation measures put in place during the COVID-19 pandemic could result in
increased risks of losing talent to industries that have not been as severely impacted. We also have succession plans in place to help
identify and develop an internal pipeline of leadership talent pertaining to engineers, technical and pilot instructors and general
management domains. CAE is dependent on the industry experience, qualifications and knowledge of a variety of employees,
including our executive officers, managers and other key employees to execute our business plan and operate our business. If we
were to experience a shortfall, illness or a substantial turnover in our leadership or other key employees, our business, results from
operations and financial condition could be materially adversely affected. Failure to establish a complete and effective succession
plan, including preparation of internal talent and identification of potential external candidates, where relevant, for key roles, could
impair our business until qualified replacements are found.
Labour relations
Approximately 2,100 employees are represented by unions and are covered by 51 collective agreements as of March 31, 2021. These
differing collective bargaining agreements have various expiration dates. While we maintain positive relationships with our respective
unions, the re-negotiations of the collective bargaining agreements could result in work disruption including work stoppages or work
slowdowns. Should a work stoppage occur, it could interrupt our manufacturing or service operations at the impacted location which
could adversely affect service to our customers and to our financial performance.
Liability risks that may not be covered by indemnity or insurance
We are exposed to liabilities that are unique to the products and services we provide, as our business is complex, international and
involves extensive coordination and integration with numerous suppliers, large numbers of highly-skilled employees and partners,
advanced technologies and stringent regulatory requirements and performance and reliability standards.
Accordingly, we may be exposed to claims and litigation, including claims for personal injury, illness, death, property damage or
business interruption, arising from:
– Deficiencies in our simulation products and services that directly or indirectly cause damage and/or injury;
– Deficiencies in training programs or our training services delivery that directly or indirectly cause damage or injury;
– Incidents occurring during the use of equipment that we have manufactured or operate;
– Incidents involving products and services that we have provided, including claims for personal injuries or death;
– Deficiencies in our live flight training equipment, personnel or operations that directly or indirectly cause damage, injuries or death;
– Deficiencies in our mitigation and protective measures implemented to reduce the risk of a potential COVID-19 outbreak in one of
our facilities or failure to adequately protect our customers, employees, contractors, workers and visitors from the virus;
– Defect or ineffectiveness in the new products we manufacture or distribute (including to detect or destroy microbial infections and
viruses, including COVID-19).
Substantial costs could adversely impact our financial condition, cash flows, or operating results. In some but not all circumstances,
we may be entitled to certain legal protections or indemnifications from our customers. Although we maintain insurance coverage from
established insurance carriers to cover these risks, our insurance coverage may be inadequate to cover all claims and liabilities, the
amount of such insurance coverage may not be sufficient, and we may be forced to bear substantial costs. Any accident, failure of, or
defect in our products or services, even if fully indemnified or insured, could result in significant investment and negatively affect our
reputation with our customers and the public. It also could affect the cost and availability of adequate insurance in the future.
CAE Financial Report 2021 I 55
Management’s Discussion and Analysis
Warranty or other product-related claims
We manufacture simulators that are highly complex and sophisticated. Additionally, we may purchase simulators or obtain simulators
via acquisitions. These simulators may contain defects that are difficult to detect and correct and if they fail to operate correctly, there
could be warranty claims, or we may incur significant additional costs to modify or retrofit these products. Correcting these defects
could require significant additional costs. If a defective product is integrated into our customers' equipment, we could face product
liability claims based on damages to the customers' equipment. Any claims, errors or failures could have a negative effect on our
operating results and business. We may also be subject to product liability claims relating to equipment and services related to
discontinued operations sold in the past.
Reputational risk
Reputational risk may arise under many situations including, among others, quality or performance issues on our products or services,
or the new technologies and products we have launched or may launch in response to the COVID-19 pandemic, inability to penetrate
new markets or to meet expectations or demand for newly developed products and technologies, failure to maintain ethically and
socially responsible operations, injuries or death arising from health and safety incidents during the operation process or training
activities, or alleged or proven non-compliance with laws or regulations by our employees, agents, subcontractors, suppliers and/or
business partners. Any negative publicity about, or significant damage to, our image and reputation could have an adverse impact on
customer perception and confidence and may cause the cancellation of current work or influence our ability to obtain future sales or
award of a contract. Furthermore, any unethical conduct by one of our suppliers or subcontractors or any allegations of unfair or illegal
business practices by a supplier or subcontractor could also negatively affect our image and reputation. An occurrence of any of these
situations could materially adversely affect our business and financial results.
Perceptions pertaining to social and governance approaches have changed in the recent years, and many customers and investors
now agree that these issues have become a current concern and could affect corporate profitability and reputation.
U.S. foreign ownership, control or influence mitigation measures
CAE and certain of our subsidiaries are parties to agreements with various departments and agencies of the U.S. government,
including the U.S. Department of Defense, which require that these subsidiaries be issued facility security clearances under the U.S.
Government National Industrial Security Program. This program requires that any corporation that maintains a facility security
clearance be insulated from foreign ownership, control or influence (FOCI) via a mitigation agreement. As a Canadian company, we
have entered into FOCI mitigation agreements with U.S. Department of Defense that enable these U.S. subsidiaries to obtain and
maintain the requisite facility security clearances to enter into and perform on classified contracts with the U.S. Government.
Specifically, these mitigation agreements are a special security agreement for CAE USA Inc. and a proxy agreement (Proxy
Agreement) for CAE USA Inc.’s wholly owned subsidiary, CAE USA Mission Solutions Inc. (MSI). If we fail to maintain compliance
with either of these FOCI mitigation agreements, the facility security clearances for each entity may be terminated. If this occurred, our
U.S. subsidiaries would no longer be eligible to enter into new contracts requiring a facility security clearance and would lose the right
to perform its existing contracts with the U.S. government to completion.
Based on recent regulatory changes in the U.S., CAE has submitted a request to the U.S. government to terminate the Proxy
Agreement. Upon termination of the Proxy Agreement, the separate board of directors established to oversee the management and
operations of MSI will be dissolved. Thereafter MSI will operate under the CAE USA special security agreement.
Foreign private issuer status
As a “foreign private issuer,” as such term is defined in Rule 405 under the U.S. Securities Act, we are permitted, under a
multi‑jurisdictional disclosure system adopted by the securities regulatory authorities in Canada and the United States, to prepare our
disclosure documents filed under the U.S. Securities Exchange Act of 1934, as amended (U.S. Exchange Act), in accordance with
Canadian disclosure requirements. Under the U.S. Exchange Act, we are subject to reporting obligations that, in certain respects, are
less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a
U.S. domestic issuer would file with the SEC, although we are required to file or furnish to the SEC the continuous disclosure
documents that we are required to file in Canada under Canadian securities laws.
In reliance on NYSE rules that permit a foreign private issuer to follow the corporate governance practices of its home country, CAE is
permitted to follow certain Canadian corporate governance practices instead of those otherwise required under the corporate
governance standards for U.S. domestic issuers, except to the extent that such laws would be contrary to U.S. securities laws and
provided that we disclose the significant differences between our corporate governance practices and the applicable corporate
governance standards applicable to U.S. domestic issuers.
Further, as a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public
companies that are not foreign private issuers. In particular, we are exempt from the rules and regulations under the Exchange Act
related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. CAE is exempt from the
provisions of Regulation FD, which prohibits the selective disclosure of material non-public information to, among others,
broker‑dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will
trade in our securities on the basis of the information.
56 I CAE Financial Report 2021
Management’s Discussion and Analysis
Even though Canadian securities law requirements regarding the disclosure of material and non-public information by public
companies are similar to U.S. securities law requirements and the Company voluntarily complies with Regulation FD, these
exemptions and leniencies will reduce the frequency and scope of information and protections to which purchasers are entitled as
investors. Shareholders should not expect to receive the same information at the same time as such information is provided by U.S.
domestic companies. In addition, we have four months after the end of each fiscal year to file our Annual Information Form with the
SEC and are not required under the U.S. Exchange Act to file quarterly reports with the SEC as promptly as U.S. domestic companies
whose securities are registered under the U.S. Exchange Act would do.
Enforceability of civil liabilities against our directors and officers
CAE is governed by the Canada Business Corporations Act with its principal place of business in Canada. Most of our directors and
officers reside in Canada. The majority of our assets and all or a substantial portion of the assets of these directors and officers may
be located outside the U.S. Consequently, it may be difficult for investors who reside in the U.S. to effect service of process in the U.S.
upon CAE or upon such persons who are not residents of the U.S., or to realize upon judgments of courts of the U.S. predicated upon
the civil liability provisions of the U.S. federal securities laws. A judgment of a U.S. court predicated solely upon such civil liabilities
may be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as
determined by the Canadian court, in the matter. Investors should not assume that Canadian courts would enforce judgments of U.S.
courts obtained in actions against CAE or such persons predicated upon the civil liability provisions of the U.S. federal securities laws
or the securities or blue sky laws of any state within the U.S., or would enforce, in original actions, liabilities against CAE or such
persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws. Similarly, some of CAE’s
directors and officers may be residents of countries other than Canada and all or a substantial portion of the assets of such persons
may be located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these
persons. In addition, it may not be possible for Canadian investors to collect from these persons judgments obtained in courts in
Canada predicated on the civil liability provisions of securities legislation of certain of the provinces of Canada. It may also be difficult
for Canadian investors to succeed in a lawsuit in the U.S. based solely on violations of Canadian securities laws.
Length of sales cycle
The sales cycle for our products and services can be long and unpredictable, ranging from 6 to 18 months for civil aviation
applications and from 6 to 24 months or longer for defence and security applications. During the time when customers are evaluating
our products and services, we may incur expenses and management time. Making these expenditures in a period that has no
corresponding revenue will affect our operating results and could increase the volatility of our share price. We may pre-build certain
products in anticipation of orders to come and to facilitate a faster delivery schedule to gain competitive advantage; if orders for those
products do not materialize when expected, we have to carry the pre-built product in inventory for a period of time until a sale is
realized.
Government procurement policies often allow unsuccessful bidders to protest a contract award. The protest of a contract awarded to
CAE may result in the cancellation of our award, extend the period before which we can start recognizing revenue or cause us to incur
material legal fees.
Seasonality
Our business, revenues and cash flows are affected by certain seasonal trends. In the Civil segment, the level of training delivered is
driven by the availability of pilots to train, which tends to be lower in the second quarter as pilots are flying more and training less and
thus, resulting in lower revenues. In the Defence segment, revenue and cash collection tend to be higher in the second half of the
year as contract awards and availability of funding are influenced by the federal government’s budget cycle, which in the U.S. is based
on a September year-end. We expect these trends to continue, however, results are not expected to follow historical patterns during
the year ending March 31, 2022 due to the impact of the COVID-19 pandemic.
Returns to shareholders
Payment of dividends, the repurchase of shares under our NCIB program and other cash or capital returns to our shareholders are at
the discretion of the Board of Directors and depend on various factors, including our operating cash flows, sources of capital, the
satisfaction of solvency tests and other financial requirements, our operations and financial results, as well as our dividend and other
policies which may be reviewed from time to time.
As a result, no assurance can be given as to whether CAE will declare and pay dividends in the future, or the frequency or amount of
any such dividend. In addition, there is no assurance that shareholders who currently have their common shares enrolled in CAE’s
Dividend Reinvestment Plan (DRIP) will continue to have their common shares participate in the DRIP, which may have an impact on
our cash flows.
Given the impacts of the COVID-19 pandemic, CAE’s Board of Directors has approved, on April 6, 2020, a suspension of dividend
payments to common shareholders and share repurchases under our NCIB program to preserve liquidity. This position will be
reviewed periodically. The NCIB has since expired and has not been renewed as of the date hereof.
CAE Financial Report 2021 I 57
Management’s Discussion and Analysis
Information technology and cybersecurity
We depend on information technology infrastructure and systems, hosted internally or outsourced, to conduct day-to-day operations
and for the effective operation of our business. Our business also requires the appropriate and secure utilization of sensitive and
confidential information belonging to third parties such as aircraft OEMs, national defence forces and customers. While we strive to
leverage technology to meet the growing needs of our customers and enhance the efficiency of our operations, it nevertheless comes
with information security and cybersecurity risks.
Due to the size, scale, and global nature of our operations, our heavy reliance on the internet to conduct day-to-day business
activities, our intricate technological infrastructure, our business relationships with aircraft OEMs and defence and security customers
and our use of third-party service providers, we are subject to heightened risks. These risks include information technology system
failures and non‑availability, cyber-attacks, cyber extortion, breaches of systems security, malware, unauthorized attempts to gain
access to our proprietary and sensitive information, hacking, phishing, identity theft, theft of intellectual property and confidential
information, denial‑of‑service attacks aimed at causing network failures and services interruption and other cybersecurity threats to
our information technology infrastructure and systems.
These IT and cybersecurity risks could disrupt our operations, cause the loss of, corruption of, or unauthorized access to business
information and data, compromise confidential or classified information belonging to CAE, our employees, or our business partners,
including aircraft OEMs and defence and security customers, expose us to client attrition, non-compliance with privacy legislation or
any other laws in effect, litigation, fines, penalties or regulatory action, compliance costs, corrective measures, investigative or
restoration costs, cost hikes to maintain and upgrade technological infrastructures and systems or reputational harm, all of which
could have a negative effect on CAE’s operating results, reporting capabilities, profitability and reputation.
A series of governance processes are in place to mitigate these risks. To address the challenges of the evolving cyber threat
landscape and as the volume and sophistication of cyber-attacks continue to increase, we continuously review our security measures.
We have developed a three year cybersecurity program in order to cope with these increasing threats. We have implemented security
controls, policy enforcement mechanisms, management oversight and monitoring systems in order to prevent, detect and address
potential threats. However, we may find it necessary to make further investments to protect our data and infrastructure, as well as our
customers data, against cyber-attacks.
The increased volume of employees working remotely and using online video conferencing and collaborative platforms due to
COVID-19 social distancing measures could result in increased cybersecurity threats. In order to manage these threats, we have
increased our monitoring of these threats, we have accelerated certain initiatives and we have been working with third parties to focus
on our 24/7 monitoring of our activities.
The amount of cyber insurance coverage that we maintain may not be adequate nor sufficient to cover the claims or liabilities resulting
from cyber-attacks. Given the highly evolving nature of cyber or other security threats or disruptions and their increased frequency, the
impact of any future incident cannot be easily predicted or mitigated, and the costs related to such threats or disruptions may not be
fully insured or indemnified by other means. In addition, the digital transformation and the adoption of emerging technologies, such as
artificial intelligence and machine learning, call for continued focus and investment to manage our risks effectively.
Furthermore, we may experience similar security threats at customer sites that we operate or manage or to which we gain access to
deliver services. We must rely on our own safeguards as well as the safeguards put in place by our partners to mitigate the threats.
Our partners have varying levels of cybersecurity expertise and safeguards, and their relationships with government contractors, such
as CAE, may increase the likelihood that they are targeted by the same cyber threats we face.
We may, from time to time, replace or update our information technology networks and systems. The implementation of, and transition
to, new networks and systems can temporarily disrupt our business activities and result in productivity disruptions.
Reliance on third-party providers for information technology systems and infrastructure management
We have outsourced certain information technology systems maintenance and support services and infrastructure management
functions, to third-party service providers. If these service providers are disrupted or do not perform effectively, it may have a material
adverse impact on our operations and/or we may not be able to achieve the expected cost savings and may have to incur additional
costs to correct errors made by such service providers. Depending on the function involved, such errors may also lead to business
disruption, processing inefficiencies and/or security vulnerability, and can have a negative impact on our reputation. To cope with
these risks we have implemented a third party vendor cybersecurity risk process in order to ensure that our suppliers have the
appropriate level of controls over the process of CAE information assets outsourced to them.
Data privacy
The management, use and protection of data, including sensitive data, including use and disclosure of health information in the
healthcare industry, are becoming increasingly important, particularly given the high value attributed to data and the potential
exposure to operational risks, reputational risks, and regulatory compliance risks, including compliance with the General Data
Protection Regulation in the European Union since May 2018 and the California Consumer Privacy Act since January 2020, and the
expected proliferation of similar regulatory frameworks in other regions. Further, as our collaboration with third parties continues to
grow and as we adopt new technologies and business models and, as a result of initiatives we have launched or may launch in
response to the COVID-19 pandemic, our potential exposure to regulatory compliance, operational and reputational risk increases.
58 I CAE Financial Report 2021
Management’s Discussion and Analysis
As a result of the new initiatives we have launched or may launch in response to the COVID-19 pandemic, we may collect and
process personal health information and other confidential and sensitive data about individuals. The success of some of these new
initiatives depend on the constituents’ willingness to entrust us with their health related and other sensitive personal information.
Under applicable privacy and data protection laws, we must maintain adequate safeguards to protect individually identifiable health
information and ensure the confidentiality, integrity and availability of electronic protected health information. Our efforts to comply with
privacy laws complicates our operations and adds to our compliance costs.
If we fail to comply with applicable privacy laws, we could be subject to regulatory penalties, face audits or investigations by various
government agencies relating to our compliance with these regulations, experience damage to our reputation or a loss of confidence
in our products and services. We may also incur additional costs for remediation and modification or enhancement of our information
systems to prevent future occurrences, all of which could adversely affect our business, operations or financial results. We also have
contractual obligations that might be breached if we fail to comply
Furthermore, the adoption of emerging technologies, such as cloud computing, artificial intelligence, process automatization and
robotics could lead to both new and complex risks that require continued focus and investment to manage effectively. We identify,
assess and manage the operational risk associated with the implementation of new technologies prior to their adoption.
9.4 Risks relating to the market
Foreign exchange
Our operations are global with approximately 90% of our revenue generated from worldwide exports and international activities
generally denominated in foreign currencies, mainly the U.S. dollar, the Euro and the British pound. Our revenue is generated
approximately one‑third in each of the U.S, Europe and the rest of the world.
Three areas of our business are exposed to fluctuations of foreign exchange rates; our global network of training and services
operations, our production operations abroad (mainly in Germany, and the U.S.) and our production operations in Canada as a
significant portion of the revenue generated in Canada is in foreign currencies, while a large portion of our operating costs is in
Canadian dollars. When the Canadian dollar increases in value, it negatively affects our foreign currency-denominated revenue and
hence our financial results. We generally hedge the milestone payments of sales contracts denominated in foreign currencies to
mitigate the foreign exchange exposure. We continue to hold a portfolio of currency hedging positions to mitigate the risk of future
revenues exposed to the volatility of the Canadian dollar versus foreign currencies. The hedges are intended to cover the revenue
exceeding the foreign cost component of the contract. Since not all of our revenue is hedged, it is not possible to completely offset the
effects of changing foreign currency values, which leaves some residual exposure that may impact our financial results. This residual
exposure may be higher when currencies experience significant short-term volatility. When the Canadian dollar decreases in value, it
negatively affects our foreign currency-denominated costs.
Business conducted through our foreign operations are substantially based in local currencies. A natural hedge exists by virtue of
revenues and operating expenses being in like currencies. However, changes in the value of foreign currencies relative to the
Canadian dollar creates unhedged currency translation exposure since results are consolidated in Canadian dollars for financial
reporting purposes. Appreciation of foreign currencies against the Canadian dollar would have a positive translation impact and a
devaluation of foreign currencies against the Canadian dollar would have the opposite effect.
Availability of capital
We depend, in part, upon our debt funding and access to capital markets. We have various debt facilities with maturities ranging
between July 2021 and July 2043, and we cannot provide assurance that these facilities will be refinanced at the same cost, for the
same duration and on similar terms as were previously available. If we require additional debt funding, our market liquidity may not be
sufficient considering multiple factors including a decline in our financial performance, outlook or our credit ratings, which may
adversely affect our ability to fund our operations and contractual or financing commitments.
Our credit facilities have standard financial covenants. In the event that we are unable to maintain compliance with such covenants,
we may have restricted access to capital and we would be required to obtain an amendment or waiver from our lenders, refinance the
indebtedness subject to covenants or take other mitigating actions prior to a potential breach.
Sales of additional common shares
We are authorized to issue an unlimited number of common shares. We may issue additional common shares or other securities
convertible into common shares to raise funds for future operations or for other purposes (including as incentive compensation or to
finance future acquisitions). Any future issuance of common shares, or other securities convertible into common shares, may result in
dilution to present and prospective common shareholders. CAE cannot predict the size of future issuances of common shares or the
effect that future issuances and sales of common shares will have on the market price of the common shares. Issuances of a
substantial number of additional common shares (or securities convertible into common shares), or the perception that such
issuances could occur, may adversely affect the prevailing market price for the common shares. With any additional issuance of
common shares, investors will suffer additional dilution to their voting power, and CAE may experience dilution in its earnings per
share.
CAE Financial Report 2021 I 59
Management’s Discussion and Analysis
Market price and volatility of our common shares
The market price of our common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of
which are beyond our control, and heightened in the context of the COVID-19 pandemic and related uncertainty, including, but not
limited to, announcements of new developments, actual or anticipated fluctuations in our operating results, sales of common shares in
the marketplace, changes in forecasts, estimates or recommendations of securities research analysts regarding our future operating
results or financial performance, changes in the economic performance or market valuations of other issuers that investors deem
comparable to CAE, addition or departure of our executive officers and other key personnel, the declaration and payment of
dividends, increases or decreases in the amount of dividends to be paid or expected to be paid by CAE, release or expiration of
lock‑up or other transfer restrictions on outstanding common shares, sales or anticipated sales of additional common shares by CAE,
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving CAE or
our competitors, news reports relating to trends, concerns, technological or competitive developments, the impact of various tax laws
or rates and general market conditions or the worldwide economy. In certain circumstances, stock markets experience significant
price and volume fluctuations, which are unrelated to the operating performance of the affected companies. There can be no
assurance that the market price of the common shares will not experience significant fluctuations in the future, including fluctuations
that are unrelated to our performance.
In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class
action litigation having been instituted against such company. If we were involved in any similar litigation, we could incur substantial
costs, our management’s attention and resources could be diverted and it could harm our business, financial condition, operating
results and future prospects.
Credit risk
We are also exposed to credit risk on accounts receivable from our customers. We have adopted policies to ensure we are not
significantly exposed to any individual customer. Our policies include analyzing the financial position of certain customers and
regularly reviewing their credit quality. We also subscribe from time to time to credit insurance and, in some instances, require a bank
letter of credit to secure our customers’ payments to us.
Impairment Risk
The carrying amounts of our non-financial assets subject to amortization are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Goodwill and assets that are not yet available for use are
tested for impairment annually or at any time if an indicator of impairment exists. Factors that may result in a change in circumstances,
indicating that the carrying value of our goodwill or non-financial assets may not be recoverable, include a decline in our stock price
and market capitalization, reduced future estimated cash flows, and slower growth rates than forecasted. Although we believe our
assumptions and estimates are reasonable and appropriate, any changes in key assumptions, including a failure to meet our five-year
strategic plan or other unanticipated events and circumstances, such as uncertainties created by the COVID-19 pandemic, may affect
the accuracy or validity of such estimates. Because of the significance of our goodwill and other non-financial assets, any future
impairment of these assets could require material non-cash charges to our operating results, which also could have a material
adverse effect on our financial condition.
Pension plans
Economic and capital market fluctuations can negatively affect the investment performance, funding and expense associated with our
defined benefit pension plans. Pension funding for these plans is based on actuarial estimates and is subject to limitations under
applicable regulations. Actuarial estimates prepared during the year were based on, amongst others, assumptions regarding the
performance of financial markets, discount rates, inflation rates, future salary increases, estimated retirement ages and mortality rates.
The actuarial funding valuation reports determine the amount of cash contributions that we are required to make into registered
retirement plans. There can be no assurance that our pension expense and the funding of these plans will not increase in the future,
negatively impacting our earnings, cash flow and shareholders' equity. We seek to mitigate this risk by implementing policies and
procedures designed to control investment risk and through ongoing monitoring of our funding position.
Doing business in foreign countries
We have operations in over 35 countries including our joint venture operations. We also sell and deliver products and services to
customers around the world. Sales to customers outside Canada made up approximately 90% of revenue in fiscal 2021. We expect
sales outside Canada to continue to represent a significant portion of revenue in the foreseeable future. As a result, we are subject to
the risks of doing business internationally, including geopolitical instability.
60 I CAE Financial Report 2021
Management’s Discussion and Analysis
These are the main risks we are facing attributable to international operations:
– Change in Canadian and foreign government policies, laws, regulations and regulatory requirements, or the interpretation,
application, and/or enforcement thereof;
– Adoption of new, and the expansion of existing tariffs, embargoes, controls, sanctions trade, work or travel restrictions and other
restrictions;
– Recessions and other economic crises in other regions, or specific foreign economies and the impact on our cost of doing
business in those countries;
– Acts of war, civil unrest, force majeure and terrorism;
– Social, economic and geopolitical instability;
– Risk that inter-governmental relationships may deteriorate such that CAE’s operations in a given country may be negatively
impacted;
– Limitations on the CAE’s ability to repatriate cash, funds or capital invested or held in jurisdictions outside Canada;
– Difficulties, delays and expense that may be experienced or incurred in connection with the movement and clearance of personnel
and goods through the customs and immigration authorities of multiple jurisdictions;
– Complexity and corruption risks of using foreign representatives and consultants.
Also, changes to the regulatory environment in countries in which we do business may lead to higher custom tariffs, stricter trade
policies, changes in the sanctions regime, export restrictions and other restrictions, that may have a negative impact on our sales,
financial results and business model.
Geopolitical uncertainty
Global uncertainty continued to intensify throughout fiscal 2021 and, in some parts of the world, political instability has become more
pronounced, protracted and unpredictable.
Rising or persisting geopolitical tensions, policy changes and prolonged political instability in various countries where we have a
presence could lead to delays or cancellation of orders, deliveries or projects, or the expropriation of assets, in which we have
invested significant resources, particularly when the customers are state-owned or state-controlled entities. It is possible that in the
markets we serve, unanticipated political instability could impact our operating results and financial position.
Uncertainties pertaining to the political direction of the U.S. and the current Chinese-American trade tension may continue to impact
global economic growth prospects and market sentiment.
Anti-corruption laws
Sales to foreign customers are subject to Canadian and foreign laws and regulations, including, without limitation, the Corruption of
Foreign Public Officials Act (Canada), the Foreign Corrupt Practices Act (United States) and other anti-corruption laws. While we
have stringent policies in place to comply with such laws, failure by CAE, our employees, foreign representatives and consultants or
others working on our behalf to comply with it could result in administrative, civil, or criminal liabilities, including suspension,
debarment from bidding for or performing government contracts, which could have a material adverse effect on us. We frequently
team with international subcontractors and suppliers who are also exposed to similar risks.
Taxation matters
We collect and pay significant amounts of taxes to various tax authorities. As our operations are complex and the related tax
interpretations, regulations, legislation and jurisprudence that pertain to our activities are subject to continual change and evolving
interpretation, the final outcome of the taxation of many transactions is uncertain. Also, a substantial portion of our business is
conducted in foreign countries and is thereby subject to numerous countries’ tax laws and fiscal policies. A change in applicable tax
laws, treaties or regulations or their interpretation could result in a higher effective tax rate on our earnings which could significantly
impact our financial results. Additionally, many governments have introduced temporary tax relief measures as a result of the
COVID-19 pandemic and there is a risk that we will not qualify for them all.
9.5 Risks relating to mergers, acquisitions, joint ventures, strategic alliances or divestitures
As part of our growth strategy, at times we engage in business acquisitions or form joint ventures and strategic alliances. The
realization of anticipated benefits from these acquisitions and related activities depends, in part, upon our ability to integrate the
acquired business, the realization of synergies both in terms of successfully marketing our broadened product and service portfolio,
efficient consolidation of the operations of the acquired businesses into our existing operations, cost management to avoid duplication,
information systems integration, staff reorganization, establishment of controls, procedures, and policies, performance of the
management team and other personnel of the acquired operations as well as cultural alignment. There can be no assurance that we
will realize anticipated synergies, or that we will meet any financial and performance targets provided. In addition, our inability to
adequately integrate an acquired business in a timely manner might result in departures of qualified personnel or lost business
opportunities which would negatively impact operations and financial results. There are also risks associated with the acquisition of a
business where certain legacy liabilities could arise. We also may make strategic divestitures from time to time. These transactions
may result in continued involvement in the divested businesses, such as through guarantees and transition services following the
transaction.
CAE Financial Report 2021 I 61
Management’s Discussion and Analysis
CAE cannot assure investors that we will effectively manage our growth
Our growth has placed and may continue to place significant demands on our management and operational and financial
infrastructure. As our operations grow in size, scope and complexity, and as we identify and pursue new opportunities, we may be
subject to both transition and growth-related risks, including capacity constraints and pressure on our internal systems and controls,
and may need to increase in scale our infrastructure (financial, management, informational, personnel and otherwise). There can be
no assurance we will be able to respond adequately or quickly enough to the changing demands that material expansion will impose
on management, team members and existing infrastructure, and changes to our operating structure may result in increased costs or
inefficiencies that we cannot anticipate. Changes as CAE grows may have a negative impact on our operations, and cost increases
resulting from our inability to effectively manage our growth could adversely impact our profitability. Our ability to manage future
growth effectively requires us to continue to implement and improve financial, management and operational processes and systems
and to expand, train and manage our employee base. As our organization continues to grow, and we are required to implement more
complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture
and efficiencies, including our ability to quickly develop and launch new and innovative products. Any of these difficulties could
adversely impact our business performance and results of operations.
RISKS RELATING TO THE ACQUISITION OF L3HARRIS’ MILITARY TRAINING BUSINESS (L3H MT)
Integration of L3H MT
There can be no assurance that management will be able to fully realize some or all of the expected benefits of the L3H MT
acquisition. The success of the L3H MT acquisition will depend, in large part, on successfully consolidating functions and integrating
operations, procedures and personnel in a timely and efficient matter, as well as our ability to realize the anticipated synergies, cost
savings and growth opportunities from integrating L3H MT with our own. To effectively integrate L3H MT into our current operations,
we must establish appropriate operational, administrative, finance, management systems and controls and marketing functions
relating to L3H MT. The nature of a carve-out acquisition such as this acquisition makes it inherently more difficult to assume
operations upon closing and to integrate activities, as certain systems, processes and employees may not all be transferred with
L3H MT to support such activities.
The integration of L3H MT will require the dedication of substantial effort, time and resources on the part of management, which may
divert management’s focus and resources from other strategic opportunities and from operational matters during this process. The
integration may result in significant challenges, and management may be unable to accomplish the integration smoothly, or
successfully, in a timely manner or without spending significant amounts of money. It is possible that the integration process could
result in the loss of key employees, the disruption of the respective ongoing businesses or inconsistencies in standards, controls,
procedures and policies that adversely affect the ability of management to maintain relationships with business partners or employees
or to achieve the anticipated benefits of the L3H MT acquisition. We may also not be able to maintain the levels of revenue, earnings
or operating efficiency that CAE and L3H MT had achieved or might achieve separately.
Any inability to successfully integrate the operations of CAE and L3H MT, including, but not limited to, information technology and
financial reporting systems, could have a material adverse effect on our business, financial condition and results of operations. The
challenges involved in the integration may include, among other things, the following: carrying on the ongoing business operations
while integrating CAE’s business with L3H MT; the necessity of coordinating both geographically disparate and overlapping
organizations and addressing possible differences in corporate and regional cultures and management philosophies; maintaining
employee morale; retaining key personnel during the period between execution of the acquisition agreement and the closing and
post‑closing of the acquisition, including addressing the uncertainties of key employees regarding their future; retaining key customers
of L3H MT; integrating information technology systems and resources; integrating L3H MT into our accounting system and adjusting
our internal control environment to cover L3H MT operations; unforeseen expenses or delays associated with the L3H MT acquisition;
performance shortfalls relative to expectations at one or both of the businesses as a result of the diversion of management’s attention
to the acquisition; difficulties in anticipating and responding to actions that may be taken by competitors in response to the L3H MT
acquisition; meeting the expectations of business partners during the period between execution of the acquisition agreement and the
closing and post-closing of the L3H MT acquisition with respect to the overall integration of the businesses; and unplanned costs
required to integrate the businesses and achieve synergies.
We cannot assure that we will successfully or cost-effectively transition and integrate L3H MT and our businesses. The failure to do so
could have a material adverse effect on our financial condition, results of operations and business.
Possible delay or failure to achieve the anticipated benefits and cost synergies
Although management expects to attain certain cost synergies following closing of the L3H MT acquisition, inclusion of the estimated
run-rate cost synergies should not be viewed as a representation that we will in fact achieve these synergies over such anticipated
period or at all. We continue to evaluate our estimates of the synergies to be realized from the acquisition and to refine them and, as
such, the actual cost synergies and the sources of the cost synergies could differ materially from our current estimates. In addition,
expenses required to realize the synergies and the sources of the synergies could differ materially from these estimates and we
cannot assure investors that we will achieve the full amount of anticipated run-rate cost synergies or at all, within the anticipated
timelines or otherwise, or that these cost synergy programs will not have other adverse effects on our business. In light of these
significant uncertainties, investors should not place undue reliance on these estimates of run-rate cost synergies.
62 I CAE Financial Report 2021
Management’s Discussion and Analysis
We could encounter additional transaction and integration related costs or other factors such as the failure to realize all of the benefits
anticipated in the acquisition. All of these factors could cause dilution to our EPS or decrease or delay the anticipated accretive effect
of the acquisition and cause a decrease in the market price of our common shares.
There can be no assurance that we will be able to achieve any of the synergies or other benefits that are anticipated as a result of the
L3H MT acquisition. A variety of factors, including those risk factors set forth in this report, may also adversely affect the likelihood that
the anticipated benefits of the L3H MT acquisition may be realized or that they will occur within the time periods anticipated by CAE.
Continued reliance on L3Harris Technologies, Inc. (L3Harris) following completion of the L3H MT acquisition
Under the acquisition agreement, CAE will not be acquiring certain assets currently owned by L3Harris that are used in both L3H MT
and its other business segments. As such, CAE and L3Harris agreed to enter into a transitional services agreement upon closing of
the L3H MT acquisition, which will provide for the continuing provision by L3Harris of certain transitional services to CAE, for a period
of time following the acquisition closing date, on terms customary for a transaction such as the L3H MT acquisition. As a result, we will
be reliant on L3Harris’ personnel, good faith, expertise, historical performance, technical resources and information systems,
proprietary information and judgment in providing the services under the transitional services agreement. Accordingly, we continue to
be exposed to adverse developments in the business and affairs of L3Harris, to its management and financial strength.
There can be no assurance that the transitional services provided by L3Harris pursuant to the transitional services agreement will be
adequate for us to maintain the current operations of L3H MT and facilitate the efficient and effective transition of business operations,
nor can there be any assurance that the transition process will be completed during the term of the transitional services agreement. If
the transition process is not completed successfully, L3H MT’s operations and financial performance may be negatively affected,
which could adversely affect our business, results of operations and financial condition. If, after the expiration of the transitional
services agreement, we are unable to perform these services or replace them in a timely manner or on terms and conditions as
favorable as those we receive from L3Harris, we may experience operational problems and an increase in its costs. In addition, the
costs for such services may be higher than these costs when L3H MT was operated as part of L3Harris.
In addition, completing the information technology systems integration will require continued focus and investment by both CAE and
L3Harris from and after the closing of the L3H MT acquisition. Failure to successfully migrate the necessary information technology
from L3Harris’ legacy systems to our system (or the recreation of L3Harris’ systems by CAE), or a significant disruption in the
information technology systems during this process could result in a lack of data and processes to enable management to effectively
manage day-to-day operations of L3H MT or achieve its operational objectives, causing significant disruptions to L3H MT and
potential material financial losses.
Failure by L3Harris to meet its obligations under the transitional services agreement could have a material adverse effect on the value
of L3H MT.
Possible delay or failure to complete the L3H MT acquisition
The closing of the L3H MT acquisition is subject to the receipt of required regulatory approvals and the satisfaction of various closing
conditions, which may not occur. The completion of the acquisition is also subject to normal commercial risks. There is no certainty,
nor can we provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. Given a potentially
long period prior to closing the L3H MT acquisition, there can be no assurance that L3H MT, or its operations and assets, may not be
adversely affected by intervening events. Although the acquisition agreement contains covenants on the part of L3Harris regarding the
operation of its business prior to the closing of the acquisition, CAE will not control or direct the operations of L3H MT until completion
of the acquisition and L3Harris shall exercise control and supervision over its business operation. As such,L3H MT and the results of
its operations may be adversely affected by events that are outside of our control, and we will indirectly be reliant on the business
judgment and decisions of the board and management of L3Harris prior to the closing of the acquisition.
In the event the acquisition is not completed, we will have issued a significant number of additional common shares pursuant to the
March public equity offering, and we will not have acquired the revenue generating assets that will be required to produce the earnings
and cash flow we anticipated. As a result, failure to complete the acquisition would adversely affect CAE’s EPS.
If the acquisition is not completed, we could be subject to a number of risks that may adversely affect our business and the market
price of our common shares, including:
– We will be required to pay costs relating to the acquisition, such as legal, accounting, and financial advisory fees, whether or not
the L3H MT acquisition is completed;
– Time and resources committed by our management to matters relating to the acquisition could otherwise have been devoted to
pursuing other beneficial opportunities;
– The market price of our common shares could decline to the extent that the current market price reflects a market assumption that
the L3H MT acquisition will be completed; and
– We would not realize the benefits we expect to realize from consummating the L3H MT acquisition.
CAE Financial Report 2021 I 63
Management’s Discussion and Analysis
We may also be subject to litigation related to any failure to complete the L3H MT acquisition. If the L3H MT acquisition is not
completed, these risks may materialize and may adversely affect our business, financial results and financial condition, as well as the
price of our common shares, which may cause the value of our investment to decline. We cannot provide any assurance that the
L3H MT acquisition will be completed, that there will not be a delay in the completion of the L3H MT acquisition or that all or any of the
anticipated benefits of the L3H MT acquisition will be obtained. In the event the L3H MT acquisition is materially delayed for any
reason, the price of our common shares may decline.
Regulatory approvals and clearances
The closing of the L3H MT acquisition is subject to the receipt of regulatory and other third party approvals and clearances, including
the expiration or early termination of any applicable waiting period (including any extensions thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, completion of the clearance process of the L3H MT acquisition by the Committee on Foreign
Investment in the United States and acceptance by the United States Defense Counterintelligence and Security Agency, formerly
known as the Defense Security Service, of a FOCI mitigation plan. The relevant authorities may decline to give approval or clearance
for the L3H MT acquisition in connection with the required regulatory approvals or may attach terms and/or conditions to their approval
or clearance, which could have a materially adverse effect on our ability to realize the anticipated benefits of, or complete, the L3H MT
acquisition, and/or on CAE’s or L3H MT’s financial condition or results of operations. There can be no assurance as to the cost, scope
or impact of the actions that may be required to obtain such regulatory approvals and clearances. In addition, in the event that
regulatory agencies impose unfavourable terms and/or conditions on CAE or L3Harris (such as a requirement to sell or divest of
certain assets or limitations on the future conduct of the entities), we may still be required to complete the transaction on the terms set
forth in the acquisition agreement. We can provide no assurance that all required regulatory approvals and clearances will be
obtained, within the anticipated timeline or at all, can provide no assurance with respect to any terms and/or conditions that may be
imposed on such approvals and clearances and can provide no assurance that the L3H MT acquisition will be completed, or, if
completed, that it will be on the terms disclosed in this report.
Currency exchange risk and foreign currency exposure
CAE anticipates funding a substantial portion of the purchase price of the acquisition and related costs from sources of funds
denominated in Canadian dollars, including the net proceeds from the private placement of subscription receipts, however the
purchase price and most related costs of the acquisition are denominated in U.S. dollars. A significant decline in the value of the
Canadian dollar relative to the U.S. dollar could increase the cost to CAE of funding the purchase price and related costs of the
L3H MT acquisition. Although we have implemented certain hedging strategies in order to mitigate its exposure to such currency
exchange risk, there can be no assurance that such hedging or other risk management strategies, if any, undertaken by CAE will be
effective. In addition, currency hedging entails a risk of illiquidity and, to the extent the U.S. dollar depreciates against the Canadian
dollar, the risk of using hedges could result in losses greater than if the hedging had not been used. Also, hedging arrangements may
have the effect of limiting or reducing the total returns to CAE if management’s expectations concerning future events or market
conditions prove to be incorrect, in which case the costs associated with the hedging strategies may outweigh their benefits. Further,
the operations of L3H MT are conducted mainly in U.S. dollars. After giving effect to the L3H MT acquisition, a larger portion of our
earnings and net assets will be denominated in U.S. dollars. Following the L3H MT acquisition, the consolidated net income and cash
flows of CAE will be impacted to a much greater extent by movements in the U.S. dollar relative to the Canadian dollar. In particular,
decreases in the value of the U.S. dollar versus the Canadian dollar following the L3H MT acquisition, could negatively impact our net
income as reported in Canadian dollars, which could cause a failure to realize the anticipated benefits of the L3H MT acquisition.
Future events that may significantly increase or decrease the risk of future movement in the exchange rates for these currencies
cannot be predicted.
Potential undisclosed liabilities related to the L3H MT acquisition
Although we have conducted what we believe to be a sufficient level of investigation in connection with the L3H MT acquisition, there
may be liabilities that we failed to discover or was unable to quantify accurately or at all in our due diligence, which we conducted prior
to the execution of the acquisition agreement.
In connection with the L3H MT acquisition, we subscribed to a representation and warranty insurance policy. Nevertheless, this
insurance policy is subject to certain exclusions and limitations. In addition, there may be circumstances for which the insurer may
elect to limit such coverage or refuse to indemnify CAE or situations for which the coverage provided under the representation and
warranty insurance policy may not be sufficient or applicable.
Further, investors will not have a direct statutory right or any other right against L3Harris or any of its shareholders in connection with
such liabilities. The sole remedy of CAE against L3Harris will be exercising our rights under the acquisition agreement. There can be
no assurance that we will be able to obtain the full amount of any claim made by it against L3Harris or the insurer for indemnification.
The discovery of any material liabilities, or the inability to obtain full indemnification for such liabilities, could have a material adverse
effect on our business, financial condition or future prospects.
While we have estimated these potential liabilities for the purposes of making our decision to enter into the acquisition agreement,
there can be no assurance that any resulting liability will not exceed our estimates. The amount of such liability could have a material
adverse effect on our financial position.
64 I CAE Financial Report 2021
Management’s Discussion and Analysis
Information provided by L3Harris with respect to L3H MT
Although CAE has conducted what it believes to be a sufficient level of investigation of L3H MT in connection with the Acquisition, an
unavoidable level of risk remains regarding the accuracy and completeness of the information provided to CAE by L3Harris. While
CAE has no reason to believe the information provided by L3Harris is misleading, untrue or incomplete in any material respect, CAE
has not independently verified the accuracy or completeness of such information, and there may be events which may have occurred
with respect to L3H MT or which may affect the completeness or accuracy of the information provided by L3Harris which are unknown
to CAE.
The pendency of the L3H MT acquisition could adversely affect the business and operations of CAE and L3H MT
In connection with the pending L3H MT acquisition, certain clients of each of CAE and L3H MT may delay or defer decisions, which
could negatively impact the revenues, earnings, cash flows and expenses of CAE and L3H MT, regardless of whether the L3H MT
acquisition is completed. Similarly, current and prospective employees of CAE and L3Harris may experience uncertainty about their
future roles following the L3H MT acquisition, which may materially adversely affect the ability of each of CAE and L3H MT to attract,
retain and motivate key personnel during the pendency of the L3H MT acquisition and which may materially adversely divert attention
from the daily activities of CAE’s and L3H MT’s existing employees. If key employees depart due to the uncertainty of employment
and difficulty of integration or a desire not to remain with the combined company following completion of the L3H MT acquisition, the
combined company may incur significant costs in identifying, hiring, and retaining replacements for departing employees, which could
have a material adverse effect on the combined company’s business operations and financial results. In addition, we have diverted,
and will continue to divert, significant management resources to complete the L3H MT acquisition, which could have a negative impact
on our ability to manage existing operations or pursue alternative strategic transactions, which could adversely affect our business,
financial condition and results of operations. Until the completion of the L3H MT acquisition, our shareholders will be exposed to the
risks faced by our existing business without any of the potential benefits from the L3H MT acquisition. As a result of investor
perceptions about the terms or benefits of the L3H MT acquisition, the market price of our common shares may decline.
Change of control/termination for convenience
L3H MT may be a party to agreements that contain change of control and/or termination for convenience provisions which may be
triggered following completion of the L3H MT acquisition. The operation of these change of control or termination provisions, if
triggered, could result in unanticipated expenses and/or cash payments following the consummation of the L3H MT acquisition or
adversely affect L3H MT’s results of operations and financial condition. Unless these change of control provisions are waived, or the
termination provisions not exercised, by the other party, the operation of any of these provisions could adversely affect the results of
operations and financial condition of the combined entity.
Acquisition and integration costs
We have incurred and expect to continue to incur a number of costs associated with completing the L3H MT acquisition and
integrating the operations of CAE and L3H MT. The substantial majority of these costs will be non-recurring expenses resulting from
the acquisition and will consist of transaction costs related to the L3H MT acquisition, including financial, legal and accounting costs,
facilities and systems consolidation costs and employment-related costs. Such expenses are difficult to estimate accurately and may
exceed current estimates. Additional unanticipated costs may be incurred in the integration of our business and L3H MT. Although we
expect that the elimination of duplicative costs, as well as the realization of other synergies and efficiencies related to the integration of
the businesses, may offset incremental transaction-related costs over time, this net benefit may not be achieved in the near term or at
all. Accordingly, the benefits from the acquisition may be offset by unexpected costs incurred in integrating the businesses, which
could cause our revenue assumptions to be inaccurate. Thus, any net benefit may not be achieved in the near term, the long term or
at all.
We expect to incur additional indebtedness to finance the L3H MT acquisition and may not be able to meet our debt service
requirements
We have on-going obligations to pay principal and interest on our outstanding indebtedness. Subject to certain restrictions, we also
have the ability to incur additional borrowings. In addition, we intend to finance a portion of the purchase price and costs of the
L3H MT acquisition out of available liquidities, including cash on hand and/or advances or drawdowns under one or more of our
revolving credit facilities or other debt financing. Such borrowings could have material adverse consequences for CAE,
including: limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service
requirements, acquisitions and general corporate or other purposes; restricting our flexibility and discretion to operate its business;
limiting our ability to declare dividends on our common shares; having to dedicate a portion of our cash flows from operations to the
payment of interest on our existing indebtedness and not having such cash flows available for other purposes, including operations,
capital expenditures and future business opportunities; exposing us to increased interest expense on borrowings at variable rates;
limiting our ability to adjust to changing market conditions; placing CAE at a competitive disadvantage compared to our competitors
that have incurred less debt; making CAE more vulnerable in a downturn in general economic conditions; increasing our financial
expense and reducing our profitability; and making it more difficult for us to satisfy our covenants with respect to our indebtedness.
There is no guarantee that we will be able to obtain additional indebtedness or other financing on terms favourable to us or at all in
order to repay the principal on such indebtedness when it becomes due.
If any of these circumstances arise in the future, this could have a material adverse effect on our business, financial condition,
prospects and/or results of operations. Moreover, we may not be able to achieve our strategic growth objectives where the required
capital resources are not available to fund both its organic and inorganic growth strategy.
CAE Financial Report 2021 I 65
Management’s Discussion and Analysis
If we are unable to generate sufficient funds to meet our obligations under our outstanding indebtedness (including after giving effect
to advances or drawdowns under one or more of our revolving credit facilities or other debt financing to finance part of the purchase
price and costs of the acquisition), we may be required to refinance, restructure or otherwise amend some or all of such obligations,
sell assets or raise additional cash through additional issuances of our equity. In such case, we cannot make any assurances that we
would be able to obtain such refinancing on terms as favorable as our current financing or that such restructuring, sales of assets or
issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations.
RISKS RELATING TO THE POST-ACQUISITION AND OPERATIONS OF CAE AND L3H MT
Increased Defence business and operations
Following the closing of the acquisition, L3H MT will operate under CAE USA, thereby expanding CAE’s Defence and Security
segment. In addition to the additional risks included in this report applicable to the combined company following the L3H MT
acquisition, our exposure to existing risks specifically applicable to the Defence and Security segment will be heightened. In particular,
CAE and certain of our subsidiaries are parties to agreements with various departments and agencies of the U.S. government,
including the U.S. Department of Defense, which require that these subsidiaries be issued security clearances under the U.S.
Government National Industrial Security Program. This program requires that any corporation that maintains a facility security
clearance be insulated from FOCI via a mitigation agreement. As a Canadian company, CAE has entered into FOCI mitigation
agreements with the U.S. Department of Defense that enable CAE USA and its U.S. subsidiaries to obtain and maintain the requisite
facility security clearances to enter into and perform on classified contracts with the U.S. Government. Specifically, these mitigation
agreements are a special security agreement for CAE USA and a Proxy Agreement for CAE USA’s wholly owned subsidiary, MSI. If
we fail to maintain compliance with either of these FOCI mitigation agreements, the facility security clearances for each entity may be
terminated. If this occurred, our U.S. subsidiaries, and following the acquisition, L3H MT, would lose the right to perform its existing
contracts with the U.S. government to completion and would no longer be eligible to enter into new contracts requiring a facility
security clearance.
Based on recent regulatory changes in the U.S., CAE has submitted a request to the U.S. government to terminate the Proxy
Agreement. Upon termination of the Proxy Agreement, the separate board of directors established to oversee the management and
operations of MSI will be dissolved. Thereafter MSI will operate under the CAE USA special security agreement.
L3H MT depends on U.S. Government customers for a significant portion of its revenue
L3H MT is highly dependent on sales to U.S. Government customers, primarily defense-related programs with the U.S. Department of
Defense and a broad range of programs with the U.S. Intelligence Community and other U.S. Government departments and agencies.
Any significant disruption or deterioration of the relationship with the U.S. Government (in particular, the U.S. Department of Defense)
would significantly reduce the combined company’s revenue and have an adverse impact on its financial condition, results of
operations and cash flows.
Competitors of L3H MT continuously engage in efforts to expand their business relationships with the U.S. Government and will
continue these efforts in the future, and the U.S. Government may choose to use other contractors. We expect that a majority of the
business that L3H MT seeks will be awarded through competitive bidding. The U.S. Government has increasingly relied on certain
types of contracts that are subject to multiple competitive bidding processes, including multi-vendor ID/IQ, GWAC, General Services
Administration Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure.
L3H MT operates in highly competitive markets. Some of its competitors may have greater financial resources than L3H MT and, in
some areas, may have more extensive or more specialized engineering, manufacturing and marketing capabilities than L3H MT.
Further, the competitive bidding process involves significant cost and managerial time to prepare bids and proposals for contracts that
may not be awarded to L3H MT or may be split with competitors, as well as the risk that L3H MT may fail to accurately estimate the
resources and costs required to fulfill any contract awarded to it. The current competitive environment has resulted in an increase of
bid protests from unsuccessful bidders, which typically extends the time until work on a contract can begin. Following any contract
award, L3H MT may experience significant expense or delay, contract modification or contract rescission as a result of competitors
protesting or challenging contracts awarded to it in competitive bidding.
Budget and appropriation decisions made by the U.S. Government are outside of our control and may have long-term consequences
for L3H MT. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous
factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) and potential alternative
funding arrangements. A change in U.S. Government spending priorities or an increase in non-procurement spending at the expense
of L3H MT’s programs, or a reduction in total U.S. Government spending, could have material adverse consequences on the
combined company. Any inability of the U.S. Government to complete its budget process for any government fiscal year and
consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution” or shut down
also could have material adverse consequences on the combined company.
66 I CAE Financial Report 2021
Management’s Discussion and Analysis
L3H MT depends significantly on U.S. Government contracts, which often are only partially funded, subject to immediate
termination, and heavily regulated and audited
Over its lifetime, a U.S. Government program may be implemented by the award of many different individual contracts and
subcontracts. The funding of U.S. Government programs is subject to Congressional appropriations. In recent years, U.S.
Government appropriations have been affected by larger U.S. Government budgetary issues and related legislation. Although
multi‑year contracts may be authorized and appropriated in connection with major procurements, the U.S. Congress generally
appropriates funds on a government fiscal year basis. Procurement funds are typically made available for obligation over the course of
one to three years. Consequently, programs often initially receive only partial funding, and additional funds are obligated only as
Congress authorizes further appropriations. We cannot predict the extent to which total funding and/or funding for individual programs
will be included, increased or reduced as part of the annual appropriations process ultimately approved by Congress and the
President of the U.S. or in separate supplemental appropriations or continuing resolutions, as applicable. The termination of funding
for a U.S. Government program would result in a loss of anticipated future revenue attributable to that program, which could have an
adverse impact on the operations of the combined company. In addition, the termination of a program or the failure to commit
additional funds to a program that already has been started could result in lost revenue and increase the overall costs of doing
business. Negative audit findings by U.S. Government representatives could also result in adjustments to contract costs found to be
improperly allocated to a specific contract, forfeiture of profits, suspension of payments, fines or suspension or debarment from U.S.
Government contracting or subcontracting for a period of time and, in a worst case scenario, termination of a contract.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part, at the U.S.
Government’s convenience upon payment only for work done and commitments made at the time of termination. For some contracts,
L3H MT is a subcontractor and not the prime contractor, and in those arrangements, the U.S. Government could terminate the prime
contractor for convenience without regard for L3H MT’s performance as a subcontractor. We can give no assurance that one or more
of L3H MT’s U.S. Government contracts will not be terminated under those circumstances. Also, we can give no assurance that
L3H MT would be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of its U.S.
Government contracts. Because a significant portion of L3H MT’s revenue is dependent on its performance and payment under its
U.S. Government contracts, the loss of one or more large contracts could have a material adverse impact on L3H MT’s financial
condition, results of operations and cash flows.
The U.S. Government aspects of L3H MT also are subject to specific procurement regulations and a variety of socioeconomic and
other requirements. These requirements, although customary in U.S. Government contracts, increase performance and compliance
costs. These costs might increase in the future, thereby reducing L3H MT’s margins, which could have an adverse effect on its
financial condition, results of operations and cash flows. In addition, the U.S. Government has and may continue to implement
initiatives focused on efficiencies, affordability and cost growth and other changes to its procurement practices. These initiatives and
changes to procurement practices may change the way U.S. Government contracts are solicited, negotiated and managed, which
may affect whether and how L3H MT pursues opportunities to provide its products and services to the U.S. Government, including the
terms and conditions under which it does so, which may have an adverse impact on its financial condition, results of operations and
cash flows. For example, contracts awarded under the U.S. Department of Defense’s Other Transaction Authority for research and
prototypes generally require cost-sharing and may not follow, or may follow only in part, standard U.S. Government contracting
practices and terms, such as the Federal Acquisition Regulation and Cost Accounting Standards.
Failure to comply with applicable regulations and requirements could lead to fines, penalties, repayments, or compensatory or treble
damages, or suspension or, if the violation is severe enough, debarment from U.S. Government contracting or subcontracting for a
period of time. Among the causes for debarment are violations of various laws and regulations, including those related to procurement
integrity, export control (including International Traffic in Arms Regulations (ITAR)), U.S. Government security, employment practices,
protection of the environment, accuracy of records, proper recording of costs and foreign corruption. The termination of a U.S.
Government contract or relationship as a result of any of these acts would have an adverse impact on the combined company’s
operations and could have an adverse effect on its standing and eligibility for future U.S. Government contracts.
U.S. Government’s budget deficit, national debt, as well as any inability to complete budget process for any government
fiscal year
Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending
priorities of the U.S. Government, what challenges budget reductions will present for the defense industry and whether annual
appropriations bills for all agencies will be enacted in the future. The U.S. Government’s budget deficit and the national debt could
have an adverse impact on the combined company’s financial condition, results of operations and cash flows in a number of ways,
including the following:
– The U.S. Government could reduce or delay its spending on, or reprioritize its spending away from, the government programs in
which L3H MT participates;
– U.S. Government spending could be impacted by alternate arrangements to sequestration, which increases the uncertainty as to,
and the difficulty in predicting, U.S. Government spending priorities and levels; and
– L3H MT may experience declines in revenue, profitability and cash flows as a result of reduced or delayed orders or payments or
other factors caused by economic difficulties of its customers and prospective customers, including U.S. Federal, state and local
governments.
Furthermore, continued budget pressures could have serious negative consequences for the security of the U.S., the defense
industrial base and the customers, employees, suppliers, investors and communities that rely on companies in the defense industrial
base. Budget and program decisions made in this environment would have long-term implications for the combined company and the
entire defense industry.
CAE Financial Report 2021 I 67
Management’s Discussion and Analysis
L3H MT’s use of fixed-price contracts could subject it to losses in the event of cost overruns or a significant increase in
inflation
As with CAE’s business, the majority of L3H MT’s revenue is derived from fixed-price contracts, which allow benefit from cost savings,
but subject L3H MT to the risk of potential cost overruns, particularly for firm fixed-price contracts because L3H MT assumes all of the
cost burden. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events,
such as technological difficulties, fluctuations in the price of raw materials, a significant increase in inflation in the U.S. or other
countries, problems with suppliers and cost overruns, can result in the contractual price becoming less favorable or even unprofitable
over time. Furthermore, if contract deadlines or specifications are not met, the combined company may need to renegotiate contracts
on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to
terminate. In addition, some contracts have provisions relating to cost controls and audit rights, and if the combined company fails to
meet the terms specified in those contracts, the combined company may not realize their full benefits. The combined company’s
results of operations are dependent on its ability to maximize its earnings from its contracts. Cost overruns could have an adverse
impact on its financial results. The potential impact of such risk on L3H MT’s financial results would increase if the mix of its contracts
and programs shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts.
L3H MT may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and
Congress may prevent proposed sales to certain foreign governments
L3H MT must first obtain export and other licenses and authorizations from various U.S. Government agencies before it is permitted to
sell certain products and technologies outside of the U.S. For example, the U.S. Department of State must notify Congress at least 15
to 60 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of defense equipment and
services to foreign governments. During that time, Congress may take action to block the proposed sale. No assurance can be given
that the combined company will continue to be successful in obtaining the necessary licenses or authorizations or that Congress will
not prevent or delay certain sales. The combined company’s ability to obtain these licenses and authorizations timely or at all is
subject to risks and uncertainties, including changing U.S. Government policies or laws or delays in Congressional action due to
geopolitical and other factors. If the combined company is not successful in obtaining or maintaining the necessary licenses or
authorizations in a timely manner, its sales relating to those approvals may be reversed, prevented or delayed, and any significant
impairment of the combined company’s ability to sell products or technologies outside of the U.S. could negatively impact its financial
condition, results of operations and cash flows.
Disputes with L3H MT’s subcontractors or the inability of its subcontractors to perform, or its key suppliers to timely deliver
the required components, parts or services
L3H MT engages subcontractors on many of its contracts. L3H MT may have disputes with its subcontractors, including regarding the
quality and timeliness of work performed by the subcontractor, customer concerns about the subcontract or subcontractor, L3H MT’s
failure to extend existing task orders or issue new task orders under a subcontract, L3H MT’s hiring of the personnel of a
subcontractor or vice versa or the subcontractor’s failure to comply with applicable law. In addition, there are certain parts,
components and services for many of L3H MT’s products, systems and services that it sources from other manufacturers or vendors.
Some of L3H MT’s suppliers, from time to time, experience financial and operational difficulties, which may impact their ability to
supply the materials, components, subsystems and services required by L3H MT. Tariffs imposed on certain materials and other trade
issues may create or exacerbate existing materials shortages and may result in further supplier business closures. L3H MT’s supply
chain could also be disrupted by external events, such as natural disasters or other significant disruptions (including extreme weather
conditions, medical epidemics, acts of terrorism, cyber attacks and labor disputes), governmental actions and legislative or regulatory
changes, including product certification or stewardship requirements, sourcing restrictions, product authenticity and climate change or
greenhouse gas emission standards, or availability constraints from increased demand from customers. In addition, the ongoing
COVID-19 pandemic has resulted in increased travel restrictions and extended shutdown of certain businesses. These or any further
political or governmental developments or health concerns in countries in which we operate could result in social, economic and labor
instability. Any inability to develop alternative sources of supply on a cost-effective and timely basis could materially impair the
combined company’s ability to manufacture and deliver products, systems and services to its customers. We can give no assurances
that the combined company will be free from disputes with its subcontractors, material supply constraints or problems, or component,
subsystems or services problems in the future. Also, the combined company’s subcontractors and other suppliers may not be able to
acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater
product returns, service problems and warranty claims and could harm the combined company’s business, financial condition, results
of operations and cash flows. In addition, in connection with its government contracts, L3H MT is required to procure certain materials,
components and parts from supply sources approved by the U.S. Government and L3H MT relies on its subcontractors and suppliers
to comply with applicable laws, regulations and other requirements regarding procurement of counterfeit, unauthorized or otherwise
non-compliant parts or materials, including parts or materials they supply to L3H MT, and in some circumstances, L3H MT relies on
their certifications as to their compliance. From time to time, there are components for which there may be only one supplier, which
may be unable to meet the combined company’s needs. Each of these subcontractor and supplier risks could have a material adverse
effect on the combined company’s business, financial condition, results of operations and cash flows.
68 I CAE Financial Report 2021
Management’s Discussion and Analysis
L3H MT participates in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate
growth in such markets and, as a result, future income and expenditures.
L3H MT participates in U.S. and international markets that are subject to uncertain economic conditions. In particular, U.S.
Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including
sequestration and potential alternative funding arrangements. In addition, certain of L3H MT’s non-U.S. customers, including in the
Middle East and other oil or natural gas-producing countries, could be adversely affected by weakness or volatility in oil or natural gas
prices, or negative expectations about future prices or volatility, which could adversely affect demand for tactical communications,
electronic systems or other products, systems, services or technologies. As a result, it is difficult to estimate the level of growth in the
markets in which L3H MT participates. Because all components of L3H MT’s budgeting and forecasting are dependent on estimates
of growth in the markets it serves, the uncertainty renders estimates of or guidance relating to future revenue, income and
expenditures even more difficult. As a result, the combined company may make significant investments and expenditures but never
realize the anticipated benefits.
L3H MT is subject to government investigations
U.S. Government contractors are subject to extensive legal and regulatory requirements, including International Traffic in Arms
Regulations and the Foreign Corrupt Practices Act, and from time to time agencies of the U.S. Government may investigate whether
L3H MT has been and is operating in accordance with these requirements. Under U.S. Government regulations, an indictment of
L3H MT by a federal grand jury, or an administrative finding against it as to its present responsibility to be a U.S. Government
contractor or subcontractor, could result in the combined company being suspended for a period of time from eligibility for awards of
new government contracts or task orders or in a loss of export privileges, which could have a material adverse effect on its results of
operations and cash flows. A conviction, or an administrative finding against the combined company that satisfies the requisite level of
seriousness, could result in debarment from contracting with the U.S. Government for a specific term, which could have a material
adverse effect on the combined business’s results of operations and cash flows.
L3H MT faces certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or
indemnity
L3H MT is exposed to liabilities that are unique to the products, systems and services it provides. A significant portion of L3H MT
relates to designing, developing and manufacturing advanced training devices, systems and products. New technologies associated
with these systems and products may be untested or unproven. Part of L3H MT conducts live flight training which is inherently
dangerous, and there is the potential there could be loss of life and extensive property damage. Other examples of unforeseen
problems that could, either directly or indirectly, negatively affect revenue and profitability include problems with quality and
workmanship, or delivery of subcontractor components. In addition, problems and delays in development or delivery as a result of
issues with respect to design, technology, licensing and patent rights, labor, or materials and components could prevent the combined
company from achieving contractual requirements. In certain circumstances, L3H MT may receive indemnification from the U.S.
Government, but it generally does not receive indemnification from foreign governments. Although we maintain insurance for certain
risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities with respect to L3H MT, and we may
be forced to bear substantial costs from an accident or incident. It also is not possible for the Company to obtain insurance to protect
against all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and
our insurance coverage would harm the combined company’s financial condition, results of operations and cash flows. Moreover, any
accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the
public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate
insurance in the future.
CAE Financial Report 2021 I 69
Management’s Discussion and Analysis
10. RELATED PARTY TRANSACTIONS
A list of principal investments which, in aggregate, significantly impact our results or assets is presented in Note 34 of our consolidated
financial statements.
Outstanding balances with our equity accounted investees are as follows:
(amounts in millions)
Accounts receivable
Contract assets
Other non-current assets
Accounts payable and accrued liabilities
Contract liabilities
Other non-current liabilities
Transactions with our equity accounted investees are as follows:
(amounts in millions)
Revenue
Purchases
Other income
$
$
2021
33.3 $
14.3
26.4
5.8
22.0
1.5
2021
129.2 $
2.8
1.4
2020
51.2
38.5
25.6
5.7
28.8
1.7
2020
166.0
2.5
1.5
Compensation of key management personnel
Key management personnel have the ability and responsibility to make major operational, financial and strategic decisions for CAE
and include certain executive officers. The compensation of key management for employee services are as follows:
(amounts in millions)
Salaries and other short-term employee benefits
Post-employment benefits – defined benefit plans
Share-based payments expense
11. CHANGES IN ACCOUNTING POLICIES
11.1 New and amended standards adopted
$
$
2021
6.5 $
1.6
24.8
32.9 $
2020
6.5
2.5
(8.8)
0.2
Amendment to IFRS 3 - Business combinations
In October 2018, the IASB issued an amendment to IFRS 3 - Business combinations, which clarifies the definition of a business, with
the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an
asset acquisition. The amended standard has a narrower definition of a business, which could result in the recognition of fewer
business combinations than under the previous standard.
This amendment to IFRS 3 was adopted April 1, 2020 and will apply to transactions occurring subsequent to April 1, 2020.
Amendment to IFRS 16 - Leases
In May 2020, the IASB issued an amendment to IFRS 16 - Leases, with the objective of providing practical relief to lessees in
accounting for rent concessions arising as a result of the COVID-19 pandemic. The amendment introduces an optional practical
expedient for lessees to not account for rent concessions as lease modifications if they are a direct consequence of the COVID-19
pandemic and meet certain conditions.
This amendment to IFRS 16 was adopted effective on April 1, 2020. The Company has elected to apply the practical expedient. The
adoption of this amendment had no material impact on the consolidated financial statements.
70 I CAE Financial Report 2021
Management’s Discussion and Analysis
11.2 New and amended standards not yet adopted
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest rate benchmark reform – Phase 2
In August 2020, the IAS issued an amendment to IFRS 9 – Financial instruments, IAS 39 – Financial instruments: recognition and
measurement, IFRS 7 – Financial instrument: disclosures, IFRS 4 – Insurance contracts and IFRS 16 – Leases. The amendments
address issues that arise from implementation of Interbank Offered Rate (IBOR) reform, where IBORs are replaced with alternative
benchmark rates. For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in
the contractual cash flows is as a result of IBOR reform and occurs on an economically equivalent basis, the change will be accounted
for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide additional
temporary relief from applying specific IAS 39 hedge accounting requirements to hedging relationships affected by IBOR reform and
will require disclosure of information about new risks arising from the reform and how the transition to alternative benchmark rates will
be managed.
The amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 will be effective for the fiscal period beginning on April 1, 2021 for
CAE. We are currently evaluating the impact of the new standard on our consolidated financial statements.
11.3 Use of judgements, estimates and assumptions
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies, the reported amounts of assets and liabilities and disclosures at the date of the
consolidated financial statements, as well as the reported amounts of revenues and expenses for the period reported. It also requires
management to exercise its judgement in applying accounting policies. The areas involving a high degree of judgement or complexity,
or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below. Actual results
could differ from those estimates. Changes will be reported in the period in which they are identified.
Business combinations
Business combinations are accounted for in accordance with the acquisition method. The consideration transferred and the acquiree’s
identifiable assets, liabilities and contingent liabilities are measured at their fair value. Depending on the complexity of determining
these valuations, we either consult with independent experts or develop the fair value internally by using appropriate valuation
techniques which are generally based on a forecast of the total expected future net discounted cash flows. These evaluations are
linked closely to the assumptions made by management regarding the future performance of the related assets and the discount rate.
Contingent consideration is measured at fair value using a discounted cash flow model.
Development costs
Development costs are recognized as intangible assets and are amortized over their useful lives when they meet the criteria for
capitalization. Forecasted revenue and profitability for the relevant projects are used to assess compliance with the capitalization
criteria and to assess the recoverable amount of the assets.
Impairment of non-financial assets
Our impairment test for goodwill is based on internal estimates of the recoverable amount of the cash generating unit (CGU) or group
of CGUs to which goodwill has been allocated and uses valuation models such as the discounted cash flows model (level 3). Key
assumptions on which management based its determination of the recoverable amount include expected growth rates and discount
rates. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the
amount of any goodwill impairment.
Likewise, whenever property, plant and equipment and intangible assets are tested for impairment, the determination of the assets’
recoverable amount involves the use of estimates by management and can have a material impact on the respective values and
ultimately the amount of any impairment.
Revenue recognition
Transaction price allocated to performance obligations
In allocating the transaction price for contracts with multiple performance obligations, we estimate the stand-alone selling price using
the expected cost plus a margin approach if they are not directly observable.
Timing of satisfaction of performance obligations
For contracts where revenue is recognized over time using the cost input method, we are required to estimate the work performed to
date as a proportion of the total work to be performed. Management conducts monthly reviews of its estimated costs to complete as
well as its revenue and margins recognized, on a contract-by-contract basis. The impact of any revisions in cost and revenue
estimates is reflected in the period in which the need for a revision becomes known.
CAE Financial Report 2021 I 71
Management’s Discussion and Analysis
Defined benefit pension plans
The cost of defined benefit pension plans and the present value of the employee benefit obligations are determined using actuarial
valuations. Actuarial valuations involve, amongst others, making assumptions about discount rates, future salary increases and
mortality rates. All assumptions are reviewed at each reporting date. Any changes in these assumptions will impact the carrying
amount of the employee benefit obligations and the cost of the defined benefit pension plans. In determining the appropriate discount
rate, management considers the interest rates of high quality corporate bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The mortality rate is
based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on
expected future inflation rates for the specific country. Individual discount rates are derived from the yield curve and are used to
determine the service cost and interest cost of the Canadian defined benefit pension plans at the beginning of the year. The present
value of the employee benefit obligations for these Canadian plans is determined based on the individual discount rates derived from
the yield curve at the end of the year.
Other key assumptions for pension obligations are based, in part, on current market conditions. See Note 22 of our consolidated
financial statements for further details regarding assumptions used.
Government royalty repayments
In determining the amount of repayable government royalties, assumptions and estimates are made in relation to discount rates,
expected revenues and the expected timing of revenues. Revenue projections consider past experience and represent management’s
best estimate about the future. Revenues after a five-year period are extrapolated using estimated growth rates, ranging from 3.0% to
9.0%, over the period of repayments. The estimated repayments are discounted using average rates ranging from 6.0% to 12.0%
based on terms of similar financial instruments. These estimates, along with the methodology used to derive the estimates, can have
a material impact on the respective values and ultimately any repayable obligation in relation to government participation. A 1%
increase to the growth rates would increase the royalty obligations at March 31, 2021 by approximately $2.3 million
(2020 - $2.8 million). A 1% decrease to the growth rates would have an opposite impact on the royalty obligations.
Income taxes
We are subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision for income
taxes. The determination of tax liabilities and assets involves uncertainties in the interpretation of complex tax regulations. We provide
for potential tax liabilities based on the weighted average probability of the possible outcomes. Differences between actual results and
those estimates could influence the income tax liabilities and deferred tax liabilities in the period in which such determinations are
made.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against the losses that can be
utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and the level of future taxable profits together with future tax planning strategies. The recorded amount of total
deferred tax assets could be altered if estimates of projected future taxable income and benefits from available tax strategies are
lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize
future tax benefits.
Impact of the COVID-19 pandemic
The COVID-19 pandemic and the resulting measures taken in response to its spread have resulted in significant temporary
disruptions to our business operations. The rapidly evolving situation has created a high level of uncertainty and risk that may result in
significant impacts on our business, financial performance and operations.
The uncertainties created by the COVID-19 pandemic required the use of judgements and estimates in the areas set out below. The
future impact of the COVID-19 pandemic increases the risk, in future reporting periods, of material adjustments to the carrying amount
of our net assets.
Goodwill impairment test
We performed our annual impairment test for goodwill during the fourth quarter of fiscal 2021. Goodwill is allocated to CGUs or a
group of CGUs, which generally corresponds to our operating segments or one level below. The value in use of each CGU is
calculated using estimated cash flows derived from our five-year strategic plan. Cash flows subsequent to the five-year period were
extrapolated using a constant growth rate of 2% to 3%. These projections are inherently uncertain due to the fluidly evolving impact of
the COVID-19 pandemic. Significant assumptions and estimates are used to determine the expected growth rates embedded in our
cash flow projections and the discount rate based on observable market data during the fourth quarter.
Impairment of non-financial assets
We have considered the impact of the COVID-19 pandemic on our assessment of impairment indicators, which required significant
judgement. We have reviewed our property, plant and equipment, right-of-use assets, amortizable intangible assets, investment in
equity accounted investees as well as other assets such as inventories and deferred tax assets. Judgements, estimates and
assumptions used were based on the available information as at March 31, 2021.
72 I CAE Financial Report 2021
Management’s Discussion and Analysis
Impairment of financial assets
We have considered the impact of the COVID-19 pandemic on the expected credit loss of our financial instruments (mainly trade
receivable and contract assets). We applied judgment based on the type of customers, many of which are established companies and
government agencies, the segments in which such customers operate and other indicators that could lead to currently unidentified
credit losses. The amount and timing of the expected credit losses, as well as the probability assigned thereto, has been based on the
available information as at March 31, 2021.
Revenue recognition
We have considered the impact, if any, of the COVID-19 pandemic on key judgements, estimates and assumptions that affect
revenue recognition, including impacts from temporary facility closures, supply chain disruptions, program execution delays, slower
procurement decisions and changes to the Company’s customers’ acquisition priorities.
12. CONTROLS AND PROCEDURES
The internal auditor reports regularly to management on any weaknesses it finds in our internal controls and these reports are
reviewed by the Audit Committee.
In accordance with National Instrument 52-109 issued by the Canadian Securities Administrators, certificates signed by the President
and Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) have been filed. These filings certify the appropriateness of
our disclosure controls and procedures and the design and effectiveness of the internal controls over financial reporting.
12.1 Evaluation of disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information is accumulated and
communicated to our President and CEO and CFO and other members of management, so we can make timely decisions about
required disclosure and ensure that information is recorded, processed, summarized and reported within the time periods specified
under Canadian and U.S. securities laws.
Under the supervision of the President and CEO and the CFO, management evaluated the effectiveness of our disclosure controls
and procedures as of March 31, 2021. The President and CEO and the CFO concluded from the evaluation that the design and
operation of our disclosure controls and procedures were effective as at March 31, 2021.
12.2 Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting, and the
preparation of consolidated financial statements for external purposes in accordance with IFRS. Management evaluated the design
and operation of our internal controls over financial reporting as of March 31, 2021, based on the framework and criteria established
by the Committee of Sponsoring Organizations of the Treadway Commission on Internal Control – Integrated Framework (2013
Framework), and has concluded that our internal control over financial reporting is effective. Management did not identify any material
weaknesses.
There were no changes in our internal controls over financial reporting that occurred during fiscal year 2021 that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
During the fourth quarter of fiscal 2021, we acquired TRU Canada. In accordance with National Instrument 52-109 - Certification of
Disclosure in Issuers’ Annual and Interim Filings, the CEO and the CFO of the Company have limited the scope of their design of
CAE’s disclosure controls and procedures and internal control over financial reporting to exclude controls, policies and procedures of
TRU Canada. This entity utilizes separate information systems and processes. We have begun to integrate their internal controls,
policies and procedures. These integration processes are expected to be completed during fiscal 2022. TRU Canada’s contribution to
our consolidated financial statements for the fourth quarter ended March 31, 2021 was less than 1% of each consolidated revenues
and adjusted segment operating income. Additionally, at March 31, 2021, TRU Canada’s total assets and total liabilities were 2% and
3% of consolidated total assets and liabilities, respectively.
13. OVERSIGHT ROLE OF AUDIT COMMITTEE AND BOARD OF DIRECTORS
The Audit Committee reviews our annual MD&A and related consolidated financial statements with management and the external
auditor and recommends them to the Board for their approval. Management and our internal auditor also provide the Audit Committee
with regular reports assessing our internal controls and procedures for financial reporting. The external auditor reports regularly to
management on any weaknesses it finds in our internal control, and these reports are reviewed by the Audit Committee.
14. ADDITIONAL INFORMATION
You will find additional information about CAE, including our most recent AIF, on our website at www.cae.com, or on SEDAR at
www.sedar.com or on EDGAR at www.sec.gov.
CAE Financial Report 2021 I 73
Management’s Discussion and Analysis
15. SELECTED FINANCIAL INFORMATION
The following table provides selected quarterly financial information for the years 2019 through to 2021.
(amounts in millions, except per share amounts and exchange rates)
Fiscal 2021
Revenue
Net (loss) income
Equity holders of the Company
Non-controlling interests
Basic EPS attributable to equity holders of the Company
Diluted EPS attributable to equity holders of the Company
Adjusted EPS
Adjusted EPS excluding COVID-19 government support programs
Average number of shares outstanding (basic)
Average number of shares outstanding (diluted)
Average exchange rate, U.S. dollar to Canadian dollar
Average exchange rate, Euro to Canadian dollar
Average exchange rate, British pound to Canadian dollar
Fiscal 2020
Revenue
Net income
Equity holders of the Company
Non-controlling interests
Basic EPS attributable to equity holders of the Company
Diluted EPS attributable to equity holders of the Company
Adjusted EPS
Average number of shares outstanding (basic)
Average number of shares outstanding (diluted)
Average exchange rate, U.S. dollar to Canadian dollar
Average exchange rate, Euro to Canadian dollar
Average exchange rate, British pound to Canadian dollar
Fiscal 2019(1)
Revenue
Net income
Equity holders of the Company
Non-controlling interests
Basic EPS attributable to equity holders of the Company
Diluted EPS attributable to equity holders of the Company
Adjusted EPS
Average number of shares outstanding (basic)
Average number of shares outstanding (diluted)
Average exchange rate, U.S. dollar to Canadian dollar
Average exchange rate, Euro to Canadian dollar
Average exchange rate, British pound to Canadian dollar
Q1
Q2
Q3
Q4
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
550.5
(110.0)
(110.6)
0.6
(0.42)
(0.42)
(0.11)
(0.24)
265.7
265.7
1.39
1.53
1.72
825.6
63.0
61.5
1.5
0.23
0.23
0.24
265.8
267.6
1.34
1.50
1.72
722.0
71.6
69.4
2.2
0.26
0.26
0.26
267.6
269.3
1.29
1.54
1.76
704.7
(6.0)
(5.2)
(0.8)
(0.02)
(0.02)
0.13
0.03
265.8
265.8
1.33
1.56
1.72
896.8
75.0
73.8
1.2
0.28
0.28
0.28
266.2
268.2
1.32
1.47
1.63
743.8
63.6
60.7
2.9
0.23
0.23
0.23
267.4
269.2
1.31
1.52
1.71
832.4
49.7
48.8
0.9
0.18
0.18
0.22
0.19
271.7
273.0
1.30
1.55
1.72
923.5
99.8
97.7
2.1
0.37
0.37
0.37
265.8
267.6
1.32
1.46
1.70
894.3 2,981.9
(47.5)
(47.2)
(0.3)
(0.17)
(0.17)
0.47
0.12
272.0
272.0
1.32
1.54
1.73
18.8
19.8
(1.0)
0.07
0.07
0.22
0.12
285.2
287.3
1.27
1.53
1.75
977.3 3,623.2
318.9
311.4
7.5
1.17
1.16
1.34
266.0
267.6
1.33
1.48
1.69
81.1
78.4
2.7
0.29
0.29
0.46
266.1
267.7
1.34
1.48
1.72
816.3 1,022.0 3,304.1
340.1
125.4
330.0
122.3
10.1
3.1
1.24
0.46
1.23
0.46
1.25
0.48
266.6
265.1
268.0
266.8
1.31
1.33
1.52
1.51
1.72
1.73
79.5
77.6
1.9
0.29
0.29
0.29
266.1
267.5
1.32
1.51
1.70
(1) Figures have not been restated to reflect the adoption of IFRS 16 which was effective in fiscal 2020.
74 I CAE Financial Report 2021
Selected segment information
(amounts in millions)
Civil Aviation Training Solutions
Revenue
Operating income
Adjusted segment operating income
Adjusted SOI excluding COVID-19 government support programs
Defence and Security
Revenue
Operating income
Adjusted segment operating income
Adjusted SOI excluding COVID-19 government support programs
Healthcare
Revenue
Operating income
Adjusted segment operating income (loss)
Adjusted SOI excluding COVID-19 government support programs
Total
Revenue
Operating income
Adjusted segment operating income
Adjusted SOI excluding COVID-19 government support programs
Selected annual information for the past five years
(amounts in millions, except per share amounts and exchange rates)
Revenue
Net income
Equity holders of the Company
Continuing operations
Discontinued operations
Non-controlling interests
Average exchange rate, U.S. dollar to Canadian dollar
Average exchange rate, Euro to Canadian dollar
Average exchange rate, British pound to Canadian dollar
Financial position:
Total assets
Total non-current financial liabilities(2)
Total net debt
Per share:
Management’s Discussion and Analysis
Q4-2021
Q4-2020
FY2021
FY2020
FY2019(1)
$
388.2
$
601.9 $ 1,412.9
$ 2,167.5 $ 1,875.8
40.5
66.6
46.9
151.5
153.6
153.6
6.5
164.3
100.7
473.3
479.4
479.4
344.3
351.1
351.1
$
334.4
$
341.8 $ 1,217.1
$ 1,331.2 $ 1,306.7
(8.5)
23.2
6.8
32.4
40.2
40.2
15.5
87.0
26.7
104.8
114.5
114.5
131.5
131.5
131.5
$
171.7
$
33.6 $
351.9
$
124.5 $
121.6
15.6
16.4
15.3
(37.4)
0.1
0.1
26.4
29.3
25.8
(41.0)
(3.5)
(3.5)
4.8
4.8
4.8
$
894.3
$
977.3 $ 2,981.9
$ 3,623.2 $ 3,304.1
47.6
106.2
69.0
146.5
193.9
193.9
48.4
280.6
153.2
537.1
590.4
590.4
480.6
487.4
487.4
2021
2017(1)
$ 2,981.9 $ 3,623.2 $ 3,304.1 $ 2,823.5 $ 2,704.5
2018(1)
2019(1)
2020
(47.5)
318.9
340.1
354.7
256.6
(47.2)
311.4
330.0
346.0
—
(0.3)
1.32
1.54
1.73
—
7.5
1.33
1.48
1.69
—
10.1
1.31
1.52
1.72
—
8.7
1.28
1.50
1.70
252.0
(0.5)
5.1
1.31
1.44
1.71
$ 8,748.4 $ 8,483.6 $ 7,165.5 $ 5,780.2 $ 5,354.8
2,330.3
3,301.9
2,242.8
1,380.6
1,370.8
1,425.4
2,365.7
1,882.2
649.4
750.7
Basic EPS attributable to equity holders of the Company
Continuing operations
Discontinued operations
$
(0.17) $
1.17 $
1.24 $
1.29 $
0.94
—
—
—
—
—
Diluted EPS attributable to equity holders of the Company
Continuing operations
Discontinued operations
Adjusted earnings per share
Adjusted EPS excluding COVID-19 government support programs
Dividends declared
(0.17)
—
0.47
0.12
—
1.16
—
1.34
1.34
0.43
1.23
—
1.25
1.25
0.39
1.28
—
1.11
1.11
0.35
0.93
—
1.03
1.03
0.315
(1) Figures have not been restated to reflect the adoption of IFRS 16 which was effective in fiscal 2020. Figures in fiscal 2017 have not
been restated to reflect the adoption of IFRS 15 which was effective fiscal 2019.
(2) Includes long-term debt, long-term derivative liabilities and other long-term liabilities meeting the definition of a financial liability.
CAE Financial Report 2021 I 75
CAE INC.
CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated (loss) income statement
Consolidated statement of comprehensive (loss) income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Consolidated Financial Statements
Note 1 - Nature of operations and summary of significant accounting policies
Note 2 - Changes in accounting policies
Note 3 - Impact of the COVID-19 pandemic
Note 4 - Business combinations
Note 5 - L3Harris' Military Training Business
Note 6 - Operating segments and geographic information
Note 7 - Other (gains) and losses
Note 8 - Restructuring, integration and acquisition costs
Note 9 - Finance expense - net
Note 10 - Income taxes
Note 11 - Share capital, earnings per share and dividends
Note 12 - Accounts receivable
Note 13 - Balance from contracts with customers
Note 14 - Inventories
Note 15 - Property, plant and equipment
Note 16 - Intangibles assets
Note 17 - Leases
Note 18 - Other non-current assets
Note 19 - Accounts payable and accrued liabilities
Note 20 - Provisions
Note 21 - Debt facilities
Note 22 - Employee benefits obligations
Note 23 - Other non-current liabilities
Note 24 - Supplementary cash flows information
Note 25 - Accumulated other comprehensive income
Note 26 - Share-based payments
Note 27 - Employee compensation
Note 28 - Government participation
Note 29 - Impairment of non-financial assets
Note 30 - Contingencies and commitments
Note 31 - Fair value of financial instruments
Note 32 - Capital risk management
Note 33 - Financial risk management
Note 34 - Related party relationships
Note 35 - Related party transactions
76 | CAE Financial Report 2021
77
78
81
82
83
84
85
86
100
101
102
104
105
107
107
108
108
110
111
111
111
112
113
114
115
115
115
116
117
120
121
121
121
124
124
125
125
126
127
128
133
135
Management’s Report on Internal Control Over Financial Reporting
Management of CAE is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f), 15d-15(f) under the Securities Exchange Act of 1934). CAE’s internal control over financial reporting is a process
designed under the supervision of CAE’s President and Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for
external reporting purposes in accordance with IFRS, as issued by the International Accounting Standards Board (IASB).
As of March 31, 2021, management conducted an assessment of the effectiveness of the Company’s internal control over the
financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) on Internal Control – Integrated Framework (2013 Framework). Based on this assessment, management
concluded that the Company’s internal control over financial reporting as of March 31, 2021 was effective.
Management’s evaluation of and conclusion on the effectiveness of the Company’s internal control over financial reporting did not
include an evaluation of the internal control over financial reporting of TRU Simulation + Training Canada Inc. (TRU Canada), which
was acquired on January 26, 2021. The contribution of the acquired TRU Canada operations to the Company’s consolidated financial
statements for the year ended March 31, 2021 was less than 1% of consolidated revenue and consolidated net loss. Additionally, on
March 31, 2021, the total assets of the acquired TRU Canada operations represented approximately 2% of the Company’s
consolidated total assets.
M. Parent
President and Chief Executive Officer
S. Branco
Executive Vice President, Finance and Chief Financial Officer
Montreal (Canada)
May 19, 2021
CAE Financial Report 2021 | 77
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of CAE Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statement of financial position of CAE Inc. and its subsidiaries (together, the
Company) as of March 31, 2021 and 2020, and the related consolidated (loss) income statement, consolidated statement of
comprehensive (loss) income, changes in equity and cash flows for the years then ended, including the related notes (collectively
referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as
of March 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of March 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on
April 1, 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded TRU Simulation +
TRU Canada Inc. (TRU Canada) from its assessment of internal control over financial reporting as of March 31, 2021 because it was
acquired by the Company in a purchase business combination during the year ended March 31, 2021. We have also excluded TRU
Canada from our audit of internal control over financial reporting. TRU Canada is a wholly owned subsidiary whose financial
statements constitute assets of approximately 2%, and revenue and net loss representing both less than 1% of the related
consolidated financial statement amounts as of and for the year ended March 31, 2021.
78 | CAE Financial Report 2021
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on
the accounts or disclosures to which it relates.
Revenue recognition - Estimated costs to complete certain contracts in the Defence and Security and Civil Aviation Training
Solutions segments
As described in Notes 1 and 6 to the consolidated financial statements, the Company recognizes revenue from contracts with
customers for the design, engineering, and manufacturing of training devices over time using the cost input method when the
Company determines that these devices have a sufficient level of customization such that they have no alternative use and the
Company has enforceable rights to payment for work completed to date. For the year ended March 31, 2021, a portion of total
consolidated revenue of the Defence and Security and Civil Aviation Training Solutions segments in the amount of $1,217.1 million
and $1,412.9 million respectively was related to revenue recognized from contracts with customers over time using the cost input
method. The measure of progress toward complete satisfaction of the performance obligation is generally determined by comparing
the actual direct costs incurred to date to the total estimated direct costs for the entire contract. Management applies judgment in
estimating the work performed to date as a proportion of the total work to be performed.
The principal considerations for our determination that performing procedures relating to revenue recognition for estimated costs to
complete certain contracts in the Defence and Security and Civil Aviation Training Solutions segments is a critical audit matter are
there was judgment applied by management in determining the estimated costs to complete the contracts. This in turn led to a high
degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the cost
assumptions applied by management in determining the estimated costs to complete the contracts.
CAE Financial Report 2021 | 79
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue
recognition process, including controls over the determination of estimated costs to complete the contracts. These procedures also
included, among others, testing management’s process for determining estimated costs to complete the contracts in the Defence and
Security and Civil Aviation Training Solutions segments for a sample of contracts, which included testing the completeness, accuracy
and relevance of the data used in the estimate of the work performed to date as a proportion of the total work to be performed; and
evaluating the reasonableness of cost assumptions used by management. Evaluating the reasonableness of cost assumptions used
by management involved assessing, on a sample basis, management’s ability to reasonably estimate costs to complete contracts by
comparing changes in estimated costs with the prior year estimate or estimated costs to complete contracts for new contracts;
performing a look-back analysis to assess variances between actual and estimated costs for completed contracts; and performing
procedures to evaluate the timely identification of circumstances which may warrant a modification to a previous cost estimate.
/s/PricewaterhouseCoopers LLP1
Montréal, Canada
May 19, 2021
We have served as the Company’s auditor since 1991.
_____________________________________________________________________________________________
1 CPA auditor, CA, public accountancy permit No. A119714
80 | CAE Financial Report 2021
Consolidated (Loss) Income Statement
Years ended March 31
(amounts in millions of Canadian dollars, except per share amounts)
Revenue
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other (gains) and losses
Share of after-tax profit of equity accounted investees
Restructuring, integration and acquisition costs
Operating income
Finance expense – net
(Loss) earnings before income taxes
Income tax (recovery) expense
Net (loss) income
Attributable to:
Equity holders of the Company
Non-controlling interests
(Loss) earnings per share attributable to equity holders of the Company
Basic
Diluted
Notes
6
7
6
8
9
10
11
11
2021
$ 2,981.9
2020
$ 3,623.2
2,216.9
2,539.6
$
$
$
$
$
765.0
104.7
398.9
91.7
(2.7)
124.0
48.4
135.6
(87.2)
(39.7)
(47.5)
(47.2)
(0.3)
$
$
(0.17)
(0.17)
$ 1,083.6
137.5
437.5
(16.8)
(27.5)
15.8
537.1
144.4
392.7
73.8
318.9
311.4
7.5
1.17
1.16
$
$
$
$
$
$
The accompanying notes form an integral part of these Consolidated Financial Statements.Consolidated Financial StatementsCAE Financial Report 2021 | 81 Consolidated Statement of Comprehensive (Loss) Income
Years ended March 31
(amounts in millions of Canadian dollars)
Net (loss) income
Items that may be reclassified to net (loss) income
Foreign currency exchange differences on translation of foreign operations
Net gain (loss) on hedges of net investment in foreign operations
Reclassification to income of foreign currency exchange differences
Net gain (loss) on cash flow hedges
Reclassification to income of loss on cash flow hedges
Income taxes
Items that will never be reclassified to net (loss) income
Remeasurement of defined benefit pension plan obligations
Net loss on financial assets carried at fair value through OCI
Income taxes
Notes
10
22
10
Other comprehensive (loss) income
Total comprehensive (loss) income
Attributable to:
Equity holders of the Company
Non-controlling interests
2021
(47.5)
$
$
(284.8)
140.4
(21.2)
61.4
(20.3)
(14.6)
(139.1)
1.1
(1.8)
(0.3)
(1.0)
(140.1)
(187.6)
(181.5)
(6.1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020
318.9
118.3
(71.0)
(40.4)
(32.3)
(0.2)
23.0
(2.6)
13.4
—
(3.6)
9.8
7.2
326.1
315.4
10.7
The accompanying notes form an integral part of these Consolidated Financial Statements.Consolidated Financial Statements82 | CAE Financial Report 2021 Consolidated Statement of Financial Position
Consolidated Financial Statements
Notes
2021
2020
As at March 31
(amounts in millions of Canadian dollars)
Assets
Cash and cash equivalents
Restricted funds for subscription receipts deposit
Accounts receivable
Contract assets
Inventories
Prepayments
Income taxes recoverable
Derivative financial assets
Total current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in equity accounted investees
Deferred tax assets
Derivative financial assets
Other non-current assets
Total assets
Liabilities and equity
Accounts payable and accrued liabilities
Provisions
Income taxes payable
Contract liabilities
Current portion of long-term debt
Liabilities for subscription receipts
Derivative financial liabilities
Total current liabilities
Provisions
Long-term debt
Royalty obligations
Employee benefits obligations
Deferred tax liabilities
Derivative financial liabilities
Other non-current liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Equity attributable to equity holders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes form an integral part of these Consolidated Financial Statements.
5
12
13
14
31
15
17
16
34
10
31
18
19
20
13
21
5
31
20
21
22
10
31
23
11
25
$
926.1
700.1
518.6
461.9
647.8
52.1
39.8
32.2
$
946.5
—
566.1
569.3
616.2
55.1
30.4
25.0
$ 3,378.6
$
2,808.6
1,969.4
308.5
2,055.8
422.2
104.9
13.2
495.8
2,154.0
395.9
2,056.5
460.6
84.5
13.1
510.4
$ 8,748.4
$
8,483.6
$
945.6
$
934.4
52.6
16.2
674.7
216.3
714.1
13.8
29.2
26.4
746.2
206.2
—
119.9
$ 2,633.3
$
2,062.3
30.9
2,135.2
141.8
222.2
123.5
3.1
245.6
$
$
$ 5,535.6
$ 1,516.2
22.5
58.1
28.6
3,106.0
141.1
212.8
150.6
12.8
191.1
5,905.3
679.5
26.9
193.2
1,543.7
1,590.1
$ 3,140.5
$
2,489.7
72.3
88.6
$ 3,212.8
$ 2,578.3
$ 8,748.4
$ 8,483.6
CAE Financial Report 2021 | 83
Consolidated Financial Statements
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84 | CAE Financial Report 2021
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Consolidated Statement of Cash Flows
Years ended March 31
(amounts in millions of Canadian dollars)
Operating activities
Net (loss) income
Adjustments for:
Depreciation and amortization
Impairment of non-financial assets
Share of after-tax profit of equity accounted investees
Deferred income taxes
Investment tax credits
Share-based payments expense
Defined benefit pension plans
Other non-current liabilities
Derivative financial assets and liabilities – net
Other
Changes in non-cash working capital
Net cash provided by operating activities
Investing activities
Business combinations, net of cash acquired
Acquisition of investment in equity accounted investees
Additions to property, plant and equipment
Proceeds from disposal of property, plant and equipment
Additions to intangible assets
Net proceeds from (payments to) equity accounted investees
Dividends received from equity accounted investees
Other
Net cash used in investing activities
Financing activities
Net (repayment) proceeds from borrowing under revolving credit facilities
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease liabilities
Dividends paid
Net proceeds from the issuance of common shares
Repurchase and cancellation of common shares
Changes in restricted cash
Other
Net cash (used in) provided by financing activities
Effect of foreign currency exchange differences on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Notes
2021
2020
$
(47.5)
$
318.9
6
7, 8, 29
10
26
22
24
4
34
15
16
21
21
21
21
11
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171.7
(2.7)
(33.3)
(36.9)
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(26.7)
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(49.5)
366.6
(186.5)
(18.7)
(107.6)
4.5
(56.0)
0.7
12.1
8.1
(343.4)
(705.6)
151.1
(86.1)
(200.8)
—
820.8
—
—
(0.7)
(21.3)
(22.3)
(20.4)
946.5
926.1
$
$
$
$
$
$
$
$
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48.9
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(113.5)
(283.4)
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167.6
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(79.8)
(110.9)
26.6
(49.6)
15.7
(1.4)
443.4
7.8
500.4
446.1
946.5
$
$
$
$
$
$
$
$
The accompanying notes form an integral part of these Consolidated Financial Statements.CAE Financial Report 2021 | 85Consolidated Financial Statements Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
(Unless otherwise stated, all tabular amounts are in millions of Canadian dollars)
The consolidated financial statements were authorized for issue by the board of directors on May 19, 2021.
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
CAE Inc. and its subsidiaries (or the Company) design, manufacture and supply simulation equipment, provide training, and develop
integrated training solutions for defence and security markets, commercial airlines, business aircraft operators, helicopter operators,
aircraft manufacturers and for healthcare education and service providers. CAE’s flight simulators replicate aircraft performance in
normal and abnormal operations as well as a comprehensive set of environmental conditions utilizing visual systems that contain a
database of airports, other landing areas, flying environments, mission-specific environments, and motion and sound cues. The
Company offers a range of flight training devices based on the same software used on its simulators. The Company also operates a
global network of training centres with locations around the world.
The Company’s operations are managed through three segments:
(i) Civil Aviation Training Solutions – Provides comprehensive training solutions for flight, cabin, maintenance and ground personnel
in commercial, business and helicopter aviation, a range of flight simulation training devices, ab initio pilot training and crew
sourcing services, as well as end to end digitally-enabled crew management, training operations solutions and optimization
software;
(ii) Defence and Security – Provides training and mission support solutions for defence forces across multi-domain operations, and for
government organizations responsible for public safety;
(iii) Healthcare – Provides integrated education and training solutions including surgical and imaging simulations, curriculum,
audiovisual and centre management platforms and patient simulators to healthcare students and clinical professionals across the
professional life cycle.
CAE is a limited liability company incorporated and domiciled in Canada. The address of the main office is 8585 Côte-de-Liesse,
Saint-Laurent, Québec, Canada, H4T 1G6. CAE common shares are traded on the Toronto Stock Exchange (TSX) and on the New
York Stock Exchange (NYSE).
Basis of preparation
The key accounting policies applied in the preparation of these consolidated financial statements are described below. These policies
have been consistently applied to all years presented, unless otherwise stated.
The consolidated financial statements have been prepared in accordance with Part I of the CPA Canada Handbook – Accounting and
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared under the historical cost convention, except for the following items
measured at fair value: contingent consideration, derivative financial instruments, financial instruments at fair value through profit and
loss, financial instruments at fair value through other comprehensive income and liabilities for cash-settled share-based arrangements.
The functional and presentation currency of CAE Inc. is the Canadian dollar.
Comparative figures
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Company has control. Control exists when the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through the power over the entity.
Subsidiaries are fully consolidated from the date control is obtained and they are no longer consolidated on the date control ceases.
All intercompany accounts and transactions have been eliminated.
Joint arrangements
Joint arrangements are arrangements in which the Company exercises joint control as established by contracts requiring unanimous
consent for decisions about the activities that significantly affect the arrangement’s returns. When the Company has the rights to the
net assets of the arrangement, the arrangement is classified as a joint venture and is accounted for using the equity method. When
the Company has rights to the assets and obligations for the liabilities relating to an arrangement, the arrangement is classified as a
joint operation and the Company accounts for each of its assets, liabilities and transactions, including its share of those held or
incurred jointly, in relation to the joint operation.
86 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize
the Company’s share of the profits or losses and movements in other comprehensive income (OCI) of the investee. When the
Company’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, the Company does not recognize
further losses, unless it will incur obligations or make payments on behalf of the joint ventures.
Unrealized gains resulting from transactions with joint ventures are eliminated, to the extent of the Company’s share in the joint
venture. For sales of products or services from the Company to its joint ventures, the elimination of unrealized profits is considered in
the carrying value of the investment in equity accounted investees in the consolidated statement of financial position and in the share
in profit or loss of equity accounted investees in the consolidated income statement.
Business combinations
Business combinations are accounted for under the acquisition method. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company, if any, at
the date control is obtained. The consideration transferred includes the fair value of any liability resulting from a contingent
consideration arrangement. Acquisition-related costs, other than share and debt issue costs incurred to issue financial instruments
that form part of the consideration transferred, are expensed as incurred. Identifiable assets acquired and liabilities assumed in a
business combination are measured initially at their fair value at the acquisition date. If a business combination is achieved in stages,
the Company remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain
or loss, if any, in net income.
Contingent consideration classified as a liability is measured at fair value, with subsequent changes recognized in income. If the
contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.
New information obtained during the measurement period, up to 12 months following the acquisition date, about facts and
circumstances existing at the acquisition date affect the acquisition accounting.
Non-controlling interests
Non-controlling interests (NCI) represent equity interests in subsidiaries owned by outside parties. The share of net assets of
subsidiaries attributable to non-controlling interests is presented as a component of equity. Changes in the Company’s ownership
interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
The Company treats transactions with non-controlling interests as transactions with equity owners of the Company. For interests
purchased from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of non-controlling interests are also
recorded in equity.
Financial instruments and hedging relationships
Recognition, classification and measurement
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in
another entity. Financial assets and financial liabilities, including derivatives, are recognized in the consolidated statement of financial
position when the Company becomes a party to the contractual provisions of the financial instrument. On initial recognition, all
financial instruments are measured at fair value. When there is a difference between the fair value of the consideration given or
received at initial recognition and the amount determined using a valuation technique, such difference is recognized immediately in
income unless it qualifies for recognition as some other type of asset or liability.
Financial instruments are subsequently measured based on their classification, which are:
–
–
–
Financial instruments measured at amortized cost;
Financial instruments measured at fair value through profit or loss (FVTPL);
Financial instruments measured at fair value through other comprehensive income (FVOCI).
Financial assets
A financial asset is measured at amortized cost if it meets both of the following conditions:
– The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
– The contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and
interest (SPPI) on the principal amount outstanding.
Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to
impairment. Gains and losses are recognized in income when the asset is derecognized, modified or impaired. The Company’s
financial assets at amortized cost include accounts receivable and advances to a portfolio investment.
CAE Financial Report 2021 | 87
Notes to the Consolidated Financial Statements
Financial assets at FVTPL include financial assets held for trading, financial assets designated upon initial recognition at fair value
through profit or loss, and financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with
cash flows that are not SPPI are classified and measured at FVTPL, irrespective of the business model. Financial assets at FVTPL
are carried in the statement of financial position at fair value with net changes in fair value recognized in the income statement. The
Company’s financial assets at FVTPL include cash and cash equivalents, restricted funds for subscription receipts deposit, and
derivative instruments not designated as hedging instrument in a hedge relationship.
Financial assets at FVOCI are equity investments the Company has irrevocably elected to classify at FVOCI. This classification is
determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never transferred to income.
Dividends are recognized in the income statement when the right of payment has been established, except when the Company
benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI.
Financial assets are not reclassified subsequent to their initial recognition, unless the Company changes its business model for
managing financial assets.
Financial liabilities
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at
FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This
category also includes derivatives financial instruments that are not designated as hedging instrument in a hedge relationship.
Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Financial liabilities at FVTPL are carried in the statement of financial position at fair value with net changes in fair value recognized in
the income statement. The Company’s financial liabilities measured at FVTPL include contingent liabilities arising on business
combinations and also derivative instruments not designated as hedging instrument in a hedge relationship.
Financial liabilities at amortized cost are subsequently measured using the EIR method. Gains and losses are recognized in income
when the liabilities are derecognized as well as through the EIR amortization process. The Company’s financial liabilities at amortized
cost include accounts payables, accrued liabilities, long-term debt, including interest payable, royalty obligations and liabilities for
subscription receipts.
Transaction costs
Transaction costs that are directly related to the acquisition or issuance of financial assets and financial liabilities (other than those
classified at FVTPL and FVOCI) are included in the fair value initially recognized for those financial instruments. These costs are
amortized to income using the EIR method.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position
when the Company has an unconditional and legally enforceable right to set off the recognized amounts and intends to settle on a net
basis or to realize the assets and settle the liabilities simultaneously.
Hedge accounting
The Company uses derivative financial instruments, such as forward currency contracts, cross currency swaps and interest rate
swaps to hedge its foreign currency risks and interest rate risks, respectively. A hedging relationship qualifies for hedge accounting
when it meets all of the following effectiveness requirements:
–
–
–
There is ‘an economic relationship’ between the hedged item and the hedging instrument;
The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship;
The hedge ratio of the hedging relationship is the same as that resulting from the quantities of:
–
–
The hedged item that the Company actually hedges; and
The hedging instrument that the Company actually uses to hedge that quantity of hedged item.
For the purpose of hedge accounting, hedges are classified as:
–
Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated
with a recognized asset or liability or a highly probably forecast transaction or the foreign currency risk in an unrecognized firm
commitment;
Hedges of a net investment in a foreign operation;
Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment.
–
–
88 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Documentation
At the inception of a hedge relationship, the Company formally documents the designation of the hedge, the risk management
objectives and strategy, the hedging relationship between the hedged item and hedging item and the method for testing the
effectiveness of the hedge, which must be reasonably assured over the term of the hedging relationship and can be reliably
measured. The Company formally assesses, both at inception of the hedge relationship and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items
in relation to the hedged risk.
Cash flow hedge
The effective portion of changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges is
recognized in OCI, while the ineffective portion is recognized immediately in income. Amounts accumulated in OCI are reclassified to
income in the period in which the hedged item affects income. However, when the forecasted transactions that are hedged items
result in recognition of non-financial items, gains and losses previously recognized in OCI are included in the initial carrying value of
the related non-financial assets acquired or liabilities incurred. The deferred amounts are ultimately recognized in income as the
related non-financial items are derecognized or amortized.
Hedge accounting is discontinued prospectively when the hedging relationship no longer meets the criteria for hedge accounting,
when the designation is revoked, or when the hedging instrument expires or is sold. Any cumulative gain or loss directly recognized in
OCI at that time remains in OCI until the hedged item is recognized in income. When it is probable that a hedged transaction will not
occur, the cumulative gain or loss that was recognized in OCI is recognized in income immediately.
Hedge of net investments in foreign operations
The Company has designated certain long-term debts as a hedging item of the Company’s overall net investments in foreign
operations whose activities are denominated in a currency other than the Company’s functional currency. The portion of gains or
losses on the hedging item that is determined to be an effective hedge is recognized in OCI and is limited to the translation gain or
loss on the net investment.
Fair value hedge
The Company currently does not enter into fair value hedge transactions.
Derecognition
Financial assets
A financial asset is derecognized when:
–
–
The rights to receive cash flows from the asset have expired; or
The Company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks
and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
The Company is involved in a program in which it sells interests in certain of its accounts receivable. The Company continues to act
as a collection agent. Under the program the Company transfers some significant risks and rewards of the accounts receivable it sells
and retains others. The accounts receivable are derecognized up to an amount corresponding to the extent of the Company's
continuing involvement, which represents its maximum retained exposure.
Impairment of financial assets
The Company uses the expected credit loss (ECL) model for calculating impairment of financial assets and recognizes expected
credit losses as loss allowances for assets measured at amortized cost. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original
or credit adjusted effective interest rate. ECLs are recognized in two stages. For credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognized from initial recognition of the assets.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the income statement.
CAE Financial Report 2021 | 89
Notes to the Consolidated Financial Statements
Foreign currency translation
Foreign operations
Assets and liabilities of subsidiaries that have a functional currency other than the Canadian dollar are translated from their functional
currency to Canadian dollars at exchange rates in effect at the reporting date. Revenue and expenses are translated at the average
exchange rates. The resulting translation adjustments are included in OCI.
When CAE Inc. and its subsidiaries have a long-term intercompany balance receivable from or payable to a foreign operation for
which settlement is not planned in the foreseeable future, such item is considered, in substance, a part of the Company’s net
investment in that foreign operation. Gains or losses arising from the translation of those intercompany balances denominated in
foreign currencies are also included in OCI.
Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date.
Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the
functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions are recognized in income, except when deferred in OCI as qualifying cash flow
hedges and qualifying net investment hedges.
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly-liquid investments with original terms to maturity of 90 days or less at the date
of purchase.
Accounts receivable
Receivables are initially recognized at fair value and are subsequently carried at amortized cost, net of credit loss allowances, based
on expected recoverability. The amount of the allowance is the difference between the asset’s carrying amount and the present value
of the estimated future cash flows, discounted at the original effective interest rate. The loss is recognized in income. Subsequent
recoveries of amounts previously provided for or written-off are recognized in income.
Inventories
Raw materials are valued at the lower of average cost and net realizable value. Spare parts to be used in the normal course of
business are valued at the lower of cost, determined on a specific identification basis, and net realizable value.
Work in progress is stated at the lower of cost, determined on a specific identification basis, and net realizable value. The cost of work
in progress includes material, labour and an allocation of manufacturing overhead, which is based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to generate revenue. In the case of raw materials and spare parts, the replacement cost is the best
measure of net realizable value.
Property, plant and equipment
Property, plant and equipment are recorded at cost less any accumulated depreciation and any accumulated net impairment losses.
Costs include expenditures that are directly attributable to the acquisition or manufacturing of the item. The cost of an item of property,
plant and equipment that is initially recognized includes, when applicable, the initial present value estimate of the costs required to
dismantle and remove the asset and restore the site on which it is located at the end of its useful life. Purchased software that is
integral to the functionality of the related equipment is capitalized as part of that equipment. Subsequent costs, such as updates on
training devices, are included in the asset’s carrying amount or recognized as a separate asset only when it is probable that future
economic benefits will flow to the Company and the cost of the item can be reliably measured; otherwise, they are expensed.
A loss on disposal is recognized in income when the carrying value of a replaced item is derecognized, unless the item is transferred
to inventories. If it is not practicable to determine the carrying value, the cost of the replacement and the accumulated depreciation
calculated by reference to that cost will be used to derecognize the replaced part. The costs of day-to-day servicing of property, plant
and equipment are recognized in income as incurred. Gains and losses on disposal of property, plant and equipment are determined
by comparing the proceeds from disposal with its carrying amount, and are recognized net within other gains and losses.
The different components of property, plant and equipment are recognized separately when their useful lives are materially different
and such components are depreciated separately in income.
90 | CAE Financial Report 2021
Land is not depreciated. The estimated useful lives, residual values and depreciation methods are as follows:
Notes to the Consolidated Financial Statements
Buildings and improvements
Simulators
Machinery and equipment
Aircraft
Aircraft engines
Method
Amortization rate/period
Declining balance/Straight-line
2.5 to 10%/3 to 40 years
Straight-line (10% residual)
Not exceeding 25 years
Declining balance/Straight-line
20 to 35%/2 to 15 years
Straight-line (residual not exceeding 15%)
Not exceeding 25 years
Based on utilization
Not exceeding 3,500 hours
As at March 31, 2021, the average remaining amortization period for full-flight simulators is 12.2 years (2020 – 12.0 years).
Depreciation methods, useful lives and residual values are reviewed and adjusted, if appropriate, on a prospective basis at each
reporting date.
Leases
The Company adopted IFRS 16 - Leases effective on April 1, 2019.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company as a lessee
The Company recognizes a right-of-use asset and liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. If it is reasonably certain that the Company will obtain ownership by the end of the
lease term through a purchase option, the leased asset is depreciated over its useful life. The depreciation periods, residual values
(only applicable when it is reasonably certain that the Company will obtain ownership by the end of the lease term) and depreciation
methods are as follows:
Buildings and land
Simulators
Machinery and equipment
Method
Amortization period
Straight-line
Not exceeding 40 years
Straight-line (10% residual)
Not exceeding 25 years
Straight-line
Not exceeding 7 years
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. Lease payments
comprise of fixed payments, including in-substance fixed payments, variable lease payments that depend on an index or a rate,
amounts expected to be payable under a residual value guarantee, the exercise price under a purchase option that the Company is
reasonably certain to exercise, lease payments in an optional renewal period that the Company is reasonably certain to exercise and
penalties for early termination of a lease if the Company is reasonably certain to terminate.
The lease liability is subsequently measured at amortized cost using the effective interest method and is remeasured when there is a
change in future lease payments arising from a change in an index or rate, the estimate of the amount expected to be payable under a
residual value guarantee or the Company’s assessment of whether it will exercise a purchase, renewal or termination option. When
the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is
recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Lease modifications
A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of its original terms and
conditions. A lease modification is accounted for as a separate lease if the modification increases the scope of the lease by adding
the right to use one or more underlying assets and the consideration for the lease increases by an amount commensurate with the
stand-alone price that reflects the circumstances of the contract. Any other modification is not accounted for as a separate lease.
CAE Financial Report 2021 | 91
Notes to the Consolidated Financial Statements
For a lease modification resulting in a decrease in the scope of the lease, the lease liability is remeasured, using a revised discount
rate, to reflect the modified lease payments and the carrying amount of the right-of-use asset is reduced to reflect the partial or full
termination of the lease. The difference between the reduction in the lease liability and the reduction in the corresponding right-of-use
asset’s carrying value is recognized in profit or loss.
For all other lease modifications, the lease liability is remeasured, using a revised discount rate, to reflect the modified lease
payments, with a corresponding adjustment to the right-of-use asset.
Short-term leases and leases of low-value assets
The Company recognizes the payments associated with short-term leases and leases of low-value assets as an expense on a
straight-line basis over the lease term.
Sale and leaseback transaction
In a sale and leaseback transaction the transfer of an asset is recognized as a sale when the customer has obtained control of the
underlying asset which is aligned with the Company’s revenue recognition policy, otherwise the Company continues to recognize the
transferred asset on the balance sheet and record a financial liability equal to the proceeds transferred. When the transfer of an asset
satisfies the Company’s revenue recognition policy to be accounted for as revenue, a partial recognition of the profit from the sale is
recorded immediately after the sale, which is equivalent to the proportion of the asset not retained by the Company through the lease.
The proportion of the asset retained by the Company through the lease is recognized as a right-of-use asset and the lease liability is
measured as the present value of future lease payments.
The Company as a lessor
The Company determines, at lease commencement, whether each lease is a finance or an operating lease. Leases in which
substantially all the risks and rewards of ownership are transferred are classified as finance leases. All other leases are accounted for
as operating leases.
With regards to finance leases, the asset is derecognized at the commencement of the lease. The net present value of the minimum
lease payments and any discounted unguaranteed residual values of leased assets are presented as investment in finance leases.
Finance income is recognized over the term of the lease based on the effective interest method. Revenue from operating leases is
recognized on a straight-line basis over the term of the corresponding lease.
When the Company subleases one of its leases it accounts for its interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference
to the underlying asset.
Intangible assets
Goodwill
Goodwill is measured at cost less accumulated impairment losses, if any.
Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the aggregate of the cost of an acquisition,
including the Company’s best estimate of the fair value of contingent consideration and the acquisition-date fair value of any previous
held equity interest in the acquiree, over the fair value of the net identifiable assets of the acquiree at the acquisition date.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Research and development (R&D)
Research costs are expensed as incurred. Development costs are also charged to income in the period incurred unless they meet all
the specific capitalization criteria established in IAS 38, Intangible Assets. Capitalized development costs are stated at cost and net of
accumulated amortization and accumulated impairment losses, if any. Amortization of the capitalized development costs commences
when the asset is available for use and is included in research and development expenses.
Other intangible assets
Intangible assets acquired separately are measured at cost upon initial recognition. The cost of intangible assets acquired in a
business combination is the fair value as at the acquisition date. Following initial recognition, intangible assets are carried at cost, net
of accumulated amortization and accumulated impairment losses, if any.
The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare
the asset to be capable of operating in the manner intended by management.
Gains and losses on disposal of intangible assets are determined by comparing the proceeds from disposal with its carrying amount
and are recognized within other gains and losses.
92 | CAE Financial Report 2021
Amortization
Amortization is calculated using the straight-line method for all intangible assets over their estimated useful lives as follows:
Notes to the Consolidated Financial Statements
Capitalized development costs
Customer relationships
Licenses
ERP and other software
Other intangible assets
Amortization period
3 to 10 years
3 to 20 years
3 to 20 years
3 to 10 years
2 to 40 years
As at March 31, 2021, the average remaining amortization period for the capitalized development costs is 5.3 years
(2020 ‑ 5.2 years). Amortization methods and useful lives are reviewed and adjusted, if appropriate, on a prospective basis at each
reporting date.
The capitalized development costs incurred during fiscal 2021 in relation to the design and manufacturing of the CAE Air1 ventilators
were amortized on a per-unit basis and were fully amortized by March 31, 2021.
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets subject to amortization are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and assets that are not yet available for
use are tested for impairment annually or at any time if an indicator of impairment exists.
The recoverable amount of an asset or a cash-generating unit (CGU) is the greater of its value in use and its fair value less costs of
disposal. The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. In such cases, the CGU that the asset belongs to is used to
determine the recoverable amount.
For the purposes of impairment testing, the goodwill acquired in a business combination is allocated to CGUs or groups of CGUs,
which generally corresponds to its operating segments or one level below, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Where the
recoverable amount of a CGU to which goodwill has been allocated is lower than the CGU’s carrying amount, the related goodwill is
impaired. Any remaining amount of impairment exceeding the impaired goodwill is recognized on a pro rata basis of the carrying
amount of each asset in the respective CGU. Impairment losses are recognized in income.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals at each reporting date. An
impairment loss is reversed if there is any indication that the loss has decreased or no longer exists due to changes in the estimates
used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized. Such reversal is recognized in income.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the cost of
the asset. A qualifying asset is one that takes a substantial period of time to get ready for its intended use. Capitalization of borrowing
costs ceases when the asset is completed and ready for its intended use. All other borrowing costs are recognized as finance
expense in income, as incurred.
Other assets
Restricted cash
The Company is required to hold a defined amount of cash as collateral under the terms of certain subsidiaries’ external bank
financing, government-related sales contracts and business combination arrangements.
Deferred financing costs
Deferred financing costs related to the revolving credit facilities, when it is probable that some or all of the facilities will be drawn down,
and deferred financing costs related to sale and leaseback agreements are included in other assets at cost and are amortized on a
straight-line basis over the term of the related financing agreements.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method.
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Notes to the Consolidated Financial Statements
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are
measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
passage of time is recognized as a finance expense. When there are a number of similar obligations, the likelihood that an outflow will
be required in settlement is determined by considering the class of obligations as a whole.
Provisions for estimated contract losses are recognized as an onerous contract provision in the period in which the loss is determined.
Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract.
Warranty provisions are recorded when revenue is recognized based on historical experience, current trends and other assumptions
that are believed to be reasonable under the circumstances.
Restoration and simulator removal
In certain situations, simulators are installed at locations that are not owned by the Company. In some of these cases, the Company
has an obligation to dismantle and remove the simulators from these sites and to restore the location to its original condition. A
provision is recognized for the present value of estimated costs to be incurred to dismantle and remove the simulators from these
sites and restore the location. The provision also includes amounts relating to leased land and building where restoration costs are
contractually required at the end of the lease. Where such costs arise as a result of capital expenditure, these restoration costs are
also capitalized.
Restructuring
Restructuring costs consist mainly of severances and other related costs.
Legal claims
The amount represents a provision for certain legal claims brought against the Company. The corresponding charge is recognized in
income within selling, general and administrative expenses or other gains and losses. Management’s best estimate is that the
outcome of these legal claims will not give rise to any significant loss beyond the amounts provided at March 31, 2021.
Warranties
A provision is recognized for expected warranty claims on products sold based on historical experience of the level of repairs and
returns. It is expected that most of these costs will be incurred between 1 to 7 years. Assumptions used to calculate the provision for
warranties were based on current sales levels and current information available about returns based on the warranty period of
products sold.
Long-term debt
Long-term debt is recognized initially at fair value, net of transaction costs incurred. They are subsequently stated at amortized cost.
Any difference between the proceeds, net of transaction costs, and the redemption value is recognized in income over the period of
borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In these cases, the fee is deferred until the drawdown occurs. To the extent that there is
no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity
services and amortized over the period of the facility to which it relates.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown
in equity as a deduction, net of tax, from the proceeds.
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable
costs, net of tax, is recognized as a deduction from equity.
Revenue recognition
The Company recognizes revenue when it transfers the control of the promised goods or services to the customer. The transaction
price is the amount of consideration to which the Company is expected to be entitled to in exchange for transferring promised goods
or services. Variable consideration is included in the transaction price when it is highly probable that there will be no significant
reversal of revenue in the future. Variable consideration is usually derived from sales incentives, in the form of discounts or volume
rebates, and penalties. The Company identifies the various performance obligations of the contract and allocates the transaction price
based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation.
The Company’s performance obligations are satisfied over time or at a point in time depending on the transfer of control to the
customer.
94 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Sales of goods and services
Customized training devices
Revenue from contracts with customers for the design, engineering, and manufacturing of training devices are recognized over time
using the cost input method when the Company determines that these devices have a sufficient level of customization such that they
have no alternative use and the Company has enforceable rights to payment for work completed to date. The measure of progress
toward complete satisfaction of the performance obligation is generally determined by comparing the actual direct costs incurred to
date to the total estimated direct costs for the entire contract. When the Company determines that there is an alternative use for these
devices, revenue is recognized at a point in time, when the customer obtains control of the device.
Standardized training and medical devices
Revenue from contracts with customers for the manufacturing of standardized training and medical devices is recognized at a point in
time, when the customer obtains control of the device.
Training services
Revenue from the sale of training hours or training courses are recognized at a point in time, when services are rendered.
For flight schools, cadet training courses are offered mainly by way of ground school and live aircraft flight. For both phases, revenue
is recognized over time, using the time elapsed input method.
Product maintenance, support and updates
Revenue from the sale of product maintenance services and post-delivery customer support are recognized over time, using the time
elapsed output method or costs incurred method. Revenue from update services, to enhance a training device currently owned by a
customer, are recognized over time, using the cost input method.
Spare parts
Revenue from the sale of spare parts is recognized at a point in time, which is generally on delivery to the customer.
Software arrangements
Revenue from off-the-shelf software sales is recognized at a point in time, on delivery. Revenue from fixed-price software
arrangements and software customization contracts that require significant production, modification, or customization of software is
recognized over time using the cost input method.
Other
Significant financing component
The Company accounts for a significant financing component on contracts of more than 12 months where timing of cash receipts and
revenue recognition differ substantially. The transaction price for such contracts is adjusted for the time value of money, using the rate
that would be reflected in a separate financing transaction between the Company and its customers at contract inception, to take into
consideration the significant financing component.
Non-monetary transactions
The Company may also enter into sales arrangements where little or no monetary consideration is involved. The non-monetary
transactions are measured at the most reliable measure of the fair value of the asset or service given up or fair value of the asset or
service received.
Contract modifications
Contract modifications, which consist of an increase in the scope or price of a contract, are accounted for as a separate contract when
the additional goods or services to be delivered are distinct from those delivered prior to the contract modification and when the price
increases by an amount of consideration that reflects its stand-alone selling price. Contract modifications are treated prospectively
when the additional goods or services are distinct, but the price increase does not reflect the stand-alone selling price. When the
remaining goods or services are not distinct, the Company recognizes an adjustment to revenue of the initial contract on a cumulative
catch-up basis at the date of the contract modification.
Costs to obtain and to fulfill a contract
The Company recognizes incremental costs of obtaining a contract as an asset when they are expected to be recovered over a period
of more than one year. The Company recognizes costs directly related to fulfilling a contract with a customer as an asset when they
generate or enhance resources that will be used to satisfy the performance obligation in the future and they are expected to be
recovered. These assets are amortized on a systematic basis that is consistent with the Company’s transfer of the related goods or
services to the customer.
Right to invoice
If the Company has the right to invoice a customer in an amount that directly corresponds with the value of the Company’s
performance to date then revenue can be recognized at the invoice amount.
CAE Financial Report 2021 | 95
Notes to the Consolidated Financial Statements
Contract balances
The timing of revenue recognition, billing and cash collections results in accounts receivable, contract assets and contract liabilities on
the consolidated financial position.
Contract assets are recognized when revenue is recognized in excess of billings or when the Company has a right to consideration
and that right is conditional to something other than the passage of time. Contract assets are subsequently transferred to accounts
receivable when the right to payment becomes unconditional.
Contract liabilities are recognized when payments received from customers are in excess of revenue recognized. Contract liabilities
are subsequently recognized in revenue when the Company satisfies its performance obligations.
Contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period
and are classified as current based on our normal operating cycle.
Employee benefits
Defined benefit pension plans
The Company maintains defined benefit pension plans that provide benefits based on length of service and final average earnings.
The defined benefit asset or liability comprises the present value of the defined benefit obligation at the reporting date less the fair
value of plan assets out of which the obligations are to be settled. The defined benefit obligations are actuarially determined for each
plan using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash flows using the interest rate of high-quality corporate bonds that are denominated in the currency in which the
benefit will be paid and that have terms to maturity approximating the terms of the related pension obligation. In countries where there
is no deep market in such bonds, the market rates on government bonds are used.
The value of any employee benefit asset recognized is restricted to the present value of any economic benefits available in the form of
refunds from the plan or reductions in the future contributions to the plan (asset ceiling test). Minimum funding requirements may give
rise to an additional liability to the extent that they require paying contributions to cover an existing shortfall. Plan assets can only be
used to fund employee benefits, are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair
value of plan assets is based on market price information.
The Company determines the net pension cost of its Canadian defined benefit plans utilizing individual discount rates derived from the
yield curve.
Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and the effect of any asset ceiling
and minimum liability are recognized to OCI in the period in which they arise. Past service costs are recognized as an expense as
incurred at the earlier of when the plan amendment or curtailment occurs and when the entity recognizes related termination benefits.
Defined contribution pension plans
The Company also maintains defined contribution plans for which the Company pays fixed contributions to publicly or privately
administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no legal or constructive
obligation to pay further amounts if the fund does not hold sufficient assets to pay the benefits to all employees. Obligations for
contributions to defined contribution pension plans are recognized as an employee benefit expense in income as the services are
provided.
Termination benefits
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are
recognized as an expense, if the Company has made an offer of voluntary redundancy, based on the number of employees expected
to accept the offer. Benefits falling due more than 12 months after the reporting date are discounted to their present value.
Share-based payment transactions
The Company’s share-based payment plans consist of two categories: an equity-settled share-based payment plan comprised of the
stock option plan; and cash-settled share-based payments plans that include the stock purchase plan, deferred share units (DSU)
plans, restricted share units (RSU) plans and the performance share units (PSU) plan.
For both categories, the fair value of the employee services received in exchange is recognized as an expense in income. Service and
non-market performance conditions attached to the transactions are not taken into account in determining fair value.
For the equity-settled plan, the cost of equity-settled transactions is measured at fair value using the Black-Scholes option pricing
model. The compensation expense is measured at the grant date and recognized over the service period with a corresponding
increase to contributed surplus. The cumulative expenses recognized for equity-settled transactions at each reporting date represents
the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will
ultimately vest. For options with graded vesting, each tranche is considered a separate grant with a different vesting date and fair
96 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
value, and each tranche is accounted for separately. When the stock options are exercised, the Company issues new common shares
and the proceeds received net of any directly attributable transaction costs are credited to share capital.
For cash-settled plans, a corresponding liability is recognized. The fair value of employee services received is calculated by
multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price of the
Company’s common shares. The fair value of the stock purchase plan is a function of the Company’s contributions. Until the liability is
settled, the Company re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with
any changes in fair value recognized in income for the period. The Company has entered into equity swap agreements in order to
reduce its earnings exposure related to the fluctuation in the Company’s share price relating to the DSU plans, RSU plans and PSU
plan.
Restructuring, integration and acquisition costs
Restructuring costs
Restructuring costs are part of a program that is planned and controlled by management, and materially changes either the scope of a
business undertaken by the Company or the manner in which that business is conducted. Restructuring costs include costs directly
related to significant exit activities, such as the sale or termination of a line of business, the closure of business locations or the
relocation of business activities, significant changes in management structure, or fundamental reorganizations that have a material
effect on the nature and focus of the Company’s operations.
For the Company, restructuring costs include severances and other employee related costs, cost associated with the impairment of
non-financial assets, including property, plant and equipment, right-of-use assets, intangible assets and inventory, and other direct
costs associated with the closing or relocation of facilities, the closing of a product line or activity, or the downsizing of operations.
Restructuring costs are expensed when incurred, or when a legal or constructive obligation exists. A restructuring provision is only
recognized when an obligating event has arisen.
Integration costs
Integration costs represent incremental costs directly related to the integration of recently acquired businesses in the Company’s
ongoing activities. This primarily includes expenditures related to regulatory and process standardization, systems integration and
other activities.
Acquisition costs
Acquisition costs represent costs directly related to business combinations, successful or not. These costs include expenses, fees,
commissions and other costs associated with the collection of information, negotiation of contracts, risk assessments, and the
services of lawyers, advisors and specialists.
Current and deferred income tax
Income tax expense comprises current and deferred tax. An income tax expense is recognized in income except to the extent that it
relates to items recognized in OCI or directly in equity, in which case it is recognized in OCI or directly in equity, respectively.
Current tax is the amount expected to be paid or recovered from taxation authorities on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the reporting date in the countries where the Company and its subsidiaries operate and
generate taxable income, and any adjustment to tax payable or receivable in respect of previous years.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject
to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognized using the financial position liability method, providing for temporary differences between the tax bases of
assets or liabilities and their carrying amounts in the consolidated financial statements, except for temporary differences on the initial
recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
income and taxable.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, and jointly controlled entities, except
where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to be applied to temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are recognized for all deductible temporary differences and carry forward of unused tax losses. The recognition of
deferred tax assets are limited to the amount which is probable to be realized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that a recognized
deferred tax asset will be realized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the
extent that it has become probable that an unrecognized deferred tax asset will be realized.
CAE Financial Report 2021 | 97
Notes to the Consolidated Financial Statements
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend to
settle current tax liabilities and assets on a net basis or if their tax assets and liabilities will be realized simultaneously.
Taxes on income in the interim periods are accrued by jurisdiction using the effective tax rate that would be applicable to expected
total annual profit or loss of the jurisdiction.
Earnings per share
Earnings per share is calculated by dividing the net income for the period attributable to the equity holders of the Company by the
weighted average number of common shares outstanding during the period. The diluted weighted average number of common shares
outstanding is calculated by taking into account the dilution that would occur if the securities or other agreements for the issuance of
common shares were exercised or converted into common shares at the later of the beginning of the period or the issuance date
unless it is anti-dilutive. The treasury stock method is used to determine the dilutive effect of the stock options. The treasury stock
method is a method of recognizing the use of proceeds that could be obtained upon the exercise of stock options in computing diluted
earnings per share. It assumes that any proceeds would be used to purchase common shares at the average market price during the
period. Only the Company’s stock options have a dilutive potential on common shares.
Government participation
Government contributions are recognized when there is reasonable assurance that the contributions will be received, and all attached
conditions will be complied with by the Company. Government contributions related to the acquisition of non-financial assets is
recorded as a reduction of the cost of the related asset while government contributions related to current expenses is recorded as a
reduction of the related expenses.
Royalty obligations
The Company receives partial funding from government entities for eligible spending related to specified R&D projects. In exchange,
the Company repays a percentage of certain revenue during specified years. The initial measurement of the royalty obligation is
discounted using the prevailing market rates of interest, at that time, for a similar instrument (similar as to currency, term, type of
interest rate, guarantees or other factors) with a similar credit rating. The difference between the funding received and the discounted
value of the royalty obligation is accounted for as a government contribution. The current portion of the royalty obligation is included as
part of accrued liabilities.
R&D obligations
The Company enters into loans with below market interest rates with government entities to fund a portion of eligible spending related
to specified R&D projects. The initial measurement of the R&D obligation is discounted using the prevailing market rates of interest, at
that time, for a similar instrument (similar as to currency, term, type of interest rate, guarantees or other factors) with a similar credit
rating. The difference between the funding received and the discounted value of the R&D obligation is accounted for as a government
contribution R&D obligations are presented as part of the long-term debt.
Investment tax credits
Investment tax credits are deemed to be equivalent to government contributions. These government contributions are received for
costs incurred in R&D projects. Investment tax credits expected to be recovered beyond 12 months are classified in Other non-current
assets.
Use of judgements, estimates and assumptions
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies, the reported amounts of assets and liabilities and disclosures at the date of the
consolidated financial statements, as well as the reported amounts of revenues and expenses for the period reported. It also requires
management to exercise its judgement in applying the Company’s accounting policies. The areas involving a high degree of
judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are
disclosed below. Actual results could differ from those estimates. Changes will be reported in the period in which they are identified.
Business combinations
Business combinations are accounted for in accordance with the acquisition method. The consideration transferred and the acquiree’s
identifiable assets, liabilities and contingent liabilities are measured at their fair value. Depending on the complexity of determining
these valuations, the Company either consults with independent experts or develops the fair value internally by using appropriate
valuation techniques which are generally based on a forecast of the total expected future net discounted cash flows. These
evaluations are linked closely to the assumptions made by management regarding the future performance of the related assets and
the discount rate. Contingent consideration is measured at fair value using a discounted cash flow model.
Development costs
Development costs are recognized as intangible assets and are amortized over their useful lives when they meet the criteria for
capitalization. Forecasted revenue and profitability for the relevant projects are used to assess compliance with the capitalization
criteria and to assess the recoverable amount of the assets.
98 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Impairment of non-financial assets
The Company’s impairment test for goodwill is based on internal estimates of the recoverable amount of the CGU or group of CGUs to
which goodwill has been allocated and uses valuation models such as the discounted cash flows model (level 3). Key assumptions on
which management based its determination of the recoverable amount include expected growth rates and discount rates. These
estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any
goodwill impairment.
Likewise, whenever property, plant and equipment and intangible assets are tested for impairment, the determination of the assets’
recoverable amount involves the use of estimates by management and can have a material impact on the respective values and
ultimately the amount of any impairment.
Revenue recognition
Transaction price allocated to performance obligations
In allocating the transaction price for contracts with multiple performance obligations, the Company estimates the stand-alone selling
price using the expected cost plus a margin approach if they are not directly observable.
Timing of satisfaction of performance obligations
For contracts where revenue is recognized over time using the cost input method, the Company applies judgement in estimating the
work performed to date as a proportion of the total work to be performed. Management conducts monthly reviews of its estimated
costs to complete as well as its revenue and margins recognized, on a contract-by-contract basis. The impact of any revisions in cost
and revenue estimates is reflected in the period in which the need for a revision becomes known.
Defined benefit pension plans
The cost of defined benefit pension plans and the present value of the employee benefit obligations are determined using actuarial
valuations. Actuarial valuations involve, amongst others, making assumptions about discount rates, future salary increases and
mortality rates. All assumptions are reviewed at each reporting date. Any changes in these assumptions will impact the carrying
amount of the employee benefit obligations and the cost of the defined benefit pension plans. In determining the appropriate discount
rate, management considers the interest rates of high quality corporate bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The mortality rate is
based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on
expected future inflation rates for the specific country. Individual discount rates are derived from the yield curve and are used to
determine the service cost and interest cost of the Canadian defined benefit pension plans at the beginning of the year. The present
value of the employee benefit obligations for these Canadian plans is determined based on the individual discount rates derived from
the yield curve at the end of the year.
Other key assumptions for pension obligations are based, in part, on current market conditions. See Note 22 for further details
regarding assumptions used.
Government royalty repayments
In determining the amount of repayable government royalties, assumptions and estimates are made in relation to discount rates,
expected revenues and the expected timing of revenues. Revenue projections consider past experience and represent management’s
best estimate about the future. Revenues after a five-year period are extrapolated using estimated growth rates, ranging from 3.0% to
9.0%, over the period of repayments. The estimated repayments are discounted using average rates ranging from 6.0% to 12.0%
based on terms of similar financial instruments. These estimates, along with the methodology used to derive the estimates, can have
a material impact on the respective values and ultimately any repayable obligation in relation to government participation. A 1%
increase to the growth rates would increase the royalty obligations at March 31, 2021 by approximately $2.3 million
(2020 – $2.8 million). A 1% decrease to the growth rates would have an opposite impact on the royalty obligations.
Income taxes
The Company is subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision
for income taxes. The determination of tax liabilities and assets involves uncertainties in the interpretation of complex tax regulations.
The Company provides for potential tax liabilities based on the weighted average probability of the possible outcomes. Differences
between actual results and those estimates could influence the income tax liabilities and deferred tax liabilities in the period in which
such determinations are made.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against the losses that can be
utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and the level of future taxable profits together with future tax planning strategies. The recorded amount of total
deferred tax assets could be altered if estimates of projected future taxable income and benefits from available tax strategies are
lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to
utilize future tax benefits.
CAE Financial Report 2021 | 99
Notes to the Consolidated Financial Statements
Impact of the COVID-19 pandemic
The COVID-19 pandemic and the resulting measures taken in response to its spread have resulted in significant temporary
disruptions to the Company business operations (Note 3). The rapidly evolving situation has created a high level of uncertainty and
risk that may result in significant impacts on the Company’s business, financial performance and operations.
The uncertainties created by the COVID-19 pandemic required the use of judgements and estimates in the areas set out below. The
future impact of the COVID-19 pandemic increases the risk, in future reporting periods, of material adjustments to the carrying amount
of the Company’s net assets.
Goodwill impairment test
The Company performed its annual impairment test for goodwill during the fourth quarter of fiscal 2021. Goodwill is allocated to CGUs
or a group of CGUs, which generally corresponds to the Company’s operating segments or one level below. The recoverable amount
of each CGU is calculated using estimated cash flows derived from the Company's five-year strategic plan. Cash flows subsequent to
the five-year period were extrapolated using a constant growth rate of 2% to 3%. These projections are inherently uncertain due to the
fluidly evolving impact of the COVID-19 pandemic. Significant assumptions and estimates are used to determine the expected growth
rates embedded in our cash flow projections and the discount rate based on observable market data during the fourth quarter.
Impairment of non-financial assets
The Company has considered the impact of the COVID-19 pandemic on its assessment of impairment indicators, which required
significant judgement. The Company has reviewed its property, plant and equipment, right-of-use assets, amortizable intangible
assets, investment in equity accounted investees as well as other assets such as inventories and deferred tax assets. Judgements,
estimates and assumptions used were based on the available information as at March 31, 2021.
Impairment of financial assets
The Company has considered the impact of the COVID-19 pandemic on the expected credit loss of its financial instruments (mainly
trade receivable and contract assets). The Company applied judgment based on the type of customers, many of which are
established companies and government agencies, the segments in which such customers operate and other indicators that could lead
to currently unidentified credit losses. The amount and timing of the expected credit losses, as well as the probability assigned thereto,
has been based on the available information as at March 31, 2021.
Revenue recognition
The Company has considered the impact, if any, of the COVID-19 pandemic on key judgements, estimates and assumptions that
affect revenue recognition, including impacts from temporary facility closures, supply chain disruptions, program execution delays,
slower procurement decisions and changes to the Company’s customers’ acquisition priorities.
NOTE 2 – CHANGES IN ACCOUNTING POLICIES
New and amended standards adopted by the Company
Amendment to IFRS 3 - Business combinations
In October 2018, the IASB issued an amendment to IFRS 3 - Business combinations, which clarifies the definition of a business, with
the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an
asset acquisition. The amended standard has a narrower definition of a business, which could result in the recognition of fewer
business combinations than under the previous standard.
This amendment to IFRS 3 was adopted April 1, 2020 and will apply to transactions occurring subsequent to April 1, 2020.
Amendment to IFRS 16 - Leases
In May 2020, the IASB issued an amendment to IFRS 16 - Leases, with the objective of providing practical relief to lessees in
accounting for rent concessions arising as a result of the COVID-19 pandemic. The amendment introduces an optional practical
expedient for lessees to not account for rent concessions as lease modifications if they are a direct consequence of the COVID-19
pandemic and meet certain conditions.
This amendment to IFRS 16 was adopted effective on April 1, 2020. The Company has elected to apply the practical expedient. The
adoption of this amendment had no material impact on the consolidated financial statements.
100 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
New and amended standards not yet adopted by the Company
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest rate benchmark reform – Phase 2
In August 2020, the IAS issued an amendment to IFRS 9 – Financial instruments, IAS 39 – Financial instruments: recognition and
measurement, IFRS 7 – Financial instrument: disclosures, IFRS 4 – Insurance contracts and IFRS 16 – Leases. The amendments
address issues that arise from implementation of Interbank Offered Rate (IBOR) reform, where IBORs are replaced with alternative
benchmark rates. For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in
the contractual cash flows is as a result of IBOR reform and occurs on an economically equivalent basis, the change will be accounted
for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide additional
temporary relief from applying specific IAS 39 hedge accounting requirements to hedging relationships affected by IBOR reform and
will require disclosure of information about new risks arising from the reform and how the transition to alternative benchmark rates will
be managed.
For the Company, amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 will be effective for the fiscal period beginning on
April 1, 2021. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.
NOTE 3 – IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic has created unprecedented uncertainty in the global economy, the global air transportation environment, air
passenger travel and to CAE’s business. Several of its customers are facing significant challenges, with airlines and, to a lesser
extent, business jet operators having to ground many aircraft in response to travel bans, border restrictions, and lower demand for air
travel. The Company continues to take measures to protect the health and safety of its employees, work with its customers to
minimize potential disruptions and support its community in addressing the challenges posed by this global pandemic. This outbreak
has had an important and immediate impact on all its businesses throughout fiscal 2021, especially in the Civil Aviation Training
Solutions segment, as a result of an unprecedented shock to demand together with significant disruptions to its own operations,
including temporary facility closures, supply chain disruptions, program execution delays, slower procurement decisions and changes
to its customers’ acquisition priorities. The global roll-out of vaccines to combat COVID-19 is encouraging, however, renewed
quarantine measures and border restrictions to contain the spread of the virus continue to impact CAE's customers and businesses.
For the Civil Aviation Training Solutions segment, the impacts of the COVID-19 pandemic started at the end of the fourth quarter of
fiscal 2020 and resulted in the temporary closure of certain training centre operations, lower utilization of its simulators in the network
due to reduced demand from aviation customers and interruptions in the execution of its backlog. At the worst point during the first
quarter of fiscal 2021, more than half of its Civil training locations worldwide had totally suspended operations or operated at
significantly reduced capacity. However, by the end of June 2020, all previously closed training locations had re-opened at full or
reduced capacities, and opening hours gradually resumed to normal. The Company began to see some recoveries in training
utilization starting in the second quarter of fiscal 2021 with gradual improvements continuing through the fourth quarter, especially in
its business aviation training business, however, it remains operating at significantly lower levels than the prior year.
For the Defence and Security segment, delays in the awarding of new contracts and in the execution and advancement of certain
programs continue to be experienced.
For the Healthcare segment, customers continue to be focused on managing the acute operational demands of this healthcare crisis,
which resulted in less budget for normal operations and training projects.
Throughout the year, the Company operated with several flexible measures implemented to protect its financial position and preserve
liquidity, including the reduction of capital expenditures and R&D investments, strict cost containment measures, salary freezes,
temporary salary reductions in the first half of fiscal 2021, reduced work weeks, layoffs, a suspension of its common share dividend
and share repurchase plan, obtaining payment deferrals on certain government royalty and R&D obligations, as well as applying for
government support programs where eligible. Additionally, the Company has worked with defence customers to secure more
favorable terms for milestone payments and with suppliers for extended payment terms.
CAE Financial Report 2021 | 101
Notes to the Consolidated Financial Statements
NOTE 4 – BUSINESS COMBINATIONS
Year ended March 31, 2021
Flight Simulation Company B.V.
On November 16, 2020, the Company acquired the shares of Flight Simulation Company B.V. (FSC) for cash consideration (net of
cash acquired) of $105.2 million, subject to purchase price adjustments. FSC is a provider of training solutions as well as instructor
provisioning in Europe for airline and cargo operators. The acquisition provides the Company with an expanded portfolio of customers
and an established recurring training business which is complementary to its network.
Merlot Aero Limited
On December 22, 2020, the Company acquired the shares of Merlot Aero Limited (Merlot) for cash consideration (net of cash
acquired) of $31.7 million and a long-term contingent cash consideration payable of up to US$10 million if certain criteria are met.
Merlot is a leading civil aviation crew management and optimization software company based in Auckland, New Zealand. This
acquisition expands the Company's reach beyond pilot training and into the market for digitally-enabled crew optimization services.
TRU Simulation + Training Canada Inc.
On January 26, 2021, the Company acquired the shares of TRU Simulation + Training Canada Inc. (TRU Canada) for cash
consideration (net of cash acquired) of $49.6 million, subject to purchase price adjustments. TRU Canada is a manufacturer of
full⁃flight simulators and flight training devices. The acquisition expands the Company’s global installed base of commercial flight
simulators and customers, and the addressable market for simulator lifecycle support services and also provides the Company with a
backlog of simulator orders, full-flight simulators and access to a number of airline customers globally, as well as a 33.3% equity
interest in TRU Flight Training Iceland ehf, a joint venture training centre with Iceland Air, located in Iceland.
The determination of the fair value of the net assets acquired and liabilities assumed arising from the acquisitions are as follows:
Current assets, excluding cash on hand
Current liabilities
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in equity accounted investees
Deferred tax
Other non-current assets
Long-term debt, including current portion
Other non-current liabilities
Fair value of net assets acquired, excluding cash acquired
Cash acquired
Total purchase consideration
Net short-term payable
Settlement of pre-existing relationship
Fair value of long-term contingent cash consideration payable
Total cash consideration paid on acquisition date
Total
128.8
(132.5)
8.5
62.6
219.8
4.1
0.7
0.5
(73.0)
(20.1)
199.4
6.0
205.4
(1.1)
(0.3)
(11.5)
192.5
$
$
$
$
The fair value of the acquired identifiable intangible assets amount to $219.8 million and consists of goodwill of $169.0 million
(non deductible for tax purposes), customer relationships of $47.9 million and other intangible assets of $2.9 million.
The fair value and the gross contractual amount of the acquired accounts receivable were $14.6 million.
Total acquisition costs incurred during fiscal 2021 relating to these acquisitions are included in Restructuring, integration and
acquisition costs in the consolidated income statement (Note 8).
The net assets acquired, including intangible assets, of FSC, Merlot and TRU Canada are included in the Civil Aviation Training
Solutions segment. The goodwill arising from these acquisitions is mainly attributable to the expansion of CAE’s installed base of
commercial flight simulators, the expansion of the Company’s reach into the market for digitally-enabled crew optimization services,
market capacity consolidation and expected synergies from combining operations.
As at March 31, 2021, the purchase price allocation for FSC, Merlot and TRU Canada were preliminary.
102 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Year ended March 31, 2020
Pelesys Learning Systems Inc.
On April 26, 2019, the Company acquired the remaining 55% equity interest in Pelesys Learning Systems Inc. (Pelesys) for cash
consideration (net of cash acquired) of $4.0 million and a long-term payable of $5.7 million.
Pelesys is a global leader in the provision of aviation training solutions and courseware. The acquisition strengthens the Company’s
courseware offering and consolidates its cadet-to-captain training delivery across its global network. Prior to this transaction, the
Company's 45% ownership interest in Pelesys was accounted for using the equity method.
Luftfartsskolen AS
On June 26, 2019, the Company acquired the shares of Luftfartsskolen AS, an ab-initio flight school located in Oslo, Norway, for cash
consideration (net of cash acquired) of $3.5 million. This acquisition strengthens the Company’s leadership and global reach in civil
aviation training by growing its flight academy network.
The purchase prices of Pelesys and Luftfartsskolen AS are mainly allocated to goodwill and intangible assets. The net assets,
including intangibles, arising from these acquisitions are included in Civil Aviation Training Solutions segment.
Other
On November 12, 2019, the Company invested in a healthcare software company that enables increased efficiency of learning. The
investment is in the form of a controlling 50% equity interest, for cash consideration of $0.9 million.
During the year ended March 31, 2020, the Company completed its final assessment of the fair value of assets acquired and liabilities
assumed of all acquisitions realized in fiscal 2020 and those of Avianca’s Training Business, Logitude, the Indian Training Centres and
Bombardier’s Business Aircraft Training Business which were acquired during the year ended March 31, 2019. Adjustments to the
determination of net identifiable assets acquired and liabilities assumed for acquisitions realized in the year ended March 31, 2019
resulted in an increase of intangible assets of $6.2 million, a decrease of deferred tax assets of $4.7 million and a decrease of other
net assets of $1.5 million.
During the year ended March 31, 2020, an additional net cash consideration of $1.7 million was paid for acquisitions realized during
the year ended March 31, 2019.
CAE Financial Report 2021 | 103
Notes to the Consolidated Financial Statements
NOTE 5 – L3HARRIS’ MILITARY TRAINING BUSINESS
L3Harris’ Military Training business
On March 1, 2021, the Company announced that it had entered into a definitive agreement to acquire L3Harris’ Military Training
business for US$1.05 billion, subject to purchase price adjustments. The L3Harris Military Training business includes Link
Simulation & Training, Doss Aviation and AMI. Link Simulation & Training is one of the leading providers of military training solutions in
the U.S., Doss Aviation is the provider of initial flight training to the United States Air Force, and AMI is a design and manufacturing
facility for simulator hardware. Subject to completion, the acquisition will expand the Company’s position as a platform-agnostic
training systems integrator by diversifying its training and simulation leadership in the air domain, complementing land and naval
training solutions, and enhancing its training and simulation capabilities in space and cyber. The closing of the acquisition is expected
in the second half of calendar year 2021, subject to regulatory approvals and other customary closing conditions.
Private placements of subscription receipts
On March 4, 2021, the Company completed a private placement of 22,400,000 subscription receipts at a price of $31.25 per receipt
for aggregate gross proceeds of $700.0 million. As at March 31, 2021, the cash proceeds from the issuance of the subscription
receipts were held by an escrow agent, in a restricted account, pending the fulfilment or waiver of all outstanding conditions precedent
to the closing of the L3Harris Military Training acquisition. The restricted account is included in Restricted funds for subscription
receipts deposit with a corresponding Liabilities for subscription receipts in the consolidated statement of financial position. As the
funds were not directly received by the Company, they were not presented in the consolidated statement of cash flows.
Gross proceeds
Interest earned on escrowed proceeds
Restricted funds for subscription receipts deposit
Accrued commitment fee
Liabilities for subscription receipts
As at March 31
2021
700.0
0.1
700.1
14.0
714.1
$
$
$
Each subscription receipt will entitle the holder to receive one common share of the Company as well as a commitment fee of 4% of
the aggregate gross proceeds upon and subject to closing of the L3Harris Military Training acquisition. In the event the acquisition
does not close, holders of the subscription receipts will be entitled to a full return of their gross proceeds together with any interest
earned thereon and a portion of the commitment fee. The accrued commitment fee, which amounts to $14.0 million, represents the
portion of the fee that is not contingent on the closing of the acquisition, and has been recorded as a deduction from equity, less
income tax recovery of $3.7 million. An additional $14.0 million is contingent on, and payable at, the closing of the acquisition and
therefore was not accrued as at March 31, 2021. Other issuance-related costs amounted to $3.0 million and have been recorded as a
deduction from equity, less income tax recovery of $0.8 million.
Hedging
In order to mitigate the potential impact on the purchase price of variations in the foreign exchange rate, the Company entered into
forward foreign currency contracts to hedge a portion of the purchase price of the L3Harris Military Training acquisition
(US$800 million). The Company applied hedge accounting and the change in fair value of these financial instruments, which resulted
in a loss of $7.7 million, was recorded in other comprehensive income as at March 31, 2021.
104 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
NOTE 6 – OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
The Company elected to organize its operating segments principally on the basis of its customer markets. The Company manages its
operations through its three segments. Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision-maker.
The Company has decided to disaggregate revenue from contracts with customers by segment, by products and services and by
geographic regions as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash
flows are affected by economic factors.
Results by segment
In the fourth quarter of fiscal 2021, the Company revised its segment profitability measure to better reflect how management evaluates
the performance of its operating segments. The Company has retrospectively revised the comparative period to conform to the current
definition and presentation.
The profitability measure employed by the Company for making decisions about allocating resources to segments and assessing
segment performance is adjusted segment operating income. Adjusted segment operating income is calculated by taking operating
income and excluding restructuring, integration and acquisition costs, and impairments and other gains and losses arising from
significant strategic transactions or material events, which gives an indication of the profitability of each segment because it does not
include the impact of items not specifically related to the segment’s performance. For the years ended March 31, 2021 and 2020,
impairments and other gains and losses arising from significant strategic transactions or material events consist of impairment of
goodwill and impairments and other gains and losses incurred in relation to the COVID-19 pandemic. The accounting principles used
to prepare the information by operating segments are the same as those used to prepare the Company’s consolidated financial
statements. The method used for the allocation of assets jointly used by operating segments and costs and liabilities jointly incurred
(mostly corporate costs) between operating segments is based on the level of utilization when determinable and measurable,
otherwise the allocation is based on a proportion of each segment’s cost of sales and revenue.
External revenue
Depreciation and amortization
Impairment of non-financial assets – net
Impairment of accounts receivable – net
Share of after-tax profit (loss) of equity accounted investees
Operating income (loss)
Adjusted segment operating income (loss)
6.5
473.3
15.5
104.8
164.3
479.4
87.0
114.5
Reconciliation of adjusted segment operating income is as follows:
Civil Aviation
Defence
Training Solutions
and Security
Healthcare
2021
2020
2021
2020
2021
2020
2021
Total
2020
$ 1,412.9 $ 2,167.5 $ 1,217.1 $ 1,331.2 $ 351.9 $ 124.5 $ 2,981.9 $ 3,623.2
242.9
232.8
58.2
22.3
119.9
8.9
5.2
54.3
43.2
—
3.1
5.4
18.3
(2.5)
8.1
—
9.2
8.6
0.9
—
26.4
29.3
14.4
37.7
0.1
—
(41.0)
(3.5)
319.5
171.7
9.8
2.7
48.4
280.6
Civil Aviation
Defence
Training Solutions
and Security
Healthcare
2021
2020
2021
2020
2021
2020
2021
Operating income (loss)
$
6.5 $ 473.3 $
15.5 $ 104.8 $
26.4 $
(41.0) $
48.4 $ 537.1
Restructuring, integration and acquisition costs (Note 8)
Impairment of goodwill (Note 29)
Impairments and other gains and losses incurred
in relation to the COVID-19 pandemic(1)
Adjusted segment operating income (loss)
76.1
—
6.1
—
45.0
—
9.7
—
2.9
—
—
37.5
124.0 $
— $
15.8
37.5
81.7
—
26.5
—
—
—
108.2 $
—
$ 164.3 $ 479.4 $
87.0 $ 114.5 $
29.3 $
(3.5) $ 280.6 $ 590.4
(1) Mainly from impairment charges on non-financial assets of $103.5 million (Note 7). This reconciling item does not adjust for COVID-19 government support
programs credited to income of $127.4 million (Note 28).
Capital expenditures by segment, which consist of additions to property, plant and equipment and intangible assets, are as follows:
Civil Aviation Training Solutions
Defence and Security
Healthcare
Total capital expenditures
2021
2020
$ 116.7 $ 296.3
27.5
19.4
74.8
12.9
$ 163.6 $ 384.0
CAE Financial Report 2021 | 105
305.4
48.9
5.5
27.5
537.1
590.4
Total
2020
Notes to the Consolidated Financial Statements
Assets and liabilities employed by segment
The Company uses assets employed and liabilities employed to assess resources allocated to each segment. Assets employed
include accounts receivable, contract assets, inventories, prepayments, property, plant and equipment, right-of-use assets, intangible
assets, investment in equity accounted investees, derivative financial assets and other non-current assets. Liabilities employed
include accounts payable and accrued liabilities, provisions, contract liabilities, derivative financial liabilities and other non-current
liabilities.
Assets and liabilities employed by segment are reconciled to total assets and liabilities as follows:
Assets employed
Civil Aviation Training Solutions
Defence and Security
Healthcare
Assets not included in assets employed
Total assets
Liabilities employed
Civil Aviation Training Solutions
Defence and Security
Healthcare
Liabilities not included in liabilities employed
Total liabilities
Products and services information
The Company's revenue from external customers for its products and services are as follows:
Products
Training and services
Total external revenue
2021
2020
$ 4,847.5
$ 5,089.5
1,561.9
1,767.5
250.2
253.9
2,088.8
1,372.7
$ 8,748.4
$ 8,483.6
$ 1,039.4
$ 1,219.9
540.5
159.3
613.5
45.9
3,796.4
4,026.0
$ 5,535.6
$ 5,905.3
2021
2020
$ 1,359.7
$ 1,537.0
1,622.2
2,086.2
$ 2,981.9
$ 3,623.2
Geographic information
The Company markets its products and services globally. Revenues are attributed to geographical regions based on the location of
customers. Non-current assets other than financial instruments and deferred tax assets are attributed to geographical regions based
on the location of the assets, excluding goodwill. Goodwill is presented by geographical regions based on the Company’s allocation of
the related purchase price.
External revenue
Canada
United States
United Kingdom
Rest of Americas
Europe
Asia
Oceania and Africa
Non-current assets other than financial instruments and deferred tax assets
Canada
United States
United Kingdom
Rest of Americas
Europe
Asia
Oceania and Africa
106 | CAE Financial Report 2021
2021
2020
$
455.9
$
323.2
1,324.2
1,541.8
137.7
55.0
553.2
381.4
74.5
208.8
127.7
631.7
707.1
82.9
$ 2,981.9
$ 3,623.2
2021
2020
$ 1,459.1
$ 1,449.4
1,571.1
1,845.5
358.8
205.6
906.2
501.6
81.8
403.4
250.4
801.0
586.9
35.1
$ 5,084.2
$ 5,371.7
NOTE 7 – OTHER (GAINS) AND LOSSES
Impairment of non-financial assets
Net gain on foreign currency exchange differences
Impairment of goodwill (Note 29)
Other
Other (gains) and losses
Notes to the Consolidated Financial Statements
2021
$
103.5
$
(17.2)
—
5.4
91.7
$
$
2020
—
(41.6)
37.5
(12.7)
(16.8)
Impairment of non-financial assets
Given the negative impacts of the COVID-19 pandemic on the global economy, the Company’s main markets, its product offering and
its customers, the Company considered the evolving conditions and impacts from the COVID-19 pandemic as part of its review of
impairment indicators for non-financial assets. As a result of these reviews, the Company recorded impairment charges totaling
$103.5 million during the year ended March 31, 2021.
For the Civil Aviation Training Solutions segment, the reduced demand from aviation customers, shifts in aircraft fleet type operated by
its customers and reduced activity in helicopter training in relation to the COVID-19 pandemic resulted in impairment charges of
$46.7 million of property, plant and equipment, mostly simulators and parts, $22.2 million of intangible assets, including capitalized
development costs and customer relationships, and $11.2 million of inventories.
For the Defence and Security segment, the market was impacted by the evolving conditions of the COVID-19 pandemic which led to
changes in customers focus and in the expected recoverability of certain technologies and products and resulted in impairment
charges of $12.6 million of intangible assets, mostly capitalized development costs, and $10.8 million of inventories.
Other
For the year ended March 31, 2021, other gains and losses include a net remeasurement gain of $12.7 million from payment deferrals
obtained from governments on certain R&D and royalty obligations as part of their economic response to the COVID-19 pandemic.
Also included are costs of $7.4 million for purchases of personal protective equipment for the Company’s employees and customers,
additional provisions and other costs resulting directly from the Company’s response to the COVID-19 pandemic.
For the year ended March 31, 2020, other gains and losses include a remeasurement gain of $13.4 million, due to the decrease in fair
value of a contingent consideration liability incurred in connection with a fiscal 2018 business combination.
NOTE 8 – RESTRUCTURING, INTEGRATION AND ACQUISITION COSTS
Integration and acquisition costs
Impairment of non-financial assets
Severances and other employee related costs
Other costs
Total restructuring, integration and acquisition costs
2021
6.9
59.5
42.9
14.7
124.0
$
$
$
$
2020
6.1
7.0
2.7
—
15.8
On August 12, 2020, the Company announced that it would be taking additional measures to best serve the market by optimizing its
global asset base and footprint, adapting its global workforce and adjusting its business to correspond with the expected lower level of
demand for certain of its products and services. As a result of these measures, the Company has implemented a restructuring
program consisting mainly of real estate costs, asset relocations and other direct costs related to the optimization of its footprint and
employee termination benefits.
Impairment of non-financial assets incurred in relation to this restructuring program primarily includes impairment of property, plant
and equipment of training devices determined to be in surplus, intangible assets related to the termination of certain product offerings,
and buildings and right-of-use assets related to leased real estate facilities to align with the optimization of the Company’s footprint
and asset base.
For the year ended March 31, 2021, restructuring, integration and acquisition costs also include $4.3 million of acquisition-related
costs associated with the L3Harris Military Training business acquisition, which is expected to close in the second half of calendar
2021 (Note 5).
For the year ended March 31, 2020, restructuring, integration and acquisition costs are composed of $6.1 million related to the
integration of Bombardier's Business Aircraft Training Business acquired in fiscal 2019 and costs of $9.7 million incurred in the
Defence and Security segment following changes made in the segment organization and the review of certain product offerings.
CAE Financial Report 2021 | 107
Notes to the Consolidated Financial Statements
NOTE 9 – FINANCE EXPENSE – NET
Finance expense:
Long-term debt (other than lease liabilities)
Lease liabilities
Royalty obligations
Employee benefits obligations (Note 22)
Other
Borrowing costs capitalized
Finance expense
Finance income:
2021
2020
$
100.2
$
105.1
21.4
9.8
6.5
13.7
(2.9)
23.3
10.0
5.6
15.5
(3.6)
$
148.7
$
155.9
Loans and investment in finance leases
$
(10.6)
$
Other
Finance income
Finance expense – net
NOTE 10 – INCOME TAXES
Income tax expense
(2.5)
(13.1)
135.6
$
$
(8.3)
(3.2)
$
$
(11.5)
144.4
The reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows:
(Loss) earnings before income taxes
Canadian statutory income tax rates
Income taxes at Canadian statutory rates
Effect of differences in tax rates in other jurisdictions
Unrecognized tax benefits and tax benefits not previously recognized
Non-taxable revenues
Tax impact on after-tax profit of equity accounted investees
Prior years' tax adjustments
Other
Income tax (recovery) expense
2021
2020
$ (87.2)
$ 392.7
26.53 %
26.64 %
$ (23.1)
$ 104.6
(5.8)
3.2
(4.8)
(1.1)
(6.3)
(1.8)
(19.9)
3.4
(6.2)
(6.1)
(4.9)
2.9
$ (39.7)
73.8
The Company's applicable tax rate corresponds to the combined Canadian tax rates applicable in the provinces where the Company
operates. The decrease is due to a change in the tax rates and the allocation of income in the jurisdictions it operates.
Significant components of the provision for the income tax expense are as follows:
Current income tax (recovery) expense:
Current year
Prior years' tax adjustments
Deferred income tax (recovery) expense:
Tax benefit not previously recognized used to reduce the deferred tax expense
Change in income tax rates
Origination and reversal of temporary differences
Income tax (recovery) expense
2021
2020
$
8.6
$
(15.0)
(5.2)
(0.8)
(27.3)
(39.7)
$
$
65.1
5.8
(2.8)
(1.0)
6.7
73.8
108 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Deferred tax assets and liabilities
During the year ended March 31, 2021, movements in temporary differences are as follows:
Balance
Foreign
currency
beginning Recognized Recognized Recognized
Business
exchange
Balance
of year
in income
in OCI
in equity combinations
differences end of year
Non-capital loss carryforwards
$
33.4 $
12.0 $
— $
— $
2.4 $
0.3 $
Unclaimed research & development expenditures
Capital loss carryforwards
Investment tax credits
Property, plant and equipment and right-of-use of assets
Intangible assets
Deferred revenues, contract assets and contract liabilities
Foreign currency exchange difference
Derivative financial assets and liabilities
Defined benefit obligation
Amounts not currently deductible
Other
64.4
1.4
(70.0)
(88.4)
(93.0)
(15.9)
(2.3)
25.5
53.1
42.7
(17.0)
5.8
(0.3)
(6.4)
(5.8)
9.0
6.4
2.7
(18.9)
4.5
33.2
(8.9)
—
—
—
—
—
—
(1.6)
(13.0)
(0.3)
—
—
—
—
—
—
—
—
—
—
—
—
15.7
0.6
—
—
6.9
(11.5)
11.2
—
—
—
(8.9)
—
—
—
—
12.1
3.0
(0.2)
(0.2)
(0.1)
(0.1)
(2.0)
(0.1)
48.1
70.8
1.1
(76.4)
(75.2)
(92.5)
1.5
(1.4)
(6.5)
57.2
65.0
(10.3)
Net deferred income tax (liabilities) assets
$
(66.1) $
33.3 $
(14.9) $
15.7 $
0.7 $
12.7 $
(18.6)
During the year ended March 31, 2020, movements in temporary differences are as follows:
Balance
beginning
Recognized Recognized
Business
exchange
Balance
Foreign
currency
of year
in income
in OCI combinations
differences
end of year
Non-capital loss carryforwards
$
Unclaimed research & development expenditures
Capital loss carryforwards
Investment tax credits
Property, plant and equipment and right-of-use of assets
Intangible assets
Deferred revenues, contract assets and contract liabilities
Foreign currency exchange difference
Derivative financial assets and liabilities
Defined benefit obligation
Amounts not currently deductible
Other
35.2
45.1
0.7
(74.1)
(67.4)
(87.4)
2.0
(13.9)
0.2
55.4
41.6
(7.6)
$
(1.2) $
— $
19.3
0.7
4.1
(11.2)
(1.9)
(18.9)
(2.1)
15.6
0.1
1.5
(8.9)
—
—
—
—
—
—
13.3
9.7
(3.6)
—
—
—
—
—
—
(3.1)
(2.9)
—
—
—
—
(0.6)
—
$
(0.6) $
—
—
—
(6.7)
(0.8)
1.0
0.4
—
1.2
0.2
(0.5)
Net deferred income tax (liabilities) assets
$
(70.2) $
(2.9) $
19.4 $
(6.6) $
(5.8) $
33.4
64.4
1.4
(70.0)
(88.4)
(93.0)
(15.9)
(2.3)
25.5
53.1
42.7
(17.0)
(66.1)
As at March 31, 2021, net deferred tax assets of $85.8 million (2020 – $27.8 million) were recognized in jurisdictions that incurred
losses this fiscal year or the preceding fiscal year. Based upon the level of historical taxable income or projections for future taxable
income, management believes it is probable that the Company will realize the benefits of these net deferred tax assets.
As at March 31, 2021, a deferred income tax liability on taxable temporary differences of $2,439.9 million (2020 – $2,544.3 million)
related to investments in subsidiaries and interests in joint ventures has not been recognized, because the Company controls whether
the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.
The non-capital losses incurred in various jurisdictions expire as follows:
Expiry date
2022 - 2026
2027 - 2040
No expiry date
Unrecognized
Recognized
$
72.3
51.7
64.7
$
7.2
68.2
113.2
$
188.7
$
188.6
As at March 31, 2021, the Company has $107.4 million (2020 – $149.9 million) of deductible temporary differences for which deferred
tax assets have not been recognized. These amounts will reverse during a period of up to 25 years.
CAE Financial Report 2021 | 109
Notes to the Consolidated Financial Statements
NOTE 11 – SHARE CAPITAL, EARNINGS PER SHARE AND DIVIDENDS
Share capital
Authorized and issued shares
The Company is authorized to issue an unlimited number of common shares without par value and an unlimited number of preferred
shares without par value, issuable in series.
The preferred shares may be issued with rights and conditions to be determined by the Board of Directors, prior to their issue. To
date, the Company has not issued any preferred shares.
As at March 31, 2021, the number of common shares issued and fully paid was 293,355,463 (2020 – 265,619,627).
Issuance of common shares
On November 30, 2020, the Company completed a public equity offering and a concurrent private placement of 16,594,126 common
shares at a price of $29.85 per share for aggregate gross proceeds of $495.3 million.
On March 12, 2021, the Company completed a marketed public equity offering of 10,454,545 common shares at a price of $34.29
(US$27.50) per share for gross proceeds of $358.5 million.
Total issuance-related costs of the equity offerings amounted to $42.3 million, less income tax recovery of $11.2 million.
Repurchase and cancellation of common shares
On February 7, 2020, the Company announced the renewal of the normal course issuer bid (NCIB) to purchase up to 5,321,474 of its
common shares. The NCIB began on February 25, 2020 and ended on February 24, 2021. Purchases were made on the open market
plus brokerage fees through the facilities of the TSX and/or alternative trading systems at the prevailing market price at the time of the
transaction, in accordance with the TSX’s applicable policies. All common shares purchased pursuant to the NCIB were cancelled. On
April 6, 2020, the Company announced that it had temporarily suspended its NCIB in response to the COVID-19 pandemic (Note 3).
The NCIB has since expired and has not been renewed.
During
(2020
the year ended March 31, 2021, no common shares were
repurchased and cancelled under
the NCIB
‑ 1,493,331 common shares at a weighted average price of $33.22 per share for a total consideration of $49.6 million).
Earnings per share computation
The denominators for the basic and diluted earnings per share computations are as follows:
Weighted average number of common shares outstanding
Effect of dilutive stock options
Weighted average number of common shares outstanding for diluted earnings per share calculation
2021
2020
272,009,538
265,951,131
—
272,009,538
1,644,353
267,595,484
As at March 31, 2021, stock options to acquire 7,476,902 common shares (2020 – 1,293,200) have been excluded from the above
calculation since their inclusion would have had an anti-dilutive effect.
Dividends
On April 6, 2020, the Company announced that it had temporarily suspended its common share dividends in response to the
COVID-19 pandemic (Note 3).
During the year ended March 31, 2021, no dividends were declared (2020 – $114.3 million or $0.43 per share).
110 | CAE Financial Report 2021
NOTE 12 – ACCOUNTS RECEIVABLE
Details of accounts receivable are as follows:
Current trade receivables
Past due trade receivables
1-30 days
31-60 days
61-90 days
Greater than 90 days
Total trade receivables
Investment in finance leases (Note 17)
Receivables from related parties (Note 35)
Other receivables
Credit loss allowances
Total accounts receivable
Changes in credit loss allowances are as follows:
Credit loss allowances, beginning of year
Additions
Amounts charged off
Unused amounts reversed
Foreign currency exchange differences
Credit loss allowances, end of year
NOTE 13 – BALANCE FROM CONTRACTS WITH CUSTOMERS
Net contract liabilities are as follows:
Contract assets
Contract liabilities - current
Contract liabilities - non-current
Net contract liabilities
Notes to the Consolidated Financial Statements
2021
180.3
$
2020
215.1
$
48.2
22.7
11.8
139.5
95.7
27.8
34.1
105.3
$
402.5
$
478.0
13.6
29.4
107.5
(34.4)
16.8
45.8
53.0
(27.5)
$
518.6
$
566.1
$
2021
(27.5)
(15.7)
6.3
0.4
2.1
2020
$
(22.0)
(7.4)
0.8
1.8
(0.7)
$
(34.4)
$
(27.5)
2021
2020
$
461.9
$
569.3
(674.7)
(96.2)
(746.2)
(83.3)
$
(309.0)
$
(260.2)
During the year ended March 31, 2021, the Company recognized revenue of $517.7 million (2020 – $532.2 million) that was included
in the contract liability balance at the beginning of the year.
During the year ended March 31, 2021, the Company recognized a reversal of revenue of $8.9 million (2020 – revenue of
$29.8 million) related to performance obligations satisfied in previous years. This primarily relates to estimate at completion
adjustments that impacted revenue and measures of completion.
Remaining performance obligations
As at March 31, 2021, the amount of the revenues expected to be realized in future years from performance obligations that are
unsatisfied, or partially unsatisfied, was $4,438.7 million. The Company expects to recognize approximately 35% of these remaining
performance obligations as revenue by March 31, 2022, an additional 21% by March 31, 2023 and the balance thereafter.
NOTE 14 – INVENTORIES
Work in progress
Raw materials, supplies and manufactured products
Total inventories
$
2021
446.0
201.8
$
2020
405.1
211.1
$
647.8
$
616.2
the year ended March 31, 2021, use of
During
(2020 ‑ $500.3 million), and impairment of inventories to net realizable value amounted to $34.0 million (2020 – $6.4 million).
in cost of sales amounted
inventory recognized
to $394.9 million
CAE Financial Report 2021 | 111
Notes to the Consolidated Financial Statements
NOTE 15 – PROPERTY, PLANT AND EQUIPMENT
(amounts in millions)
Net book value as at April 1, 2019
Additions
Additions – business combinations (Note 4)
Disposals
Depreciation
Impairment
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2020
Additions
Additions – business combinations (Note 4)
Disposals
Depreciation
Impairment
Transfers and others
Foreign currency exchange differences
Buildings
and land
Machinery
and
Assets
under
Simulators
equipment
Aircraft
construction
Total
$
241.7
$ 1,450.3
$
31.0
0.1
(0.1)
(17.7)
—
2.2
5.6
27.3
—
(0.5)
(105.0)
(1.8)
155.0
44.0
$
262.8
$ 1,569.3
$
16.2
0.3
—
(19.8)
—
36.1
(13.5)
13.4
7.9
(1.9)
(113.3)
(76.7)
145.3
(120.9)
51.5
13.9
0.1
—
(17.9)
—
2.8
1.0
51.4
13.4
0.3
(0.1)
(15.9)
—
1.4
(2.2)
$
$
54.8
11.3
0.6
(0.1)
(5.0)
—
4.6
3.1
69.3
19.1
—
(0.4)
(5.8)
—
0.6
(6.7)
$
145.0
$ 1,943.3
207.1
—
—
—
—
(151.6)
0.7
290.6
0.8
(0.7)
(145.6)
(1.8)
13.0
54.4
$
201.2
$ 2,154.0
45.5
—
(1.6)
—
—
(97.3)
(8.0)
107.6
8.5
(4.0)
(154.8)
(76.7)
86.1
(151.3)
Net book value as at March 31, 2021
$
282.1
$ 1,423.1
$
48.3
$
76.1
$
139.8
$ 1,969.4
(amounts in millions)
Cost
Buildings
and land
Machinery
and
Assets
under
Simulators
equipment
Aircraft
construction
Total
$
490.0
$ 2,191.1
$
203.1
$
82.2
$
201.2
$ 3,167.6
Accumulated depreciation and impairment
(227.2)
(621.8)
(151.7)
Net book value as at March 31, 2020
Cost
$
$
262.8
513.8
$ 1,569.3
$ 2,140.6
$
$
51.4
192.9
$
$
Accumulated depreciation and impairment
(231.7)
(717.5)
(144.6)
(12.9)
69.3
91.9
(15.8)
$
$
—
201.2
139.8
—
(1,013.6)
$ 2,154.0
$ 3,079.0
(1,109.6)
Net book value as at March 31, 2021
$
282.1
$ 1,423.1
$
48.3
$
76.1
$
139.8
$ 1,969.4
During the year ended March 31, 2021, depreciation of $152.4 million (2020 – $142.8 million) has been recorded in cost of sales,
$0.5 million (2020 – $0.8 million) in research and development expenses and $1.9 million (2020 – $2.0 million) in selling, general and
administrative expenses.
112 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
NOTE 16 – INTANGIBLE ASSETS
(amounts in millions)
Goodwill development
Customer
Capitalized
ERP and
Other
other
intangible
Net book value as at March 31, 2019
Additions – internal development
Additions – acquired separately
Additions – business combinations (Note 4)
Amortization
Impairment
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2020
Additions – internal development
Additions – acquired separately
Additions – business combinations (Note 4)
Amortization
Impairment
Transfers and others
Foreign currency exchange differences
(Note 29)
costs relationships
Licenses
software
assets
Total
$ 1,067.7
$
210.6 $
322.8 $
324.4 $
70.7 $
31.7 $ 2,027.9
—
—
20.1
—
(37.5)
—
35.0
86.2
—
5.8
(39.6)
(3.2)
(11.1)
0.8
—
—
13.0
(34.7)
—
2.9
8.0
—
1.8
(7.0)
(12.8)
—
(2.7)
5.0
12.0
—
—
—
0.6
—
98.2
2.4
31.9
(14.1)
(4.9)
(106.1)
—
4.1
0.3
—
—
0.6
(40.7)
(6.8)
49.7
$ 1,085.3
$
249.5 $
312.0 $
308.7 $
73.0 $
28.0 $ 2,056.5
—
—
169.0
—
—
—
(81.1)
48.6
—
—
(44.6)
(41.4)
5.3
(1.7)
—
—
47.9
(29.7)
(9.3)
(0.9)
(22.5)
—
—
—
(17.6)
—
(0.9)
(10.8)
6.8
—
0.7
(13.4)
—
(1.4)
(0.5)
—
0.6
2.2
(4.0)
(1.1)
0.4
(1.3)
55.4
0.6
219.8
(109.3)
(51.8)
2.5
(117.9)
Net book value as at March 31, 2021
$ 1,173.2
$
215.7 $
297.5 $
279.4 $
65.2 $
24.8 $ 2,055.8
Capitalized
Goodwill development
Customer
(Note 29)
costs relationships
Licenses
ERP and
other
software
Other
intangible
assets
Total
Cost
$ 1,122.8 $
454.2 $
486.1 $
326.2 $
213.3 $
98.3 $ 2,700.9
Accumulated amortization and impairment
(37.5)
(204.7)
(174.1)
(17.5)
(140.3)
(70.3)
(644.4)
Net book value as at March 31, 2020
Cost
$ 1,085.3 $
249.5 $
312.0 $
308.7 $
73.0 $
28.0 $ 2,056.5
$ 1,210.7 $
433.6 $
482.6 $
313.6 $
215.6 $
94.6 $ 2,750.7
Accumulated amortization and impairment
(37.5)
(217.9)
(185.1)
(34.2)
(150.4)
(69.8)
(694.9)
Net book value as at March 31, 2021
$ 1,173.2 $
215.7 $
297.5 $
279.4 $
65.2 $
24.8 $ 2,055.8
During the year ended March 31, 2021, amortization of $63.8 million (2020 – $65.8 million) has been recorded in cost of sales,
$43.6 million (2020 – $38.5 million) in research and development expenses and $1.9 million (2020 – $1.8 million) in selling, general
and administrative expenses.
CAE Financial Report 2021 | 113
Notes to the Consolidated Financial Statements
NOTE 17 – LEASES
Leases as lessee
Right-of-use assets
Net book value as at April 1, 2019
Additions and remeasurements
Additions – business combinations (Note 4)
Depreciation
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2020
Additions and remeasurements
Additions – business combinations (Note 4)
Depreciation
Impairment
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2021
Buildings
Machinery
and
and land
Simulators
equipment
Aircraft
Total
$
241.8 $
183.7 $
7.3 $
— $
432.8
30.1
1.1
(25.3)
(1.0)
5.2
(3.4)
—
(20.1)
(25.3)
3.9
0.6
—
(3.1)
0.2
—
—
0.4
(0.2)
—
—
27.3
1.5
(48.7)
(26.1)
9.1
$
251.9 $
138.8 $
5.0 $
0.2 $
395.9
(2.3)
13.1
(29.0)
(9.2)
1.1
(13.6)
0.1
49.5
(17.2)
—
(97.1)
(8.2)
16.1
—
(3.4)
—
0.4
—
13.0
—
(0.5)
—
(0.2)
—
26.9
62.6
(50.1)
(9.2)
(95.8)
(21.8)
$
212.0 $
65.9 $
18.1 $
12.5 $
308.5
During the year ended March 31, 2021, depreciation of $47.8 million (2020 - $47.0 million) has been recorded in cost of sales and
$2.3 million (2020 - $1.7 million) in selling, general and administrative expenses.
Transfers and others mainly represent transfers from right-of-use assets to property, plant and equipment when the Company obtains
ownership of the underlying asset at the end of the lease term or through a purchase option.
Short-term leases, leases of low-value assets and variable lease payments
During the year ended March 31, 2021, expenses of $19.5 million (2020 - $16.3 million) have been recognized in net income relating
to short-term leases, leases of low-value assets and variable lease payments not included in the measurement of lease liabilities.
Leases as lessor
Operating Leases
As at March 31, 2021, the net book value of property, plant and equipment leased under operating leases to third parties was
$58.2 million (2020 - $72.8 million).
Undiscounted lease payments to be received under operating leases are as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
More than 5 years
2021
28.6 $
$
24.1
20.6
20.2
17.9
28.9
2020
38.3
35.6
30.4
25.8
25.3
65.7
Total undiscounted lease payments receivable
$
140.3 $
221.1
114 | CAE Financial Report 2021
Finance Leases
Undiscounted lease payments to be received under finance leases are as follows:
Notes to the Consolidated Financial Statements
2021
17.2 $
$
17.2
20.6
10.6
12.4
2020
19.5
19.8
27.4
10.3
11.6
124.8
146.8
$
202.8 $
235.4
(65.2)
(9.1)
(71.4)
(9.0)
$
128.5 $
155.0
13.6
16.8
$
114.9 $
138.2
2021
11.4 $
$
21.2
11.1
114.9
45.6
259.2
32.4
2020
12.4
23.3
29.7
138.2
40.2
231.5
35.1
$
495.8 $
510.4
2021
2020
$
461.9 $
539.7
452.1
9.7
5.8
16.1
370.9
15.2
5.7
2.9
$
945.6 $
934.4
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
More than 5 years
Total undiscounted lease payments receivable
Unearned finance income
Discounted unguaranteed residual values of leased assets
Total investment in finance leases
Current portion (Note 12)
Non-current portion (Note 18)
NOTE 18 – OTHER NON-CURRENT ASSETS
Restricted cash
Prepaid rent to a portfolio investment
Advances to a portfolio investment
Investment in finance leases (Note 17)
Non-current receivables
Investment tax credits
Other
NOTE 19 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable trade
Accrued liabilities
Deferred revenue
Amount due to related parties (Note 35)
Current portion of royalty obligations
NOTE 20 – PROVISIONS
Changes in provisions are as follows:
Provisions, as at March 31, 2020
Additions
Business combinations (Note 4)
Amount used
Reversal of unused amounts
Foreign currency exchange differences
Provisions, as at March 31, 2021
Current portion
Non-current portion
Restoration
and
simulator Restructuring
removal
(Note 8)
Legal Warranties
Other
$
12.0 $
1.4 $
3.6 $
32.4 $
8.4 $
0.1
—
—
(0.7)
(0.5)
44.7
—
(16.7)
(0.6)
3.0
2.6
—
(0.5)
—
(0.4)
7.5
6.5
(12.6)
(2.4)
(0.2)
0.2
—
(3.0)
(1.2)
(0.1)
$
10.9 $
31.8 $
5.3 $
31.2 $
4.3 $
0.2
31.1
5.2
13.2
2.9
$
10.7 $
0.7 $
0.1 $
18.0 $
1.4 $
Total
57.8
55.1
6.5
(32.8)
(4.9)
1.8
83.5
52.6
30.9
CAE Financial Report 2021 | 115
Notes to the Consolidated Financial Statements
NOTE 21 – DEBT FACILITIES
Long-term debt, net of transaction costs is as follows:
Notional amount
Repayment
period
2021
2020
Current
Non-current
Current
Non-current
Unsecured senior notes
U.S. dollar, fixed rate - 3.60% to 4.90%
US$ 975.0
2021-2034
$
Canadian dollar, fixed rate - 4.15%
$
30.0
2021-2027
Term loans
U.S. dollar, variable rate
Canadian dollar, variable rate
US$ 176.4
2022-2025
$
40.9
2021-2028
Other
Lease liabilities
U.S. dollar
Other
R&D obligations
Canadian dollar
Revolving credit facilities
U.S. dollar, variable rate
Canadian dollar, variable rate
Total long-term debt
2021-2026
2021-2041
2021-2043
2021-2039
17.2
2.9
71.2
5.6
15.3
60.8
27.0
16.3
—
—
$ 1,202.3
$
27.1
149.3
35.1
54.7
110.7
148.7
407.3
—
—
—
—
$ 1,370.4
30.0
79.7
5.6
8.2
91.7
21.0
—
—
—
177.1
40.7
7.9
214.4
160.7
391.5
423.3
290.0
$
216.3
$ 2,135.2
$
206.2
$ 3,106.0
Term loans
In March 2021, the Company repaid a term loan amounting to US$50.0 million and replaced it with a term loan amounting to
US$50.0 million maturing in March 2022, bearing interest at a variable rate.
In March 2021, the Company entered into a term loan amounting to €31.7 million to refinance assets previously financed under lease
and acquired as part of the FSC acquisition. The term loan matures in 2026, bearing interest at a variable rate.
R&D obligations
Represents obligations with the Government of Canada and the Government of Quebec relative to R&D programs whereby the
government entities provide funding through loans for a portion of eligible spending related to specified R&D projects, up to a
predetermined maximum funding amount. As at March 31, 2021, the remaining undrawn amount available under these programs was
$38.5 million (2020 - $86.3 million). During the year ended March 31, 2021, the Company obtained payment deferrals on certain R&D
obligations as part of the government’s economic response to the COVID-19 pandemic, which resulted in a remeasurement gain
included in Other (gains) and losses (Note 7).
Revolving credit facilities
On April 9, 2020, the Company concluded a new two-year $500.0 million unsecured revolving credit facility. The facility bears interest
at variable rates, plus a margin that is determined based on the usage of the facility and the Company’s credit rating. The new facility
provides access to additional liquidity and is added to the current US$850.0 million unsecured revolving credit facility.
116 | CAE Financial Report 2021
Information on the change in liabilities for which cash flows have been classified as financing activities in the statement of cash flows
are as follows:
Notes to the Consolidated Financial Statements
Total changes from financing cash flows
$
(43.7)
$
(47.9)
$
Net book value as at April 1, 2019
Changes from financing cash flows
Net proceeds from borrowing under
revolving credit facilities
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease liabilities
Non-cash changes
Business combinations (Note 4)
Foreign currency exchange differences
Additions and remeasurement of lease liabilities
Accretion
Other
Total non-cash changes
Net book value as at March 31, 2020
Changes from financing cash flows
Net repayment from borrowing under
revolving credit facilities
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease liabilities
Unsecured
senior
notes
Term
loans
Lease
R&D
liabilities
obligations
Revolving
credit
facilities
Total
$ 1,368.2
$
352.3
$
525.1
$
348.5
$
— $ 2,594.1
—
131.7
(175.4)
—
—
5.5
(53.4)
—
—
75.2
—
—
0.7
—
14.7
—
—
0.1
—
—
—
(79.8)
(79.8)
1.6
13.8
27.3
—
(0.2)
$
75.9
$ 1,400.4
$
$
14.8
319.2
$
$
42.5
487.8
$
$
—
30.4
(4.2)
—
708.2
—
—
—
708.2
167.6
(233.0)
(79.8)
$
26.2
$
708.2 $
563.0
—
—
—
16.8
—
16.8
391.5
—
23.9
—
—
—
5.1
—
—
—
1.6
108.8
27.3
16.8
0.6
$
$
5.1 $
155.1
713.3 $ 3,312.2
(705.6)
(705.6)
—
—
—
151.1
(86.1)
(200.8)
Total changes from financing cash flows
$
Non-cash changes
Business combinations (Note 4)
Foreign currency exchange differences
Additions and remeasurement of lease liabilities
Accretion
Other
Total non-cash changes
Net book value as at March 31, 2021
$
(150.9)
$ 1,249.5
$
$
(29.1)
331.2
$
$
As at March 31, 2021, the Company is in compliance with all of its covenants.
—
—
—
—
—
—
(151.4)
—
—
0.5
—
127.2
(86.1)
—
—
—
—
(200.8)
$
41.1
$
(200.8)
$
23.9
(705.6) $
(841.4)
0.8
(30.2)
—
—
0.3
72.2
(31.5)
26.9
—
(7.4)
60.2
347.2
—
—
—
20.7
(12.5)
8.2
423.6
$
$
—
(7.7)
—
—
—
73.0
(220.8)
26.9
20.7
(19.1)
$
$
(7.7) $
(119.3)
— $ 2,351.5
NOTE 22 – EMPLOYEE BENEFITS OBLIGATIONS
Defined benefit pension plans
The Company has three registered funded defined benefit pension plans in Canada (two for employees and one for designated
executives) that provide benefits based on length of service and final average earnings. The Company also maintains funded pension
plans for employees in the Netherlands and United Kingdom that provide benefits based on similar provisions.
The Company’s annual contributions, to fund both benefits accruing in the year and deficits accumulated over prior years, and the
plans’ financial position are determined based on actuarial valuations. Applicable pension legislations prescribe minimum funding
requirements.
In addition, the Company maintains unfunded plans in Canada, United States and Germany that provide defined benefits based on
length of service and final average earnings. These unfunded plans are the sole obligation of the Company, and there is no
requirement to fund them. However, the Company is obligated to pay the benefits when they become due. As at March 31, 2021, the
Company has issued letters of credit totalling $68.0 million (2020 – $60.6 million) to collateralize the obligations under the Canadian
plans.
The funded plans are trustee administered funds. Plan assets held in trusts are governed by local regulations and practices in each
country, as is the nature of the relationship between the Company and the trustees and their composition. Responsibility for
governance of the plans, including investment decisions and contribution schedules, lies jointly with the Company and the board of
trustees.
CAE Financial Report 2021 | 117
Notes to the Consolidated Financial Statements
The employee benefits obligations are as follows:
Funded defined benefit pension obligations
Fair value of plan assets
Funded defined benefit pension obligations – net
Unfunded defined benefit pension obligations
Employee benefits obligations
2021
2020
$
761.5
$
649.2
641.9
530.1
$
119.6
$
119.1
102.6
93.7
$
222.2
$
212.8
Changes in funded defined benefit pension obligations and fair value of plan assets are as follows:
Pension obligations, beginning of year
$
576.9
$
72.3
$
649.2
$
597.2
$
67.2
$
664.4
Canadian
Foreign
2021
Total
Canadian
Foreign
2020
Total
Current service cost
Interest cost
Past service cost
Actuarial loss (gain) arising from:
Experience adjustments
Economic assumptions
Demographic assumptions
Employee contributions
Pension benefits paid
Foreign currency exchange differences
Pension obligations, end of year
Fair value of plan assets, beginning of year
$
$
Interest income
Return on plan assets, excluding amounts
included in interest income
Employer contributions
Employee contributions
Pension benefits paid
Administrative costs
Foreign currency exchange differences
28.4
20.5
1.0
(0.6)
72.3
—
7.4
(18.9)
—
687.0
467.8
16.9
79.7
22.7
7.4
(18.9)
(0.9)
—
2.4
1.1
(2.8)
(1.7)
9.1
(1.3)
0.5
(1.4)
(3.7)
74.5
62.3
1.0
6.3
1.9
0.5
(1.4)
(0.2)
(3.2)
30.8
21.6
(1.8)
(2.3)
81.4
(1.3)
7.9
(20.3)
(3.7)
761.5
530.1
17.9
86.0
24.6
7.9
(20.3)
(1.1)
(3.2)
30.4
18.0
—
9.2
(64.3)
—
7.2
(20.8)
—
576.9
485.3
14.9
(40.0)
22.1
7.2
(20.8)
(0.9)
—
$
$
$
$
$
$
$
$
Fair value of plan assets, end of year
$
574.7
$
67.2
$
641.9
$
467.8
$
2.1
1.1
—
0.4
0.5
(0.4)
0.6
(1.5)
2.3
72.3
58.4
0.9
(0.2)
2.3
0.6
(1.5)
(0.2)
2.0
62.3
32.5
19.1
—
9.6
(63.8)
(0.4)
7.8
(22.3)
2.3
649.2
543.7
15.8
(40.2)
24.4
7.8
(22.3)
(1.1)
2.0
$
$
$
530.1
Changes in unfunded defined benefit pension obligations are as follows:
Pension obligations, beginning of year
$
78.0
$
15.7
$
93.7
$
77.2
$
14.7
$
91.9
Canadian
Foreign
2021
Total
Canadian
Foreign
2020
Total
Current service cost
Interest cost
Past service cost
Actuarial loss (gain) arising from:
Experience adjustments
Economic assumptions
Pension benefits paid
Business combinations
Foreign currency exchange differences
3.2
2.6
—
—
7.9
(3.1)
—
—
0.6
0.2
—
—
(0.8)
(0.7)
—
(1.0)
3.8
2.8
—
—
7.1
(3.8)
—
(1.0)
3.3
2.1
—
7.7
(7.2)
(2.8)
(2.3)
—
0.6
0.2
(0.1)
(0.6)
1.1
(0.7)
—
0.5
Pension obligations, end of year
$
88.6
$
14.0
$
102.6
$
78.0
$
15.7
$
3.9
2.3
(0.1)
7.1
(6.1)
(3.5)
(2.3)
0.5
93.7
118 | CAE Financial Report 2021
Net pension cost is as follows:
Funded plans
Current service cost
Interest cost
Interest income
Past service cost
Administrative cost
Net pension cost of funded plans
$
33.9
$
Unfunded plans
Current service cost
Interest cost
Past service cost
Net pension cost of unfunded plans
Total net pension cost
$
$
$
3.2
2.6
—
5.8
39.7
$
$
$
Canadian
Foreign
$
$
28.4
20.5
(16.9)
1.0
0.9
Notes to the Consolidated Financial Statements
2021
Total
30.8
21.6
(17.9)
(1.8)
1.1
33.8
3.8
2.8
—
6.6
40.4
Canadian
Foreign
$
$
30.4
18.0
(14.9)
—
0.9
$
34.4
$
$
$
$
3.3
2.1
—
5.4
39.8
$
$
$
2.1
1.1
(0.9)
—
0.2
2.5
0.6
0.2
(0.1)
0.7
3.2
$
2020
Total
32.5
19.1
(15.8)
—
1.1
$
36.9
$
$
$
3.9
2.3
(0.1)
6.1
43.0
2.4
1.1
(1.0)
(2.8)
0.2
(0.1)
0.6
0.2
—
0.8
0.7
$
$
$
$
$
During the year ended March 31, 2021, pension costs of $18.5 million (2020 – $15.8 million) have been charged in cost of sales,
$5.5 million (2020 – $4.3 million) in research and development expenses, $10.2 million (2020 – $14.3 million) in selling, general and
administrative expenses, $6.5 million (2020 – $5.6 million) in finance expense, and a net gain related to past service cost of
$1.8 million (2020 - nil) has been recorded in restructuring, integration and acquisition costs. In addition, pension costs of $1.5 million
(2020 – $3.0 million) were capitalized.
Fair value of the plan assets, by major categories, are as follows:
(amounts in millions)
Canadian plans
Equity funds
Canadian
Foreign
Bond funds
Government
Corporate
Cash and cash equivalents
Other
Total Canadian plans
Foreign plans
Insured annuities
Equity instruments
Debt instruments
Corporate
Other
Total Foreign plans
Total plans
Quoted
Unquoted
2021
Total
Quoted
Unquoted
2020
Total
$
$
$
$
$
—
—
—
—
—
—
—
—
2.6
3.7
—
6.3
6.3
$
78.2
$
78.2
$
187.3
187.3
113.0
104.3
11.2
80.7
113.0
104.3
11.2
80.7
$
574.7
$
574.7
$
$
60.3
$
—
—
0.6
$
60.3
2.6
3.7
0.6
$
$
60.9
635.6
$
$
67.2
641.9
$
$
—
—
—
—
—
—
—
—
2.4
3.5
—
5.9
5.9
$
55.2
$
55.2
165.7
165.7
92.2
85.2
4.3
65.2
92.2
85.2
4.3
65.2
$
467.8
$
467.8
$
55.9
$
—
—
0.5
55.9
2.4
3.5
0.5
$
$
56.4
524.2
$
$
62.3
530.1
As at March 31, 2021 and March 31, 2020, there were no common shares of the Company in the pension plan assets.
Significant assumptions (weighted average) used are as follows:
Pension obligations as at March 31:
Discount rate
Compensation rate increases
Net pension cost for years ended March 31:
Discount rate
Compensation rate increases
2021
3.32 %
3.65 %
3.96 %
3.66 %
Canadian
2020
3.96 %
3.66 %
3.33 %
3.66 %
2021
1.06 %
3.01 %
1.46 %
2.92 %
Foreign
2020
1.46 %
2.92 %
1.64 %
2.92 %
CAE Financial Report 2021 | 119
Notes to the Consolidated Financial Statements
Assumptions regarding future mortality are based on actuarial advice in accordance with published statistics and mortality tables and
experience in each territory. The mortality tables and the average life expectancy in years for a member age 45 and 65 are as follows:
As at March 31, 2021
(in years)
Country
Canada
Netherlands
Germany
Mortality table
CPM private tables
AG2020
Heubeck RT2018G
United Kingdom
S2PxA CMI 2020
United States
CPM private tables
As at March 31, 2020
(in years)
Country
Canada
Netherlands
Germany
Mortality table
CPM private tables
AG2018
Heubeck RT2018G
United Kingdom
S2PxA CMI 2018
United States
CPM private tables
Life expectancy over 65 for a member
at age 45
at age 65
at age 45
Male
23.5
23.3
23.1
23.0
24.8
22.1
21.4
20.3
22.0
23.4
25.6
25.3
26.0
25.2
26.3
Female
at age 65
24.3
23.4
23.8
23.9
25.0
Life expectancy over 65 for a member
at age 45
at age 65
at age 45
Male
23.5
23.9
23.0
23.1
24.7
22.0
21.8
20.2
22.0
23.3
25.6
25.9
25.9
25.1
26.2
Female
at age 65
24.3
23.7
23.7
22.0
24.9
As at March 31, 2021, the weighted average duration of the defined benefit obligation is 19 years.
The impact on the defined benefit obligation as a result of a 0.25% change in the significant assumptions as at March 31, 2021 are as
follows:
Discount rate:
Increase
Decrease
Compensation rate:
Increase
Decrease
Funded plans
Unfunded plans
Canadian
Foreign
Canadian
Foreign
Total
$
(30.3)
$
(3.8)
$
(2.9)
$
(0.4)
$
(37.4)
32.5
8.3
(8.5)
4.1
0.2
(0.2)
3.1
0.5
(0.5)
0.5
—
—
40.2
9.0
(9.2)
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant being the exposure to asset
volatility, to changes in bond yields and to changes in life expectancy. The plan liabilities are calculated using a discount rate set with
reference to corporate bond yields, if plan assets underperform against this yield, this will create a deficit. A decrease in corporate
bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. The
plans’ obligations are to provide benefits for the duration of the life of its members, therefore, increases in life expectancy will result in
an increase in the plans’ liabilities.
Contributions reflect actuarial assumptions of future investment returns, salary projections and future service benefits. The expected
employer contributions and expected benefits paid for the next fiscal year are as follows:
Expected employer contributions in funded plans
Expected benefits paid in unfunded plans
Canadian
Foreign
$
22.3
3.5
$
2.3
0.7
$
Total
24.6
4.2
NOTE 23 – OTHER NON-CURRENT LIABILITIES
Deferred revenue and contract liabilities
Share-based payments liabilities (Note 26)
Contingent consideration arising on business combinations
Interest payable
Other
120 | CAE Financial Report 2021
2021
2020
$
108.6
$
104.7
79.7
11.2
19.8
26.3
35.1
—
21.1
30.2
$
245.6
$
191.1
NOTE 24 – SUPPLEMENTARY CASH FLOWS INFORMATION
Changes in non-cash working capital are as follows:
Notes to the Consolidated Financial Statements
Cash (used in) provided by non cash working capital:
Accounts receivable
Contract assets
Inventories
Prepayments
Income taxes
Accounts payable and accrued liabilities
Provisions
Contract liabilities
Supplemental information:
Interest paid
Interest received
Income taxes paid
2021
2020
$
32.6
75.5
43.4
2.3
(12.0)
(54.0)
27.7
(165.0)
$
(39.9)
(29.9)
(87.5)
(0.9)
8.2
53.5
(6.5)
50.8
$
(49.5)
$
(52.2)
$
2021
98.0
13.2
26.4
2020
$
108.7
11.4
34.2
NOTE 25 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Foreign currency
exchange differences
on translation of
Net changes in
Net changes in
financial assets
foreign operations
cash flow hedges
carried at FVOCI
2021
2020
2021
2020
2021
2020
2021
Total
2020
Balances, beginning of year
$ 225.9 $ 208.9 $
(33.3) $
(10.5) $
0.6 $
0.6 $ 193.2 $ 199.0
Other comprehensive (loss) income
(161.4)
17.0
28.1
(22.8)
(1.8)
—
(135.1)
(5.8)
Balances, end of year
$
64.5 $ 225.9 $
(5.2) $
(33.3) $
(1.2) $
0.6 $
58.1 $ 193.2
NOTE 26 – SHARE-BASED PAYMENTS
The Company’s share-based payment plans consist of two categories: an equity-settled share-based payment plan comprised of the
stock option plan; and cash-settled share-based payments plans that include the stock purchase plan, deferred share units (DSU)
plans, restricted share units (RSU) plans and the performance share units (PSU) plan.
Share-based payments expense are as follows:
Equity-settled plan
Stock option plan
Cash-settled plans
Stock purchase plan
Deferred share unit (DSU) plans
Restricted share unit (RSU) plans
Performance share unit (PSU) plan
Total share-based payments expense
Impact of equity swap agreements (Note 33)
Amount capitalized
Share-based payments expense, net of equity swap (Note 27)
2021
2020
$
9.8
$
5.8
10.0
11.4
28.6
39.3
99.1
(45.6)
(0.5)
$
10.3
(2.4)
(10.9)
(2.9)
(0.1)
44.0
(1.2)
$
$
53.0
$
42.7
CAE Financial Report 2021 | 121
Notes to the Consolidated Financial Statements
Carrying amount of share-based payments liabilities are as follows:
Cash-settled plans
Deferred share unit (DSU) plans
Restricted share unit (RSU) plans
Performance share unit (PSU) plan
Total carrying amount of share-based payments liabilities
Current portion
Non-current portion (Note 23)
2021
2020
$
$
19.7
46.3
36.8
$
102.8
$
23.1
79.7
$
$
8.4
24.7
16.2
49.3
14.2
35.1
Stock option plan
Stock options to purchase common shares of the Company are granted to certain employees, officers and executives of the
Company. The stock option exercise price is equal to the common shares weighted average price on the TSX of the five days of
trading prior to the grant date. Stock options vest over four years of continuous employment from the grant date. The stock options
must be exercised within a seven-year period, but are not exercisable during the first year after the grant date. As at March 31, 2021,
a total of 11,205,103 common shares (2020 – 11,892,268) remained authorized for issuance under the stock option plan.
Changes in outstanding stock options are as follows:
Stock options outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
Stock options outstanding, end of year
Stock options exercisable, end of year
2021
Weighted
2020
Weighted
Number of
average exercise
Number of
average exercise
stock options
price
stock options
6,050,854
2,697,713
(687,165)
(579,700)
(4,800)
7,476,902
2,934,364
$
24.25
20.65
17.94
26.28
11.02
23.39
21.66
$
$
6,504,125
1,320,700
(1,553,846)
(196,825)
(23,300)
6,050,854
2,187,379
price
$
20.41
34.50
17.06
24.17
10.06
24.25
19.05
$
$
During the year ended March 31, 2021, the weighted average market share price for stock options exercised was $30.19
(2020 ⁃ $34.77).
As at March 31, 2021, summarized information about the stock options issued and outstanding is as follows:
Range of
exercise prices
$14.61 to $16.15
$20.24 to $22.26
$22.31 to $34.98
Total
Options Outstanding
Options Exercisable
Weighted
Number of average remaining
Weighted
Number of
Weighted
stock options
contractual life
average exercise
stock options
average exercise
outstanding
(years)
1,201,885
3,735,679
2,539,338
7,476,902
1.80
5.13
4.64
4.43
price
$
15.80
21.12
30.31
exercisable
1,201,885
864,229
868,250
price
$
15.80
22.13
29.29
$
23.39
2,934,364
$
21.66
During the year ended March 31, 2021, the weighted average fair value of stock options granted was $5.22 (2020 – $4.98).
The assumptions used in the calculation of the fair value of the stock options on the grant date using the Black-Scholes option pricing
model are as follows:
Common share price
Exercise price
Dividend yield
Expected volatility
Risk-free interest rate
Expected stock option life
2021
$ 21.48
$ 20.65
2020
$ 33.94
$ 34.50
2.01 %
35.22 %
0.36 %
4 years
1.18 %
19.70 %
1.48 %
4 years
Expected volatility is estimated by considering historical average common share price volatility over the expected life of the stock
options.
122 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Stock purchase plan
Employees of the Company and its participating subsidiaries can acquire common shares through regular payroll deductions. The
Company contributes $1 for every $2 of employee contributions, up to a maximum of 3% of the employee’s base salary. The
employee and Company’s contributions are remitted to an independent plan administrator who purchases common shares on the
market on behalf of the employee.
Deferred share unit (DSU) plans
Non-employee directors holding less than the minimum required holdings of common shares of the Company receive their Board
retainer compensation in the form of deferred share units (DSUs). A non-employee director holding no less than the minimum required
holdings of common shares may also elect to participate in the DSU plan in respect of part or all of his or her retainer. Such retainer
amount is converted to DSUs based on the common shares price on the TSX on the date such retainer becomes payable to the
non‑employee director.
Certain executives can elect to defer a portion or entire short-term incentive payment to the DSU plan on an annual basis. Such
deferred short-term incentive amount is converted to DSUs based on the common shares weighted average price on the TSX of the
five days of trading prior to the date such incentive becomes payable to the executives.
DSUs entitle the holders to receive a cash payment equal to the common shares closing price on the TSX on the payment date, or, in
certain cases, the weighted average price of to the five days prior to the payment date. Holders are also entitled to dividend
equivalents payable in additional DSUs in an amount equal to the dividends paid on the common shares from the date of issuance to
the payment date.
DSUs vest immediately and are paid upon any termination of employment or when a non-employee director ceases to act as a
director.
Changes in outstanding DSUs are as follows:
DSUs outstanding, beginning of year
Granted
Redeemed
Dividends paid in DSUs
DSUs vested and outstanding, end of year
2021
469,835
81,980
2020
523,470
79,196
(1,073)
(140,251)
—
7,420
550,742
469,835
Restricted share unit (RSU) plans
Restricted share units (RSUs) are granted to certain employees, officers and executives of the Company. RSUs entitle the holders to
receive a cash payment based on the average closing price on the TSX for the 20 trading days preceding the vesting date, if
restriction criteria are met. Restriction criteria include continuing employment for a period of up to three years. RSUs are paid three
years after the grant date.
Changes in outstanding RSUs are as follows:
RSUs outstanding, beginning of year
Granted
Cancelled
Redeemed
Dividends paid in RSUs
RSUs outstanding, end of year
RSUs vested, end of year
2021
2020
1,490,603
1,570,063
246,249
(42,264)
(264,064)
—
149,477
(16,207)
(228,928)
16,198
1,430,524
1,295,233
1,490,603
1,391,195
As at March 31, 2021, vested and outstanding RSUs includes 943,250 RSUs granted under the previous plan (2020 – 1,044,359),
which are paid upon any termination of employment of the holder. Under the previous plan, holders are also entitled to dividend
equivalents payable in additional RSUs in an amount equal to the dividends paid on the common shares from the date of issuance to
the payment date.
Performance share unit (PSU) plan
Performance share units (PSUs) are granted to certain employees, officers and executives of the Company. PSUs entitle the holders
to receive a cash payment equal to the average closing price on the TSX of the common shares for the 20 trading days preceding the
vesting date multiplied by a factor which ranges from 0% to 200% based on the attainment of performance criteria set out pursuant to
the plan, if restriction criteria are met. Restriction criteria include continuing employment for a period of up to three years. PSUs are
paid three years after the grant date.
CAE Financial Report 2021 | 123
Notes to the Consolidated Financial Statements
Changes in outstanding PSUs are as follows:
PSUs outstanding, beginning of year
Granted
Cancelled
Redeemed
PSUs outstanding, end of year
PSUs vested, end of year
NOTE 27 – EMPLOYEE COMPENSATION
Total employee compensation expense recognized in income is as follows:
(amounts in millions)
Salaries and other short-term employee benefits
Share-based payments expense, net of equity swap (Note 26)
Post-employment benefits – defined benefit plans (Note 22)
Post-employment benefits – defined contribution plans
Termination benefits
Total employee compensation
2021
976,873
585,162
(41,266)
(700,680)
820,089
649,449
2020
1,141,200
730,352
(41,991)
(852,688)
976,873
758,209
2021
2020
$ 1,095.9
$ 1,218.6
53.0
38.9
17.9
43.9
42.7
40.0
19.2
4.4
$ 1,249.6
$ 1,324.9
NOTE 28 – GOVERNMENT PARTICIPATION
Government contributions, other than COVID-19 government support programs, were recognized as follows:
Credited to non-financial assets
Credited to income
2021
11.7
20.2
31.9
$
$
2020
15.6
18.0
33.6
$
$
COVID-19 government support programs
Governments around the world have responded to the COVID-19 pandemic by implementing a variety of financial relief measures and
support programs for impacted businesses and employees. Government assistance programs that meet the definition of a
government grant were accounted for under the specific requirements of IAS 20 - Accounting for Government Grants and Disclosure
of Government Assistance.
The Company has accessed government programs in countries in which it operates. On April 11, 2020, the Canada Emergency Wage
Subsidy (CEWS) was brought into law in Canada, which is intended to help Canadian businesses keep employees on their payroll
through the challenges posed by the COVID-19 pandemic. The Company was eligible for the CEWS subsidy program throughout the
fiscal year ended March 31, 2021, which allowed the Company to recall employees previously placed on furlough or reduced work
weeks. The wage subsidies either flowed through directly to employees according to the objective of the subsidy programs and the
way they were designed in certain countries, or the amounts were offset by the increased costs the Company incurred in revoking
some of our initial cost saving measures including eliminating salary reductions and bringing back employees. For the year ended
March 31, 2021, government contributions related to enacted COVID-19 support programs, mainly provided as a reimbursement of
employee wages, totaled $160.5 million, of which $33.1 million were credited to non-financial assets and $127.4 million were credited
to income. The Government of Canada has proposed to extend the CEWS program to September 2021, although continuation in the
program is subject to meeting the eligibility requirements and the conditions of the program.
New financial participation agreements
On September 14, 2020, the Company concluded a new financial participation agreement with Investissement Québec (IQ). Under
this agreement, IQ agreed to invest up to $30.0 million in repayable contributions on eligible spending related to Healthcare R&D
programs.
In March 2021, the Company, along with other industry partners, entered into a new financial participation agreement with the
government of Quebec, through the Ministry of Economy and Innovation for the L'aéronef de demain project. The project will focus on
the acceleration of technology development, digital transformation and knowledge for the advancement of the aircraft of the future, in
particular those with hybrid electric propulsion, and implementation of associated services. The government of Quebec has committed
to contribute amounts up to 50% of eligible costs incurred by the Company to fiscal 2022, up to a maximum of $10 million in
non‑refundable grants.
124 | CAE Financial Report 2021
NOTE 29 – IMPAIRMENT OF NON-FINANCIAL ASSETS
The carrying amount of goodwill allocated to the Company's CGUs per operating segment is as follows:
Notes to the Consolidated Financial Statements
Net book value as at March 31, 2019
Business combinations (Note 4)
Impairment
Foreign currency exchange differences
Net book value as at March 31, 2020
Business combinations (Note 4)
Foreign currency exchange differences
Net book value as at March 31, 2021
Civil Aviation
Defence
Training Solutions
and Security
Healthcare
Total
$
630.6
$
290.8
$
146.3
$ 1,067.7
19.2
—
17.5
—
—
9.9
0.9
(37.5)
7.6
20.1
(37.5)
35.0
$
667.3
$
300.7
$
117.3
$ 1,085.3
169.0
(47.1)
—
(21.4)
—
(12.6)
169.0
(81.1)
$
789.2
$
279.3
$
104.7
$ 1,173.2
Goodwill is allocated to CGUs or a group of CGUs, which generally corresponds to the Company’s operating segments or one level
below.
The Company performed its annual impairment test for goodwill during the fourth quarter of fiscal 2021. The Company determined the
recoverable amount of the Civil Aviation Training Solutions, Defence and Security and Healthcare CGUs based on fair value less
costs of disposal calculations. The recoverable amount of each CGU is calculated using estimated cash flows derived from the
Company's five-year strategic plan as approved by the Board of Directors. The cash flows derived from the Company's five-year
strategic plan are based on management’s expectations of market growth, industry reports and trends, and past performance. Cash
flows subsequent to the five‑year period were extrapolated using a constant growth rate of 2% to 3%. These growth rates were
consistent with forecasts included in industry reports specific to the industry in which each CGU operates. These projections are
inherently uncertain due to the fluidly evolving impact of the COVID-19 pandemic. The discount rates used to calculate the
recoverable amounts reflect each CGUs’ specific risks and market conditions and range from 8.0% to 13.0%.
During the year ended March 31, 2021, the estimated recoverable amount exceeded the carrying amounts of all CGUs. As a result,
there was no impairment identified.
During the year ended March 31, 2020, the Company recorded an impairment charge of $37.5 million relating to goodwill allocated to
the Healthcare CGU. The impairment charge was based on the general economic conditions at the time of the test, which negatively
affected the discount rate used and the Healthcare CGU’s cash flow projections.
Variations in the Company assumptions and estimates, particularly in the expected growth rates embedded in its cash flow projections
and the discount rate could have a significant impact on fair value. For the year ended March 31, 2021, an increase of 1% in the
discount rate or a decrease of 1% in the growth rate would not have resulted in an impairment charge.
NOTE 30 – CONTINGENCIES AND COMMITMENTS
Contingencies
In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Although it is possible
that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate
outcome of these matters will have a material impact on its consolidated financial position.
The Company is subject to audits from various government and regulatory agencies on an ongoing basis. As a result, from time to
time, authorities may disagree with positions and conclusions taken by the Company in its filings.
During the year ended March 31, 2015, the Company received a reassessment from the Canada Revenue Agency challenging the
Company’s characterization of the amounts received under the Strategic Aerospace and Defence Initiative (SADI) program. No
amount has been recognized in the Company’s financial statements, since the Company believes that there are strong grounds for
defence and will vigorously defend its position. Such matters cannot be predicted with certainty, however, the Company believes that
the resolution of these proceedings will not have a material adverse effect on its financial position.
Commitments
Contractual purchase commitments that are not recognized as liabilities are as follows:
Less than 1 year
Between 1 and 5 years
Total contractual purchase commitments
2021
2020
$
195.9
$
204.7
92.8
35.1
$
288.7
$
239.8
CAE Financial Report 2021 | 125
Notes to the Consolidated Financial Statements
NOTE 31 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no
active market exists for a financial instrument, the Company determines the fair value of that instrument based on valuation
methodologies as discussed below. In determining assumptions required under a valuation model, the Company primarily uses
external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate the
Company’s best estimates of market participant assumptions. Counterparty credit risk and the Company’s own credit risk are taken
into account in estimating the fair value of financial assets and financial liabilities.
The following assumptions and valuation methodologies have been used to measure the fair value of financial instruments:
(i)
The fair value of cash and cash equivalents, restricted funds for subscription receipts deposit, accounts receivable, accounts
payable and accrued liabilities and liabilities for subscription receipts approximate their carrying values due to their short-term
maturities;
(ii) The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted
for separately and is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield
curve and forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date. The fair
value of derivative instruments reflect the estimated amounts that the Company would receive or pay to settle the contracts at the
reporting date;
(iii) The fair value of the equity investments, which does not have a readily available market value, is estimated using a discounted
cash flow model, which includes some assumptions that are not based on observable market prices or rates;
(iv) The fair value of non-current receivables is estimated based on discounted cash flows using current interest rates for instruments
with similar risks and remaining maturities;
(v) The fair value of long-term debts, royalties obligations and other non-current liabilities are estimated based on discounted cash
flows using current interest rates for instruments with similar risks and remaining maturities;
(vi) The fair value of the contingent considerations arising on business combinations are based on the estimated amount and timing
of projected cash flows, the probability of the achievement of the criteria on which the contingency is based and the risk-adjusted
discount rate used to present value the probability-weighted cash flows.
Fair value hierarchy
The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following levels:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as
prices in markets that are not active) or indirectly (i.e. quoted prices for similar assets or liabilities);
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
126 | CAE Financial Report 2021
Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement in its entirety.
The carrying values and fair values of financial instruments, by category, are as follows:
Notes to the Consolidated Financial Statements
Financial assets (liabilities) measured at FVTPL
Cash and cash equivalents
Restricted cash
Restricted funds for subscription receipts deposit
Equity swap agreements
Forward foreign currency contracts
Contingent consideration arising on business combinations
Derivatives assets (liabilities) designated in a hedge relationship
Foreign currency and interest rate swap agreements
Forward foreign currency contracts
Financial assets (liabilities) measured at amortized cost
Accounts receivable(1)
Investment in finance leases
Advances to a portfolio investment
Other assets(2)
Accounts payable and accrued liabilities(3)
Liabilities for subscription receipts
Total long-term debt(4)
Other non-current liabilities(5)
Financial assets measured at FVOCI
Equity investments
Level
Carrying value
Fair value Carrying value
Fair value
Total
Total
Total
Total
2021
2020
Level 1
Level 1
Level 2
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
$
926.1
$
926.1
$
946.5
$
946.5
11.4
700.1
(0.6)
7.5
(11.2)
5.1
16.5
478.7
128.5
11.1
28.6
(674.9)
(714.1)
11.4
700.1
(0.6)
7.5
(11.2)
5.1
16.5
478.7
141.0
11.1
29.0
(674.9)
(714.1)
12.4
—
(55.5)
(7.2)
—
(0.3)
(31.6)
514.5
155.0
29.7
22.1
(709.1)
—
12.4
—
(55.5)
(7.2)
—
(0.3)
(31.6)
514.5
183.2
29.7
20.5
(709.1)
—
(2,010.9)
(2,216.3)
(2,830.6)
(2,960.4)
(174.2)
(187.4)
(182.0)
(167.9)
1.5
1.5
3.3
3.3
$ (1,270.8)
$ (1,476.5)
$ (2,132.8)
$ (2,221.9)
(1) Includes trade receivables, accrued receivables and certain other receivables.
(2) Includes non-current receivables and certain other non-current assets.
(3) Includes trade accounts payable, accrued liabilities, interest payable and current royalty obligations.
(4) Excludes lease liabilities. The carrying value of long-term debt excludes transaction costs.
(5) Includes non-current royalty obligations and other non-current liabilities.
Changes in level 3 financial instruments are as follows:
Balance as at March 31, 2020
Additions – business combinations (Note 4)
Total realized and unrealized losses included in other comprehensive income
Total realized and unrealized gains included in income
Balance as at March 31, 2021
$
3.3
(11.5)
(1.8)
0.3
$
(9.7)
NOTE 32 – CAPITAL RISK MANAGEMENT
The Company’s capital allocation priorities continue to be focused on:
(i) Investing in superior and sustainable growth opportunities;
(ii) Maintaining a strong financial position consistent with the Company’s investment grade profile;
(iii) Providing current returns to shareholders.
The Company manages its capital structure and makes corresponding adjustments based on changes in economic conditions and the
risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount
of dividends paid to shareholders, issue new shares or debt, use cash to reduce debt or repurchase shares.
To accomplish its objectives stated above, the Company monitors its capital on the basis of the net debt to capital. This ratio is
calculated as net debt divided by the sum of the net debt and total equity. Net debt is calculated as total debt, including the short-term
portion (as presented in the consolidated statement of financial position and including non-recourse debt) less cash and cash
equivalents. Total equity comprises share capital, contributed surplus, accumulated other comprehensive income, retained earnings
and non-controlling interests.
CAE Financial Report 2021 | 127
Notes to the Consolidated Financial Statements
The level of debt versus equity in the capital structure is monitored, and the ratios are as follows:
Total long-term debt (Note 21)
Less: cash and cash equivalents
Net debt
Equity
Total net debt plus equity
Net debt: equity
2021
2020
$ 2,351.5
$ 3,312.2
(926.1)
(946.5)
$ 1,425.4
$ 2,365.7
3,212.8
2,578.3
$ 4,638.2
$ 4,944.0
31:69
48:52
The Company has certain debt agreements which require the maintenance of a certain level of capital.
NOTE 33 – FINANCIAL RISK MANAGEMENT
Due to the nature of the activities that the Company carries out and as a result of holding financial instruments, the Company is
exposed to credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. The Company’s exposure to
credit risk, liquidity risk and market risk is managed within risk management parameters documented in corporate policies. These risk
management parameters remain unchanged since the previous period, unless otherwise indicated.
Credit risk
Credit risk is defined as the Company’s exposure to a financial loss if a debtor fails to meet its obligations in accordance with the
terms and conditions of its arrangements with the Company. The Company is exposed to credit risk on its accounts receivable and
certain other assets through its normal commercial activities. The Company is also exposed to credit risk through its normal treasury
activities on its cash and cash equivalents and derivative financial assets. Credit risks arising from the Company’s normal commercial
activities are managed with regards to customer credit risk.
The Company’s customers are mainly established companies, some of which have publicly available credit ratings, as well as
government agencies, which facilitates risk assessment and monitoring. In addition, the Company typically receives substantial non-
refundable advance payments for contracts with customers. The Company closely monitors its exposure to major airline companies in
order to mitigate its risk to the extent possible. Furthermore, the Company’s trade receivables are not concentrated with specific
customers but are held with a wide range of commercial and government organizations. As well, the Company’s credit exposure is
further reduced by the sale of certain of its accounts receivable to third-party financial institutions for cash consideration on a limited
recourse basis (receivable purchase program). The Company does not hold any collateral as security. The credit risk on cash and
cash equivalents is mitigated by the fact that they are mainly in place with a diverse group of major North American and European
financial institutions.
The Company is exposed to credit risk in the event of non-performance by counterparties to its derivative financial instruments. The
Company uses several measures to minimize this exposure. First, the Company enters into contracts with counterparties that are of
high credit quality. The Company signed International Swaps & Derivatives Association, Inc. (ISDA) Master Agreements with all the
counterparties with whom it trades derivative financial instruments. These agreements make it possible to offset when a contracting
party defaults on the agreement, for each of the transactions covered by the agreement and in force at the time of default. Also,
collateral or other security to support derivative financial instruments subject to credit risk can be requested by the Company or its
counterparties (or both parties, if need be) when the net balance of gains and losses on each transaction exceeds a threshold defined
in the ISDA Master Agreement. Finally, the Company monitors the credit standing of counterparties on a regular basis to help
minimize credit risk exposure.
The carrying amounts presented in Note 12 and Note 31 represent the maximum exposure to credit risk for each respective financial
asset as at the relevant dates.
As at March 31, 2021, exposure to credit risk and credit loss allowances for accounts receivable and contract assets by segments are
as follows:
Civil Aviation
Training
Solutions
297.1
$
Defence and
Security
Healthcare
Amounts not
allocated to a
segment
$
178.3
$
62.4
$
15.2
$
$
$
53.6
350.7
(32.8)
9.4 %
$
$
406.1
584.4
(0.2)
— %
$
$
2.2
64.6
(1.4)
2.2 %
$
$
—
15.2
—
— %
$
$
Total
553.0
461.9
1,014.9
(34.4)
3.4 %
Gross accounts receivable
Gross contract assets
Total
Credit loss allowances
As a %
128 | CAE Financial Report 2021
Notes to the Consolidated Financial Statements
Liquidity risk
Liquidity risk is defined as the potential risk that the Company cannot meet its cash obligations as they become due.
The Company manages this risk by establishing cash forecasts, as well as long-term operating and strategic plans. The management
of consolidated liquidity requires a regular monitoring of expected cash inflows and outflows which is achieved through a forecast of
the Company’s consolidated liquidity position, for efficient use of cash resources. Liquidity adequacy is assessed in view of seasonal
needs, stress-test results, growth requirements and capital expenditures, and the maturity profile of indebtedness, including availability
of credit facilities, working capital requirements, compliance with financial covenants and the funding of financial commitments. The
Company manages its liquidity risk to maintain sufficient liquid financial resources to fund its operations and meet its commitments
and obligations. The Company also regularly monitors any financing opportunities to optimize its capital structure and maintain
appropriate financial flexibility.
In managing its liquidity risk, the Company has access to revolving credit facilities of $500.0 million and US$850.0 million
(2020 ⁃ US$850.0 million). As well, the Company has agreements to sell interests in certain of its accounts receivable (receivable
purchase program). On May 19, 2020, the Company concluded an agreement to increase the limit of its receivable purchase program
from US$300.0 million to US$400.0 million. As at March 31, 2021, the carrying amount of the original accounts receivable sold to a
financial institution pursuant to the receivable purchase program totaled a Canadian dollar equivalent of $298.8 million
(2020 ⁃ $333.1 million) of which $26.4 million (2020 – $38.8 million), corresponding to the extent of the Company’s continuing
involvement, remains in accounts receivable with a corresponding liability included in accounts payable and accrued liabilities.
The following tables present a maturity analysis based on contractual maturity date of the Company’s financial liabilities, excluding
liabilities for subscription receipts, based on expected cash flows. Cash flows from derivatives presented either as derivative assets or
liabilities have been included, as the Company manages its derivative contracts on a gross basis. The amounts are the contractual
undiscounted cash flows. All amounts contractually denominated in foreign currency are presented in Canadian dollar equivalent
amounts using the period-end spot rate except as otherwise stated:
As at March 31, 2021
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1)
Total long-term debt (2)
Other non-current liabilities (3)
Carrying Contractual Less than
1 year
cash flows
amount
Between
1 and
Between
2 and
Between
3 and
Between
4 and More than
2 years
3 years
4 years
5 years
5 years
$
674.9 $
674.9 $
674.9 $
— $
— $
— $
— $
—
2,358.0
2,954.5
291.4
185.4
376.3
—
238.1
29.3
230.0
41.0
320.0
31.1
151.7
1,723.3
30.7
244.2
$ 3,218.3 $ 4,005.7 $
966.3 $
267.4 $
271.0 $
351.1 $
182.4 $ 1,967.5
Net derivative financial
liabilities (assets)
Forward foreign currency contracts (4)
$
(24.0)
Outflow
Inflow
Foreign currency and
interest rate swap agreements
Equity swap agreements
$ 2,449.7
2,157.6
(2,475.3)
(2,175.6)
233.0
(238.8)
(5.1)
0.6
(3.9)
0.6
(1.2)
0.6
(1.2)
—
49.8
(51.3)
(0.9)
—
9.3
(9.6)
(0.3)
—
—
—
(0.2)
—
—
—
(0.1)
—
$
(28.5) $
(28.9) $
(18.6) $
(7.0) $
(2.4) $
(0.6) $
(0.2) $
(0.1)
$ 3,189.8 $ 3,976.8 $
947.7 $
260.4 $
268.6 $
350.5 $
182.2 $ 1,967.4
CAE Financial Report 2021 | 129
Notes to the Consolidated Financial Statements
As at March 31, 2020
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1) $
Total long-term debt (2)
Other non-current liabilities (3)
Carrying Contractual
Less than
1 and
2 and
3 and
4 and More than
amount
cash flows
1 year
2 years
3 years
4 years
5 years
5 years
Between
Between
Between
Between
709.1 $
709.1 $
709.1 $
— $
— $
— $
— $
—
3,305.2
4,319.8
182.0
397.8
296.5
0.7
555.1
49.8
564.8
31.2
383.4
32.1
340.1
2,179.9
32.4
251.6
$ 4,196.3 $ 5,426.7 $ 1,006.3 $
604.9 $
596.0 $
415.5 $
372.5 $ 2,431.5
Net derivative financial
liabilities (assets)
Forward foreign currency contracts (4)
$
38.8
Outflow
Inflow
Foreign currency and
interest rate swap agreements
Equity swap agreements
$ 1,862.5 $ 1,636.1 $
171.0 $
42.4 $
9.2 $
3.8 $
(1,822.8)
(1,606.6)
(164.8)
(39.4)
(8.5)
(3.5)
0.3
55.5
(6.3)
55.5
7.8
55.5
(4.0)
—
(3.9)
—
(3.0)
—
(2.2)
—
—
—
(1.0)
—
$
94.6 $
88.9 $
92.8 $
2.2 $
(0.9) $
(2.3) $
(1.9) $
(1.0)
$ 4,290.9 $ 5,515.6 $ 1,099.1 $
607.1 $
595.1 $
413.2 $
370.6 $ 2,430.5
(1) Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.
(2) Contractual cash flows include contractual interest and principal payments related to debt obligations and excludes transaction costs.
(3) Includes non-current royalty obligations and other non-current liabilities.
(4) Outflows and inflows are presented in Canadian dollar equivalent using the contractual forward foreign currency rate.
Market risk
Market risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of changes in
market prices, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors
affecting all similar financial instruments traded in the market. The Company is mainly exposed to foreign currency risk and interest
rate risk.
Derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest
rates and share-based payments in order to minimize their impact on the Company’s results and financial position. The Company’s
policy is not to utilize any derivative financial instruments for trading or speculative purposes.
Foreign currency risk
Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of
fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sale
commitments, expected purchase transactions and debt denominated in a foreign currency, as well as on the net investment from its
foreign operations which have functional currencies other than the Canadian dollar (in particular the U.S. dollar (USD),
Euro (€ or EUR) and British pound (GBP or £). In addition, these operations have exposures to foreign exchange rates primarily
through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional
currencies.
The Company mitigates foreign currency risks by having its foreign operations transact in their functional currency for material
procurement, sale contracts and financing activities.
The Company uses forward foreign currency contracts and foreign currency swap agreements to manage the Company’s exposure
from transactions in foreign currencies. These transactions include forecasted transactions and firm commitments denominated in
foreign currencies, including firm commitments to acquire a business in a business combination such as the L3Harris Military Training
acquisition (Note 5).
130 | CAE Financial Report 2021
The forward foreign currency contracts outstanding are as follows:
(amounts in millions, except average rate)
Currencies (sold/bought)
USD/CDN
Less than 1 year
Between 1 and 3 years
Between 3 and 5 years
EUR/CDN
Less than 1 year
Between 1 and 3 years
GBP/CDN
Less than 1 year
Between 1 and 3 years
CDN/USD
Less than 1 year
Between 1 and 3 years
Other currencies
Less than 1 year
Between 1 and 3 years
Between 3 and 5 years
Total
Notes to the Consolidated Financial Statements
2021
Notional
Average
Notional
amount
(1)
rate
amount
(1)
2020
Average
rate
$
530.9
127.4
20.5
88.4
95.2
52.7
11.5
1,224.7
31.0
260.8
1.5
5.0
$ 2,449.6
0.77
0.77
0.78
1.54
1.57
0.57
0.58
1.27
1.37
n.a.
n.a.
n.a.
$
833.7
176.4
13.0
180.5
12.3
71.5
0.2
289.7
23.7
247.5
0.8
13.2
$ 1,862.5
0.74
0.76
0.77
0.64
0.60
0.59
0.60
1.36
1.32
n.a.
n.a.
n.a.
(1) Exchange rates as at the end of the respective periods were used to translate amounts in foreign currencies.
The Company’s foreign currency hedging programs are typically unaffected by changes in market conditions, as related derivative
financial instruments are generally held until their maturity, consistent with the objective to fix currency rates on the hedged item.
Foreign currency risk sensitivity analysis
The following table presents the Company’s exposure to foreign currency risk of financial instruments and the pre-tax effects on net
income and OCI as a result of a reasonably possible strengthening of 5% in the relevant foreign currency against the Canadian dollar
as at March 31. This analysis assumes all other variables remain constant.
2021
2020
USD
Net income
7.9
4.8
$
€
GBP
OCI
$ 28.9
(19.6)
Net income
4.6
(0.5)
$
$
OCI
(3.8)
(3.1)
Net income
$
(0.5)
0.2
$
OCI
(0.7)
(0.4)
A weakening of 5% in the relevant foreign currency against the Canadian dollar would have an opposite impact on pre-tax income and
OCI.
Interest rate risk
Interest rate risk is defined as the Company’s exposure to a gain or a loss to the value of its financial instruments as a result of
fluctuations in interest rates. The Company bears some interest rate fluctuation risk on its floating rate long-term debt and some fair
value risk on its fixed interest long-term debt. The Company mainly manages interest rate risk by fixing project-specific floating rate
debt in order to reduce cash flow variability. The Company has floating rate debts through its revolving credit facilities and other-
specific floating rate debts. A mix of fixed and floating interest rate debt is sought to reduce the net impact of fluctuating interest rates.
Derivative financial instruments used to manage interest rate exposures are mainly interest rate swap agreements. As at
March 31, 2021, 94% (2020 – 74%) of the long-term debt bears fixed interest rates.
The Company’s interest rate hedging programs are typically unaffected by changes in market conditions, as related derivative
financial instruments are generally held until their maturity to establish asset and liability management matching, consistent with the
objective to reduce risks arising from interest rate movements.
Interest rate risk sensitivity analysis
During the year ended March 31, 2021, a 1% increase in interest rates would decrease the Company’s net income by $1.7 million
(2020 – $5.7 million) and would have no impact on the Company’s OCI (2020 – nil) assuming all other variables remained constant. A
1% decrease in interest rates would have an opposite impact on net income.
CAE Financial Report 2021 | 131
Notes to the Consolidated Financial Statements
Hedge of share-based payments expense
The Company has entered into equity swap agreements with major Canadian financial institutions to reduce its exposure to
fluctuations in its share price relating to the deferred share units (DSU) plans, restricted share units (RSU) plans and the performance
share units (PSU) plan. Pursuant to the agreement, the Company receives the economic benefit of dividends and share price
appreciation while providing payments to the financial institutions for the institution’s cost of funds and any share price depreciation.
The net effect of the equity swap agreements partly offset movements in the Company’s share price impacting the cost of the DSU,
RSU and PSU plans. As at March 31, 2021, the equity swap agreements covered 2,500,000 common shares (2020 – 2,800,000) of
the Company.
Hedge of net investments in foreign operations
As at March 31, 2021, the Company has designated a portion of its unsecured senior notes and term loans totaling US$862.8 million
(2020 – US$862.8 million) and a portion of its lease liabilities totaling US$23.9 million (2020 – US$48.1 million) as a hedge of its net
investments in U.S. entities. Gains or losses on the translation of the designated portion of these USD long-term debts are recognized
in OCI to offset any foreign exchange gains or losses on translation of the financial statements of those U.S. entities.
Letters of credit and guarantees
As at March 31, 2021, the Company had outstanding letters of credit and performance guarantees in the amount of $196.2 million
(2020 – $189.6 million) issued in the normal course of business. These guarantees are issued under the revolving credit facilities and
the Performance Securities Guarantee (PSG).
The advance payment guarantees are related to progress/milestone payments made by the Company’s customers and are reduced
or eliminated upon delivery of the product. The contract performance guarantees are linked to the completion of the intended product
or service rendered by the Company and to the customer’s requirements. The customer releases the Company from these
guarantees at the signing of a certificate of completion. The letter of credit for the lease obligation provides credit support for the
benefit of the owner participant on a sale and leaseback transaction and varies according to the payment schedule of the lease
agreement.
Advance payments
Contract performance
Lease obligations
Financial obligations
Other
$
2021
41.0
46.4
30.1
70.3
8.4
$
2020
36.0
44.0
37.1
63.0
9.5
$
196.2
$
189.6
Indemnifications
In certain instances when the Company sells businesses, it may retain certain liabilities for known exposures and provide
indemnification to the buyer with respect to future claims for certain unknown liabilities that exist, or arise from events occurring, prior
to the sale date, including liabilities for taxes, legal matters, environmental exposures, product liability, and other obligations. The
terms of the indemnifications vary in duration, from one to two years for certain types of indemnities, terms for tax indemnifications that
are generally aligned to the applicable statute of limitations for the jurisdiction in which the divestiture occurred, and terms for
environmental liabilities that typically do not expire. The maximum potential future payments that the Company could be required to
make under these indemnifications are either contractually limited to a specified amount or unlimited.
The Company believes that other than the liabilities already accrued, the maximum potential future payments that it could be required
to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type and
extent of the related claims, and all available defences, which cannot be estimated. However, historically, costs incurred to settle
claims related to these indemnifications have not been material to the Company’s consolidated financial position, net income or cash
flows.
132 | CAE Financial Report 2021
NOTE 34 – RELATED PARTY RELATIONSHIPS
The following tables include principal investments which, in aggregate, significantly impact the results or assets of the Company:
Investments in subsidiaries consolidated in the Company’s financial statements:
Notes to the Consolidated Financial Statements
% equity
interest
% equity
interest
Name
CAE Academia de Aviacion (Espana) S.L.
CAE (US) Inc.
CAE Aircrew Training Services plc
CAE Australia Pty Ltd.
CAE Aviation Services Pte Ltd.
CAE Aviation Training B.V.
CAE Aviation Training Peru S.A.
CAE Bangkok Co., Ltd.
CAE Brunei Multi Purpose Training Centre Sdn Bhd
CAE Center Amsterdam B.V.
CAE Center Brussels N.V.
CAE Centre Copenhagen A/S
CAE Centre Hong Kong Limited
CAE Centre Oslo AS
CAE Centre Stockholm AB
CAE CFT B.V.
CAE Civil Aviation Training Solutions, Inc.
CAE Colombia Flight Training S.A.S.
CAE Crewing Services Limited
CAE El Salvador Flight Training S.A. de C.V.
CAE Engineering Korlatolt Felelossegu Tarsasag
CAE Entrenamiento de Vuelo Chile Limitada
CAE Flight & Simulator Services Sdn. Bhd.
CAE Flight Training (India) Private Limited
CAE Flight Training Center Mexico, S.A. de C.V.
CAE GAH Aviation Technology Services Co Ltd.
CAE Global Academy Évora, SA
CAE GmbH
CAE Healthcare Canada Inc.
CAE Healthcare, Inc.
CAE India Private Limited
CAE Integrated Enterprise Solutions Australia Pty Ltd.
CAE International Holdings Limited
CAE Investments SARL
CAE Kuala Lumpur Sdn. Bhd.
CAE Luxembourg Acquisition, S.à r.l.
CAE Maritime Middle East L.L.C.
CAE Middle East L.L.C.
CAE Military Aviation Training Inc.
CAE New Zealand Pty Limited
CAE North East Training Inc.
CAE Oslo - Aviation Academy AS
CAE Oxford Aviation Academy Phoenix Inc.
CAE Services Italia S.r.l.
CAE Servicios Globales de Instrucción de Vuelo (España), S.L.
CAE Shanghai Company, Limited
CAE SimuFlite Inc.
CAE Simulation Technologies Private Limited
CAE Simulator Services Inc.
Country of incorporation
Spain
USA
UK
Australia
Singapore
Netherlands
Peru
Thailand
Brunei
Netherlands
Belgium
Denmark
China
Norway
Sweden
Netherlands
USA
Colombia
Ireland
El Salvador
Hungary
Chile
Malaysia
India
Mexico
China
Portugal
Germany
Canada
USA
India
Australia
Canada
Luxembourg
Malaysia
Luxembourg
UAE
UAE
Canada
New Zealand
USA
Norway
USA
Italy
Spain
China
USA
India
Canada
2021
100.0 %
100.0 %
76.5 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
60.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
99.5 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
80.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
49.0 %
49.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
2020
100.0 %
100.0 %
76.5 %
100.0 %
100.0 %
100.0 %
100.0 %
— %
60.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
99.5 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
80.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
49.0 %
49.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
CAE Financial Report 2021 | 133
Notes to the Consolidated Financial Statements
Investments in subsidiaries consolidated in the Company’s financial statements (continued):
Name
CAE South America Flight Training do Brasil Ltda.
CAE STS Limited
CAE Training & Services Netherlands B.V.
CAE Training & Services Brussels N.V.
CAE Training & Services UK Ltd.
CAE Training Norway AS
CAE TSP Inc.
CAE USA Inc.
CAE USA Mission Solutions Inc.
CAE Vietnam Limited Liability Company
Flight Training Device (Mauritius) Ltd.
Logitude OY
Merlot Aero Limited
Oxford Aviation Academy (Oxford) Limited
Parc Aviation Engineering Services Ltd.
Parc Aviation Limited
Parc Aviation (UK) Ltd.
Parc Interim Ltd.
Pelesys Aviation Maintenance Training Inc.
Pelesys Learning Systems Inc.
Presagis Canada Inc.
Presagis Europe (S.A.S)
Presagis USA Inc.
Servicios de Instrucción de Vuelo, S.L.
SIV Ops Training, S.L.
Investments in joint ventures accounted for under the equity method:
Name
Aviation Training Northeast Asia B.V.
CAE Flight and Simulator Services Korea, Ltd.
CAE-LIDER Training do Brasil Ltda.
CAE Melbourne Flight Training Pty Ltd.
CAE Middle East Pilot Services LLC
CAE Simulation Training Private Limited
Embraer CAE Training Services LLC
Emirates-CAE Flight Training LLC
Flight Training Alliance GmbH
HATSOFF Helicopter Training Private Limited
Helicopter Training Media International GmbH
HFTS Helicopter Flight Training Services GmbH
JAL CAE Flight Training Co. Ltd.
Leonardo CAE Advanced Jet Training S.r.l.
National Flying Training Institute Private Limited
Pegasus Ucus Egitim Merkezi A.S.
Philippine Academy for Aviation Training, Inc.
Rotorsim s.r.l.
Rotorsim USA LLC
SIMCOM Holdings, Inc.
Singapore CAE Flight Training Pte Ltd.
TRU Flight Training Iceland ehf
Xebec Government Services, LLC
134 | CAE Financial Report 2021
Country of incorporation
Brazil
UK
Netherlands
Belgium
UK
Norway
Canada
USA
USA
Vietnam
Mauritius
Finland
New Zealand
UK
Ireland
Ireland
UK
Ireland
Canada
Canada
Canada
France
USA
Spain
Spain
Country of incorporation
Netherlands
Korea
Brazil
Australia
United Arab Emirates
India
United States
UAE
Germany
India
Germany
Germany
Japan
Italy
India
Turkey
Philippines
Italy
United States
United States
Singapore
Iceland
United States
% equity
interest
2021
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
80.0 %
80.0 %
% equity
interest
2020
100.0 %
100.0 %
— %
100.0 %
100.0 %
100.0 %
— %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
— %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
80.0 %
80.0 %
% equity
interest
% equity
interest
2021
50.0 %
50.0 %
50.0 %
50.0 %
49.0 %
50.0 %
49.0 %
49.0 %
50.0 %
50.0 %
50.0 %
25.0 %
50.0 %
50.0 %
51.0 %
49.9 %
40.0 %
50.0 %
50.0 %
50.0 %
50.0 %
33.3 %
49.0 %
2020
50.0 %
50.0 %
50.0 %
50.0 %
49.0 %
50.0 %
49.0 %
49.0 %
50.0 %
50.0 %
50.0 %
25.0 %
50.0 %
— %
51.0 %
49.9 %
40.0 %
50.0 %
50.0 %
50.0 %
50.0 %
— %
49.0 %
Notes to the Consolidated Financial Statements
When the Company’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, the Company does not
recognize further losses, unless it will incur obligations or make payments on behalf of the joint ventures. During the year ended
March 31, 2021, the Company's unrecognized share of profit in joint ventures was $2.2 million (2020 - losses of $3.3 million). As at
March 31, 2021, the cumulative unrecognized share of losses for these joint ventures was $13.8 million (2020 – $16.0 million) and the
cumulative unrecognized share of comprehensive loss of these joint ventures was $13.1 million (2020 – $16.1 million).
Joint venture with Leonardo
On March 29, 2021, the Company acquired a 50% equity interest in Leonardo CAE Advanced Jet Training Srl for cash consideration
of $18.7 million. This joint venture will support the operations of the International Flight Training School (IFTS) in Italy, delivering a
comprehensive lead-in to fighter training to the Italian Air Force and foreign customers. The joint venture will provide training support
services, including full maintenance and operation of the M-346 aircraft and its ground-based training system, as well as operation of
IFTS base facilities.
Partnership with Directional Aviation Capital
On November 4, 2019, the Company concluded a strategic partnership with Directional Aviation Capital (DAC) including a 15-year
exclusive business aviation training services agreement with DAC affiliates and the acquisition of a 50% equity interest in SIMCOM
Holdings, Inc. for cash consideration of $113.5 million (US$86.3 million). The Company obtained joint control over SIMCOM, therefore
the joint venture is accounted for using the equity method. SIMCOM operates simulators and training devices representative of a wide
range of jet, turboprop and piston powered aircraft and is headquartered in Orlando, Florida.
Over the course of the 15-year business aviation training services agreement, DAC's affiliated business aircraft operators, which
include Flexjet, Flight Options, Flairjet, Sirio, Nextant Aerospace and Corporate Wings, will train exclusively with SIMCOM and CAE.
NOTE 35 – RELATED PARTY TRANSACTIONS
The Company’s outstanding balances with its equity accounted investees are as follows:
Accounts receivable (Note 12)
Contract assets
Other non-current assets
Accounts payable and accrued liabilities (Note 19)
Contract liabilities
Other non-current liabilities
The Company’s transactions with its equity accounted investees are as follows:
Revenue
Purchases
Other income
$
2021
33.3
14.3
26.4
5.8
22.0
1.5
$
2020
51.2
38.5
25.6
5.7
28.8
1.7
2021
2020
$
129.2
$
166.0
2.8
1.4
2.5
1.5
Compensation of key management personnel
Key management personnel have the ability and responsibility to make major operational, financial and strategic decisions for the
Company and include certain executive officers. The compensation of key management for employee services are as follows:
Salaries and other short-term employee benefits
Post-employment benefits – defined benefit plans
Share-based payments expense
2021
6.5
1.6
24.8
32.9
$
$
2020
6.5
2.5
(8.8)
0.2
$
$
CAE Financial Report 2021 | 135
Board of Directors and Officers
BOARD OF DIRECTORS
Margaret S. (Peg) Billson 1, 3*
Corporate Director
Albuquerque, New Mexico
The Honourable Michael M. Fortier 1*
Vice Chair
RBC Capital Markets
Town of Mount Royal, Québec
Marc Parent, C.M.
President and Chief Executive Officer
CAE Inc.
Montréal, Québec
Gen. David G. Perkins, USA (Ret.) 2
Corporate Director
Jackson, New Hampshire
Marianne Harrison 2*,3
President and Chief Executive Officer
John Hancock Life Insurance Company
Boston, Massachusetts
2, 3
Michael E. Roach
Corporate Director
Montreal, Québec
1, 3
Andrew J. Stevens
Corporate Director
Cheltenham, Gloucestershire, U.K.
Alan N. MacGibbon 1, 2
Corporate Director
Toronto, Ontario
Mary Lou Maher 1,2
Corporate Director
Toronto, Ontario
The Honourable John P. Manley
Chair of the Board, CAE Inc. and Senior
Business Advisor, Bennett Jones LLP
Ottawa, Ontario
François Olivier 2, 3
President and Chief Executive Officer
Transcontinental Inc.
Montreal, Québec
OFFICERS
The Honourable John P. Manley
Chair of the Board
Marc Parent, C. M.
President and
Chief Executive Officer
Sonya Branco
Executive Vice President, Finance
and Chief Financial Officer
Nick Leontidis
Group President
Civil Aviation Training Solutions
Daniel Gelston
Group President
Defence and Security
Mark Hounsell
General Counsel, Chief Compliance
Officer and Corporate Secretary
Constantino Malatesta
Vice President and Corporate
Controller
Mario Pizzolongo
Treasurer
1
Member of the Human Resources Committee
2
Member of the Audit Committee
3
Member of the Governance Committee
(*) indicates Chair of the Committee
136 | CAE Financial Report 2021
Shareholder and Investor Information
CAE SHARES
DUPLICATE MAILINGS
TRADEMARKS
CAE’s shares are traded on the Toronto
Stock Exchange (TSX) and on the New
York Stock Exchange (NYSE) under the
symbol “CAE”.
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of
Canada
100 University Avenue, 8th Floor
Toronto, Ontario
M5J 2Y1
Tel. 1-800-564-6253
(toll free in Canada and the U.S.)
www.computershare.com
DIVIDEND REINVESTMENT PLAN
Registered shareholders of CAE Inc.
who are resident in Canada or the
United Kingdom and who wish to
receive dividends in the form of CAE
Inc. common shares rather than a
cash payment, may participate in
CAE's dividend reinvestment plan. In
order to obtain the dividend
reinvestment plan form, please
contact Computershare Trust
Company of Canada or go to
www.cae.com/dividend.
To eliminate duplicate mailings by
consolidating accounts, registered
shareholders must contact
Computershare Trust Company
of Canada; non-registered
shareholders must contact their
investment brokers.
INVESTOR RELATIONS
Quarterly and annual reports as well
as other corporate documents are
available on our website at
www.cae.com. These documents
can also be obtained from our Investor
Relations department.
Investor Relations
CAE Inc.
8585 Côte-de-Liesse
Saint-Laurent, Québec
H4T 1G6
Tel. : 1-866-999-6223
investor.relations@cae.com
Version française
Pour obtenir la version française du
rapport financier, s’adresser à
investisseurs@cae.com.
DIRECT DEPOSIT DIVIDEND
2021 ANNUAL MEETING
Canadian resident registered
shareholders of CAE Inc. 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.
www.cae.com/dividend
The Annual Shareholders Meeting will
be held at 11 a.m. (Eastern Time), on
Wednesday, August 11, 2021 via live
webcast that will be available at
cae.com/investors/.
AUDITORS
PricewaterhouseCoopers LLP
Chartered Professional
Accountants
Montreal, Québec
Trademarks and/or registered
trademarks of CAE Inc. and/or its
affiliates include but are not limited
to CAE, CAE Medallion 6000, CAE
Simfinity, CAE Healthcare, CAE
Fidelis Lucina, CAE VimedixAR,
CAE Juno, CAE Lucina AR, CAE
Luna, CAE Ares, CAE Ares AR,
CAE Rise, CAE Vïvo, Dynamic
Synthetic Environment (DSE), CAE
7000XR Series, CAE 3000 Series,
CAE 600XR Series FTD, CAE Trax
Academy, CAE Sprint Virtual
Reality and CAE Air1. All other
brands and product names are
trademarks or registered
trademarks of their respective
owners. All logos, tradenames and
trademarks referred to and used
herein remain the property of their
respective owners and may not be
used, changed, copied, altered, or
quoted without the written consent
of the respective owner. All rights
reserved.
CORPORATE GOVERNANCE
The following documents pertaining
to CAE’s corporate governance
practices may be accessed either
from CAE’s website
(www.cae.com) or by request from
the Corporate Secretary:
− Board and Board Committee
charters
− Position descriptions for the Board
Chair, the Committee Chairs and
the Chief Executive Officer
− CAE’s Code of Business Conduct
− Corporate Governance Guidelines
Most of the New York Exchange’s
(NYSE) corporate governance listing
standards are not mandatory for
CAE. Significant differences between
CAE’s practices and the requirements
applicable to U.S. companies listed on
the NYSE are summarized on CAE’s
website. CAE is otherwise in
compliance with the NYSE
requirements in all significant
respects.
CAE Financial Report 2021 | 137
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements about our activities, events and developments that we expect to or
anticipate may occur in the future including, for example, statements about our vision, strategies, market trends and outlook,
future revenues, capital spending, expansions and new initiatives, financial obligations, available liquidities, expected sales,
general economic outlook, prospects and trends of an industry, expected annual recurring cost savings from operational
excellence programs, estimated addressable markets, statements relating to our proposed acquisition of L3 Harris Technologies’
military training business (“L3H MT”), the attractiveness of the L3H MT acquisition from a financial perspective and expected
accretion in various financial metrics, expectations regarding anticipated cost savings and synergies, the strength,
complementarity and compatibility of the L3H MT acquisition with our existing business and teams, other anticipated benefits of
the L3H MT acquisition and their impact on our future growth, results of operations, performance, business, prospects and
opportunities, our business outlook, objectives, development, plans, growth strategies and other strategic priorities, and our
leadership position in our markets and other statements that are not historical facts. Forward-looking statements normally contain
words like believe, expect, anticipate, plan, intend, continue, estimate, may, will, should, strategy, future and similar expressions.
By their nature, forward
looking statements require us to make assumptions and are subject to inherent risks and uncertainties
associated with our business which may cause actual results in future periods to differ materially from results indicated in
forward
looking statements. While these statements are based on management’s expectations and assumptions regarding
historical trends, current conditions and expected future developments, as well as other factors that we believe are reasonable
and appropriate in the circumstances, readers are cautioned not to place undue reliance on these forward-looking statements
as there is a risk that they may not be accurate.
‑
‑
Important risks that could cause such differences include, but are not limited to, risks relating to the COVID-19 pandemic such
as health and safety, reduction and suspension of operations, global economic conditions, diversions of management attention,
heightened IT risks, liquidity risks and credit risks, risks relating to the industry such as competition, business development and
awarding of new contracts, level and timing of defence spending, government-funded defence and security programs, constraints
within the civil aviation industry, regulatory matters, natural or other disasters, environmental laws and regulations, climate
change, risks relating to CAE such as evolving standards and technology innovation, our ability to penetrate new markets, our
estimates of the size of our addressable markets and market opportunity may not prove accurate, R&D activities, fixed-price and
long
term supply contracts, strategic partnerships and long-term contracts, backlog, procurement and original equipment
manufacturer (OEM) leverage, product integration and program management, protection of our intellectual property and brand,
third-party intellectual property, loss of key personnel, labour relations, liability risks that may not be covered by indemnity or
insurance, warranty or other product-related claims, reputational risk, U.S. foreign ownership, control or influence mitigation
measures, foreign private issuer status, enforceability of civil liabilities against our directors and officers, length of sales cycle,
seasonality, continued returns to shareholders, information technology and cybersecurity, our reliance on technology and
third
party providers, data privacy, risks relating to the market such as foreign exchange, availability of capital, sales of additional
common shares, market price and volatility of our common shares, credit risk, impairment risk, pension plan funding, doing
business in foreign countries, geopolitical uncertainty, anti-corruption laws, taxation matters, and risks relating to mergers,
acquisitions, joint ventures, strategic alliances or divestitures such as the risk that we will not effectively manage our growth,
‑
‑
138 | CAE Financial Report 2021
risks relating to the acquisition of L3H MT, including the integration of the L3H MT business, possible delay or failure to achieve
the anticipated benefits and cost synergies, the continued reliance on L3Harris Technologies following the completion of the
acquisition, possible delay or failure to complete the acquisition, the receipt of applicable regulatory approvals and satisfaction
of closing conditions for the acquisition, currency exchange risk and foreign currency exposure on the purchase price, potential
undisclosed liabilities related to the acquisition, reliance on information provided by L3Harris Technologies, CAE or L3H MT
being adversely impacted during the pendency of the acquisition, change of control and other similar provisions and fees,
unanticipated acquisition and integration costs, increased indebtedness of CAE after closing of the acquisition, and risks relating
to the post-acquisition of the operations of L3H MT, including the fact that the combined company will continue to face the same
risks that CAE currently faces, but would also face increased risks relating to increasing Defence business and operations,
dependence on U.S. Government contracts for a significant portion of revenue, which are often only partially funded, subject to
immediate termination and heavily regulated and audited, U.S. Government’s budget deficit and national debt, fixed-price
contracts, ability to successfully obtain export licenses, reliance on subcontractors, uncertain economic conditions in the markets
L3H MT participates in, government investigations, and liability risks that may not be covered by indemnity or insurance. The
foregoing list is not exhaustive and other unknown or unpredictable factors could also have a material adverse effect on the
performance or results of CAE or the L3H MT business. The completion of the L3H MT acquisition is subject to customary
closing conditions, termination rights and other risks and uncertainties, including, without limitation, regulatory approvals, and
there can be no assurance that the L3H MT acquisition will be completed. There can also be no assurance that if the L3H MT
acquisition is completed, the strategic and financial benefits expected to result from the L3H MT acquisition will be realized.
Additionally, differences could arise because of events announced or completed after the date of this annual report. You will find
more information in the Business risk and uncertainty section of the MD&A. Any one or more of the factors described above and
elsewhere in this MD&A may be exacerbated by the continuing COVID-19 pandemic and may have a heightened negative
impact on CAE’s business, results of operations and financial condition. Accordingly, readers are cautioned that any of the
disclosed risks could have a material adverse effect on CAE’s forward-looking statements. Readers are also cautioned that the
risks described above and elsewhere in this MD&A are not necessarily the only ones we face; additional risks and uncertainties
that are presently unknown to us or that we may currently deem immaterial may adversely affect our business.
Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether
as a result of new information, future events or otherwise. The forward-looking information and statements contained in this
annual report are expressly qualified by this cautionary statement.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based on information available to us as of the date of this annual report. While we believe that information
provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be
read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are
inherently uncertain, and investors are cautioned not to unduly rely on these statements.
MATERIAL ASSUMPTIONS
The forward-looking statements set out in this annual report are based on certain assumptions including, without limitation: the
anticipated negative impacts of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial
condition, including the intended effect of mitigation measures implemented as a result of the COVID-19 pandemic and the
timing and degree of easing of global COVID-19-related mobility restrictions, the prevailing market conditions, customer
receptivity to CAE’s training and operational support solutions, the accuracy of our estimates of addressable markets and market
opportunity, the realization of anticipated annual recurring cost savings and other intended benefits from recent restructuring
initiatives and operational excellence programs, the stability of foreign exchange rates, the ability to hedge exposures to
fluctuations in interest rates and foreign exchange rates, the availability of borrowings to be drawn down under, and the utilization,
of one or more of our senior credit agreements, our available liquidity from cash and cash equivalents, undrawn amounts on our
revolving credit facilities, the balance available under our receivable purchase program, our cash flows from operations and
continued access to debt funding will be sufficient to meet financial requirements in the foreseeable future, no material financial,
operational or competitive consequences from changes in regulations affecting our business, the satisfaction of all closing
conditions of the L3H MT acquisition, including receipt of all regulatory approvals in a timely manner and on terms acceptable
to CAE, our ability to retain and attract new business, achieve synergies and maintain market position arising from successful
integration plans relating to the L3H MT acquisition, our ability to otherwise complete the integration of the L3H MT business
acquired within anticipated time periods and at expected cost levels, our ability to attract and retain key employees in connection
with the L3H MT acquisition, management's estimates and expectations in relation to future economic and business conditions
and other factors in relation to the L3H MT acquisition and resulting impact on growth and accretion in various financial metrics,
the realization of the expected strategic, financial and other benefits of the L3H MT acquisition in the timeframe anticipated,
economic and political environments and industry conditions, the accuracy and completeness of public and other disclosure,
including financial disclosure, by L3Harris Technologies, absence of significant undisclosed costs or liabilities associated with
the L3H MT acquisition, the ability of CAE to opportunistically access the capital markets before or after the L3H MT acquisition
closing and absence of material change in market conditions. For additional information, including with respect to other
assumptions underlying the forward-looking statements made in this annual report, refer to “Business Risk and Uncertainty” in
this annual report. Given the impact of the changing circumstances surrounding the COVID-19 pandemic and the related
response from CAE, governments, regulatory authorities, businesses and customers, there is inherently more uncertainty
associated with CAE’s assumptions. Accordingly, the assumptions outlined in this annual report and, consequently, the forward-
looking statements based on such assumptions, may turn out to be inaccurate.
CAE Financial Report 2021 | 139
Training partner of choice.
Training partner of choice.
CAE is a high technology company, at the leading edge of digital
CAE is a high technology company, at the leading edge of digital
immersion, providing solutions to make the world a safer place.
immersion, providing solutions to make the world a safer place.
Backed by a record of more than 70 years of industry firsts, we
Backed by a record of more than 70 years of industry firsts, we
continue to reimagine the customer experience and revolutionize
continue to reimagine the customer experience and revolutionize
training and operational support solutions in civil aviation, defence
training and operational support solutions in civil aviation, defence
and security, and healthcare. We are the partner of choice to
and security, and healthcare. We are the partner of choice to
customers worldwide who operate in complex, high-stakes and
customers worldwide who operate in complex, high-stakes and
largely regulated environments, where successful outcomes are
largely regulated environments, where successful outcomes are
critical. As testament to our customers’ ongoing needs for our
critical. As testament to our customers’ ongoing needs for our
solutions, over 60 percent of CAE’s revenue is recurring in nature.
solutions, over 60 percent of CAE’s revenue is recurring in nature.
We have the broadest global presence in our industry, with
We have the broadest global presence in our industry, with
approximately 10,000 employees, 160 sites, and training locations
approximately 10,000 employees, 160 sites, and training locations
in over 35 countries.
in over 35 countries.
cae.com
cae.com
Follow us on Twitter @CAE_Inc.
Follow us on Twitter @CAE_Inc.
Check out our Annual Activity and
Check out our Annual Activity and
Corporate Social Responsibility Report!
Corporate Social Responsibility Report!
Our Annual Activity and Corporate Social Responsibility Report
Our Annual Activity and Corporate Social Responsibility Report
is available online. It consolidates information on our company
is available online. It consolidates information on our company
strategy, fiscal year 2021 performance and corporate social
strategy, fiscal year 2021 performance and corporate social
responsibility (CSR) into one document.
responsibility (CSR) into one document.
Integrating our reporting in this way enables us to provide
Integrating our reporting in this way enables us to provide
stakeholders with a single source of information in key areas. It
stakeholders with a single source of information in key areas. It
also signals that CSR is inseparable from our core business strategy
also signals that CSR is inseparable from our core business strategy
and activities.
and activities.
cae.com/social-responsibility/
cae.com/social-responsibility/
As an eTree member, CAE Inc. is committed to meeting shareholder needs
As an eTree member, CAE Inc. is committed to meeting shareholder needs
while being environmentally friendly. For each shareholder that receives
while being environmentally friendly. For each shareholder that receives
electronic copies of shareholder communications, CAE will plant a tree
electronic copies of shareholder communications, CAE will plant a tree
through Tree Canada, the leader in Canadian urban reforestation. To date
through Tree Canada, the leader in Canadian urban reforestation. To date
CAE has helped plant 5,274 trees.
CAE has helped plant 5,274 trees.
Contains FSC® certified post-consumer and 70% virgin fibre
Contains FSC® certified post-consumer and 70% virgin fibre
Certified EcoLogo and FSC® Mixed Sources
Certified EcoLogo and FSC® Mixed Sources
Manufactured using biogas energy
Manufactured using biogas energy
cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021cae.comCAE Financial Report Fiscal year ended March 31, 2021Financial ReportFiscal year ended March 31, 2021