Financial Report
FISCAL YEAR ENDED MARCH 31, 2023
At CAE, we equip people in critical roles with the
expertise and solutions to create a safer world.
As a technology company, we digitalize the physical world, deploying
software-based simulation training and critical operations support
solutions. Above all else, we empower pilots, cabin crew, airlines,
defence and security forces and healthcare practitioners to perform
at their best every day and when the stakes are the highest. Around
the globe, we’re everywhere customers need us to be with more than
13,000 employees in approximately 250 sites and training locations
in over 40 countries. CAE represents more than 75 years of industry
firsts—the highest-fidelity flight, mission and medical simulators
and training programs powered by digital technologies. We embed
sustainability in everything we do. Today and tomorrow, we’ll make sure
our customers are ready for the moments that matter.
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Follow us on :
@CAE_Inc.
linkedin.com/company/cae
Check out our Global Annual Activity and
Sustainability Report!
Our Global Annual Activity and Sustainability report is available online.
It consolidates information on our company strategy, fiscal year 2023
performance and sustainability approach into one document. Integrating
our reporting in this way enables us to provide stakeholders with a single
source of information in key areas.It also signals that sustainability is
inseparable from our core business strategy and activities.
cae.com/social-responsibility/
Message from the
Chair of the Board
I am pleased to share my first message to shareholders in my capacity as Chair
of the Board of CAE.
Over FY23, we took action and launched initiatives directly aligned with
the company’s high-technology ambitions to drive solid performance.
From a financial standpoint, CAE drove consistent sequential improvement in
key metrics and consolidated overall performance throughout the year.
Underpinning our success is the dedication to our mission to lead at the
frontier of digital immersion through high-tech training and operational
support solutions that make the world a safer place. In the past year, CAE
has made meaningful progress to become a more resilient and profitable
company, and we look forward to capitalizing on the robust demand for our
end-to-end training services.
Board oversight, diversity and renewal
During this fiscal year, the Board took numerous governance actions,
including the continuation of its director renewal process. As a result, CAE
strengthened its Board oversight in the areas of strategic planning, enterprise
risk management at the operational and corporate levels, cybersecurity,
technology and human resources through the recommendation for election
of three new directors who have already made significant contributions since
joining the Board.
Alan N. MacGibbon
Chair of the Board
In April 2022, we welcomed Patrick M. Shanahan, who brought with him more than 30 years of experience in the defense sector and deep
knowledge of defence policy, strategy, technology, supply chain and operations.
Elise Eberwein and Ayman Antoun were both elected as first-time nominees at the August 2022 Annual Shareholders meeting. Elise
has more than 35 years of commercial aviation experience; most recently, she held the position of Executive Vice President, People and
Communications for American Airlines, Inc. Ayman Antoun was General Manager of IBM Americas, which includes Canada, the U.S. and
Latin America where he led an organization of over 60,000 employees supporting the digital transformation of numerous clients through
the integration of innovative technology and transition to cloud operations.
I wish to extend a warm thank you to outgoing director The Honourable Michael M. Fortier, P.C. who is retiring from CAE’s Board of
Directors after a thirteen-year tenure where he has made significant contributions most recently as chair of our Human Resources
Committee.
Recognizing that diversity is an essential consideration, we amended our Diversity Policy to broaden our targets to all diversity groups
for both executive officers and directors. Organizational targets were revised to reflect that at least 33% of executive officers and 40%
of directors form part of certain diversity groups by 2025.
Progress on ESG
Over the past 12 months, CAE has made substantial progress in the company’s environmental, social and
governance (ESG) mandate to deliver results across our broad sustainability strategy. We took important steps
to promote responsible business practices throughout CAE’s supply chain and create a positive impact on our
company and the community at large.
In preparation for external assurance of our data, the company expanded the scope of our ESG reporting to
provide a more comprehensive understanding of CAE’s impacts on the economy, environment and society,
and to better inform our stakeholders through high-quality measurable data, when available.
CAE’s new FY24-28 strategic roadmap reinforces our commitment to sustainability by enhancing our influence
and performance where it matters most.
Stakeholder outreach
As a result of the FY21 and FY22 say on pay votes and investor feedback, we conducted an extensive
outreach with close to 20 of our shareholders accounting together for approximately 40% of CAE ownership,
as well as other stakeholders, seeking their input on our compensation programs. This effort culminated in
changes designed to further align compensation with company performance outcomes and the interests of
shareholders as well as improve disclosure in our Proxy Circular.
Closing words
I want to extend my congratulations to CAE President and CEO Marc Parent on the multiple accolades
awarded to him this year. Marc was named a Knight of the distinguished Ordre national du Québec, inducted
into Québec’s Air and Space Hall of Fame and received Aviation Week’s Philip J. Klass Award for Lifetime
Achievement. Marc sets the standard as an outstanding representative of CAE in both the community and
industry.
I would also like to thank CAE employees for their dedication and commitment to the company’s core values
and strategy to ensure continued success going forward.
And to our shareholders – thank you for your ongoing support and confidence in our noble mission to make
the world a safer place. The Board values the input and insights of our investors. We have frequently engaged
with investors through constructive and meaningful communications to discuss key issues and look forward
to continued dialogue.
CAE’s excellent reputation, strong technical capabilities, long-standing customer relationships and global
presence position us for continued success and value creation.
(1) This report includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be
confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Refer to Section 3.7 “Non-IFRS and
other financial measure definitions” of CAE’s MD&A for the year ended March 31, 2023 (which section is incorporated by reference into this report) for the definitions and a reconciliation of these measures to the most directly comparable measure under IFRS.
*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,
earnings, cash flow growth, profit trends, growth capital spending, expansions and new initiatives, including initiatives that pertain to environmental, social and governance (ESG) matters, financial obligations, available liquidities, expected sales, general economic
and political outlook, inflation trends, prospects and trends of an industry, expected annual recurring cost savings from operational excellence programs, our management of the supply chain, estimated addressable markets, demands for CAE’s products and
services, our access to capital resources, our financial position, the expected accretion in various financial metrics, the expected capital returns to shareholders, our business outlook, business opportunities, objectives, development, plans, growth strategies
and other strategic priorities, and our competitive and leadership position in our markets, the expansion of our market shares, CAE's ability and preparedness to respond to demand for new technologies, the sustainability of our operations and other statements
that are not historical facts. 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. For more information, readers should refer to the sections “Caution
concerning forward-looking statements” and “Material assumptions” under Section 2 of CAE’s MD&A for the year ended March 31, 2023, which sections are incorporated by reference into this report.
A message from our
Chief Executive Officer
Building a bigger, stronger, and more profitable CAE.
Over the last year, CAE leveraged its legacy of technology development, unparalleled thought leadership and partnership
across our eco systems to equip people in critical roles with the expertise and solutions to create a safer world. As we continue
to build on our rich history, we took a variety of actions in fiscal 2023 aimed at transforming our industry and business.
Marc Parent, C.M.
President and Chief Executive Officer
During the year, Civil eclipsed prior peak performance even before global
passenger traffic fully recovered to pre-pandemic levels while Defense continued
to make good progress towards its multiyear transformation. Meanwhile, Healthcare
delivered double-digit growth through its dynamic team and highly innovative
solutions. All three of our business units worked as One CAE to expand our
technology and market positioning and revolutionize training and critical operations
across our end-markets.
As a result of these actions, we have expanded our core and developed next-
generation technologies, all while focusing on our people and culture. Looking
forward, as our customers prepare every day for the moments that matter, our
solutions and offerings have never been more vital and will continue to elevate
safety standards and human performance.
Despite certain headwinds in the broader economy, expected secular trends are
highly favourable across all of our segments. As always, we are working to capture
more than our fair share of these growing markets, extend our competitive
advantages and continuing to capitalize on emerging opportunities. We are
delivering tangible success and driving strong order flow, with our significant
backlog growing across our markets. CAE remains strategically positioned to meet
our customers’ needs and drive substantial top and bottom-line growth in the years
ahead.
Deepening partnerships, expanding our
customer reach
We strive to be a partner of choice across all of our end markets. This year, we
deepened our partnerships through both new and extended agreements,
generating significant value for CAE, our customers and our partners. Among
the more notable recent developments has been the announcement of our joint
venture with AEGEAN, Greece's largest airline, to establish the first advanced flight
training centre in Athens, Greece. The new centre is expected to begin pilot and
cabin crew training by the end of 2023 and will be the most advanced flight training
hub in Southeastern Europe powered by green energy. Also, CAE signed a 15-year
exclusive agreement with the Qantas Group to develop and operate a new state-
of-the-art pilot training center in Sydney, Australia.
In addition to these partnerships, we have strategically expanded our business aviation footprint in attractive geographic locations to
further strengthen our global network. We broke ground on a new business aviation training centre in Savannah, Georgia, and launched
another business training centre in Las Vegas, Nevada. We also announced plans for our first business aviation training centre in Central
Europe, to open in Vienna, Austria, in the second half of 2024. This expansion brings us closer to where our customers operate their
aircraft and adds much-needed training capacity to enable the industry to meet the regulated training requirements associated with the
existing in-service fleet.
Over the past year, we have also significantly expanded our Civil Aviation business through the integration of Sabre’s AirCentre portfolio,
acquired last year, which has brought us closer to our customers’ day-to-day critical operations and generated a significant increase in
customer touchpoints. Airlines utilizing our robust solutions generate significant benefits, including cost savings and a reduction of their
carbon footprint. We look forward to further leveraging the AirCentre acquisition to broaden our digital solutions offerings and deliver
significant value to our airline customers.
A few of our more recent successes, since the end of the fiscal year, underscore the progress that’s being made to renew our Defense
backlog with larger and more profitable programs. Testament to our continued growth and capabilities in connection with U.S. Army
aviation, Defense was awarded a contract to support Flight School Training Support Services (FSTSS) at Fort Novosel, Alabama. The
FSTSS program is the world’s largest helicopter simulation training program, and our US$455 million contract is for training and simulation
capabilities that will be used to prepare initial entry-level and graduate-level rotary wing flight training. Also leveraging our prominent flight
training position in lower Alabama, we were competitively awarded the U.S. Air Force’s Initial Flight Training – Rotary Wing (IFT-R) contract,
worth a maximum value of US$110.6 million over the total contract term, to execute all Air Force initial and intermediate Helicopter Flight
Training. Under the IFT-R contract, we will be leveraging our existing training centre in Dothan, Alabama.
Accelerating the development of next-gen technology
CAE continues to accelerate the development of next-generation technology to expand our leadership position. To further drive CAE’s
technology evolution and our cross-company technology development efforts, we appointed a Chief Digital and Technology Officer. We
believe this addition and the formation of the Global Technology Product and Digital organization will enable optimal cross-department
collaboration and operational efficiency.
We recently reached a technology milestone in a field study with the Japan Air Self-Defense Force (JASDF) to validate the potential for
more effective training by leveraging CAE’s latest Virtual Reality and Artificial Intelligence-enabled Digital Solutions. The study revealed
a near full grade of proficiency score improvement across all JASDF participants. Our innovative training solution incorporated CAE Rise,
which we originally conceived for Civil Aviation, to provide more effective training through real-time objective assessment. It also included
Defense’s patented biometric feedback technology, enabling instructors to modulate complexity based on students’ stress, engagement,
and cognitive workload levels. These data-driven and A.I.-enabled technologies are important building blocks that we expect to drive
greater levels of training efficacy and safety. Such CAE innovations further enhance the value we can provide to customers and we are
pursuing them with a view to unlocking a greater share of our addressable markets and developing new revenue streams.
During the fiscal year, we introduced a number of new mixed-reality training
solutions, including the CAE 700 MXR for use in Advanced Air Mobility
markets and the HH-60W aircrew trainer which both utilize next-generation
technologies to more efficiently deliver training to our Civil and Defense
customers. We optimized the software offerings in our Flight Operations
Solutions business to maximize our industry-leading product suite and help
our customers capture efficiencies and economies. Finally, our market-
leading CAE LearningSpace solution continues to grow, helping clinical
learners in the Healthcare space achieve rapid proficiency.
As we head into fiscal 2024, we continue to be excited about the potential
created by the scale of our combined strengths and combined R&D
advantage that we believe will define the technological forefront of our core
markets in the years to come. We look forward to harnessing technology to
develop new revenue streams, by revolutionizing our customers’ training and
critical operations with digitally immersive solutions. We will also leverage
technology to become even more operationally efficient.
Civil Aviation
In Civil Aviation, ongoing expansion and important contracts with
leading airlines underscore CAE’s status as the partner of choice in civil
aviation training.
Improved full-flight simulator utilization and significant order flow this
past year points to significant growth during and beyond the ongoing
global aviation market recovery. More broadly, commercial aviation
training demand continued to be strong despite the market not having
fully recovered from pre-pandemic levels in key regions like Asia. In
business aviation, training demand continued to be robust throughout
our network, reflecting a high level of pilot training to support business
aircraft flight activity, which continues to exceed pre-pandemic levels.
As we look ahead, we will continue to deploy training capacity in
lockstep with demand in this segment of the market.
Defense & Security
In Defense & Security, we continue to make progress on our industry-
leadership journey with expanded capabilities.
Defense has transformed to become the world's leading pure-play,
platform independent, training and simulation business, providing
solutions across all five battle-space domains. It is uniquely positioned
to draw on CAE’s innovations in commercial aviation to transform
training with the application of advanced analytics and leading-edge
technologies. Our strong position in the market is evidenced by a
record $2.0 billion adjusted order intake(1) in Defense & Security in fiscal
2023 (1.10x book-to-sales ratio(1)), with the recent post year-end strong
wins with the US Army and US Air Force pointing to strong continued
growth in the years ahead. Additionally, geopolitical events have
galvanized national defence priorities in the U.S. and across NATO, and
management expects increased spending and specific prioritization on
defence readiness to translate into additional opportunities for CAE in
the years ahead.
Healthcare
In fiscal 2023, Healthcare continued to gain share of the simulation
market and to deliver double-digit revenue growth with our dynamic
team and highly innovative solutions. Here too, we have been
harnessing the power of our ‘One CAE’ mindset with a joint Civil
and Healthcare presentation on the parallels between aviation and
healthcare training to elevate quality and safety. Our teams recently
collaborated at the industry’s largest simulation event, the International
Meeting of Simulation in Healthcare, and is a great demonstration of
CAE’s unique culture.
Increasing our social impact and sustainability
Climate change is one of the biggest global challenges facing the next generation and CAE is committed to supporting the decarbonization
of our customers and the whole industry.
As the first carbon-neutral Canadian aerospace company, CAE launched the development of an electric conversion kit for Piper Archer
aircraft. We plan to convert two-thirds of our training fleet at CAE flight schools for a significant reduction of our Scope 1 emissions.
All our facilities where we have operational control use either 100% sourced renewable electricity or are covered by renewable energy
certificates. This year, CAE was admitted to the Climate Group’s RE100 initiative, a collective of 400 global companies most committed
to the use of renewable energy worldwide. CAE’s admission to this group is further testament to the strength of its achievements and
commitments toward renewable energy. CAE has embarked on the next leg of its sustainability journey by finalizing its five-year ESG
roadmap for its next planning cycle, involving collaboration with 15 working groups from all business units and functions. CAE’s ambitious
plan identifies precise objectives to monitor and report measurable progress on the priorities highlighted in our materiality matrix
published in fiscal 2022.
Focusing on our people
CAE’s greatest strength continues to be the diverse talent of our
people. Their exceptional passion and agile mindset are a key
competitive differentiator that drives CAE’s success and upholds
our One CAE culture.
With talent development and employee engagement as top
priorities, we are proud that CAE continued to maintain record-
high employee engagement across the organization.
CAEheartbeat, a global transformation we introduced this year,
expands employee benefit availability and enhances work/life
balance. We also launched two new initiatives, CAE Career Hubs
and Gigs, to broaden employee career development support and
career mobility opportunities.
Pursuing exciting opportunities to define the future of our industry
As we continue to take actions to transform our business, we are seeing solid proof in the efficacy of our strategy. CAE is growing and
evolving to keep up with the pace of opportunities and set the stage for long-term growth and value creation. We are developing solutions
to cross-sell, leverage jointly developed technologies, and differentiate our offerings across our businesses.
In terms of our capital allocation priorities, we continue to focus on organic investments that are made in lockstep with customer demand.
We’re on track to meeting our leverage target, which will further increase our financial flexibility.
In summary, I am more excited than ever to be the leader of this highly unique company, whose cutting-edge training and critical
operations solutions empower pilots, crew members, defence forces, and healthcare practitioners to perform at their best every day
and when the stakes are the highest. We equip those in critical roles with the skills and expertise needed to move our world forward safely.
CAE’s more than 13,000 employees worldwide are united by the values underpinning our mantra of ‘partner of choice,’ and are unwavering
in their commitment to preparing our customers for the moments that matter. On behalf of CAE’s management, I wish to thank our
employees for their ingenuity and dedication and recognize their essential contribution in making this vision a reality. I am pleased with
the important progress we made last year, which expands further the opportunity set we have before us. We expect to continue making
excellent progress in the year ahead and beyond.
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
Foreign exchange
3.7 Non-IFRS and other financial measure definitions
3.8 Supplementary non-financial information definitions
3.9 Non-IFRS measure reconciliations
4. CONSOLIDATED RESULTS
4.1 Results from operations – fourth quarter of fiscal 2023
4.2 Results from operations – fiscal 2023
4.3 Restructuring, integration and acquisition costs
4.4 Consolidated adjusted orders and adjusted backlog
5. RESULTS BY SEGMENT
5.1 Civil Aviation
5.2 Defense 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 Contingencies and commitments
7. CONSOLIDATED FINANCIAL POSITION
7.1 Consolidated capital employed
7.2 Off balance sheet arrangements
7.3
Financial instruments
8. BUSINESS COMBINATIONS
9. BUSINESS RISK AND UNCERTAINTY
9.1 Strategic Risks
9.2 Operational Risks
Talent Risks
9.3
Financial Risks
9.4
9.5 Regulatory Risks
9.6 Environmental, Social & Governance Risks
9.7 Reputational Risks
9.8
Technological Risks
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
INTERNAL CONTROL OVER FINANCIAL REPORTING
12.
13. OVERSIGHT ROLE OF AUDIT COMMITTEE AND BOARD OF DIRECTORS
14. ADDITIONAL INFORMATION
15. SELECTED FINANCIAL INFORMATION
Consolidated Financial Statements
Board of Directors and Executive Officers
Shareholder and Investor Information
1
2
5
5
5
5
5
6
13
13
16
17
19
19
21
23
23
24
24
28
30
32
32
33
33
34
35
35
36
37
39
40
41
46
47
48
51
53
54
54
55
56
56
56
56
58
58
58
59
60
117
118
Management’s Discussion and Analysis
for the fourth quarter and year ended March 31, 2023
1. HIGHLIGHTS
FINANCIAL
FOURTH QUARTER OF FISCAL 2023
(amounts in millions, except per share amounts, ROCE and book-to-sales ratio)
Q4-2023
Q4-2022
Variance $ Variance %
Performance
Revenue
Operating income
Adjusted segment operating income1
Net income attributable to equity holders of the Company
Basic and diluted earnings per share (EPS)
Adjusted EPS1
Net cash provided by operating activities
Free cash flow1
Liquidity and Capital Structure
Capital employed1
Adjusted return on capital employed (ROCE)1
Total debt
Net debt1
Growth
Adjusted order intake1
Adjusted backlog1
Book-to-sales ratio1
Book-to-sales ratio for the last 12 months
FISCAL 2023
(amounts in millions, except per share amounts)
Performance
Revenue
Operating income
Adjusted segment operating income
Net income attributable to equity holders of the Company
Basic EPS
Diluted EPS
Adjusted EPS
Net cash provided by operating activities
Free cash flow
$ 1,256.5
186.6
$
201.9
$
98.4
$
0.31
$
0.35
$
180.6
$
172.0
$
$
$
$
$
$
$
$
$
955.0
93.3
142.7
55.1
0.17
0.29
206.8
187.6
$
$
$
$
$
$
$
$
301.5
93.3
59.2
43.3
0.14
0.06
(26.2)
(15.6)
32 %
100 %
41 %
79 %
82 %
21 %
(13 %)
(8 %)
5.7 %
$ 7,621.4
%
$ 3,250.1
$ 3,032.5
$ 6,786.7
6.2
$ 3,046.2
$ 2,700.1
$ 1,465.3
$ 10,796.4
1.17
1.20
$ 1,321.1
$ 9,577.5
1.38
1.21
$
834.7
12 %
$
$
203.9
332.4
$
144.2
$ 1,218.9
7 %
12 %
11 %
13 %
FY2023
FY2022
Variance $ Variance %
$ 4,203.3
474.0
$
548.1
$
222.7
$
0.70
$
0.70
$
0.88
$
408.4
$
335.7
$
$ 3,371.3
284.2
$
444.5
$
141.7
$
0.46
$
0.45
$
0.84
$
418.2
$
341.5
$
$
$
$
$
$
$
$
$
$
832.0
189.8
103.6
81.0
0.24
0.25
0.04
(9.8)
(5.8)
25 %
67 %
23 %
57 %
52 %
56 %
5 %
(2 %)
(2 %)
1 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
CAE Financial Report 2023 I 1
Management’s Discussion and Analysis
2. INTRODUCTION
In this management’s discussion and analysis (MD&A), we, us, our, CAE and Company refer to CAE Inc. and its subsidiaries. Unless
we have indicated otherwise:
– This year and 2023 mean the fiscal year ending March 31, 2023;
– Last year, prior year and a year ago mean the fiscal year ended March 31, 2022;
– Dollar amounts are in Canadian dollars.
This MD&A was prepared as of May 31, 2023. It is intended to enhance the understanding of our annual consolidated financial
statements and notes for the year ended March 31, 2023 and should therefore be read in conjunction with this document. We have
prepared it to help you understand our business, performance and financial condition for the year ended March 31, 2023. 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.
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-IFRS and other financial measures;
– Consolidated results;
– Results by segment;
– Consolidated cash movements and liquidity;
– Consolidated financial position;
– Business combinations;
– Business risk and uncertainty;
– Related party transactions;
– Changes in accounting policies;
– Controls and procedures;
– Oversight role of Audit Committee and Board of Directors (the Board).
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).
2 I CAE Financial Report 2023
NON-IFRS AND OTHER FINANCIAL MEASURES
This MD&A includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial
measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused
with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be
compared with similarly titled measures provided or used by other issuers. Management believes that these measures provide
additional insight into our operating performance and trends and facilitate comparisons across reporting periods.
Management’s Discussion and Analysis
Performance Measures
– Gross profit margin (or gross profit as a % of revenue);
– Operating income margin (or operating income as a % of revenue);
– Adjusted segment operating income or loss;
– Adjusted segment operating income margin (or adjusted segment operating income as a % of revenue);
– Adjusted net income or loss;
– Adjusted earnings or loss per share (EPS);
– EBITDA and Adjusted EBITDA;
– Free cash flow.
Liquidity and Capital Structure Measures
– Non-cash working capital;
– Capital employed;
– Return on capital employed (ROCE) and adjusted ROCE;
– Net debt;
– Net debt-to-capital;
– Net debt-to-EBITDA and net debt-to-adjusted EBITDA;
– Maintenance and growth capital expenditures.
Growth Measures
– Adjusted order intake;
– Adjusted backlog;
– Book-to-sales ratio.
Definitions of all non-IFRS and other financial measures are provided in Section 3.7 “Non-IFRS and other financial measure
definitions" of this MD&A to give the reader a better understanding of the indicators used by management. In addition, when
applicable, we provide a quantitative reconciliation of the non-IFRS and other financial measures to the most directly comparable
measure under IFRS. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" for references where these
reconciliations are provided.
ABOUT MATERIAL INFORMATION
This MD&A 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 MD&A 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,
earnings, cash flow growth, profit trends, growth capital spending, expansions and new initiatives, including initiatives that pertain to
environmental, social and governance (ESG) matters, financial obligations, available liquidities, expected sales, general economic and
political outlook, inflation trends, prospects and trends of an industry, expected annual recurring cost savings from operational
excellence programs, our management of the supply chain, estimated addressable markets, demands for CAE’s products and
services, our access to capital resources, our financial position, the expected accretion in various financial metrics, the expected
capital returns to shareholders, our business outlook, business opportunities, objectives, development, plans, growth strategies and
other strategic priorities, and our competitive and leadership position in our markets, the expansion of our market shares, CAE's ability
and preparedness to respond to demand for new technologies, the sustainability of our operations and other statements that are not
historical facts. Since forward-looking statements and information relate to future events or future performance and reflect current
expectations or beliefs regarding future events, they are typically identified by words such as “anticipate”, “believe”, “could”, “estimate”,
“expect”, “intend”, “likely”, “may”, “plan”, “seek”, “should”, “will”, "strategy", "future" or the negative thereof or other variations thereon
suggesting future outcomes or statements regarding an outlook. All such statements constitute "forward-looking statements" within the
meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor”
provisions of the United States Private Securities Litigation Reform Act of 1995. 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.
CAE Financial Report 2023 I 3
Management’s Discussion and Analysis
Important risks that could cause such differences include, but are not limited to, strategic risks, such as cybersecurity, geopolitical
uncertainty, global economic conditions, competitive business environment, original equipment manufacturer (OEM) leverage and
encroachment, inflation, international scope of our business, level and timing of defence spending, constraints within the civil aviation
industry, our ability to penetrate new markets, research and development (R&D) activities, evolving standards and technology
innovation and disruption, length of sales cycle, business development and awarding of new contracts, strategic partnerships and
long-term contracts, risk that we cannot assure investors that we will effectively manage our growth, estimates of market opportunity
and competing priorities; operational risks, such as supply chain disruptions, program management and execution, mergers and
acquisitions, business continuity, subcontractors, fixed price and long-term supply contracts and our continued reliance on certain
parties and information; talent risks, such as talent management, ability to attract, recruit and retain key personnel and management,
corporate culture and labour relations; financial risks, such as availability of capital, customer credit risk, foreign exchange,
effectiveness of internal controls over financial reporting, liquidity risk, interest rate volatility, returns to shareholders, estimates used in
accounting, impairment risk, pension plan funding, indebtedness, acquisition and integration costs, sales of additional common
shares, market price and volatility of our common shares, seasonality, taxation matters and adjusted backlog; regulatory risks, such
as data rights and governance, U.S. foreign ownership, control or influence mitigation measures, compliance with laws and
regulations, insurance coverage potential gaps, product-related liabilities, environmental laws and regulations, government audits and
investigations, protection of our intellectual property and brand, third-party intellectual property, foreign private issuer status, and
enforceability of civil liabilities against our directors and officers; environmental, social & governance (ESG) risks, such as extreme
climate events and the impact of natural or other disasters (including effects of climate change) and more acute scrutiny and
perception gaps regarding ESG matters; reputational risks; and technological risks, such as information technology (IT) and reliance
on third-party providers for information technology systems and infrastructure management. 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. Additionally,
differences could arise because of events announced or completed after the date of this MD&A. You will find more information in
Section 9 "Business risk and uncertainty" of this MD&A. 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 MD&A 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 MD&A. 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 MD&A are based on certain assumptions including, without limitation: the prevailing
market conditions, geopolitical instability, the customer receptivity to our 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 restructuring initiatives and operational excellence programs, the ability to respond to anticipated inflationary
pressures and our ability to pass along rising costs through increased prices, the actual impact to supply, production levels, and costs
from global supply chain logistics challenges, 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 facility,
the balance available under our receivable purchase facility, the assumption that our cash flows from operations and continued
access to debt funding will be sufficient to meet financial requirements in the foreseeable future, access to expected capital resources
within anticipated timeframes, no material financial, operational or competitive consequences from changes in regulations affecting
our business, our ability to retain and attract new business, our ability to achieve synergies and maintain market position arising from
successful integration plans relating to the L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline
operations portfolio (AirCentre) acquisitions, our ability to otherwise complete the integration of the L3H MT and AirCentre businesses
acquired within anticipated time periods and at expected cost levels, our ability to attract and retain key employees in connection with
the L3H MT and AirCentre acquisitions, management's estimates and expectations in relation to future economic and business
conditions and other factors in relation to the L3H MT and AirCentre acquisitions 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 and AirCentre
acquisitions 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 and AirCentre, and the absence
of significant undisclosed costs or liabilities associated with the L3H MT and AirCentre acquisitions. Air travel is a major driver for
CAE's business and management relies on analysis from the International Air Transport Association (IATA) to inform its assumptions
about the rate and profile of recovery in its key civil aviation market. Accordingly, the assumptions outlined in this MD&A and,
consequently, the forward-looking statements based on such assumptions, may turn out to be inaccurate. For additional information,
including with respect to other assumptions underlying the forward-looking statements made in this MD&A, refer to Section 9
"Business risk and uncertainty" of this MD&A.
4 I CAE Financial Report 2023
Management’s Discussion and Analysis
3. ABOUT CAE
3.1 Who we are
At CAE, we equip people in critical roles with the expertise and solutions to create a safer world. As a technology company, we
digitalize the physical world, deploying software-based simulation training and critical operations support solutions. Above all else, we
empower pilots, cabin crew, airlines, defence and security forces and healthcare practitioners to perform at their best every day and
when the stakes are the highest. Around the globe, we’re everywhere customers need us to be with more than 13,000 employees in
approximately 250 sites and training locations in over 40 countries. CAE represents more than 75 years of industry firsts—the highest-
fidelity flight, mission and medical simulators and training programs powered by digital technologies. We embed sustainability in
everything we do. Today and tomorrow, we’ll make sure our customers are ready for the moments that matter.
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.
3.4 Our strategy
CAE's four strategic pillars
There are four fundamental pillars that underpin our strategy and investment thesis:
– Efficient growth;
– Revolutionizing training and critical operations;
– Technology and market leadership;
– Skills and culture.
Efficient growth
Our business features a high degree of recurring revenues due to the underlying characteristics of our technology-enabled and
software-based solutions as well as regulatory requirements across our markets. We seek to maximize the benefits of our strong
competitive position to deliver premium growth and improving profitability through a focus on operational rigour, cost optimization,
capital efficiency, and a disciplined approach to pursuing both organic and inorganic growth.
Revolutionizing training and critical operations
We are a global thought leader in the application of training, digital immersion, critical operations, and modelling and simulation
technologies. We seek to use data-driven applications and advanced analytics to produce measurable and demonstrated outcomes in
our markets. The efficacy of our technology solutions enables customized, collaborative, and multi-domain offerings. Furthermore, our
technologies are deployed with a focus on driving sustainability.
Technology and market leadership
We have a rich and long-dated history of innovation and delivering state-of-the-art technology solutions that define the forefront of the
industries we operate in. As a result, we constantly seek new ways to enhance the performance of our customers by fostering a
culture of continuous improvement and innovation. This drives technology leadership, deeper customer partnerships, and new
customer development, enabling us to capitalize on the ample headroom in our large, growing addressable markets.
Skills and culture
Our core values are innovation, integrity, empowerment, and excellence. We employ these values across a diverse global team to
drive a unique social impact. We seek to create an employee experience and environment that values teamwork, professional growth,
and engagement. As a result, our employees across the globe share a passion to prepare our customers for the moments that matter.
CAE Financial Report 2023 I 5
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.
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 aircraft flight operations solutions.
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 approximately 70 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, training services agreements and joint ventures
with approximately 50 major airlines and aircraft operators around the world. Our range of training solutions includes product and
service offerings for pilots, cabin crew and aircraft maintenance technicians, training centre operations, curriculum development,
courseware solutions and consulting services. We currently manage 324 full-flight simulators (FFSs), 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 Rise), 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, we operate the largest ab initio flight training network in the world and have over 20 cadet training
programs globally. In resource management, we are a global market leader in the provision of flight crew and technical personnel to
airlines, aircraft leasing companies, manufacturers and MRO companies worldwide. With our CAE flight operation solutions, we have
further strengthened our position as a technology leader, complementing our flight simulator and training solutions while increasing
our total addressable market.
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, as we are entering a new era of aviation with Advanced Air Mobility (AAM), disruptive aerospace companies are building
new aircraft types from the ground up. This will create a large demand for trained professional pilots to safely fly both passengers and
cargo across markets. CAE has already partnered with five electric vertical takeoff and landing (eVTOL) developers in order to support
the evolution of this new industry. We are positioned to develop the pilot workforce of the future and ensure safe introduction of
eVTOL operations by leveraging our technologies and expertise in aviation safety.
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 the Civil Aviation segment is positioned as a gateway in a highly regulated, secular growth market, with an addressable
market estimated at approximately $6.5 billion, and headroom for growth.
Market drivers
Demand for training and flight operations solutions in the civil aviation market is driven by the following:
– Pilot and maintenance 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;
– Complexity of flight operations solutions;
– Emergence of the newer market for advanced air mobility.
6 I CAE Financial Report 2023
Management’s Discussion and Analysis
Pilot and maintenance 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 (ICAO),
European Aviation Safety Agency (EASA) and the U.S. Federal Aviation Administration (FAA).
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. Additionally, CAE
offers business jet pilots one of the most advanced, respected and accessible training programs in the industry, covering a wide
spectrum of business aircrafts. Partnering with CAE gives immediate access to a world-wide fleet of simulators, courses, programs
and instruction capabilities, and allows them flexibility in pursuing fleet training options that suit their business.
Our pilot training system, CAE Rise, is well positioned to elevate the pilot training experience. 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 and flight operations solutions.
In commercial aviation, as per the International Air Transport Association (IATA), global air passenger demand, measured by revenue
passenger-kilometers (RPKs), has shown a strong increase of 64% for calendar 2022 compared to calendar 2021. For the first three
months of calendar 2023, worldwide passenger traffic increased by 58% compared to the first three months of calendar 2022.
Passenger traffic in Europe grew by 45%, while in Asia and North America it increased by 126% and 28% respectively over the same
period.
Air cargo has seen a reduction in demand in recent months, with cargo tonne-kilometers down 8% for calendar 2022 compared to
calendar 2021. For the first three months of calendar 2023, cargo tonne-kilometers decreased by 10% compared to the first three
months of calendar 2022.
In business aviation, both the FAA and Eurocontrol, the European Organisation for the Safety of Air Navigation have indicated signs of
stabilization in flight activity. The FAA has shown an increase of 1% in the total number of business jet flights, which includes all
domestic and international flights over the past 12 months. The European business jet market has also stabilized; according to
Eurocontrol, the total number of business aviation flights in Europe have decreased by 1% over the same period.
On-going disruptions with supply chain and production activities have hindered parts of the Civil operations throughout the year.
Additionally, high inflation, the on-going Russian invasion of Ukraine and labour shortages are also causing higher energy costs and
supply chain and cargo related issues.
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 the Bombardier Challenger 3500.
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.
CAE Financial Report 2023 I 7
Management’s Discussion and Analysis
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, helicopter operators and now AAM.
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. We
are well positioned in the training services market to address the training requirements of airline customers.The expansion of global
economies and airline fleets have resulted in a shortage of qualified personnel needed to fulfill this growing capacity.
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.
Furthermore, over the long-term, we expect additional demand for pilots from the emerging AAM in accordance with the expected
future entry into service of eVTOLs.
Complexity of flight operations solutions
Airlines need to closely manage their operations which come with daily challenges. To help optimize these operations we offer a suite
of flight service products. This suite of products provides solutions for flight operations including training management, crew
management, flight management, airport management, in-flight services management and operations control. These products enable
optimized management for schedule disruptions and allows for maximized resources for all personnel and aircrafts.
The benefits for flight management include reduced fuel and carbon emissions for both regular and irregular operations. Crew and
airport management decreases disruption related crew costs and improved staff utilization. Finally, movement management
decreases delay and cancellation costs for airlines.
Emergence of the newer market for advanced air mobility
AAM and the developing eVTOL aircraft are emerging into a new era of aviation. With this, comes a large demand for uniquely trained
professional pilots to safely fly passenger and cargo across global markets.
We look at this new industry as an opportunity for pilot training. This technology is expected to promote community acceptance, instill
confidence in the public, influence regulators to implement rules and policies that will stimulate growth, and ensure safety in this
emerging industry.
8 I CAE Financial Report 2023
Management’s Discussion and Analysis
DEFENSE AND SECURITY MARKET
We are a platform-independent training and simulation solutions provider, preparing global defence and security forces for the
mission ahead.
Defense and Security addresses the critical needs of its customers that face rapidly changing environments and challenges to global
security. The shift in the nature of the geopolitical environment has expedited the need for the U.S. and its allies to prepare for the
possibility of near-peer threats across multi-domain operations in air, land, sea, space and cyber. Aligned with the priorities of U.S.
and allied national defence strategies, we leverage our core training and simulation expertise with advanced digital technologies to
deliver solutions that address military training modernization and enhanced security mission support requirements.
Our customers depend on synthetic training and next-generation situational awareness to ensure mission success through planning,
preparation, and analysis in complex, multi-domain environments. Leveraging our immersive ecosystems, we enable defence forces
to “train as they fight” with real-time training and rehearsal scenarios. From mixed-reality task training devices to high-fidelity
full-mission simulators, we support more than 70 different platforms across all domains. With over 145 sites, our cutting-edge
technology optimizes training and enhances situational awareness to solve our customers’ challenges at the point of need.
CAE supports a broad range of solutions at customer sites to deliver products and services supporting efficacy at all proficiency
levels. Our extensive suite of simulation-based technology supports training modernization and spans all domains. Through the
Aerospace Simulator Integrated Support and Training (ASIST) program, we deliver scalable, high-fidelity, and critical training and
simulator integration to the Australian Defence Force. We also support the Royal Australian Navy with the Platforms and Systems
Training Contract (PSTC) to provide distributive mission training. These few examples demonstrate how we continue to build on
decades of modeling and simulation expertise, developing solutions that address the increasingly complex challenges impacting
global defence and security forces.
In addition to solutions delivered to customer sites, we provide comprehensive training at our CAE global training centres. At the CAE
Dothan Training Center in Alabama, U.S. Army fixed-wing candidates enter initial training, while the U.S. Air Force (USAF) initial entry
training is maintained at CAE’s Pueblo Training Center in Colorado. Outside of the U.S., we provide basic and advanced flight training
at NATO Flight Training Centres across multiple sites in Canada. Leveraging our expertise and strategic partnerships, CAE has
expanded training into Europe with the International Flight Training School in Italy, a joint venture with Leonardo Helicopters, along
with providing ab initio training for the German Air Force at CAE’s Bremen Training Centre in Germany and a site in Montpellier,
France.
Beyond our extensive government customer reach, CAE partners with leading OEMs, industry players, and global defence
contractors. This includes partnerships with Lockheed Martin on global C-130 training solutions and Boeing to support mission-critical
platforms like the P-8 and CH-47. Our recent partnership with Bell Textron on the V-280 platform provides next-generation training
capabilities for the U.S. Army Future Long-Range Assault Aircraft (FLRAA) mission, a key component to help Army Aviation transform
under the Future Vertical Lift (FVL) modernization priorities. Increasing complexities of contracts and systems drive the industry
toward collaboration as we continue to leverage our strategic relationships and culture of innovation to meet the ever-changing market
landscape.
The mission readiness of defence and security forces will require connecting customers, platforms and locations in a singular
multi-domain environment for training and rehearsal. These expanded capabilities increase the need to enhance operational test and
training infrastructure to support distributed mission training and operations. As the prime contractor for the USAF Simulators
Common Architecture Requirements and Standards (SCARS) effort, we lead the integration and standardization of aircraft simulators
to operate and train together in a strict cyber secure environment. This real-time enterprise network is critical to multi-domain
operations.
Global modernization of defence forces continues to be a priority, increasing requirements for efficiencies and secure operational
capabilities. We are focused on transformational digital training solutions, next-generation situational awareness and enabling
technology to ensure mission readiness. The vast complexity and scale of digital environments empower decision-makers at every
level to test courses of action in rigorous, data-driven assessments. We leverage these technologies to provide a single visualization
platform to support collaborative command and control decision-making enhanced by artificial intelligence (AI) and machine learning.
We believe the Defense and Security segment is positioned as a strategic partner for training and mission support across
multi-domain operations and continues to develop as a global leader in digitally immersive training and operational support solutions.
We estimate our addressable defence market across all five domains to be approximately $14.3 billion.
CAE Financial Report 2023 I 9
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:
– Increased defence spending;
– Expected stable demand on enduring platforms and increased opportunities on next-generation systems;
– Maximization of efficiencies through outsourced training and support services;
– Increased competition straining military aviation recruitment, training and retention;
– Demand for integrated network training systems to support multi-domain conflict;
– Expanded utilization of synthetic environments to support efficacy, reduce costs and lower environmental impact.
Increased defence spending
According to the Stockholm International Peace Research Institute, global military expenditures increased by approximately 4% in
2022, reaching an all-time high of $2.2 trillion. Europe demonstrated the largest increase at 13% as countries reacted to the invasion
of Ukraine and increased East Asia activity. The immediate challenges posed by geopolitical instability and possible near-peer threats
across multi-domain operations will drive expected increases in defence budgets over the next year. Economic headwinds and a
potential need to reverse current levels of deficit spending could impact global defence; however, training is fundamental to achieving
and maintaining mission readiness and budget pressures will push more training into the cost-effective virtual environment, thus
creating increased opportunities for our products, services and digital capabilities.
Expected stable demand on enduring platforms and increased opportunities on next-generation systems
CAE generates a high degree of recurring business from our strong position on enduring platforms, including long-term service
contracts. Defence forces in mature markets maximize the use of their existing platforms through upgrades, updates, and life
extension programs of existing assets, creating opportunities for simulator upgrades and training support services. In addition,
substantial demand for enduring platforms such as the C-130, P-8, F-16, C295, MH-60R, NH90 and MQ-9 in global defence markets
requires new training systems and services. Opportunities continue to expand as defence forces prepare for next-generation
platforms. Our significant experience and strategic relationships uniquely position us to support next-generation platforms, and enable
the efficient transition from current to future state training.
Maximization of efficiencies through outsourced training and support services
Another driver for our 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. 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 support required to meet the
demand for producing aircrews and achieve desired readiness levels.
Increased competition straining military aviation recruitment, training and retention
High demand from the civil commercial and business aviation sector has impacted the recruitment, training and retention of military
pilots. The challenge has led to defence forces looking at numerous initiatives to address the potential pilot shortage, including
modernization efforts and initiatives related explicitly to training innovation, such as the U.S. Air Force Pilot Training Transformation
project. Defence forces are considering outsourcing instructor pilot positions and adopting new technologies that help make pilot
training more effective and efficient to increase throughput, creating opportunities for CAE’s products, services and solutions.
Demand for integrated network training systems to support multi-domain conflict
The shift in the nature of the geopolitical environment and the pivot to preparing for a near-peer adversary, combined with limited
personnel and budget pressures, have prompted defence forces globally to outsource the development, management and delivery of
training systems required to support today’s complex environments. Increasingly, defence forces are considering a more integrated
and holistic approach to training across all domains – air, land, sea, space and cyber. Defence forces are seeking to maximize
commonality for increased efficiencies, cost savings, integration 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 through operational, joint all-domain mission training.
Expanded utilization of synthetic environments to support efficacy, reduce costs and lower environmental impact
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 adopting synthetic environments for a greater percentage of their overall
approach to improve training effectiveness, reduce operational demands on platforms, lower risks in training and significantly lower
costs. Additional benefits of synthetic training mitigate our customers’ environmental impact by providing a safer form of multi-domain
training with a significant reduction in the carbon footprint compared to live training in a real environment. At the same time, these
digitally immersive synthetic environments, when combined with AI and cloud computing, can provide a tool for planning, course of
action analysis, and mission support.
10 I CAE Financial Report 2023
Management’s Discussion and Analysis
HEALTHCARE MARKET
We offer healthcare students and clinical professionals integrated physical, digital and virtual education and training solutions,
including interventional and imaging simulations, curricula, mixed-reality and digital learning, audiovisual debriefing solutions, centre
management platforms and patient simulators.
Simulation-based training is one of the most effective ways to prepare healthcare practitioners for the moments that matter: treating
patients, handling critical situations and reducing medical errors. The experience and best practices gained over our more than 75-
year simulation-based aviation training history apply seamlessly to healthcare, and we leverage those lessons to deliver innovative
solutions that accelerate healthcare learning, enhance training and ultimately improve the quality and availability of patient care. The
healthcare industry continues to face a challenging situation: increased demand for nurses complicated by decreased student access
to both patients and clinical sites as well as an unchanging and lengthy education timeline. Based on our experiences in aviation and
defence, we are well-suited to address the challenges of this evolving healthcare environment. As a result, we see potential growth in
the healthcare training and simulation markets propelled by multiple secular tailwinds, including an aging population necessitating
increased care; a global shortage of healthcare workers, especially nurses; an increase in preventable medical errors; a limited
number of hospital beds; and continued attrition of the healthcare workforce. All of this necessitates innovation in and acceleration of
healthcare education and certification, which can be accomplished through simulation. In 2020, only 17 U.S. states accepted
simulation for 50 percent of clinical training hours. Today, nearly every state has introduced or passed such legislation.
We are well-positioned to capture growing demand for nursing and simulation-based training through our broad and innovative
portfolios of medical training solutions, including patient, ultrasound and interventional simulators, audiovisual debriefing solutions,
centre management platforms, augmented reality applications and e-learning simulation-based curricula. We provide training solutions
to customers in more than 110 countries, and are a leader in the design, development and delivery of patient simulators based on
advanced models of human physiology that realistically reflect human responses to clinical interventions. We apply that same degree
of rigour and innovation to our digital, remote and virtual simulation solutions. For example, CAE Vimedix, our advanced ultrasound
simulator, offers augmented reality for remote and virtual learning, significantly reducing the time it takes to master ultrasound
scanning and comprehend ultrasonographic anatomy. Our learning management system consolidates the delivery of digital learning
solutions to augment simulation-centre-based training, giving learners the ability to learn anytime, anywhere and at their own pace,
amplifying access to education and training, regardless of geographical limitations. We leverage advanced technologies to build
sophisticated digital capabilities that improve patient outcomes and are gaining broad acceptance and adoption in the market. Mixed
reality is featured across our portfolio, including patient simulation (CAE AresAR and CAE LucinaAR), interventional simulation
(CAE CathLabVR), and ultrasound simulation (CAE VimedixAR). We provide these advanced technologies and innovative learning
tools to hospitals and academic institutions, which represent the largest segments of the healthcare simulation market.
We see future opportunities arising in the Healthcare business, including supporting government customers; growing acceptance of
new digital and virtual learning products 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 (INASCL) and the Society for Simulation in Healthcare (SSH), that have encouraged regulatory bodies and
policymakers to demonstrate flexibility by replacing the clinical hours usually completed in a live healthcare setting with virtually
simulated experiences.
We believe the 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.
Market drivers
Demand for our simulation products and services in the healthcare market is driven by the following:
– Growing emphasis on patient safety and outcomes;
– Global shortage amid an increased demand for healthcare personnel;
– Rising use of simulation, with a demand for innovative and custom training approaches to prevent medical errors;
– Limited access to patients for educational and clinical development purposes;
– Evolving medical technologies and growing use and acceptance of remote and virtual delivery methods;
– Increased focus on pandemic and disaster preparedness.
Growing emphasis on patient safety and outcomes
CAE expects increased adoption of simulation-based training and certification of healthcare professionals will 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 the WHO, patient harm due to unsafe care is one of the leading causes of death and disability
worldwide. On average, about one in 10 patients suffers an adverse event while receiving hospital care in high-income countries, and
up to 134 million adverse events occur due to unsafe care in hospitals in low- and middle-income countries, together contributing to
around 2.6 million deaths every year. Two key strategic initiatives of the WHO Global Safety Action Plan carry significant relevance for
implementing simulation-based training for healthcare professionals, including: assuring the safety of every clinical process and
educating every health worker to contribute to the design and delivery of safe care systems. Simulation-based training 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 the quantity of services to the quality of services
(value-based care), including safety and patient outcomes, we expect more hospitals to implement simulation-based training to
improve performance and reduce the risk of medical errors.
CAE Financial Report 2023 I 11
Management’s Discussion and Analysis
Simulation is a required or recommended element in a growing movement towards High Stakes Assessment and Certification.
Examples in the U.S. include Maintenance of Certification in Anesthesiology (MoCA) Cognitive Assessment and Advanced Trauma
Life Support. Moreover, the Accreditation Council for Graduate Medical Education is evolving towards competency-based assessment
with specific benchmarks to measure and compare performance which favours the adoption of simulation products and training.
Global shortage amid an increased demand for healthcare personnel
The World Health Organization (WHO) estimates 55 countries are facing significant health worker shortages, with a potential shortfall
of 10 million health workers by 2030, mostly in low- and lower-middle income countries. However, countries at all levels of
socioeconomic development face varying degrees of difficulties in the education, employment, deployment, retention, and
performance of their workforce. This is exacerbated by the effects of the pandemic, which continue to strain the already limited supply
of these valuable healthcare professionals. According to the International Council of Nurses, the pandemic contributed to higher nurse
turnover, with the WHO projecting that the world will need an additional 9 million nurses and midwives by the year 2030.
According to the Association of American Medical Colleges (AAMC), the U.S. faces a projected shortage up to 124,000 physicians by
2034, with demand for physicians outpacing supply. Education and training are critical to creating a qualified pipeline of doctors. While
the nation’s medical schools and teaching hospitals continue to invest in medical education and physician training to improve care,
doctor shortages continue to threaten patients’ health and well-being, according to the AAMC.
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, patient simulators, interventional
simulators, skills 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, delivers better 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.
Limited access to patients for educational and clinical development purposes
Traditionally, medical education has adhered to 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 and rare complications, inhibiting their
ability to practice critical decision-making skills. The use of simulation in professional programs complements traditional learning and
helps students hone their clinical and critical thinking skills for high-risk, low-frequency events. The U.S. National Council of State
Boards of Nursing's national simulation guidelines, indicate a pre-licensure nursing education program may substitute simulation for
up to 50% of its traditional clinical hours. In the U.K., the Nursing and Midwifery Council permanently increased the allowance of
simulation activities to 600 hours for nursing students as part of their clinical practice. In addition, SSH and INACSL continue to call for
more flexibility in replacing required clinical training hours with simulation hours for health science students, emphasizing that virtual
simulation is an effective teaching method that results in improved student learning outcomes.
Simulation provides consistent, repeatable training and exposure to a broader range of patients and scenarios than a learner may
experience in normal clinical practice settings. As an example, our CAE Vimedix ultrasound simulator offers more than 200 patient
pathologies for cardiac, emergency and obstetrics and gynecology medicine. As the training and education model continues to evolve,
CAE Healthcare simulators provide a low-risk alternative for practicing life-saving procedures, inter-professional team training and
major disaster response.
Evolving medical technologies and growing use and acceptance of remote and virtual delivery methods
Advancements in medical technology along with greater acceptance of remote and virtual delivery methods are driving the use of
simulation. 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. We continue to collaborate with OEMs to
deliver innovative and custom training for the introduction of new interventional procedures. Additionally, we are broadening our use of
remote and virtual learning through programs such as Maestro Evolve, an interactive virtual learning platform for remote instruction,
and online digital learning courses focused on nurses and respiratory therapists.
Increased focus on pandemic and disaster preparedness
Recent global events highlighted the importance of preparedness in all sectors, including healthcare, and underscored the vital role of
simulation-based training and education in ensuring readiness. We can support efforts to enhance trauma readiness, strengthen and
assess the emergency response workforce, and prepare hospitals for medical surges through simulation-based training, readiness
drills and human factors training. For example, through our partnership with a local simulation centre, we supported the Human
Patient Simulation Network conference in 2023, India’s first multidisciplinary hybrid simulation event and with it the first air crash
responder disaster drill.
12 I CAE Financial Report 2023
Management’s Discussion and Analysis
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 in the table below to value our assets, liabilities and adjusted 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)
2023
1.35
1.47
1.67
2022
1.25
1.38
1.64
Increase /
(decrease)
8%
7%
2%
We used the average foreign exchange rates in the table below to value our revenues and expenses throughout the following periods:
Increase /
(decrease)
2023
2022
U.S. dollar (US$ or USD)
Euro (€ or EUR)
British pound (£ or GBP)
1.32
1.38
1.59
1.25
1.46
1.71
6%
(5%)
(7%)
For fiscal 2023, the effect of translating the results of our foreign operations into Canadian dollars resulted in an increase in revenue of
$73.8 million and an increase in net income of $6.5 million, when compared to fiscal 2022. We calculated this by translating the
current year’s foreign currency revenue and net income of our foreign operations 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 Section 9 "Business risk and uncertainty" of this MD&A. A sensitivity analysis for
foreign currency risk is included in Note 29 of our consolidated financial statements.
3.7 Non-IFRS and other financial measure definitions
This MD&A includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial
measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused
with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be
compared with similarly titled measures provided or used by other issuers. Management believes that these measures provide
additional insight into our operating performance and trends and facilitate comparisons across reporting periods.
A non-IFRS financial measure is a financial measure that depicts our financial performance, financial position, or cash flow and either
excludes an amount that is included in or includes an amount that is excluded from the composition of the most directly comparable
financial measures disclosed in our financial statements.
A non-IFRS ratio is a financial measure disclosed in the form of a ratio, fraction, percentage, or similar representation, that has a
non-IFRS financial measure as one or more of its components.
A total of segments measure is a financial measure that is a subtotal or total of two or more reportable segments and is disclosed
within the notes to our consolidated financial statements, but not in our primary financial statements.
A capital management measure is a financial measure intended to enable an individual to evaluate our objectives, policies and
processes for managing our capital and is disclosed within the notes to our consolidated financial statements, but not in our primary
financial statements.
A supplementary financial measure is a financial measure that depicts our historical or expected future financial performance, financial
position or cash flow and is not disclosed within our primary financial statements, nor does it meet the definition of any of the above
measures.
Certain non-IFRS and other financial measures are provided on a consolidated basis and separately for each of our segments (Civil
Aviation, Defense and Security and Healthcare) since we analyze their results and performance separately.
CAE Financial Report 2023 I 13
Management’s Discussion and Analysis
PERFORMANCE MEASURES
Gross profit margin (or gross profit as a % of revenue)
Gross profit margin is a supplementary financial measure calculated by dividing our gross profit by revenue for a given period. We
track it because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison
across reporting periods.
Operating income margin (or operating income as a % of revenue)
Operating income margin is a supplementary financial measure calculated by dividing our operating income by revenue for a given
period. We track it because we believe it provides an enhanced understanding of our operating performance and facilitates the
comparison across reporting periods.
Adjusted segment operating income or loss
Adjusted segment operating income or loss is a non-IFRS financial measure that 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 adjusting for restructuring, integration and acquisition costs, and
impairments and other gains and losses arising from significant strategic transactions or specific events. Impairments and other gains
and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets
following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March
31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended
March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7
of our consolidated financial statements for the year ended March 31, 2021). We track adjusted segment operating income because
we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting
periods. Adjusted segment operating income on a consolidated basis is a total of segments measure since it is the profitability
measure employed by management for making decisions about allocating resources to segments and assessing segment
performance. Refer to Section 3.9 “Non-IFRS measure reconciliations” of this MD&A for a reconciliation of this measure to the most
directly comparable measure under IFRS.
Adjusted segment operating income margin (or adjusted segment operating income as a % of revenue)
Adjusted segment operating income margin is a non-IFRS ratio calculated by dividing our adjusted segment operating income by
revenue for a given period. We track it because we believe it provides an enhanced understanding of our operating performance and
facilitates the comparison across reporting periods.
Adjusted net income or loss
Adjusted net income or loss is a non-IFRS financial 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 adjusting for restructuring,
integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific
events, after tax, as well as significant one-time tax items. Impairments and other gains and losses arising from significant strategic
transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization
(as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition
adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and
other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements
for the year ended March 31, 2021). We track adjusted net income because we believe it provides an enhanced understanding of our
operating performance and facilitates the comparison across reporting periods. Refer to Section 3.9 “Non-IFRS measure
reconciliations” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.
Adjusted earnings or loss per share (EPS)
Adjusted earnings or loss per share is a non-IFRS ratio calculated by dividing adjusted net income or loss by the weighted average
number of diluted shares. We track it because we believe it provides an enhanced understanding of our operating performance on a
per share basis and facilitates the comparison across reporting periods. Refer to Section 3.9 “Non-IFRS measure reconciliations” of
this MD&A for a calculation of this measure.
EBITDA and Adjusted EBITDA
EBITDA is a non-IFRS financial measure which comprises net income or loss before income taxes, finance expense – net,
depreciation and amortization. Adjusted EBITDA further adjusts for restructuring, integration and acquisition costs, and impairments
and other gains and losses arising from significant strategic transactions or specific events. Impairments and other gains and losses
arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following
their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31,
2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended
March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7
of our consolidated financial statements for the year ended March 31, 2021). We use EBITDA and adjusted EBITDA to evaluate our
operating performance, by eliminating the impact of non-operational or non-cash items. Refer to Section 3.9 “Non-IFRS measure
reconciliations” of this MD&A for a reconciliation of these measures to the most directly comparable measure under IFRS.
14 I CAE Financial Report 2023
Free cash flow
Free cash flow is a non-IFRS financial 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, changes in
enterprise resource planning (ERP) and 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 measure to the
most directly comparable measure under IFRS.
Management’s Discussion and Analysis
LIQUIDITY AND CAPITAL STRUCTURE MEASURES
Non-cash working capital
Non-cash working capital is a non-IFRS financial 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 measure to the most directly comparable measure under
IFRS.
Capital employed
Capital employed is a non-IFRS financial measure we use to evaluate and monitor how much we are investing in our business. We
measure it from two perspectives:
Use of capital:
– 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, employee benefits assets 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 measure to the most directly
comparable measure under IFRS.
Return on capital employed (ROCE) and adjusted ROCE
ROCE is a non-IFRS ratio calculated over a rolling four-quarter period by taking net income attributable to equity holders of the
Company adjusting for net finance expense, after tax, divided by the average capital employed. Adjusted ROCE further adjusts for
restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic
transactions or specific events. Impairments and other gains and losses arising from significant strategic transactions or specific
events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5
of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in
Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses
incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended
March 31, 2021). We use ROCE and adjusted ROCE to evaluate the profitability of our invested capital.
Net debt
Net debt is a capital management 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 measure to the most directly comparable measure under IFRS.
Net debt-to-capital
Net debt-to-capital is a capital management measure calculated as net debt divided by the sum of total equity plus net debt. We use
this to manage our capital structure and monitor our capital allocation priorities.
Net debt-to-EBITDA and net debt-to-adjusted EBITDA
Net debt-to-EBITDA and net debt-to-adjusted EBITDA are non-IFRS ratios calculated as net debt divided by the last twelve months
EBITDA (or adjusted EBITDA). We use net debt-to-EBITDA and net debt-to-adjusted EBITDA because they reflect our ability to
service our debt obligations. Refer to Section 3.9 “Non-IFRS measure reconciliations” of this MD&A for a calculation of these
measures.
CAE Financial Report 2023 I 15
Management’s Discussion and Analysis
Maintenance and growth capital expenditures
Maintenance capital expenditure is a supplementary financial measure we use to calculate the investment needed to sustain the
current level of economic activity.
Growth capital expenditure is a supplementary financial measure we use to calculate the investment needed to increase the current
level of economic activity.
The sum of maintenance capital expenditures and growth capital expenditures represents our total property, plant and equipment
expenditures.
GROWTH MEASURES
Adjusted order intake
Adjusted order intake is a supplementary financial measure that represents the expected value of orders we have received:
– For the Civil Aviation segment, we consider an item part of our adjusted 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 Defense and Security segment, we consider an item part of our adjusted 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.
Defense 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 adjusted order intake when the customer has authorized the contract item and has
received funding for it;
– For the Healthcare segment, adjusted order intake is typically converted into revenue within one year, therefore we assume that
adjusted order intake is equal to revenue.
Adjusted backlog
Adjusted backlog is a supplementary financial 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 adjusted order intake not yet executed and is calculated by adding the adjusted
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 legally binding Defense and Security orders with the U.S. government that we have received but
have not yet executed and for which funding authorization has not yet been obtained. The uncertainty relates to the timing of the
funding authorization, which is influenced by the government’s budget cycle, based on a September year-end. Options are
included in adjusted backlog when there is a high probability of being exercised, which we define as at least 80% probable, but
indefinite-delivery/indefinite-quantity (ID/IQ) contracts are excluded. When an option is exercised, it is considered adjusted order
intake in that period, and it is removed from unfunded backlog and options.
Book-to-sales ratio
The book-to-sales ratio is a supplementary financial measure calculated by dividing adjusted order intake by revenue in a given
period. We use it to monitor the level of future growth of the business over time.
3.8 Supplementary non-financial information definitions
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.
Simulator equivalent unit (SEU)
SEU is a 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.
Utilization rate
Utilization rate is a measure 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.
16 I CAE Financial Report 2023
Management’s Discussion and Analysis
3.9 Non-IFRS measure reconciliations
Reconciliation of adjusted segment operating income
(amounts in millions)
Three months ended March 31
Operating income
Defense
Civil Aviation
and Security
Healthcare
2023
2022
2023
2022
2023
2022
2023
Total
2022
$ 149.3 $ 58.1 $ 29.0 $ 25.8 $
8.3 $
9.4 $ 186.6 $ 93.3
Restructuring, integration and acquisition costs
13.6
26.6
1.5
9.2
0.2
0.2
15.3
36.0
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Cloud computing transition adjustment
—
11.6
—
1.8
—
—
—
13.4
Adjusted segment operating income
$ 162.9 $ 96.3 $ 30.5 $ 36.8 $
8.5 $
9.6 $ 201.9 $ 142.7
(amounts in millions)
Years ended March 31
Operating income
Defense
Civil Aviation
and Security
Healthcare
2023
2022
2023
2022
2023
2022
2023
Total
2022
$ 430.3 $ 224.1 $ 35.7 $ 56.0 $
8.0 $
4.1 $ 474.0 $ 284.2
Restructuring, integration and acquisition costs
52.0
79.0
10.6
61.4
1.7
6.5
64.3 146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization
Cloud computing transition adjustment
3.0
—
—
11.6
6.8
—
—
1.8
—
—
—
—
9.8
—
—
13.4
Adjusted segment operating income
$ 485.3 $ 314.7 $ 53.1 $ 119.2 $
9.7 $ 10.6 $ 548.1 $ 444.5
Reconciliation of adjusted net income and adjusted EPS
(amounts in millions, except per share amounts)
Net income attributable to equity holders of the Company
Restructuring, integration and acquisition costs, after tax
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization, after tax
Cloud computing transition adjustment, after tax
Adjusted net income
Three months ended
March 31
Years ended
March 31
2023
$
98.4 $
12.5
2022
55.1
27.1
2023
$
222.7 $
49.4
2022
141.7
110.0
—
—
—
9.8
7.1
—
—
9.8
$
110.9 $
92.0
$
279.2 $
261.5
Average number of shares outstanding (diluted)
318.7
318.5
318.4
312.9
Adjusted EPS
$
0.35 $
0.29
$
0.88 $
0.84
CAE Financial Report 2023 I 17
Management’s Discussion and Analysis
Reconciliation of EBITDA, adjusted EBITDA, net debt-to-EBITDA and net debt-to-adjusted EBITDA
(amounts in millions, except net debt-to-EBITDA ratios)
Operating income
Depreciation and amortization
EBITDA
Restructuring, integration and acquisition costs
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization
Cloud computing transition adjustment
Adjusted EBITDA
Net debt
Net debt-to-EBITDA
Net debt-to-adjusted EBITDA
Last twelve months ended
March 31
2023
474.0 $
342.2
816.2 $
64.3
2022
284.2
310.5
594.7
146.9
$
$
9.8
—
—
13.4
$
890.3 $
755.0
$
3,032.5 $ 2,700.1
3.72
3.41
4.54
3.58
18 I CAE Financial Report 2023
4. CONSOLIDATED RESULTS
4.1 Results from operations – fourth quarter of fiscal 2023
(amounts in millions, except per share amounts)
Q4-2023 Q3-2023 Q2-2023 Q1-2023 Q4-2022
Management’s Discussion and Analysis
Revenue
Cost of sales
Gross profit
As a % of revenue2
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 revenue2
Finance expense – net
Earnings before income taxes
Income tax expense (recovery)
As a % of earnings before income taxes
(effective tax rate)
Net income
Attributable to:
Equity holders of the Company
Non-controlling interests
$ 1,256.5 1,020.3
894.7
361.8
28.8
40.0
722.3
298.0
29.2
30.2
993.2
719.6
273.6
27.5
32.2
933.3
700.4
232.9
25.0
40.7
955.0
683.4
271.6
28.4
34.9
149.7
138.1
128.0
145.1
143.6
(10.5)
(19.3)
15.3
(6.7)
(14.4)
4.9
(3.2)
(8.1)
22.6
186.6
145.9
102.1
14.9
51.4
135.2
33.3
25
101.9
98.4
3.5
101.9
14.3
48.8
97.1
17.1
18
80.0
78.1
1.9
80.0
10.3
41.3
60.8
14.5
24
46.3
44.5
1.8
46.3
(2.4)
(11.4)
21.5
39.4
4.2
36.2
3.2
(0.5)
(16)
3.7
1.7
2.0
3.7
(20.9)
(15.3)
36.0
93.3
9.8
32.5
60.8
3.7
6
57.1
55.1
2.0
57.1
$
$
%
$
$
$
$
$
$
%
$
$
$
%
$
$
$
$
EPS attributable to equity holders of the Company
Basic and diluted
$
0.31
0.25
0.14
0.01
0.17
Adjusted segment operating income2
Adjusted net income2
Adjusted EPS2
$
$
$
201.9
110.9
0.35
160.6
124.7
89.2
0.28
61.5
0.19
60.9
17.6
0.06
142.7
92.0
0.29
Revenue was 32% higher compared to the fourth quarter of fiscal 2022
Revenue was $1,256.5 million this quarter, $301.5 million or 32% higher than the fourth quarter of fiscal 2022. Revenue variances by
segment were as follows:
(amounts in millions)
Three months ended March 31
Civil Aviation
Defense and Security
Healthcare
Revenue
$
2023
661.4
536.0
59.1
$ 1,256.5
$
$
2022
432.7
469.5
52.8
955.0
$
Variance $ Variance %
53 %
14 %
12 %
32 %
228.7
66.5
6.3
301.5
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Gross profit was 33% higher compared to the fourth quarter of fiscal 2022
Gross profit was $361.8 million this quarter (28.8% of revenue) compared to $271.6 million (28.4% of revenue) in the fourth quarter of
fiscal 2022. The increase in gross profit compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized
during the period. The overall gross profit margin was stable compared to the fourth quarter of fiscal 2022.
2 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
CAE Financial Report 2023 I 19
Management’s Discussion and Analysis
Operating income was 100% higher compared to the fourth quarter of fiscal 2022
Operating income was $186.6 million this quarter (14.9% of revenue) compared to $93.3 million (9.8% of revenue) in the fourth
quarter of fiscal 2022. Operating income variances by segment were as follows:
(amounts in millions)
Three months ended March 31
Civil Aviation
Defense and Security
Healthcare
Operating income
2023
149.3
29.0
8.3
186.6
$
$
$
$
2022
58.1
25.8
9.4
93.3
$
Variance $ Variance %
157 %
12 %
(12 %)
100 %
91.2
3.2
(1.1)
93.3
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Adjusted segment operating income was 41% million higher compared to the fourth quarter of fiscal 2022
Adjusted segment operating income was $201.9 million this quarter (16.1% of revenue) compared to $142.7 million (14.9% of
revenue) in the fourth quarter of fiscal 2022. Adjusted segment operating income variances by segment were as follows:
(amounts in millions)
Three months ended March 31
Civil Aviation
Defense and Security
Healthcare
Adjusted segment operating income
2023
162.9
30.5
8.5
201.9
$
$
2022
96.3
36.8
9.6
142.7
$
$
$
Variance $ Variance %
69 %
(17 %)
(11 %)
41 %
66.6
(6.3)
(1.1)
59.2
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Finance expense - net was 58% higher compared to the fourth quarter of fiscal 2022
The increase was mainly due to higher finance expense from an increased level of borrowing under credit facilities and an increase in
variable interest rates.
We are incurring higher finance expense, commensurate with central bank monetary tightening policies.
Effective tax rate was 25% this quarter
Income tax expense this quarter amounted to $33.3 million, representing an effective tax rate of 25%, compared to an effective tax
rate of 6% for the fourth quarter of fiscal 2022.
The effective tax rate was impacted by restructuring, integration and acquisition costs this quarter. In the fourth quarter of last year,
the effective tax rate was also impacted by restructuring, integration and acquisition costs, as well as the cloud computing transition
adjustment. Excluding the effect of these items, the effective tax rate would have been 24% this quarter compared to 15% in the fourth
quarter of fiscal 2022. On this basis, the increase in the tax rate this quarter compared to the fourth quarter of fiscal 2022 was mainly
attributable to the change in the mix of income from various jurisdictions.
20 I CAE Financial Report 2023
4.2 Results from operations – fiscal 2023
(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
Earnings before income taxes
Income tax expense
As a % of earnings before income taxes (effective tax rate)
Net 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 net income
Adjusted EPS
Management’s Discussion and Analysis
$
$
$
%
$
$
$
$
$
$
%
$
$
$
%
$
$
$
$
$
$
$
$
$
FY2023
4,203.3
3,037.0
1,166.3
27.7
143.1
560.9
(22.8)
(53.2)
64.3
474.0
11.3
177.7
296.3
64.4
22
231.9
222.7
9.2
231.9
0.70
0.70
548.1
279.2
0.88
FY2022
3,371.3
2,415.8
955.5
28.3
120.8
489.1
(37.0)
(48.5)
146.9
284.2
8.4
130.6
153.6
3.6
2
150.0
141.7
8.3
150.0
0.46
0.45
444.5
261.5
0.84
Revenue was 25% higher compared to last year
Revenue was $4,203.3 million this year, $832.0 million or 25% higher than last year. Revenue variances by segment were as follows:
(amounts in millions)
Years ended March 31
Civil Aviation
Defense and Security
Healthcare
Revenue
2023
$ 2,166.4
1,844.2
192.7
$ 4,203.3
2022
$ 1,617.8
1,602.1
151.4
$ 3,371.3
$
Variance $ Variance %
34 %
15 %
27 %
25 %
548.6
242.1
41.3
832.0
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Gross profit was 22% higher compared to last year
Gross profit was $1,166.3 million this year (27.7% of revenue) compared to $955.5 million (28.3% of revenue) last year. The increase
in gross profit compared to last year was mainly due to higher revenue recognized during the period. The lower overall gross profit
margin this year was mainly due to the unfavourable contract profit adjustments recorded in Defense and Security in the first quarter
of fiscal 2023.
CAE Financial Report 2023 I 21
Management’s Discussion and Analysis
Operating income was 67% higher compared to last year
Operating income was $474.0 million this year (11.3% of revenue) compared to $284.2 million (8.4% of revenue) last year. Operating
income variances by segment were as follows:
(amounts in millions)
Years ended March 31
Civil Aviation
Defense and Security
Healthcare
Operating income
2023
430.3
35.7
8.0
474.0
$
$
2022
224.1
56.0
4.1
284.2
$
$
$
Variance $ Variance %
92 %
(36 %)
95 %
67 %
206.2
(20.3)
3.9
189.8
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Adjusted segment operating income was 23% higher compared to last year
Adjusted segment operating income was $548.1 million this year (13.0% of revenue) compared to $444.5 million (13.2% of revenue)
last year. Adjusted segment operating income variances by segment were as follows:
(amounts in millions)
Years ended March 31
Civil Aviation
Defense and Security
Healthcare
Adjusted segment operating income
2023
485.3
53.1
9.7
548.1
$
$
2022
314.7
119.2
10.6
444.5
$
$
You will find more details in Section 5 "Results by segment" of this MD&A.
Finance expense - net was $47.1 million higher than last year
(amounts in millions)
Finance expense - net, prior period
Change in finance expense from the prior period:
Increase in finance expense on long-term debt (other than lease liabilities)
Increase in finance expense on lease liabilities
Decrease in finance expense on royalty obligations
Increase in other finance expense
Increase in borrowing costs capitalized
Increase 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
Finance expense - net, current period
$
Variance $ Variance %
54 %
(55 %)
(8 %)
23 %
170.6
(66.1)
(0.9)
103.6
$
FY2022 to
FY2023
130.6
37.5
2.3
(1.0)
9.7
(0.8)
47.7
(1.2)
0.6
(0.6)
177.7
$
$
$
$
$
$
The increase in finance expense on long-term debt is mainly due to an increased level of borrowing under credit facilities and an
increase in variable interest rates.
We are incurring higher finance expense, commensurate with central bank monetary tightening policies.
Effective tax rate was 22% this year
Income tax expense this year amounted to $64.4 million, representing an effective tax rate of 22%, compared to an income tax
expense of $3.6 million for the same period last year, representing an effective tax rate of 2%.
Last year, the effective tax rate was impacted by restructuring, integration and acquisition costs, and the cloud computing transition
adjustment. The effective tax rate was not impacted by these items this year. Excluding the effect of these items last year, the
effective tax rate would have been 14%. On this basis, the increase in the tax rate compared to last year was mainly attributable to the
change in the mix of income from various jurisdictions, and the beneficial impact recognized on tax assets and positive impact of tax
audits in Canada last year.
22 I CAE Financial Report 2023
Management’s Discussion and Analysis
4.3 Restructuring, integration and acquisition costs
Integration and acquisition costs
Impairment of non-financial assets - net
Severances and other employee related costs
Other costs
Impairment reversal of non-financial assets following their
repurposing and optimization
Total restructuring, integration and acquisition costs
FY2023
66.3
2.3
2.7
2.8
$
FY2022
87.8
37.1
6.9
15.1
$
Q4-2023
15.0
—
0.3
—
$
Q4-2022
23.6
6.5
2.3
3.6
(9.8)
64.3
$
—
146.9
$
—
15.3
$
—
36.0
$
$
For the year ended March 31, 2023, restructuring, integration and acquisition costs associated with the fiscal 2022 acquisition of
L3H MT amounted to $17.6 million (2022 – $63.5 million) and those related to the fiscal 2022 acquisition of AirCentre amounted to
$48.9 million (2022 – $18.1 million).
For the year ended March 31, 2023, cash provided by operating activities included payments related to the integration and acquisition
costs for our acquired businesses and severances and other costs associated with our previously announced restructuring program
amounting to approximately $79 million (2022 – $132 million).
Impairment reversal of non-financial assets following their repurposing and optimization
For the year ended March 31, 2023, restructuring, integration and acquisition costs include gains on the reversal of impairment of an
intangible asset of $6.8 million in the Defense and Security segment and property, plant and equipment of $3.0 million in the Civil
Aviation segment, following their repurposing and optimization and new customer contracts and opportunities.
4.4 Consolidated adjusted orders and adjusted backlog
Adjusted backlog3 13% higher compared to last year
(amounts in millions)
Obligated backlog3, beginning of period
+ adjusted order intake
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog3 (all obligated)
Unfunded backlog and options3
Adjusted backlog
FY2023
FY2022
$
7,871.4 $
6,412.6
5,049.1
4,091.2
(4,203.3)
(3,371.3)
244.7
738.9
$
8,961.9 $
7,871.4
300.2
308.1
1,534.3
1,398.0
$
10,796.4 $
9,577.5
Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments and the
revaluation of prior year contracts.
The book-to-sales ratio for the quarter was 1.17x. The ratio for the last 12 months was 1.20x.
You will find more details in Section 5 "Results by segment" of this MD&A.
3 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
CAE Financial Report 2023 I 23
Management’s Discussion and Analysis
5. RESULTS BY SEGMENT
We manage our business and report our results in three segments:
– Civil Aviation;
– Defense 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 and revenue.
Unless otherwise indicated, elements within our financial results are presented in order of magnitude.
5.1 Civil Aviation
FISCAL 2023 EXPANSIONS AND NEW INITIATIVES
Expansions
– We announced the expansion of our commercial aviation training network in Toronto, Canada with the addition of a Boeing 737
MAX, a 787 FFS and a 777 FFS;
– We announced the expansion of our business aviation training network in Burgess Hill, U.K. with the addition of the first Dassault
Falcon 6X FFS;
– We announced the signing of a 15-year agreement with the Qantas Group, to develop and operate a new state-of-the-art pilot
training centre in Sydney, Australia;
– We expanded our business aviation footprint with the launch of our first West Coast U.S location offering Gulfstream, Embraer and
Bombardier platforms located in Las Vegas, Nevada. We also announced a new training centre dedicated to training on
Gulfstream platforms slated to open in early-2024 in Savannah, Georgia;
– Together with AirAsia India, we announced our collaboration to integrate the CAE Rise Training System into the airline’s simulator
training program. AirAsia India is the first airline in India to adopt a data-driven training program using CAE Rise;
– Together with Clay Lacy Aviation we announced a two-way organizational cross-training and job-sharing agreement. This
agreement calls for CAE instructors to be trained to company standards enabling them to fly with Clay Lacy, and for their senior
pilots to be approved to conduct training and check flights for CAE;
– We have partnered with Jazz Aviation to meet the future needs for pilots through the Jazz Approach program, an ab-initio pilot
training that provides cadets a direct pathway to a first officer position at Jazz Aviation;
– Together with AEGEAN, we announced our joint venture for a new flight-training location in Athens, Greece. The centre is
expected to begin pilot and cabin crew training by the end of calendar 2023 and will be our first training centre in Southeastern
Europe.
New programs and products
– We concluded a strategic partnership with Vertical Aerospace to be their exclusive global provider of VX4 pilot training and
courseware;
– Together with Piper Aircraft Inc., we launched our electric aircraft modification program, where we will develop a conversion kit and
bring an electric variant option of the aircraft to market. As a carbon neutral company, this program will allow CAE to further reduce
it's direct carbon emissions at the source;
– We have launched our newest advancement in pilot training, the CAE 700MXR flight simulator. This high-fidelity flight simulator
targets the eVTOL aircraft pilot training and will provide cost-effective, realistic and scalable flight training;
– Together with Spirit Airlines, we announced the launch of the Spirit Wings Pilot Pathway program that aims to expand the carrier’s
pipeline of highly skilled, professional pilots. The program, located at CAE’s flight academy in Phoenix, Arizona, will put graduates
on the fast track to a successful career as a Spirit Pilot.
24 I CAE Financial Report 2023
Management’s Discussion and Analysis
FISCAL 2023 ORDERS
Civil Aviation obtained contracts this quarter expected to generate future revenues of $841.5 million, including contracts for 19 FFSs.
This brings the total civil order intake to $2,827.1 million and 62 FFSs for the year.
Notable FFS contract awards for the year included:
– Five Boeing 737 MAX and three Boeing 787 to United Airlines;
– One Boeing 737 MAX and one ATR 72-600 to CAE Simulation Training Private Limited, a joint venture between InterGlobe
Enterprises and CAE;
– Two Airbus A320 Neo and one Boeing 737 MAX to American Airlines;
– One Phenom 100/300 and one Phenom 300 to Embraer-CAE Training Services, a joint venture between Embraer and CAE;
– One Airbus A350 and one ATR-72-600 to Fiji Airways;
– Two Boeing 737 MAX to Delta Air Lines;
– Two Airbus A320 to Blue Sky Aviation Training;
– Two Boeing 737 MAX to Allegiant Air;
– One Airbus A320 to Zhuhai Flight Training Centre;
– One ATR72 to Air New Zealand;
– One Airbus A220 to Qantas Group;
– One Airbus A220 to JetBlue;
– One Boeing 737 MAX to Singapore CAE Flight Training, a joint venture between Singapore Airlines and CAE;
– 34 FFSs to undisclosed and other customers.
Notable contract awards for fiscal 2023 included:
– A 15-year commercial aviation training agreement with Qantas Group;
– A 3-year exclusive commercial aviation training agreement extension and 13-year commercial aviation training agreement with
Mesa Airlines;
– An 8-year commercial aviation training agreement with GOL Airlines;
– A 5-year Pilot License cadet training agreement with Japan Airlines;
– A 10-year flight next-gen crew and operations manager agreement with SkyWest, Inc.;
– A 6-year business aviation training agreement with Delux Public Charter LLC (JSX Air);
– A 3-year business aviation training agreement with Tag Aviation Holdings;
– A 3-year business training agreement with Aerolineas Ejecutivas S.A. de C.V.
CAE Financial Report 2023 I 25
Management’s Discussion and Analysis
FINANCIAL RESULTS
(amounts in millions)
Revenue
Operating income
$
$
Adjusted segment operating income $
As a % of revenue4
Depreciation and amortization
Property, plant and equipment
expenditures
Intangible asset expenditures
Capital employed4
Adjusted backlog
%
$
$
$
$
$
Supplementary non-financial information
FY2023
FY2022
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Q4-2022
2,166.4
1,617.8
430.3
485.3
22.4
243.4
224.1
314.7
19.5
224.1
661.4
149.3
162.9
24.6
64.0
517.4
117.2
131.4
25.4
63.5
507.2
88.4
104.4
20.6
57.4
240.6
88.6
247.3
53.4
49.5
24.8
58.4
22.1
64.6
26.0
480.4
432.7
75.4
86.6
18.0
58.5
68.1
15.7
58.1
96.3
22.3
57.7
68.1
16.7
4,710.4
4,256.9
4,710.4
4,673.3
4,520.8
4,363.9
4,256.9
5,730.8
4,919.2
5,730.8
5,647.6
5,457.1
4,993.2
4,919.2
Simulator equivalent unit
FFSs in CAE's network
Utilization rate
FFS deliveries
%
257
324
72
46
246
316
60
30
265
324
78
17
263
323
73
9
252
315
66
10
250
318
71
10
246
316
69
7
Revenue up 53% compared to the fourth quarter of fiscal 2022
The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven
by higher deliveries, the integration into our results of AirCentre acquired in the fourth quarter of the prior year, higher utilization across
our network, the foreign exchange impact on the translation of our foreign operations and the contribution from recently deployed
simulators in our network.
Revenue was $2,166.4 million this year, $548.6 million or 34% higher than last year
The increase compared to last year was mainly due to higher utilization across our network, the integration into our results of
AirCentre, higher revenue recognized from simulator sales, driven by the timing of production and other milestones on devices for
which revenue was not recognized upon delivery and higher deliveries, and the contribution from recently deployed simulators in our
network.
Operating income up 157% compared to the fourth quarter of fiscal 2022
Operating income was $149.3 million (22.6% of revenue) this quarter, compared to $58.1 million (13.4% of revenue) in the fourth
quarter of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $13.6 million
compared to $26.6 million in the fourth quarter of fiscal 2022.
The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven
by higher deliveries and the timing of production of milestones, the contribution from recently deployed simulators in our network,
lower restructuring, integration and acquisition costs, higher utilization across our network, the integration into our results of AirCentre
and the cloud computing transition adjustment expense recognized in the prior year. The increase was partially offset by a gain on
remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term
royalty obligations this year.
Operating income was $430.3 million this year, $206.2 million or 92% higher than last year.
Operating income was $430.3 million (19.9% of revenue) this year, compared to $224.1 million (13.9% of revenue) last year. This
year's operating income included restructuring, integration and acquisition costs of $52.0 million compared to $79.0 million last year.
The increase compared to last year was mainly due to higher utilization across our network, higher revenue recognized from simulator
sales, driven by the timing of production and other milestones on devices for which revenue was not recognized upon delivery and
higher deliveries, the integration into our results of AirCentre, the contribution from recently deployed simulators in our network and
lower restructuring, integration and acquisition costs.
Adjusted segment operating income up 69% compared to the fourth quarter of fiscal 2022
Adjusted segment operating income was $162.9 million (24.6% of revenue) this quarter, compared to $96.3 million (22.3% of revenue)
in the fourth quarter of fiscal 2022.
4 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
26 I CAE Financial Report 2023
Management’s Discussion and Analysis
The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven
by higher deliveries and the timing of production of milestones, the contribution from recently deployed simulators in our network,
higher utilization across our network and the integration into our results of AirCentre. The increase was partially offset by a gain on
remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term
royalty obligations this year.
Adjusted segment operating income was $485.3 million this year, $170.6 million or 54% higher than last year
Adjusted segment operating income was $485.3 million (22.4% of revenue) this year, compared to $314.7 million (19.5% of revenue)
last year.
The increase compared to last year was mainly due to higher utilization across our network, higher revenue recognized from simulator
sales, driven by the timing of production and other milestones on devices for which revenue was not recognized upon delivery and
higher deliveries, the integration into our results of AirCentre and the contribution from recently deployed simulators in our network.
Property, plant and equipment expenditures were $49.5 million this quarter and $240.6 million for the year
Growth capital expenditures were $37.1 million for the quarter and $187.4 million for the year. Maintenance capital expenditures were
$12.4 million for the quarter and $53.2 million for the year.
Capital employed increased by $37.1 million compared to last quarter and increased by $453.5 million compared to last year
The increase in capital employed compared to last quarter was due to higher right-of-use assets, movements in foreign exchange
rates and higher property, plant and equipment. The increase is partially offset by a lower investment in non-cash working capital.
The increase in capital employed compared to last year was due to movements in foreign exchange rates, higher property, plant and
equipment and higher right-of-use assets in support of training network expansions. The increase was partially offset by a lower
investment in non-cash working capital.
Adjusted backlog up 16% compared to last year
(amounts in millions)
Obligated backlog, beginning of period
+ adjusted order intake
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog (all obligated)
Adjusted backlog
FY2023
$
4,718.3 $
2,827.1
FY2022
4,047.4
2,016.5
(2,166.4)
(1,617.8)
176.2
272.2
5,555.2 $
4,718.3
175.6
200.9
5,730.8 $
4,919.2
$
$
Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments and the
revaluation of prior year contracts.
This quarter's book-to-sales ratio was 1.27x. The ratio for the last 12 months was 1.30x.
CAE Financial Report 2023 I 27
Management’s Discussion and Analysis
5.2 Defense and Security
FISCAL 2023 EXPANSIONS AND NEW INITIATIVES
Expansions
– We entered into a memorandum of understanding (MoU) with MBDA Deutschland to jointly develop virtual simulation
environments that support the development, training and use of network-enabled, collaborative effectors to support the Future
Combat Air System program and further develop the key technologies required for mission planning, collaborative algorithms and
sensor data fusion;
– We entered into a MoU with Boeing to expand their collaboration and explore further teaming opportunities in defence aerospace
training, leveraging the strengths, skills and advanced technologies of the two companies with the intent to further enhance
innovation and competition through potential joint-offerings. This resulted in multi-mission platform collaboration in Canada,
Germany and Norway to provide superior management, technical and cost-effective training solutions for the P-8A Poseidon
program.
New programs and products
– The German government announced Boeing’s CH-47F Chinook was selected for the heavy helicopter program. CAE GmbH is a
member of Boeing’s Team Chinook providing flight simulation technologies and training support services;
– The Royal Australian Navy awarded the Platforms and Systems Training Contract to CAE Australia Ltd. to deliver sustainable
distributed training in support of naval training transformation;
– Piaggio Aerospace to deliver a P.180 Avanti II FFS (Level D) in support of the Italian Air Force;
– The U.S. Army announced Bell Textron’s V-280 was selected as the Future Long Range Assault Aircraft to support Future Vertical
Lift. CAE is a member of Team Valor supporting the platform.
FISCAL 2023 ORDERS
Defense and Security was awarded $564.7 million in orders this quarter and $2,029.3 million in total for fiscal 2023, including notable
contract awards from:
– L3 Harris to provide Program Management, Integrated Logistics & Support, Data Management System and Embedded Systems
Engineering support for the CF-18 Systems Engineering Support Contract to the Royal Canadian Air Force;
– Rotorsim, a joint venture between CAE and Leonardo, to provide the training system in support of the Joint NH90 Training
Program Full Mission Flight Trainer Maintenance Upgrade to the Netherlands Ministry of Defence;
– The Commonwealth of Australia for comprehensive training and sustainment support services under the Australian Defence Force
ASIST program;
– The Public Works Government Services of Canada to provide a CH-149 Cormorant flight training device and maintenance and
logistics support;
– The USAF for the continuation of KDAM training, contractor logistics support, and courseware development;
– The Naval Air Warfare Center Training Systems Division for a non-motion MH-60R Tactical Operational Flight Trainer configured
for the Republic of Korea;
– The U.S. Army to continue fixed-wing flight training and support services at the CAE Dothan Training Center. Through a
competitive recompete, the US Army also chose to award the program with options through 2032 and the addition of a new suite
of technology in the fourth quarter;
– The USAF for the continuation of Initial Flight Training supported at the CAE Pueblo Training Center;
– An international customer for F-16 flight training device upgrades;
– Lockheed Martin to support the development of a C-130J weapons system trainer for the Royal New Zealand Air Force;
– The U.S. Army for advanced instructor pilot training support services to expand the scope of flight training and support services for
both aircrew and non-aircrew personnel;
– The U.S. Navy to support T-44C simulator training and instructional services for the Chief of Naval Air Training;
– Lockheed Martin to support the development of a KC-130J weapons system trainer for the U.S. Marine Corp.
FINANCIAL RESULTS
(amounts in millions)
Revenue
Operating income (loss)
$
$
Adjusted segment operating income $
As a % of revenue
Depreciation and amortization
Property, plant and equipment
expenditures
Intangible asset expenditures
Capital employed
Adjusted backlog
%
$
$
$
$
$
FY2023
FY2022
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Q4-2022
1,844.2
1,602.1
536.0
452.5
442.4
35.7
53.1
2.9
86.8
25.4
28.2
56.0
119.2
7.4
73.4
21.6
24.9
29.0
30.5
5.7
23.2
11.9
9.4
24.9
25.4
5.6
21.7
4.8
5.6
12.1
18.4
4.2
21.0
3.5
6.4
413.3
(30.3)
(21.2)
—
20.9
5.2
6.8
469.5
25.8
36.8
7.8
20.1
6.0
6.9
2,565.0
2,338.3
2,565.0
2,514.5
2,641.2
2,528.4
2,338.3
5,065.6
4,658.3
5,065.6
5,147.5
5,180.8
5,032.4
4,658.3
28 I CAE Financial Report 2023
Management’s Discussion and Analysis
Revenue up 14% compared to the fourth quarter of fiscal 2022
The increase compared to the fourth quarter of fiscal 2022 was mainly due to a higher level of activity on our North American
programs and the foreign exchange impact on the translation of our foreign operations.
Revenue was $1,844.2 million this year, $242.1 million or 15% higher than last year
The increase compared to last year was mainly due to the integration into our results of L3H MT, acquired in the second quarter of the
prior year, a higher level of activity on our North American programs and the foreign exchange impact on the translation of our foreign
operations.
Operating income up 12% compared to the fourth quarter of fiscal 2022
Operating income was $29.0 million (5.4% of revenue) this quarter, compared to $25.8 million (5.5% of revenue) in the fourth quarter
of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $1.5 million compared to
$9.2 million in the fourth quarter of fiscal 2022.
The increase compared to the fourth quarter of fiscal 2022 was mainly due to lower restructuring, integration and acquisition costs,
higher margins on our European programs and higher profitability in our joint ventures, partially offset by lower margins on certain
North American programs and a lower net benefit from the remeasurement of long-term royalty obligations.
Operating income was $35.7 million this year, $20.3 million or 36% lower than last year
Operating income was $35.7 million (1.9% of revenue) this year, compared to $56.0 million (3.5% of revenue) last year. This year’s
operating income included restructuring, integration and acquisition costs of $10.6 million compared to $61.4 million last year.
The decrease compared to last year was driven by lower margins on our North American programs, in part due to unfavourable
contract profit adjustments on two U.S. programs in the first quarter of fiscal 2023, and higher selling, general and administrative
expenses from higher bid and proposal costs associated with the pursuit of a larger Defense and Security pipeline, partially offset by
lower restructuring, integration and acquisition costs and lower net research and development expenses.
Adjusted segment operating income down 17% compared to the fourth quarter of fiscal 2022
Adjusted segment operating income was $30.5 million (5.7% of revenue) this quarter, compared to $36.8 million (7.8% of revenue) in
the fourth quarter of fiscal 2022.
The decrease compared to the fourth quarter of fiscal 2022 was mainly due to lower margins on certain North American programs and
a lower net benefit from the remeasurement of long-term royalty obligations, partially offset by higher margins on our European
programs and higher profitability in our joint ventures.
Adjusted segment operating income was $53.1 million this year, $66.1 million or 55% lower than last year
Adjusted segment operating income was $53.1 million (2.9% of revenue) this year, compared to $119.2 million (7.4% of revenue) last
year.
The decrease compared to last year was driven by lower margins on our North American programs, in part due to unfavourable
contract profit adjustments on two U.S. programs in the first quarter of fiscal 2023, and higher selling, general and administrative
expenses from higher bid and proposal costs associated with the pursuit of a larger Defense and Security pipeline, partially offset by
lower net research and development expenses.
Capital employed increased by $50.5 million compared to last quarter and increased by $226.7 million compared to last year
The increase compared to last quarter was mainly due to a higher investment in non-cash working capital, primarily due to higher
contract assets, lower contract liabilities and higher inventories, partially offset by higher accounts payable and accrued liabilities.
The increase compared to last year was mainly due to movements in foreign exchange rates and lower other non-current liabilities.
CAE Financial Report 2023 I 29
Management’s Discussion and Analysis
Adjusted backlog up 9% compared to last year
(amounts in millions)
Obligated backlog, beginning of period
+ adjusted order intake
- revenue
+ / - adjustments
Obligated backlog, end of period
Joint venture backlog (all obligated)
Unfunded backlog and options
Adjusted backlog
FY2023
$
3,153.1 $
2,029.3
FY2022
2,365.2
1,923.3
(1,844.2)
(1,602.1)
68.5
466.7
$
3,406.7 $
3,153.1
124.6
1,534.3
$
5,065.6 $
107.2
1,398.0
4,658.3
Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments.
This quarter's book-to-sales ratio was 1.05x. The ratio for the last 12 months was 1.10x.
In fiscal 2023, $821.6 million of unfunded backlog was transferred to obligated backlog and $816.6 million was added to the unfunded
backlog.
5.3 Healthcare
FISCAL 2023 EXPANSIONS AND NEW INITIATIVES
Expansions
– We expanded our relationship with the Mayo Clinic College of Medicine and Science, finalizing a significant partnership for our
LearningSpace centre management solution for its simulation centre in Rochester, Minnesota;
– Through efforts supported by CARES Act funding and Mon Health hospital system, we increased our presence and visibility in the
U.S. to address West Virginia’s increased demand for nurses by introducing three statewide mobile nursing labs that use
simulation to train students and healthcare providers;
– We secured several competitive deals with universities and colleges for our advanced patient simulators and our customizable
centre management platform, CAE LearningSpace;
– We extended our geographic reach through a multi-location sale in India that included our Human Patient Simulator as well as
CAE Luna, CAE Vimedix, CAE Blue Phantom and CAE LearningSpace;
– We were awarded contracts through our OEM program, for future research and development efforts as well as additional
simulators to teach pacemaker placement;
– We expanded our relationship with the American Society of Anesthesiologists through a commitment to develop two additional
SimSTAT modules for the MoCA.
New programs and products
– We introduced two new enhancements to our LearningSpace centre management platforms with the Standardized Patient
Administration module that offers streamlined scheduling and communication with standardized patients via a dedicated mobile
application and the updated NextGen Room View that optimizes the video interface for watching live or recorded simulation
training sessions;
– We released an update for CAE VimedixAR that features enhanced animation and upgraded components that offers hands-free
operation of selected controls for a better user experience.
FINANCIAL RESULTS
(amounts in millions)
Revenue
Operating income (loss)
$
$
Adjusted segment operating income $
As a % of revenue
Depreciation and amortization
Property, plant and equipment
expenditures
Intangible asset expenditures
Capital employed
%
$
$
$
$
FY2023
FY2022
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Q4-2022
192.7
151.4
8.0
9.7
5.0
12.0
2.8
9.6
4.1
10.6
7.0
13.0
3.3
12.3
59.1
8.3
8.5
14.4
2.2
1.5
2.3
50.4
43.6
3.8
3.8
7.5
3.1
0.2
1.9
1.6
1.9
4.4
3.5
0.5
2.5
39.6
(5.7)
(4.5)
—
3.2
0.6
2.9
52.8
9.4
9.6
18.2
3.1
0.6
2.6
240.8
204.3
240.8
253.6
251.0
220.2
204.3
30 I CAE Financial Report 2023
Management’s Discussion and Analysis
Revenue up 12% compared to the fourth quarter of fiscal 2022
The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue from sales of patient simulators and the
foreign exchange impact on the translation of our foreign operations.
Revenue was $192.7 million this year, $41.3 million or 27% higher than last year
The increase compared to last year was mainly due to higher revenue from sales of patient simulators and centre management
solutions, driven by growth in our CAE LearningSpace simulation platform, key partnerships with OEMs and the foreign exchange
impact on the translation of our foreign operations.
Operating income down 12% compared to the fourth quarter of fiscal 2022
Operating income was $8.3 million (14.0% of revenue) this quarter, compared to $9.4 million (17.8% of revenue) in the fourth quarter
of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $0.2 million compared to
$0.2 million in the fourth quarter of fiscal 2022.
The decrease compared to the fourth quarter of fiscal 2022 was mainly driven by the recognition of a gain on remeasurement of a
contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this
year. The decrease was partially offset by higher revenue, as described above.
Operating income was $8.0 million this year, $3.9 million or 95% higher than last year
Operating income was $8.0 million (4.2% of revenue) this year, compared to $4.1 million (2.7% of revenue) last year. This year’s
operating income included restructuring, integration and acquisition costs of $1.7 million compared to $6.5 million last year.
The increase compared to last year was mainly due to higher revenue, as described above, a favourable product mix and lower
restructuring, integration and acquisition costs. The increase was partially offset by higher net research and development expenses
due to the recognition of previously unrecognized investment tax credits in the prior year, a gain on remeasurement of a contingent
consideration liability in the prior year, and a lower net benefit from the remeasurement of long-term royalty obligations this year.
Adjusted segment operating income down 11% compared to the fourth quarter of fiscal 2022
Adjusted segment operating income was $8.5 million (14.4% of revenue) this quarter, compared to $9.6 million (18.2% of revenue) in
the fourth quarter of fiscal 2022.
The decrease compared to the fourth quarter of fiscal 2022 was mainly driven by the recognition of a gain on remeasurement of a
contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this
year. The decrease was partially offset by higher revenue, as described above.
Adjusted segment operating income was $9.7 million this year, $0.9 million or 8% lower compared to last year
Adjusted segment operating income was $9.7 million (5.0% of revenue) this year, compared to $10.6 million (7.0% of revenue) last
year.
The decrease compared to last year was mainly due to higher net research and development expenses due to the recognition of
previously unrecognized investment tax credits in the prior year, a gain on remeasurement of a contingent consideration liability in the
prior year and a lower net benefit from the remeasurement of long-term royalty obligations this year. The decrease was partially offset
by higher revenue, as described above.
Capital employed decreased by $12.8 million compared to last quarter and increased by $36.5 million compared to last year
The decrease compared to last quarter was mainly due to lower non-cash working capital, driven by lower inventories and higher
accounts payable and accrued liabilities.
The increase compared to last year was mainly due to higher non-cash working capital, driven by higher accounts receivable and
inventories, and movements in foreign exchange rates.
CAE Financial Report 2023 I 31
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 movements
(amounts in millions)
Cash provided by operating activities*
Changes in non-cash working capital
Net cash provided by operating activities
Maintenance capital expenditures5
Change in ERP and other assets
Proceeds from the disposal of property, plant and equipment
Net (payments to) proceeds from equity accounted investees
Dividends received from equity accounted investees
Free cash flow5
Growth capital expenditures5
Capitalized development costs
Net proceeds from the issuance of common shares
Business combinations, net of cash acquired
Acquisition of investment in equity accounted investees
Other cash movements, net
$
$
$
Effect of foreign exchange rate changes on cash and cash equivalents
Net change in cash before proceeds and repayment of long-term debt
$
* before changes in non-cash working capital
FY2023
FY2022
Q4-2023
Q4-2022
522.9
$
395.7
$
158.5
$
(114.5)
22.5
22.1
408.4
$
418.2
$
180.6
$
(62.8)
(45.6)
5.7
(10.9)
40.9
335.7
(206.0)
(87.1)
16.3
(6.4)
—
(28.7)
16.4
40.2
$
$
(55.4)
(37.4)
8.4
(19.4)
27.1
341.5
(216.8)
(55.6)
696.1
(1,883.7)
(4.3)
7.4
(16.7)
(14.8)
(14.9)
0.9
(0.4)
20.6
172.0
(48.1)
(22.8)
0.8
—
—
3.1
2.6
$
$
(1,132.1)
$
107.6
$
(384.6)
83.2
123.6
206.8
(16.1)
(10.4)
0.3
0.5
6.5
187.6
(58.6)
(15.8)
0.6
(498.9)
—
9.3
(8.8)
Net cash provided by operating activities of $180.6 million this quarter
Net cash provided by operating activities was $26.2 million lower compared to the fourth quarter of fiscal 2022. The decrease was
mainly due to a lower contribution from non-cash working capital, partially offset by higher net income from operating activities before
non-cash items.
Net cash provided by operating activities of $408.4 million this year
Net cash provided by operating activities was $9.8 million lower than the same period last year. The decrease was mainly due to a
lower contribution from non-cash working capital, partially offset by higher net income from operating activities before non-cash items.
Free cash flow of $172.0 million this quarter
Free cash flow was $15.6 million lower compared to the fourth quarter of fiscal 2022. The decrease was mainly due to a lower
contribution from non-cash working capital, partially offset by higher cash provided by operating activities and higher dividends
received from equity accounted investees.
Free cash flow of $335.7 million this year
Free cash flow was stable compared to last year. A lower contribution from non-cash working capital was partially offset by higher
cash provided by operating activities.
Property, plant and equipment expenditures were $62.9 million this quarter and $268.8 million for the year
Growth capital expenditures were $48.1 million this quarter and $206.0 million for the year. Maintenance capital expenditures were
$14.8 million this quarter and $62.8 million for the year.
5 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
32 I CAE Financial Report 2023
Management’s Discussion and Analysis
6.2 Sources of liquidity
We have a committed unsecured revolving credit facility 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.
The total amount available through this revolving credit facility at March 31, 2023 was US$1.0 billion (2022 – US$850.0 million and
$300.0 million, available through a Sidecar unsecured revolving credit facility). There was US$320.0 million drawn under the facility as
at March 31, 2023 (2022 – US$270.0 million), and US$32.5 million was used for letters of credit (2022 – US$26.6 million). The
applicable interest rate on this revolving credit facility is variable, based on the bank’s prime rate, bankers’ acceptance rates or
LIBOR/SOFR plus a margin based on the private credit rating.
We have an unsecured Export Development Canada (EDC) Performance Security Guarantee (PSG) account for US$225.0 million
(2022 – 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, 2023 the total outstanding for these instruments was $198.5 million
(2022 – $182.9 million).
We manage an uncommitted receivable purchase facility of up to US$400.0 million (2022 – US$400.0 million), in which we sell
interests in certain of our accounts receivable to third parties for cash consideration. As at March 31, 2023, the carrying amount of the
original accounts receivable sold to financial institutions pursuant to the receivable purchase facility totalled $266.7 million
(2022 – $213.9 million) of which $42.4 million (2022 – $21.0 million), corresponding to the extent of our continuing involvement,
remains in accounts receivable with a corresponding liability included in accounts payable and accrued liabilities.
We have certain debt agreements which require the maintenance of standard financial covenants. As at March 31, 2023, we are
compliant with all our financial covenants.
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
2023
$
3,250.1 $
133.4
81.2
2022
3,046.2
142.8
99.0
$
3,035.5 $
2,804.4
Term loans
In September 2022, we extended the maturity of our US$175.0 million variable interest-bearing term loan from July 2023 to July 2024.
In March 2023, we repaid a term loan of US$50.0 million.
Revolving credit facility amendments
In October 2022, we amended our US$850.0 million unsecured revolving credit facility to increase the total capacity to US$1.0 billion
and extended the maturity by one year to September 2027. In addition, we terminated our $300.0 million Sidecar unsecured revolving
credit facility, which had no borrowings and was coming to maturity in April 2023.
Pension obligations
We maintain defined benefit and defined contribution pension plans. Our defined benefit pension plans are considered sufficiently
funded. We expect to pay employer contributions and benefits of $35.5 million in fiscal 2024.
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 has been 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 Investissement Québec (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. Government contributions for Project Digital
Intelligence ended in fiscal 2023.
CAE Financial Report 2023 I 33
Management’s Discussion and Analysis
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 up to $82.4 million related to Healthcare R&D projects which
support CAE's continued development of technologies, products and services that allow to make healthcare safer. Government
contributions for this program ended on March 31, 2023.
During fiscal 2022, we concluded new financial participation agreements with the Government of Canada and the Government of
Québec who will fund up to $190.0 million and $150.0 million, respectively, in the form of partially repayable loans for eligible spending
related to R&D projects. The investments will fund Project Resilience, a plan to invest $1 billion in R&D innovations over the next five
years with the aim to develop technologies of the future, including digitally immersive solutions using data ecosystems and AI in Civil
Aviation, Defense and Security and Healthcare. The project will also allow CAE to position itself as a leader in end-to-end technology,
operational support and training solutions for AAM, as well as develop green light aircraft technologies.
6.4 Contingencies and commitments
Contingencies
During fiscal 2015, we received tax notices of reassessment from the Canada Revenue Agency (CRA) in connection with our
characterization of amounts received under the Strategic Aerospace and Defence Initiative (SADI) program during our 2012 and 2013
taxation years. Under the SADI program, we received funding from the Government of Canada for our eligible spending in R&D
projects, in the form of an unconditionally repayable interest-bearing loan, for which we commenced repayment of the principal and
interest in fiscal 2016 in accordance with the terms of the agreement. The CRA has taken the position that amounts received under
the SADI program qualify as government assistance. We filed notices of objection against the CRA’s reassessments and
subsequently filed a notice of appeal to the Tax Court of Canada.
In September 2021, the Tax Court of Canada ruled in favour of the CRA’s contention and held that the amounts received under the
SADI program qualified as government assistance. We subsequently filed an appeal to the Federal Court of Appeal against the Tax
Court’s decision. In October 2022, the Federal Court of Appeal issued a decision in which it rejected the appeal. In December 2022,
we filed an application for leave to appeal to the Supreme Court of Canada.
In May 2023, the Supreme Court of Canada denied the application for leave to appeal. We consider this matter closed as the
Supreme Court’s decision cannot be appealed. The outcome did not have a material impact on our consolidated financial statements
as at March 31, 2023.
Commitments
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 fiscal years and thereafter:
(amounts in millions)
2024
2025
2026
2027
2028 Thereafter
Total
Long-term debt (excluding interest)
$
133.4 $
486.7 $
264.2 $
171.5 $
562.7 $ 1,175.7 $ 2,794.2
Lease liabilities
Purchase commitments
104.5
62.7
297.5
126.6
55.9
58.7
51.5
62.4
47.6
402.4
1.9
1.9
724.6
549.0
$
535.4 $
676.0 $
378.8 $
285.4 $
612.2 $ 1,580.0 $ 4,067.8
As at March 31, 2023, the Company had additional commitments of $80.2 million related to leases not yet commenced that have not
been recognized as a lease liability nor included in the table above.
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, 2023, we had other long-term liabilities that are not included in the table above such as employee benefits obligations
and deferred tax liabilities. CAE’s cash obligation in respect of the employee benefits obligations 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.
34 I CAE Financial Report 2023
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 capital6
Property, plant and equipment
Intangible assets
Other long-term assets
Other long-term liabilities
Capital employed
Source of capital6:
Current portion of long-term debt
Long-term debt
Less: cash and cash equivalents
Net debt6
Equity attributable to equity holders of the Company
Non-controlling interests
Capital employed
Management’s Discussion and Analysis
As at March 31
As at March 31
2023
2022
$
2,235.0
$
(217.6)
(2,246.7)
214.6
$
(14.7)
$
2,387.1
4,050.8
1,763.6
(565.4)
7,621.4
214.6
3,035.5
(217.6)
3,032.5
4,507.7
81.2
$
$
$
7,621.4
$
$
$
$
$
2,148.6
(346.1)
(2,091.2)
241.8
(46.9)
2,129.3
3,796.3
1,504.6
(596.6)
6,786.7
241.8
2,804.4
(346.1)
2,700.1
4,009.7
76.9
6,786.7
Capital employed increased $834.7 million compared to last year
The increase was mainly due to higher other long-term assets, higher property, plant and equipment and higher intangible assets, as
described below.
Return on capital employed (ROCE)6
ROCE was 4.9% this quarter, which compares to 4.3% in the fourth quarter of last year. Adjusted ROCE was 5.7% this quarter, which
compares to 6.2% in the fourth quarter of last year and 5.5% last quarter.
Non-cash working capital increased by $32.2 million compared to last year
The increase was mainly due to higher contract assets, higher inventories and higher accounts receivable, partially offset by higher
contract liabilities and higher accounts payable and accrued liabilities.
Property, plant and equipment increased by $257.8 million compared to last year
The increase was mainly due to movements in foreign exchange rates and capital expenditures in excess of depreciation.
Intangible assets increased by $254.5 million compared to last year
The increase was mainly due to movements in foreign exchange rates and additions in excess of depreciation.
Other long-term assets increased by $259.0 million compared to last year
The increase was mainly due to a higher investment in equity accounted investees, higher other non-current assets, mainly due to
advance payments for property, plant and equipment, higher right-of-use assets in support of training network expansions, primarily
due to additions and remeasurements in excess of depreciation, and higher employee benefits assets.
6 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
CAE Financial Report 2023 I 35
Management’s Discussion and Analysis
Total debt increased by $203.9 million compared to last year
The increase in total debt was mainly due to movements in foreign exchange rates and additions and remeasurements of lease
liabilities.
Net debt7 increased by $332.4 million compared to last year
(amounts in millions)
Net debt, beginning of period
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
Liquidity measures
Net debt-to-capital7
Net debt-to-EBITDA7
Net debt-to-adjusted EBITDA7
FY2023
$
2,700.1 $
(40.2)
223.3
—
126.1
23.2
$
$
332.4 $
3,032.5 $
FY2022
1,425.4
1,132.1
(28.0)
35.1
112.1
23.4
1,274.7
2,700.1
As at March 31
As at March 31
2023
%
39.8 %
3.72
3.41
2022
39.8
4.54
3.58
Total equity increased by $502.3 million this year
The increase compared to last year was mainly due to changes in other comprehensive income, including foreign currency translation
adjustments, and the net income 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 317,906,290 common shares issued and outstanding as at March 31, 2023 with total share
capital of $2,243.6 million. In addition, we had 6,323,537 options outstanding under the Employee Stock Option Plan (ESOP).
As at April 30, 2023, we had a total of 317,946,890 common shares issued and outstanding and 6,279,862 options outstanding under
the ESOP.
7.2 Off balance sheet arrangements
In the normal course of business, we manage an uncommitted receivable purchase facility in which we sell interests in certain of our
accounts receivable to third parties for cash consideration with limited recourse to CAE.
You will find more details about our financial assets program in Section 6.2 "Sources of Liquidity."
7 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other
financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the
most directly comparable measure under IFRS.
36 I CAE Financial Report 2023
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.
Management’s Discussion and Analysis
Classification of financial instruments
We have made the following classifications for our financial instruments:
Financial assets:
– Cash and cash equivalents, restricted cash 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, 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 instruments in a
hedge relationship are 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.
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, accounts receivable and accounts payable and accrued liabilities 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 27 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.
CAE Financial Report 2023 I 37
Management’s Discussion and Analysis
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 held with a wide range of commercial and government organizations and
agencies. 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 facility). 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 9 and Note 27 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 29 of our consolidated financial statements.
Client concentration risk
For the year ended March 31, 2023, contracts with the U.S. federal government and its various agencies included in the Defense and
Security segment accounted for 22% (2022 – 23%) of consolidated revenue.
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. 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.
38 I CAE Financial Report 2023
Management’s Discussion and Analysis
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, 2023, 73% (2022 – 75%) 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 cash-settled share-based payments plans. 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 cash-settled share-based payments plans.
Hedge of net investments in foreign operations
As at March 31, 2023, we have designated a portion of our unsecured senior notes, term loans and revolving credit facility as a hedge
of our net investments in U.S. entities. Gains or losses on the translation of the designated portion of these USD denominated
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 29 of our consolidated financial statements.
8. BUSINESS COMBINATIONS
During the year ended March 31, 2023, we completed our assessment of the fair value of assets acquired and liabilities assumed of
L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline operations portfolio (AirCentre) acquired in
fiscal 2022.
Adjustments to the purchase price allocations of the L3H MT and AirCentre acquisitions resulted in increases of intangible assets of
$27.0 million, other long-term liabilities of $6.4 million, and current liabilities of $4.0 million, and decreases of current assets of
$11.9 million, other long-term assets of $2.6 million and deferred tax assets of $2.1 million.
During the year ended March 31, 2023, cash consideration of $6.4 million was paid for an acquisition realized in fiscal 2021.
You will find more details in Note 2 of our consolidated financial statements.
CAE Financial Report 2023 I 39
Management’s Discussion and Analysis
9. BUSINESS RISK AND UNCERTAINTY
Risk strategy and philosophy
We operate in several industry segments which present a variety of 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 we currently believe could materially and adversely affect our business,
financial condition and results of operation. 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 practices. Management and the Board discuss the critical risks facing our business quarterly,
annually during the strategic planning and budgeting processes, and on an ad hoc basis, as deemed necessary. To mitigate the risks
that may impact our business or future performance, management has established an enterprise risk management (ERM) policy and
a framework that provides a structured approach to identify, assess, manage, monitor and report on risks.
This framework relies on the Three Lines Model where the business segments, the risk management function and our internal audit
function work in collaboration to manage critical risks and continuously improve the risk management process, as presented below.
CAE’s ERM Framework
Management develops and deploys risk strategies that align with our strategic objectives and business processes. Management
continuously reviews the evolution of the critical 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.
Risk approach and implementation
CAE promotes a strong risk culture that allows individuals and groups to make better risk-informed 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.
40 I CAE Financial Report 2023
Management’s Discussion and Analysis
Each business unit and functional group identifies and assesses critical and emerging risks on an ongoing basis. Risk owners are
responsible for managing risks they own, and for reporting, via the chain of command, the evolution of their risk profile. All risks are
either measured quantitatively or assessed qualitatively and aggregated at an enterprise level. Risk assessment criteria provide a
consistent risk assessment process and risk ratings.
CAE’s comprehensive enterprise risk profile is updated on a regular basis as well as when a major shift occurs, such as for significant
merger and acquisition activity. It is prepared considering CAE’s strategic and business plans and identifies an owner for each risk. It
is presented to the Executive Management Committee, and a summary thereof to the Board together with risk management activities
to address such risks. All risks or weaknesses are reported to the Executive Management Committee or the Senior Vice President,
Investor Relations and Enterprise Risk Management, who assess their potential impact. Depending on the severity, a risk strategy is
selected (risk acceptance, transference, avoidance or reduction), implemented, monitored and reported in accordance with the risk
management process.
Risk Categories
We have grouped the risks that our business faces in the following categories and investors should read this Business Risk and
Uncertainty section in full:
– Strategic: risks arising from inability to implement appropriate business plans or strategies, from inappropriate decision-making
processes or inappropriate utilization or allocation of resources and the inability to adapt to competition and changes in the market
or financial environment;
– Operational: risks of loss arising from inadequate or failed internal processes, people, and systems or from external events;
– Talent: risks arising from failure to effectively manage talent recruitment, development, retention, key person reliance, wellbeing,
health and safety, and resource allocation;
– Financial: risks arising from ineffective management of financial tools leading to a loss in revenue/profit, shareholder value and/or
CAE’s overall stability;
– Regulatory: risks arising from failure to comply with local and international laws or to identify proper legal protection (e.g., patents)
or to implement appropriate corporate governance practices to shield CAE from unfavourable consequences;
– Environmental, Social & Governance: risks arising from environmental, social and/or governance events, conditions or
ineffective practices leading to a tarnished reputation, loss of confidence, legal sanctions, or financial impact;
– Reputational: risks of a tarnished reputation and/or loss of confidence and trust with customers and key stakeholders caused by
reputational impacting events; and
– Technological: risks arising from ineffective practices related to IT infrastructure, technology investment, cybersecurity and
privacy and records retention.
9.1 Strategic Risks
Cybersecurity
CAE could be negatively impacted by threats to the security of its information technology and operational technology systems. CAE is
faced with the risk of disruption, loss, theft, misuse, or unauthorized access to pertinent sensitive data (e.g., intellectual property) and
confidential information (e.g., customer, partner and employee information) stored on CAE’s systems and technologies and/or those of
its partners, suppliers, and vendors and non-compliance with regulatory, legislative and commercial security requirements.
Cybersecurity incidents related to our information technology systems, digital platforms and software supply chain are a threat to the
integrity, reliability, and availability of technology and data. Cybersecurity incidents may take the form of system failures and
non-availability, software bugs or defects, cyber-attacks, cyber extortion (including ransomware), breaches of systems security,
electronic crime, 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.
Continued use of remote work and use of video conferencing and collaborative platforms (initially implemented by CAE in response to
the pandemic) has increased the pressure on our information technology infrastructure which, in turn, may increase CAE’s
vulnerability to these risks. In addition, subcontractors may, based on the requirements of their participation in our processes, be
granted access to our IT platform and software solutions, thereby exposing us to heightened IT and cybersecurity risks.
A successful breach of security of our information systems could lead to theft or misuse of our customers’, employees’, suppliers’,
shareholders’, or business contacts’ proprietary, confidential, or personal data information and result in third-party claims against us,
reputational harm, regulatory fines or financial loss.
IT, digital and cybersecurity risks could disrupt our operations and cause our airline customers’ operations to be significantly disrupted
by having to ground their fleet or delay flights.
Cybersecurity risks include the risk of loss of, corruption of, or unauthorized disclosure or access to business information and data,
confidential, classified or restricted information. This may include unauthorized access to information belonging to CAE, our
employees, or our business partners, including aircraft OEMs, fixed based operations and customers. These risks expose us to client
attrition, non-compliance with privacy legislation or any other laws in effect, litigation, regulatory 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.
CAE Financial Report 2023 I 41
Management’s Discussion and Analysis
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, and the costs related to such threats or disruptions may not be fully insured or indemnified
by other means. This is accentuated by the increasing geopolitical stressors. In addition, the digital transformation and the adoption of
emerging technologies, such as AI, automation and the increasing use of “frontier” cyber offensive techniques, 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. CAE may be impacted by cybersecurity risks and similar incidents at our customers, suppliers and partners. These
parties have varying levels of cybersecurity maturity, expertise and safeguards. In addition, some of these parties may have an
elevated threat condition due their involvement in government and defense contracts, which can similarly elevate the risk to CAE and
the likelihood of the threats we face.
Geopolitical uncertainty
Geopolitical developments (e.g., political tensions, changes in government commitment, direction and regulatory requirements) can
disrupt CAE’s operations and have a significant impact on CAE’s financial position. Throughout fiscal 2023, global uncertainty
continued to intensify, and, in some parts of the world, political instability has become more pronounced, protracted and unpredictable.
Such 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, difficulties or increased costs related to repatriating
capital 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.
Political developments impacting international trade, including trade disputes, increased tariffs and sanctions, particularly potentially
conflicting policies from the U.S., European Union, Russia and China with ramifications beyond their borders, may negatively impact
markets and cause weaker macroeconomic conditions or drive political or national sentiment, impacting CAE’s operating environment
and financial position.
The war in Ukraine and the international response has had, and may continue to have, potential wide-ranging consequences for
global market volatility and economic conditions, including energy and commodity prices, which may, in turn, increase inflationary
pressures and interest rates. Certain countries, including Canada and the U.S., have imposed strict financial and trade sanctions
against Russia, which have had, and may continue to have, far-reaching effects on the global economy and energy and commodity
prices. CAE has suspended all services and training to Russian airlines, aircraft operators and healthcare distributors, which has
impacted our results of operations in fiscal 2023 and will continue to impact our results going forward. The short, medium and
long-term implications of the war in Ukraine and the potential direct and indirect impacts on CAE remain uncertain and unpredictable.
Depending on the extent, duration and severity of the war, it may have the effect of heightening many of the other risks described
herein, including, without limitation, the risks of legal action from counterparties in the region to whom we have ceased providing
products and/or services in light of the conflict, volatility in financial markets, increase in energy and commodity prices globally, supply
shortages, reduced consumer purchasing power, significant disruptions in logistics infrastructure, telecommunications services and
risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts to the global economy,
financial markets, inflation, interest rates and unemployment, among others, could adversely impact economic and financial
conditions. In addition, we may experience other risks, difficulties and challenges in the way we conduct our business and operations
generally as a result of the ongoing conflict, including an increased risk of cybersecurity attacks.
Global economic conditions
CAE’s results from operations are sensitive to and may be significantly impacted by changes in the economic conditions of the
industries and geographic areas in which we operate. CAE may fail to anticipate and/or react in an agile manner to known and
unanticipated global economic conditions (e.g., business cycles, trends, inflation, unemployment, financial soundness, and supplier
and consumer confidence). Also, any prolonged or significant impact arising from difficult economic conditions may have an adverse
effect on our business, results from operations and financial condition.
Competitive business environment
We sell our simulation products, training services and software solutions in highly competitive international markets and we expect
such competition to intensify in the future. CAE may lose its competitive advantage by failing to anticipate and/or react in an agile
manner to known and unexpected moves by existing or new competitors. 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.
Some 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.
42 I CAE Financial Report 2023
Management’s Discussion and Analysis
Moreover, as we expand our product portfolio to software solutions, we face new competitors who are able to leverage a larger
installed customer base and their involvement beyond software solutions to adopt more aggressive pricing policies and offer more
attractive sales terms, which could cause us to lose potential sales or to sell our software at lower prices. We also face competition
from niche companies that offer particular software solutions that attempt to address certain problems that our software solves or
certain customer needs. We expect to continue to invest significant resources in research and development to continue to enhance
our software solutions and leverage a high level of customer satisfaction, but there is no assurance that we can satisfy customer
demands as they evolve.
Finally, 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.
OEM leverage and encroachment
We secure data, parts, equipment and many other inputs from a wide variety of OEMs, subcontractors and other sources. CAE may
lose its competitive advantage by failing to anticipate and/or react in an agile manner to known and unanticipated changes from
existing and/or new OEMs. Also, 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 and reap certain critical
advantages; 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. 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.
CAE, as an independent training provider and simulator manufacturer, has the ability to replicate certain aircraft platforms without
data, parts and equipment from the OEM. 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 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.
Inflation
Our operations are vulnerable to increases in costs of significant inputs, such as energy, components, raw materials, and
transportation. The global energy crisis, heightened by the conflict in Ukraine, could continue to contribute to global inflation, which
has been substantial particularly given recent geopolitical events. Ongoing inflation would further drive up our overall operation costs.
We may not be able to pass these higher costs to our customers in full or at all in a timely manner, successfully negotiate requests for
equitable adjustment from our government customers, or otherwise offset such unforeseen cost increases through efficiencies and the
like, and as a result any significant increases in our costs and/or the failure of our measures to limit their impact could have a material
adverse effect on our business, financial condition, prospects and/or results of operations.
International scope of our business
We have operations in over 40 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 2023. 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 inherent in conducting business abroad, including, among other things:
– 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 regions;
– Acts of war, civil unrest, force majeure and terrorism;
– Social and economic 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 expenditures 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; and
– Complexity and corruption risks of using foreign representatives and consultants.
CAE Financial Report 2023 I 43
Management’s Discussion and Analysis
While the impact of these risks is difficult to predict, any one of them could adversely affect our financial position, results of operations,
reputation and/or cash flows.
Level and timing of defence spending
A significant portion of our revenue 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.K., 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, the nature of the international threat environment and the risk of availability of
funding influenced by customers’ budget cycles. Fluctuations in defence spending in the markets in which we operate or a significant
delay in the timing of defence procurement could have a material negative impact on our future revenue, earnings and operations.
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. Potential impediments to steady growth include acts of terrorism, health crises, natural disasters, the interruption of global
mobility, oil price volatility, increased global environmental regulations or other major world events. Commercial flight activity has
continued to improve compared to fiscal year 2022, following the COVID-19 pandemic disruption. While we have seen an
improvement in East Asia, there is a risk that we may experience a delayed recovery in air travel demand to pre-COVID levels in the
event travel restrictions are reinstated. Decreased airline passenger and cargo traffic for an extended period could have a material
and adverse effect on our financial and operating performance.
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.
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 airline customers could impact our revenues and limit our opportunity to generate profits from those
customers.
Our ability to penetrate new markets
Penetration of new markets, including as a result of new technologies, 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.
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. We also 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 level of government financial
participation and investment tax credits we receive 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 R&D activities. Moreover, 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 R&D
activities. In addition, these credits and programs are routinely subject to review and audit, which may result in challenges and
disputes and could result in reductions or reversals of grants, credits or contributions previously received.
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 also incur cost overruns in developing and bringing to market new products.
Evolving standards and technology innovation and disruption
The civil aviation and defense 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.
CAE may fail to catch the next wave of market disruption and/or be displaced by disruptive technologies or services due to inadequate
resourcing, organization and management of transformation. 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 or penetrate new
markets successfully. This could reduce our revenue and market share.
44 I CAE Financial Report 2023
Management’s Discussion and Analysis
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 AI, machine learning and unmanned aerial
systems or remotely piloted aircraft, presents opportunities for us, but may result in new and complex risks. Also, 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.
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 Defense and Security applications. During the time when customers are evaluating
our products and services, we may incur expenses and management time. Incurring these expenditures in a period that has no
corresponding revenue will affect our operating results and financial position. 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.
Business development and awarding of new contracts
We obtain most of our contracts through competitive bidding processes. As the competitive environment intensifies, the number of bid
protests may increase. Significant costs and managerial time are required to prepare bids and proposals for contracts that may not
ultimately be awarded to CAE or may be split with competitors. A significant portion of our revenue is dependent on obtaining new
orders and continued replenishment of our adjusted 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. Moreover, certain foreign governments increasingly rely on
certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor indefinite delivery/indefinite
quantity (ID/IQ), General Services Administration Pricing Schedule and other supply chain leveraging strategies, which may result in
greater competition and increased pricing pressure. Furthermore, our competitive environment is also affected by a significant number
of bid protests from unsuccessful bidders on new program awards. Bid protests can result in contract modifications or the award
decision being reversed and loss of the contract award. Even where a bid protest does not result in the loss of an award, the
resolution can extend the time until the contract activity can begin, which can reduce our earnings in the period in which the contract
would otherwise be performed.
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, 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.
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 the scale of 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. 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.
Estimates of market opportunity
The estimates of market opportunity included in this MD&A, including those we have generated ourselves, are subject to significant
uncertainty and are based on assumptions and estimates. 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
accurately indicative of our future growth. 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.
Competing priorities
Responding to competing priorities as well as critical and time-sensitive matters as they emerge throughout the organization may
divert management’s attention from our key strategic priorities, and cause us to reduce, delay, or alter initiatives that could otherwise
increase our long-term value.
CAE Financial Report 2023 I 45
Management’s Discussion and Analysis
9.2 Operational Risks
Supply chain disruptions
Unpredictable shifts in supply and demand patterns on a global scale may cause delays in project delivery, increase price pressure
from single sourced items and overall project costs and result in declining bid performance. The pandemic and widening geopolitical
fractures intensified global supply chain imbalances. Further, conservative and protective behaviours from businesses and
governments, such as increasing demand and hoarding, as well as increased competition for critical electrical components and
products and commodities, commodity-based products have also intensified. In this context, supply chain disruptions may hinder our
ability to execute projects in a timely manner, support aftermarket needs, finish projects or leave us with unsold materials or products,
all of which could result in penalties or impacts on contract profitability and could have a material adverse effect on our business,
financial condition and results of operations. Delays and volatility specific to our supply chain requirements could ultimately have an
overall negative impact on our ability to compete on the market, our client relationships, our growth, reputation, financial performance
and cash flows.
Program management and execution
CAE may fail to accurately estimate the resources and costs required to fulfill contract commitments, as well as to effectively manage
and control our costs, which may impact our profitability.
When making proposals, we rely heavily on our estimates of costs and timing for completing the associated projects, as well as
assumptions regarding technical issues. We may bid on programs for which the work activities, deliverables, and timelines are vague
or for which the solicitation incompletely describes the actual work, which may result in inaccurate pricing assumptions. Furthermore,
we may realize the lost opportunity cost of not bidding on and winning other contracts that we may have pursued otherwise.
Contracts are often long-term and may involve new technologies, unforeseen events, such as technological difficulties, cost
fluctuations, significant inflation, problems with suppliers, and cost overruns. These factors affect the cost estimates of the contracts
we bid on, which can result in the contractual price becoming less favourable or even unprofitable for us. Our profitability could also
be negatively affected if we continue to experience increased labour/material inflationary pressures, economic headwinds and global
supply chain disruptions.
If we experience difficulties or do not meet program milestones, we may be unable to achieve program milestones as currently
scheduled and may have to devote more resources than originally anticipated, which may impact timely execution and profitability.
Mergers and acquisitions
CAE may fail to achieve the expected strategy, synergies and outcomes associated with the integration of acquired entities. The
realization of anticipated benefits from mergers, 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, technology investments, 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 and where there is strong reliance and dependency on certain key
suppliers.
Business continuity
CAE may be unable to recover from business interruptions, including pandemics, natural disasters, political/social unrest, terrorism,
and IT disruptions including those at third-party suppliers and service providers, in an efficient and timely manner. Such disruptions
may cause delays in the execution of certain programs which require us to incur additional non-compensable costs, including overtime
work, that are necessary to meet clients’ schedules to avoid penalties or sanctions under contracts or even the cancellation of some
contracts. These business interruptions can also have a detrimental effect on our customers’ operations and may lead to aircraft being
grounded and flights delayed. Our vulnerability and that of our partners and service providers to security breaches, denial of service
attacks or other hacking or phishing attacks has also increased as a result of the COVID-19 pandemic, the increased geopolitical
tensions and our recent acquisitions.
Subcontractors
We engage subcontractors for many of our contracts with whom we may have disputes, including with regard to the quality and
timeliness of their work, customer concerns, or their failure to comply with applicable laws. Subcontractors 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. In connection with our government contracts, we may be required to procure certain
materials, components and parts from supply sources approved by government authorities and CAE relies on subcontractors and
other suppliers to comply with applicable laws, regulations and other requirements regarding procurement of counterfeit, unauthorized
or otherwise non-compliant parts or materials. Each of these subcontractor risks could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
46 I CAE Financial Report 2023
Management’s Discussion and Analysis
Fixed price and long-term supply contracts
We provide a number of our products and services 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, including assumptions on future rates of inflation, 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, or we may not be able to successfully negotiate
requests for equitable adjustment from our government customers, which could negatively affect the results of our operations. Other
contracts involve new technologies and applications and unforeseen events, such as technological difficulties, fluctuations in the price
of raw materials, a significant increase in inflation, problems with our suppliers and cost overruns, can result in the contractual price
becoming less favourable or even unprofitable to us over time. Some of our programs rely on the supply of OEM systems as specified
by our customers and over which we may have limited control over pricing and against which our customer contracts may not
sufficiently provision to cover unplanned price increases from such OEMs.
Continued reliance on certain parties and information
Following an acquisition closing date, CAE may remain reliant on the target’s personnel, good faith, expertise, historical performance,
technical resources and information systems, timely support, proprietary information and judgment in providing the services to
customers under a transitional services agreement. Accordingly, we may continue to be exposed to adverse developments in the
business and affairs of parties with which we contract.
Although we strive to conduct a sufficient level of investigation in connection with any acquisition or related transaction, an
unavoidable level of risk remains regarding the accuracy, quality and completeness of the information provided to CAE. There may
also be liabilities, deficiencies or other claims associated with companies or assets we acquire that we failed to discover or were
unable to quantify accurately or at all in our due diligence which may result in unanticipated costs. CAE may not be in a position to
independently verify the accuracy or completeness of such information, and there may be events which may have occurred with
respect to acquisition targets, or which may affect the completeness or accuracy of the information provided which are unknown to
CAE.
9.3 Talent Risks
Talent management
CAE may be unable to attract, develop and retain top talent, key people and critical roles to achieve CAE’s global strategic objectives.
To support our growth strategies, objectives and normal business operations, CAE needs to maintain a sufficient, qualified and
engaged workforce. Our financial position, global brand reputation and ability to achieve strategic objectives may be negatively
affected by a failure to manage attrition, to retain and integrate key personnel, to maintain an appropriately sized workforce to meet
contract needs and to transition employees from completed projects to new projects or between internal business groups. Since the
pandemic and as broadly reflected in the industry, CAE has been faced with new talent-related challenges and risks, including higher
employee mobility, a re-evaluation of employee’s relationship with their workplace and a highly competitive employee marketplace
which may make it more 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.
Key personnel and management
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. 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 or teams, our business, results from operations and financial condition could be
materially adversely affected. The emergency succession plan put in place to deal with any situation which requires immediate
replacement of our key personnel and management presents logistical challenges in its application and incremental costs to CAE.
Failure to successfully implement such a succession plan, where relevant, for key roles, could impair our business until qualified
replacements are found.
Corporate culture
We believe that a critical contributor to our success has been our corporate culture, which is based on our core values of One CAE,
Innovation, Empowerment, Excellence and Integrity. As we continue to grow and develop, we must effectively integrate, develop and
motivate a growing number of new employees, based in various countries around the world, some of whom come to us via
acquisitions. In addition, we must preserve our ability to execute quickly in further developing our products and services and
implementing new features and initiatives. As a result, maintaining our corporate culture could potentially be challenging, which would
affect the engagement of our employees and could limit our ability to innovate and operate effectively. Any failure to preserve our
culture and evolve it to adapt to our new reality could also negatively affect our ability to recruit and retain personnel, to continue to
perform at current levels or to execute on our business strategy effectively and efficiently.
CAE Financial Report 2023 I 47
Management’s Discussion and Analysis
Labour relations
Approximately 2,400 employees are represented by unions and are covered by 55 collective agreements as of March 31, 2023. These
differing collective bargaining agreements have various expiration dates, including that of our largest employee group in Montreal,
Canada which is expiring in June 2023 and is currently in the process of being renewed. If we experience difficulties with renewals
and renegotiations of existing collective agreements or if our employees pursue new collective representation, we could incur
additional expenses and may be subject to work stoppages, slow-downs or other labour-related disruptions. Any such expenses or
delays could adversely affect our programs served by employees who are covered by such agreements or representation.
9.4 Financial Risks
Availability of capital
We depend, in part, upon our debt funding and access to capital markets. We have various debt facilities, including lease liabilities,
with maturities ranging between calendar 2023 and 2053, 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 significant instability or disruptions of the capital markets, a
deterioration in or weakening of our financial position due to internal or external factors, restrictions or prohibitions on CAE’s access to
these facilities, or significant increase in the cost of one or more of these facilities, including credit facilities or the issuance of
medium- and long-term debt, which may adversely affect our ability to fund our operations and contractual or financing commitments.
Our unsecured senior notes, term loans and revolving credit facility include standard events of default and covenant provisions
whereby accelerated repayment and/or termination of the agreements may result if we were to default on payment or violate certain
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 amendments or waivers from our lenders, refinance the indebtedness subject to covenants or take
other mitigating actions prior to a potential breach.
Customer credit risk
We are exposed to credit risk on accounts receivable from our customers. Adverse changes in a customer's financial condition 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.
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 50% in the U.S., and the balance in 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, software 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.
For our Canadian operations, when the Canadian dollar increases in value, it negatively affects the translation of our foreign currency
denominated revenue and hence our financial results since results are consolidated in Canadian dollars for financial reporting
purposes. However, when the Canadian dollar decreases in value, it negatively affects our foreign currency-denominated costs. 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.
Business conducted through our foreign operations are substantially based in local currencies which are translated to 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.
Effectiveness of internal controls over financial reporting
Our disclosure controls and procedures and internal controls over financial reporting may fail to prevent certain errors and fraud. A
control system can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Due to the inherent limitations in control systems, no evaluation of controls can provide absolute assurance that
all control issues within an organization are detected. The inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual
acts of certain persons, by collusion of two or more people or by management override of the controls. Due to these inherent
limitations, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all.
Any failure of our internal controls could have an adverse effect on our results of operations, harm our reputation and limit our ability to
produce timely and accurate financial statements or comply with applicable regulations, causing investors to lose confidence in our
reported financial information. If we are unable to implement any of the required changes to our internal control over financial reporting
effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and
results of operations.
48 I CAE Financial Report 2023
Management’s Discussion and Analysis
Liquidity risk
CAE faces liquidity risks which stem from holding assets that cannot be readily converted to cash when needed. The pandemic and
increased geopolitical uncertainty have amplified the unpredictability of business and transaction cycles, thereby bringing uncertainty
as to the cash we expect to generate from our operations and our ability to meet financial requirements in the foreseeable future.
Interest rates
We are exposed to risk on the interest rate of our debt. If interest rates increase, our floating rate long-term debt would increase even
though the amount borrowed remained the same, and net income and cash flows would decrease, which could materially and
adversely affect CAE’s financial condition and operating results. Increasing interest rates may also restrict our ability to expand into
new markets if we do not have access to debt or equity capital on acceptable terms, which in turn may negatively affect our
competitiveness and results of operations. Similarly, changes in interest rates may negatively affect the ability of our customers to
deploy capital or to obtain credit to finance their businesses on acceptable terms, which will impact their demand and ability to pay for
our products and services.
Returns to shareholders
Payment of dividends 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.
No assurance can be given as to whether or when 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.
Estimates used in accounting
Accounting for our contracts, notably contracts for the design, engineering, and manufacturing of training devices, requires judgment
associated with estimating contract revenue and costs and assumptions for schedule and technical issues. Because of the
significance of the judgments and estimation processes involved in accounting for our contracts, materially different amounts could be
recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions,
circumstances or estimates may adversely affect our future results of operations and financial condition.
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 reduced future estimated cash
flows, slower growth rates than forecasted and a decline in our stock price and market capitalization. Change in key assumptions,
such as a failure to meet our five-year strategic plan or other unanticipated circumstances may affect the accuracy or validity of our
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,
thereby negatively impacting our earnings, cash flow and shareholders' equity.
Indebtedness
CAE may achieve strategic growth objectives by financing costs of acquisitions out of available liquidities, including cash on hand
and/or advances or drawdowns under one or more of our revolving credit facility 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 our 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, 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.
CAE Financial Report 2023 I 49
Management’s Discussion and Analysis
If we are unable to generate sufficient funds to meet our obligations under our outstanding indebtedness, we may be required to
refinance, restructure or otherwise amend or waive 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 favourable as our current financing or that amendments or waivers would be obtained, that such restructuring, sales of
assets or issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations.
Acquisition and integration costs
We incur a number of costs associated with completing acquisitions and integrating the operations of CAE and acquired companies.
The substantial majority of these costs are non-recurring expenses resulting from an acquisition and will consist of transaction costs
related to the 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 estimates. We may also fail to
accurately forecast the financial impact of an acquisition or other strategic transaction, including tax and accounting charges.
Accordingly, the benefits from an acquisition may be offset by unexpected costs incurred in integrating the businesses, which could
cause our revenue assumptions to be inaccurate.
Sales of additional common shares
Any future issuance of common shares, or other securities convertible into common shares, may result in dilution to present and
prospective common shareholders as well as dilution in earnings per share. 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.
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 are unrelated to our performance. 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.
Following a significant decline in the market price of a company’s securities, there may be instances of securities class action litigation
being 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.
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,
thus, driving lower revenues. In the Defense and Security segment, revenue and cash collection is not as consistent across quarters
throughout the year as contract awards and availability of funding are influenced by customers’ budget cycles. We expect these trends
to continue, but may be disturbed by the volatile geopolitical environment, supply chain and/or labour disruptions.
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, such as the introduction of Pillar Two Model Rules designed to ensure large
multinational enterprises pay a minimum level of tax on income arising in each jurisdiction they operate, could result in a higher
effective tax rate on our earnings which could significantly impact our financial results.
Adjusted Backlog
Adjusted 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.
50 I CAE Financial Report 2023
Management’s Discussion and Analysis
9.5 Regulatory Risks
Data rights and governance
In providing services and solutions to clients, we collect, utilize, store and communicate confidential, personal, classified and
proprietary information that may be highly sensitive. Any security breach, improper use and other types of unauthorized access or
misappropriation of such information could not only lead to regulatory penalties, audits or investigations by various government
agencies relating to our compliance with applicable laws, but also damage to our reputation or loss of confidence in our products and
services.
Further, the management, use and protection of personal information (or personal data) are becoming increasingly important,
particularly given the high value attributed to such information and the potential exposure to operational risks, reputational risks, and
regulatory compliance risks, including compliance with the European Union’s General Data Protection Regulation, the U.K.’s General
Data Protection Regulation, Canada’s federal Personal Information Protection and Electronic Documents Act and substantially similar
equivalents at the provincial level, the California Consumer Privacy Act, and the proliferation of similar regulatory frameworks in other
regions. Compliance with these requirements may prove to be complex and may add to our compliance costs. Further, our use of AI
poses evolving risks, including data risks, as we continue to incorporate AI systems into our operations.
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 a FOCI mitigation agreement with the 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, the mitigation agreement is a Special Security Agreement (SSA) for CAE USA Inc. If CAE fails to maintain compliance
with the SSA, the facility security clearances for CAE USA Inc. could 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 could lose the right to perform certain existing
contracts with the U.S. government to completion.
Compliance with laws and regulations
CAE operates in a highly regulated environment across many jurisdictions and is subject to, without limitation, laws and regulations
relating to import-export controls, trade sanctions, anti-corruption, health and medical devices, national security and aviation safety of
each country. These laws and regulations may change without notice, which could impact our sales and operations in ways which we
cannot predict. Any change could present opportunities or, to the contrary, have a materially negative effect on our results of
operations or financial condition. For instance, changes imposed by a regulatory agency, including changes to safety standards
imposed by aviation authorities, could mean that we will not be permitted to sell or licence certain products to customers, which could
cause a potential loss of revenue. We could also be required 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. Our compliance with
government import-export regulations (e.g., International Traffic in Arms Regulations) may also be investigated or audited and we can
be subject to potential liabilities associated with those matters.
Export control restrictions could also negatively impact our operations. For example, CAE’s technology and services may be subject to
export permit approvals and regulatory requirements which could take several months to obtain, thereby resulting in potential delays in
obtaining export permits or even preventing us from exporting to certain countries, entities or people in or from a country. Also, failure
to comply with export control requirements could lead to fines and/or being excluded from government contracts or subcontracts and
reputational damages, which would negatively affect our revenue from operations and profitability and could have a negative effect on
our ability to procure other government contracts in the future.
As a contractor to various governments, CAE must comply with procurement regulations and other specific legal requirements. These
regulations and other requirements, although often customary in government contracting, increase our contract performance risks and
compliance costs and are regularly evolving. In various jurisdictions, governments have been pursuing and may continue to pursue
policies that could negatively impact our profitability, including seeking to shift additional responsibility and performance risks to the
contractor.
In addition, CAE’s global operations 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), the U.K. Bribery Act and other
anti-corruption laws. Failure by CAE and its employees or by any business partner or supplier working on our behalf to comply with
anti-corruption requirements could result in administrative, civil, or criminal liabilities, including suspension and debarment from
bidding for or performing government contracts
Insurance coverage potential gaps
CAE products, services and/or operations can result in injury or damage to customers and other third parties, exposing CAE to
substantial claims and litigation. Such claims could relate to, among other things, personal injury, loss of life, property damage and
financial loss.
CAE Financial Report 2023 I 51
Management’s Discussion and Analysis
As part of its business operations, CAE maintains a certain level of insurance coverage, subject to varying limits, deductibles or
retentions. There can be no assurance that the available insurance will be sufficient in limits and comprehensive in scope to respond
to potential claims. Our insurance is purchased from a number of third-party insurers, often in layered insurance arrangements. In the
event that limits purchased or coverage may be inadequate, CAE may be forced to bear substantial costs, resulting in an adverse
impact on our financial condition, cash flows, or operating results. Moreover, any accident, failure of, or defect in our products or
services, even if fully indemnified or insured, could significantly impact the cost and availability of adequate insurance in the future.
Product-related liabilities
Simulators, software solutions and other products sold by CAE may contain defects or may be subject to human error which may
present a safety risk. Said defects, or human error due to manual input, could result in warranty claims, potential product liability and
personal injury claims and/or major disruption in the operations of our customers. CAE may incur significant costs to issue a product
recall or to modify or retrofit these products to ensure their safety, whether these are mandated by aviation authorities or otherwise. In
addition to litigation and settlement costs related to liability claims, an adverse judgment against CAE or customers’ fleet being
grounded due to potential safety risks in our software solutions may cause reputational damage and have a significant adverse effect
on our business and operating results.
CAE may also be subject to product liability claims relating to equipment and services of discontinued operations or businesses sold,
whereby CAE has retained past liabilities.
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 our 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.
Government audits and investigations
Government agencies routinely audit and investigate government contractors, as well as recipients of government grants and
contributions, thereby increasing performance and compliance costs. 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 or a reduction or reversal of government grants and contributions to R&D programs. Although 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 which could have a negative effect on our results of operations. We may continue to experience an increased number of
audits and challenges to government accounting matters and business systems for current and past years, as well as a lengthened
period of time required to close open audits, an increased number of broad requests for information and an increased risk of
withholding of payments. If an audit or investigation were to uncover improper or illegal activities, we could be subject to further fines,
administrative actions, termination of contracts, forfeiture of profits, suspension of payments or debarment from business with the
government. The government could impose additional payment withholds or seek consideration for material not in compliance with
associated sourcing standards.
Protection of our intellectual property and brand
We rely, in part, on trade secrets, copyrights and contractual restrictions, such as confidentiality agreements, patents, industrial
designs, trademarks, 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 partner of choice
elevating 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 licence agreements. 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. Adverse publicity related to incidents or
litigation involving us, our partners or suppliers may impact the value of our brand.
Third-party intellectual property
Our products contain sophisticated software and computer systems that are supplied to us by third parties. Moreover, 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 such software, systems
and 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 certain functionalities, designs, and 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.
52 I CAE Financial Report 2023
Management’s Discussion and Analysis
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
multijurisdictional disclosure system adopted by the securities regulatory authorities in Canada and the U.S., 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 U.S. Securities and Exchange Commission (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 relying 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.
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 we voluntarily comply 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 our principal place of business in Canada. Most of our directors and
officers reside in Canada or elsewhere outside the U.S. 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. 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.
9.6 Environmental, Social & Governance Risks
Extreme climate events and the impact of natural or other disasters (including effects of climate change)
Extreme climate events or natural or other disasters, such as earthquakes, fires, floods and similar events (including effects of climate
change) could disrupt our internal operations, damage our infrastructure or properties, endanger our employee's health and safety,
impact the availability and cost of materials and resources, decrease air travel, increase insurance and other operating costs and have
a material adverse effect on our operating results, financial position or liquidity as well as our business model. 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. Insurance may not be available, or limits may not be adequate to cover all
significant risk exposures.
More acute scrutiny and perception gaps regarding ESG matters
Evolving stakeholder expectations with respect to ESG matters may pose risks to CAE’s competitive advantage, brand and reputation,
ability to attract and retain talent, financial outlook, cost of capital, global supply chain and business continuity, which may impact our
ability to achieve long-term business objectives. Increased public awareness and growing concerns about climate change (including
the “anti-flying” movement and tendencies towards sustainable travel initiatives) and the global transition to a low carbon economy
result in a broad range of impacts, including potential risks for CAE and its business partners’ market outlook.
CAE may fail to adequately monitor the emerging risks in a rapidly changing ecosystem and to sufficiently address evolving
expectations related to corporate culture, business conduct and ethics, responsible management of its supply chain, transparency,
respect for human rights, working and safety conditions as well as diversity and inclusion, among other factors, which could affect
corporate profitability and reputation.
Additional ESG-related regulations, changes in reporting frameworks and guidance, emergence of ‘’greenwashing’’ legal actions by
activist groups, increasing regulatory expectations as well as continuing reforms pertaining to mandatory disclosure create a new and
evolving set of compliance risks. Gaps in perception and acceptability of how ESG factors in shareholder value also call for increased
vigilance when it comes to ESG reporting and communication.
CAE Financial Report 2023 I 53
Management’s Discussion and Analysis
More acute generalized scrutiny also adds pressure to secure reliable and precise ESG data with clear accountability across the
organization and to deploy robust data collection processes with effective controls that will allow external verification in the near future.
A lack of precise, auditable and complete data accurately reflecting the progress on CAE’s multi-year roadmap could hinder our
credibility as an ESG leader in the industry.
As CAE’s ESG performance is assessed by proxy advisory agencies, we could also face governance issues if we do not meet their
expectations.
9.7 Reputational Risks
Reputational risk
Reputational risk may arise under many situations including, among other things:
– Quality or performance issues on our products or services and new technologies we launch;
– 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;
– Relationships or dealings with customers and other counterparties that could expose CAE to ethics, compliance and reputational
risks;
– Negative perceptions regarding the defence and security industry and related product and service offerings;
– Injuries or death arising from health and safety incidents during the operation process or training activities; and
– Alleged or proven non-compliance with laws or regulations by our employees, agents, subcontractors, suppliers and/or business
partners.
Any negative publicity about CAE or damage to our image and reputation could have a negative adverse impact on customers' and
other key stakeholders’ perception and trust, may prevent CAE to recruit necessary talent and may cause the cancellation of current
work or negatively influence our ability to obtain contracts. Many of CAE’s other risks intersect with reputational risk and may therefore
amplify this risk.
9.8 Technological Risks
Information technology
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. In expanding our product portfolio to software solutions and increasing our focus on
digital strategy and AI, this dependence on information technology infrastructure and systems has only grown in importance. 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.
Any material interruption in our technology systems could have a material adverse effect on our business, financial condition,
prospects and/or results of operations. Similarly, any material technological issue with our software solutions or with the data feeds,
infrastructure or systems provided by our suppliers may lead to financial loss and/or impairment in the operations of our customers.
We may, from time to time, replace or update our information technology networks and systems, including the migration of our
customers to new environments as part of the transition plan under the AirCentre acquisition. The implementation of, and transition to,
new networks and systems can temporarily disrupt our business activities and result in productivity disruptions.
Failure to maintain, upgrade, replace or properly implement such new information technology systems could result in increased risk of
a cybersecurity incident and have an adverse effect on operational efficiency, revenue or reputation. In addition, the digital
transformation and the adoption of emerging technologies, such as AI and machine learning, call for continued focus and investment
to manage our risks effectively.
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 that of our clients. We may also 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, privacy concerns and/or security vulnerability, and can have a negative
impact on our reputation.
Third-party providers services are often subscription-based subjecting us to various subscription pricing models based on market
trends, and strategic renegotiation of such agreements can be lengthy.
54 I CAE Financial Report 2023
10. RELATED PARTY TRANSACTIONS
A list of principal investments which, in aggregate, significantly impact our results or assets is presented in Note 30 of our consolidated
financial statements.
Outstanding balances with our equity accounted investees are as follows:
Management’s Discussion and Analysis
(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
$
$
2023
59.5 $
25.6
17.1
5.7
58.0
—
2023
223.0 $
4.6
1.2
2022
49.7
23.0
12.8
5.1
46.5
1.5
2022
111.8
3.5
3.8
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 members of the Board and certain executive officers. The compensation expense of key management for employee
services recognized in income are as follows:
(amounts in millions)
Salaries and other short-term employee benefits
Post-employment benefits – defined benefit plans
Share-based payments expense
$
$
2023
7.6 $
4.4
1.7
13.7 $
2022
8.4
2.2
6.6
17.2
For the year ended March 31, 2023, the compensation earned by non-employee Directors amounted to $2.9 million
(2022 – $2.4 million), which include the grant date fair value of deferred share units (DSUs) as well as cash payments.
CAE Financial Report 2023 I 55
Management’s Discussion and Analysis
11. CHANGES IN ACCOUNTING POLICIES
11.1 New and amended standards adopted
Certain amendments to accounting standards were applied for the first time on April 1, 2022 but did not have an impact on our
consolidated financial statements.
11.2 New and amended standards not yet adopted
Amendment to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies
In February 2021, the IASB issued an amendment to IAS 1 - Presentation of financial statements and IFRS Practice Statement 2 -
Making materiality judgements. The amendments will require the disclosure of material, rather than significant, accounting policy
information. For CAE, amendments to IAS 1 and IFRS Practice Statement 2 will be effective for the fiscal period beginning on
April 1, 2023.
Amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors
In February 2021, the IASB issued an amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors to
introduce a definition of accounting estimates and to help entities distinguish changes in accounting policies from changes in
accounting estimates. For CAE, amendments to IAS 8 will be effective for the fiscal period beginning on April 1, 2023.
Amendment to IAS 12 - Income taxes
In May 2021, the IASB issued an amendment to IAS 12 - Income taxes, which narrows the scope exemption when recognizing
deferred taxes. In specified circumstances, entities are exempt from recognizing deferred income taxes when they recognize assets or
liabilities for the first time. The amendments clarify that the exemption does not apply to transactions in which equal amounts of
deductible and taxable temporary differences arise on initial recognition. For CAE, amendments to IAS 12 will be effective for the fiscal
period beginning on April 1, 2023. We have concluded our current accounting policies are in line with the amended standard and
therefore this amendment will have no impact on its consolidated financial statements.
Amendment to IAS 1 - Presentation of financial statements
In October 2022, the IASB issued an amendment to IAS 1 - Presentation of financial statements, which specifies that covenants to be
complied with after the reporting date do not affect the classification of long-term debt as current or non-current at the reporting date.
Instead, the standard requires disclosures about these covenants in the notes to the financial statements. For CAE, amendments to
IAS 1 will be effective for the fiscal period beginning on April 1, 2023.
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 as of the date control is transferred. The
consideration transferred and the acquiree’s identifiable assets, liabilities and contingent liabilities are measured at their fair value at
the date of acquisition, which may be estimated using an income, market or cost valuation method. 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.
The judgments made in determining the estimated fair value assigned to the net identifiable assets acquired, as well as the estimated
useful life of non-financial assets, could impact the net income of subsequent periods through depreciation and amortization, and in
certain instances through impairment charges. We believe that the estimated fair values assigned to the net identifiable assets
acquired are based on reasonable assumptions that a marketplace participant would use. While we use our best estimates and
assumptions to accurately value the net identifiable assets acquired at the acquisition date, estimates are inherently uncertain and
subject to refinement.
To estimate the fair value of the intangible assets of the L3Harris Technologies’ Military Training business and Sabre’s AirCentre
airline operations portfolio acquisitions, the multi-period excess earnings method was used to value the customer relationship and the
relief from royalty method was used to value the technology and software. Significant judgment is applied in estimating the fair value
of customer relationships and the technology acquired, which involves the use of significant assumptions with respect to projected
revenue.
56 I CAE Financial Report 2023
Management’s Discussion and Analysis
During the measurement period, for up to 12 months following the acquisition, we recorded adjustments to the initial estimate of the
net identifiable assets acquired based on new information obtained that would have existed as of the date of the acquisition. Any
adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the
adjustment arises.
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 apply judgement in estimating the work
performed to date as a proportion of the total work to be performed. Management conducts monthly reviews of our estimated costs to
complete as well as our 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 19 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 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. 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, 2023 by approximately $1.1 million (2022 - $1.7 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.
CAE Financial Report 2023 I 57
Management’s Discussion and Analysis
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.
12. INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance that
material information relating to the Company is communicated to the President and Chief Executive Officer and the Executive Vice
President, Finance and Chief Financial Officer by others, particularly during the period in which annual and interim filings are
prepared, and that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or
submitted by the Company under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the
time periods specified under those laws and the related rules.
As of March 31, 2023, management evaluated, under the supervision of and with the participation of the President and Chief
Executive Officer and the Executive Vice President, Finance and Chief Financial Officer, the effectiveness of the Company’s
disclosure controls and procedures as defined under National Instrument 52-109 adopted by the Canadian Securities Administrators
and in Rule 13(a)-15(e) under the U.S. Securities Exchange Act of 1934, as amended, and have concluded that the Company’s
disclosure controls and procedures were effective.
The Company has established and maintains internal control over financial reporting, as defined under National Instrument 52-109
and in Rule 13(a)-15(f) under the U.S. Securities Exchange Act of 1934, as amended. The Company’s internal control over financial
reporting is a process designed, under the supervision of the President and Chief Executive Officer as well as the Executive Vice
President, Finance and Chief Financial Officer, and effected by management and other key CAE personnel, 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 IASB. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2023 using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013). Based on this assessment, management has determined that the Company’s internal control over financial
reporting was effective as of March 31, 2023.
There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter and
fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
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.
58 I CAE Financial Report 2023
15. SELECTED FINANCIAL INFORMATION
The following table provides selected quarterly financial information for the past three fiscal years.
Management’s Discussion and Analysis
(amounts in millions, except per share amounts and exchange rates)
Fiscal 2023
Revenue
Net income
Equity holders of the Company
Non-controlling interests
Basic and 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 2022
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 2021
Revenue
Net (loss) income
Equity holders of the Company
Non-controlling interests
Basic and 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
Selected annual information for the past three fiscal years
Q1
Q2
Q3
Q4
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
933.3
3.7
1.7
2.0
0.01
0.06
317.1
318.2
1.28
1.36
1.61
752.7
47.3
46.4
0.9
0.16
0.16
0.19
293.6
295.8
1.23
1.48
1.72
550.5
(110.0)
(110.6)
0.6
(0.42)
(0.11)
265.7
265.7
1.39
1.53
1.72
993.2 1,020.3 1,256.5 4,203.3
231.9
222.7
9.2
0.70
0.88
317.7
318.4
1.32
1.38
1.59
101.9
98.4
3.5
0.31
0.35
317.9
318.7
1.35
1.45
1.64
80.0
78.1
1.9
0.25
0.28
317.9
318.3
1.36
1.38
1.59
46.3
44.5
1.8
0.14
0.19
317.8
318.4
1.30
1.31
1.54
814.9
17.2
14.0
3.2
0.04
0.04
0.17
316.5
318.7
1.26
1.48
1.74
704.7
(6.0)
(5.2)
(0.8)
(0.02)
0.13
265.8
265.8
1.33
1.56
1.72
848.7
28.4
26.2
2.2
0.08
0.08
0.19
316.9
318.7
1.26
1.44
1.70
832.4
49.7
48.8
0.9
0.18
0.22
271.7
273.0
1.30
1.55
1.72
955.0 3,371.3
150.0
141.7
8.3
0.46
0.45
0.84
311.0
312.9
1.25
1.46
1.71
57.1
55.1
2.0
0.17
0.17
0.29
317.0
318.5
1.27
1.42
1.70
894.3 2,981.9
(47.5)
(47.2)
(0.3)
(0.17)
0.47
272.0
272.0
1.32
1.54
1.73
18.8
19.8
(1.0)
0.07
0.22
285.2
287.3
1.27
1.53
1.75
(amounts in millions, except per share amounts and exchange rates)
2023
2022
2021
Financial position:
Total assets
Total non-current financial liabilities(1)
Total net debt
$ 10,436.5 $ 9,578.8 $ 8,748.4
3,179.6
2,959.9
2,330.3
3,032.5
2,700.1
1,425.4
(1) Includes long-term debt, long-term derivative liabilities and other long-term liabilities meeting the definition of a financial liability.
CAE Financial Report 2023 I 59
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 income statement
Consolidated statement of comprehensive 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 - Business combinations
Note 3 - Operating segments and geographic information
Note 4 - Other (gains) and losses
Note 5 - Restructuring, integration and acquisition costs
Note 6 - Finance expense - net
Note 7 - Income taxes
Note 8 - Share capital and earnings per share
Note 9 - Accounts receivable
Note 10 - Balance from contracts with customers
Note 11 - Inventories
Note 12 - Property, plant and equipment
Note 13 - Intangibles assets
Note 14 - Leases
Note 15 - Other non-current assets
Note 16 - Accounts payable and accrued liabilities
Note 17 - Provisions
Note 18 - Debt facilities
Note 19 - Employee benefits obligations
Note 20 - Other non-current liabilities
Note 21 - Supplementary cash flows information
Note 22 - Accumulated other comprehensive income
Note 23 - Share-based payments
Note 24 - Employee compensation
Note 25 - Government participation
Note 26 - Contingencies and commitments
Note 27 - Fair value of financial instruments
Note 28 - Capital risk management
Note 29 - Financial risk management
Note 30 - Related party relationships
Note 31 - Related party transactions
60 | CAE Financial Report 2023
61
62
64
65
66
67
68
69
84
86
88
89
89
89
91
92
92
92
93
93
95
96
96
97
97
98
101
102
102
102
105
105
105
106
108
108
113
116
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is a process designed, under the supervision of and with the participation of
the President and Chief Executive Officer as well as the Executive Vice President, Finance 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 International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2023 using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013). Based on this assessment, management has determined that the Company’s internal control over financial
reporting was effective as of March 31, 2023.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2023 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.
/s/ Marc Parent /s/ Sonya Branco
President and Chief Executive Officer Executive Vice President, Finance and Chief Financial Officer
May 31, 2023
CAE Financial Report 2023 | 61
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 statements of financial position of CAE Inc. and its subsidiaries (together, the
Company) as of March 31, 2023 and 2022, and the related consolidated statements of income, comprehensive 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, 2023, 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, 2023 and 2022, 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, 2023, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the COSO.
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.
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.
62 | CAE Financial Report 2023
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 a separate opinion 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 Defense and Security and Civil Aviation segments
As described in Notes 1, 3 and 10 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, 2023, a portion of total
consolidated revenue of the Defense and Security and Civil Aviation segments in the amounts of $1,844.2 million and $2,166.4 million
respectively were 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 Defense and Security and Civil Aviation segments is a critical audit matter are that 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 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.
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 Defense and
Security and Civil Aviation 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 lookback 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 31, 2023
We have served as the Company’s auditor since 1991.
_____________________________________________________________________________________________
1 CPA auditor, public accountancy permit No. A123498
CAE Financial Report 2023 | 63
Consolidated Financial Statements
Consolidated 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
Earnings before income taxes
Income tax expense
Net income
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share attributable to equity holders of the Company
Basic
Diluted
Notes
3
4
3
5
6
7
8
8
The accompanying notes form an integral part of these Consolidated Financial Statements.
2023
$ 4,203.3
2022
$ 3,371.3
3,037.0
2,415.8
$ 1,166.3
$
143.1
560.9
(22.8)
(53.2)
64.3
474.0
177.7
296.3
64.4
231.9
222.7
9.2
0.70
0.70
$
$
$
$
$
$
$
$
$
$
$
$
955.5
120.8
489.1
(37.0)
(48.5)
146.9
284.2
130.6
153.6
3.6
150.0
141.7
8.3
0.46
0.45
64 | CAE Financial Report 2023
Consolidated Statement of Comprehensive Income
Years ended March 31
(amounts in millions of Canadian dollars)
Net income
Items that may be reclassified to net income
Foreign currency exchange differences on translation of foreign operations
Net (loss) gain on hedges of net investment in foreign operations
Reclassification to income of gains on foreign currency exchange differences
Net loss on cash flow hedges
Reclassification to income of gains on cash flow hedges
Income taxes
Items that will never be reclassified to net income
Remeasurement of defined benefit pension plan obligations
Net loss on financial assets carried at fair value through OCI
Income taxes
Notes
7
19
7
Other comprehensive income (loss)
Total comprehensive income
Attributable to:
Equity holders of the Company
Non-controlling interests
The accompanying notes form an integral part of these Consolidated Financial Statements.
Consolidated Financial Statements
$
$
$
$
$
$
$
$
2023
231.9
331.1
(112.6)
(6.4)
(14.0)
(5.5)
9.9
202.5
74.2
—
(19.7)
54.5
257.0
488.9
475.6
13.3
$
$
$
$
$
$
$
$
2022
150.0
(101.4)
15.8
(4.7)
(6.0)
(7.0)
(2.0)
(105.3)
125.6
(0.1)
(33.4)
92.1
(13.2)
136.8
129.8
7.0
CAE Financial Report 2023 | 65
Consolidated Financial Statements
Consolidated Statement of Financial Position
As at March 31
(amounts in millions of Canadian dollars)
Assets
Cash and cash equivalents
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
Employee benefits assets
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
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
Notes
2023
2022
9
10
11
12
14
13
30
19
7
15
16
17
10
18
17
18
19
7
20
8
22
$
217.6
$
346.1
615.7
693.8
583.4
64.1
48.3
12.1
556.9
608.3
519.8
56.7
33.2
27.6
$ 2,235.0
$ 2,148.6
2,387.1
2,129.3
426.9
373.0
4,050.8
3,796.3
530.7
51.1
125.1
9.2
620.6
454.0
—
117.4
10.5
549.7
$ 10,436.5
$ 9,578.8
$ 1,036.7
$
975.1
26.7
21.1
905.7
214.6
41.9
36.7
22.7
788.3
241.8
26.6
$ 2,246.7
$ 2,091.2
20.1
20.6
3,035.5
2,804.4
119.4
91.9
129.3
6.5
198.2
126.0
109.7
93.7
1.0
245.6
$ 5,847.6
$ 5,492.2
$ 2,243.6
$ 2,224.7
42.1
167.2
38.6
(31.2)
2,054.8
1,777.6
$ 4,507.7
$ 4,009.7
81.2
76.9
$ 4,588.9
$ 4,086.6
$ 10,436.5
$ 9,578.8
The accompanying notes form an integral part of these Consolidated Financial Statements.
66 | CAE Financial Report 2023
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CAE Financial Report 2023 | 67
Notes
2023
2022
$
231.9
$
150.0
3
3
21
2
30
12
13
18
18
18
18
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(2.4)
(53.2)
10.4
(5.4)
(10.3)
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(15.9)
(2.5)
23.3
(114.5)
310.5
41.8
(48.5)
(32.4)
(27.5)
6.4
13.7
(65.9)
11.3
36.3
22.5
$
408.4
$
418.2
$
(6.4)
$ (1,883.7)
—
(268.8)
5.7
(30.1)
(126.4)
(10.9)
40.9
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(4.3)
(272.2)
8.4
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(90.6)
(19.4)
27.1
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$
(400.7)
$ (2,237.1)
$
44.5
31.2
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(83.4)
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$
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429.1
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696.1
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$ 1,255.6
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346.1
Consolidated Financial Statements
Consolidated Statement of Cash Flows
Years ended March 31
(amounts in millions of Canadian dollars)
Operating activities
Net income
Adjustments for:
Depreciation and amortization
Impairment (reversal) of non-financial assets – net
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
Property, plant and equipment expenditures
Proceeds from disposal of property, plant and equipment
Advance payments for property, plant and equipment
Intangible assets expenditures
Net payments to equity accounted investees
Dividends received from equity accounted investees
Other
Net cash used in investing activities
Financing activities
Net proceeds from borrowing under revolving credit facilities
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease liabilities
Net proceeds from the issuance of common shares
Other
Net cash (used in) provided by financing activities
Effect of foreign currency exchange differences on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
The accompanying notes form an integral part of these Consolidated Financial Statements.
68 | CAE Financial Report 2023
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 31, 2023.
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
CAE equips people in critical roles with the expertise and solutions to create a safer world. As a technology company, CAE digitalizes
the physical world, deploying software-based simulation training and critical operations support solutions.
CAE Inc. and its subsidiaries’ (CAE or the Company) operations are managed through three segments:
(i) Civil Aviation – Provides 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 aircraft flight operations solutions;
(ii) Defense and Security – A platform-independent training and simulation solutions provider, preparing global defence and security
forces for the mission ahead;
(iii) Healthcare – Provides healthcare students and clinical professionals integrated physical, digital and virtual education and training
solutions, including interventional and imaging simulations, curricula, mixed-reality and digital learning, audiovisual debriefing
solutions, centre management platforms and patient simulators.
CAE Inc. 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 (OCI) and liabilities for cash-settled share-based
arrangements.
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 right 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.
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 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.
CAE Financial Report 2023 | 69
Notes to the Consolidated Financial Statements
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 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 and its subsequent settlement is recorded 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.
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.
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, and derivative instruments not designated as hedging
instruments 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 a specific financial asset.
70 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
Financial liabilities
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition 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 derivative financial instruments that are not designated as hedging instruments 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 instruments 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, and royalty obligations.
Transaction costs
Transaction costs that are directly related to the acquisition or issuance of financial assets and financial liabilities (other than those
classified as 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.
–
–
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.
CAE Financial Report 2023 | 71
Notes to the Consolidated Financial Statements
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.
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.
Foreign currency translation
Foreign operations
CAE Inc.’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional
currency. The functional currency of each of the Company’s subsidiaries is the currency of the primary economic environment in
which they operate. Determination of the functional currency may involve certain judgements to determine the primary economic
environment in which the subsidiary operates. 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.
72 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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 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 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.
Land is not depreciated. The estimated useful lives, residual values and depreciation methods are as follows:
Buildings and improvements
Simulators
Machinery and equipment
Aircraft
Aircraft engines
Method
Depreciation 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 3500 hours
As at March 31, 2023, the average remaining depreciation period for full-flight simulators is 11.6 years (2022 – 11.8 years).
Depreciation methods, useful lives and residual values are reviewed and adjusted, if appropriate, on a prospective basis at each
reporting date.
Leases
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.
CAE Financial Report 2023 | 73
Notes to the Consolidated Financial Statements
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
Aircraft
Aircraft engines
Method
Depreciation period
Straight-line
Not exceeding 40 years
Straight-line (10% residual)
Not exceeding 25 years
Straight-line
Not exceeding 7 years
Straight-line (residual not exceeding 15%)
Not exceeding 25 years
Based on utilization
Not exceeding 3500 hours
In addition, the right-of-use asset is 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.
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.
74 | CAE Financial Report 2023
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.
Notes to the Consolidated Financial Statements
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 allocated 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 as intended by management 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.
Configuration or customization costs in a cloud computing arrangement are also included when they meet the specific capitalization
criteria.
Amortization
Amortization is calculated using the straight-line method for all intangible assets over their estimated useful lives as follows:
Capitalized development costs
Customer relationships
Licenses
Technology, software and ERP
Other intangible assets
Amortization period
3 to 10 years
3 to 20 years
3 to 20 years
3 to 12 years
2 to 40 years
As at March 31, 2023, the average remaining amortization period for the capitalized development costs is 6.3 years
(2022 - 5.8 years). Amortization methods and useful lives are reviewed and adjusted, if appropriate, on a prospective basis at each
reporting date.
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.
CAE Financial Report 2023 | 75
Notes to the Consolidated Financial Statements
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 use as intended by management. 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.
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. 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, 2023.
76 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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 in a period ranging from 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.
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.
CAE Financial Report 2023 | 77
Notes to the Consolidated Financial Statements
Software arrangements
Revenue from software arrangements that provide the Company’s customers with the right to use the software without any significant
development or integration work 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. Revenue from Software as a service (SaaS) arrangements provide the Company's customers with the
right to access a cloud-based environment that the Company provides and manages, the right to receive support and to use the
software, however the customer does not have the right to take possession of the software. Revenue from SaaS arrangements is
recognized over time, using the time elapsed output 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.
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 the Company's 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.
78 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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
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 (or
reversal of 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.
CAE Financial Report 2023 | 79
Notes to the Consolidated Financial Statements
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 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.
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.
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 are
recorded as a reduction of the cost of the related asset while government contributions related to current expenses are recorded as a
reduction of the related expenses.
80 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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 and range from 6.0% to 10.2%. 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.
Comparative figures
Certain comparative figures in the notes to the consolidated financial statements have been reclassified to conform to the presentation
adopted in the current year.
New and amended standards adopted by the Company
Certain amendments to accounting standards were applied for the first time on April 1, 2022 but did not have an impact on the
consolidated financial statements of the Company.
New and amended standards not yet adopted by the Company
Amendment to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies
In February 2021, the IASB issued an amendment to IAS 1 - Presentation of financial statements and IFRS Practice Statement 2 -
Making materiality judgements. The amendments will require the disclosure of material, rather than significant, accounting policy
information. For the Company, amendments to IAS 1 and IFRS Practice Statement 2 will be effective for the fiscal period beginning on
April 1, 2023.
Amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors
In February 2021, the IASB issued an amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors to
introduce a definition of accounting estimates and to help entities distinguish changes in accounting policies from changes in
accounting estimates. For the Company, amendments to IAS 8 will be effective for the fiscal period beginning on April 1, 2023.
Amendment to IAS 12 - Income taxes
In May 2021, the IASB issued an amendment to IAS 12 - Income taxes, which narrows the scope exemption when recognizing
deferred taxes. In specified circumstances, entities are exempt from recognizing deferred income taxes when they recognize assets or
liabilities for the first time. The amendments clarify that the exemption does not apply to transactions in which equal amounts of
deductible and taxable temporary differences arise on initial recognition. For the Company, amendments to IAS 12 will be effective for
the fiscal period beginning on April 1, 2023. The Company has concluded its current accounting policies are in line with the amended
standard and therefore this amendment will have no impact on its consolidated financial statements.
Amendment to IAS 1 - Presentation of financial statements
In October 2022, the IASB issued an amendment to IAS 1 - Presentation of financial statements, which specifies that covenants to be
complied with after the reporting date do not affect the classification of long-term debt as current or non-current at the reporting date.
Instead, the amendment requires disclosures about these covenants in the notes to the financial statements. For the Company,
amendments to IAS 1 will be effective for the fiscal period beginning on April 1, 2023.
CAE Financial Report 2023 | 81
Notes to the Consolidated Financial Statements
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 as of the date control is transferred. The
consideration transferred and the acquiree’s identifiable assets, liabilities and contingent liabilities are measured at their fair value at
the date of acquisition, which may be estimated using an income, market or cost valuation method. 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.
The judgments made in determining the estimated fair value assigned to the net identifiable assets acquired, as well as the estimated
useful life of non-financial assets, could impact the net income of subsequent periods through depreciation and amortization, and in
certain instances through impairment charges. The Company believes that the estimated fair values assigned to the net identifiable
assets acquired are based on reasonable assumptions that a marketplace participant would use. While the Company uses its best
estimates and assumptions to accurately value the net identifiable assets acquired at the acquisition date, estimates are inherently
uncertain and subject to refinement.
To estimate the fair value of the intangible assets of the L3Harris Technologies’ Military Training business and Sabre’s AirCentre
airline operations portfolio acquisitions, the multi-period excess earnings method was used to value the customer relationship and the
relief from royalty method was used to value the technology and software. Significant judgment is applied in estimating the fair value
of customer relationships and the technology acquired, which involves the use of significant assumptions with respect to projected
revenue.
During the measurement period, for up to 12 months following the acquisition, the Company records adjustments to the initial estimate
of the net identifiable assets acquired based on new information obtained that would have existed as of the date of the acquisition.
Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period
the adjustment arises.
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
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.
82 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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 19 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 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. 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, 2023 by approximately $1.1 million (2022 – $1.7 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 2023 | 83
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS COMBINATIONS
Year ended March 31, 2023
During the year ended March 31, 2023, the Company completed its assessment of the fair value of assets acquired and liabilities
assumed of L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline operations portfolio (AirCentre)
acquired in fiscal 2022.
Adjustments to the purchase price allocations of the L3H MT and AirCentre acquisitions resulted in increases of intangible assets of
$27.0 million, other long-term liabilities of $6.4 million, and current liabilities of $4.0 million, and decreases of current assets of
$11.9 million, other long-term assets of $2.6 million and deferred tax assets of $2.1 million.
During the year ended March 31, 2023, cash consideration of $6.4 million was paid for an acquisition realized in fiscal 2021.
Year ended March 31, 2022
L3Harris Technologies’ Military Training business
On July 2, 2021, the Company concluded the acquisition of L3Harris Technologies’ Military Training business (L3H MT) for cash
consideration of $1,337.7 million, subject to additional 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. The acquisition expands 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.
In March 2021, 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 L3H MT acquisition (US$800 million).
The Company applied hedge accounting and the change in fair value of these financial instruments prior to the L3H MT acquisition
date was recorded in other comprehensive income. On July 2, 2021, these financial instruments were exercised in connection with the
closing of the L3H MT acquisition, and the realized cash flow hedge losses of $17.1 million, less income tax recovery of $2.3 million,
were transferred from accumulated other comprehensive income and included as an adjustment to the purchase consideration.
As at March 31, 2022, the preliminary determination of the fair value of the net assets acquired and liabilities assumed arising from the
L3H MT acquisition are as follows:
Current assets
Current liabilities
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax
Other non-current assets
Long-term debt, including current portion
Other non-current liabilities
Total purchase consideration, including the hedge of the purchase price
Purchase price adjustment payable
Total cash consideration paid on acquisition date
$
L3H MT
110.0
(130.8)
96.3
31.6
1,342.8
41.2
7.7
(33.9)
(104.0)
$
1,360.9
(8.4)
$
1,352.5
During the year ended March 31, 2022, the purchase price adjustment of $8.4 million was paid to the seller.
The preliminary fair value of the acquired intangible assets amounts to $1,342.8 million and consists of goodwill of $1,025.6 million
($868.3 million is deductible for tax purposes), customer relationships of $217.7 million and technology of $99.5 million.
The fair value and the gross contractual amount of the acquired accounts receivable were $41.9 million.
The revenue and adjusted segment operating income included in the fiscal 2022 consolidated income statement from L3H MT since
the acquisition date was $409.9 million and $49.1 million respectively. Had L3H MT been consolidated from April 1, 2021, the
fiscal 2022 consolidated income statement would have shown revenue and adjusted segment operating income of approximately
$549.0 million and $65.3 million respectively. These pro-forma amounts are estimated based on the operations of the acquired
businesses prior to the business combinations by the Company and assuming that the purchase price allocations were effective
April 1, 2021.
The net assets acquired, including intangibles, of L3H MT are included in the Defense and Security segment.
The purchase price allocation was preliminary as at March 31, 2022.
84 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
Sabre’s AirCentre airline operations portfolio
On February 28, 2022, the Company concluded the acquisition of Sabre’s AirCentre airline operations portfolio (AirCentre), a suite of
flight and crew management and optimization solutions, for cash consideration (net of cash acquired) of $498.9 million. The
transaction provides the Company with the Sabre AirCentre product portfolio, related technology and intellectual property as well as
the transfer of its highly talented workforce. The acquisition further expands the Company’s reach across its broad customer base
beyond pilot training and establishes itself as a technology leader in the growing market for industry-leading, digitally-enabled flight
and crew operations solutions.
As at March 31, 2022, the preliminary determination of the fair value of the net assets acquired and liabilities assumed arising from the
AirCentre acquisition are as follows:
Current assets
Current liabilities
Right-of-use assets
Intangible assets
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 cash consideration paid on acquisition date
AirCentre
42.0
(3.4)
0.3
423.2
1.2
36.9
(0.3)
(1.0)
498.9
3.8
502.7
$
$
$
The preliminary fair value of the acquired intangible assets amounts to $423.2 million and consists of goodwill of $257.8 million
($191.0 million is deductible for tax purposes), customer relationships of $101.8 million and technology and software of $63.6 million.
The revenue and adjusted segment operating income included in the fiscal 2022 consolidated income statement from AirCentre since
the acquisition date was $10.5 million and $2.2 million respectively. Had AirCentre been consolidated from April 1, 2021, the
fiscal 2022 consolidated income statement would have shown revenue and adjusted segment operating income of approximately
$151.5 million and $18.9 million respectively. These pro-forma amounts are estimated based on the operations of the acquired
businesses prior to the business combinations by the Company and assuming that the purchase price allocations were effective
April 1, 2021.
The net assets acquired, including intangibles, of AirCentre are included in the Civil Aviation segment.
The purchase price allocation was preliminary as at March 31, 2022.
Other fiscal 2022 business combinations
RB Group
On April 1, 2021, the Company acquired the remaining 79% equity interest in the RB Group, a leading provider of fully integrated
solutions that modernize the way airlines and business aircraft operators interact with their crew. This acquisition further supports the
Company’s expansion into digital flight crew management in its goal to drive additional software-enabled Civil aviation services. Prior
to this transaction, the Company's 21% ownership interest in the RB Group was accounted for using the equity method.
GlobalJet Services
On June 10, 2021, the Company acquired GlobalJet Services (GlobalJet), a provider of aviation maintenance training that is
recognized around the world for its services for both business and helicopter sectors. This acquisition expands the Company’s aircraft
platform addressability in the maintenance training market through world-class, regulatory approved training programs.
Medicor Lab Inc.
On July 5, 2021, the Company acquired the shares of Medicor Lab Inc. (Medicor), a company which specializes in task trainer and
realistic synthetic skin production. This acquisition augments the Company’s portfolio of products and expands its capabilities to offer
improved quality simulators for a better customer experience.
The aggregate purchase price for the acquisitions of the RB Group, GlobalJet and Medicor consist of cash consideration (net of cash
acquired) of $19.0 million, a long-term payable of $1.2 million and a contingent consideration of up to $4.0 million if certain targets are
met, and are mainly allocated to goodwill and intangible assets.
The net assets acquired, including intangibles, of the RB Group and GlobalJet are included in the Civil Aviation segment, and those of
Medicor are included in the Healthcare segment.
CAE Financial Report 2023 | 85
Notes to the Consolidated Financial Statements
Other
During the year ended March 31, 2022, the Company completed its assessment of the fair value of assets acquired and liabilities
assumed of Flight Simulation Company B.V., Merlot Aero Limited and TRU Simulation + Training Canada acquired in fiscal 2021 as
well as the RB Group, GlobalJet and Medicor acquired in fiscal 2022.
Total acquisition costs of $38.4 million were incurred during fiscal 2022 relating to the Company's acquisitions and are included in
Restructuring, integration and acquisition costs in the consolidated income statement (Note 5).
During the year ended March 31, 2022, adjustments to preliminary purchase price allocations of acquisitions realized in fiscal 2021
resulted in increases of intangible assets of $19.2 million, current liabilities of $15.2 million, and deferred tax assets of $3.8 million,
and a decrease of current assets of $7.8 million.
During the year ended March 31, 2022, net cash considerations of $4.9 million were paid for acquisitions realized in prior years.
NOTE 3 – 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
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 adjusting for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from
significant strategic transactions or specific 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, 2023 and 2022,
impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment
reversal of non-financial assets following their repurposing and optimization (Note 5) and the cloud computing transition adjustment
(Note 4).
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 (reversal) of non-financial assets – net
Share of after-tax profit of equity accounted investees
Operating income
Adjusted segment operating income
Defense
Civil Aviation
and Security
Healthcare
2023
2022
2023
2022
2023
2022
2023
Total
2022
$ 2,166.4 $ 1,617.8 $ 1,844.2 $ 1,602.1 $ 192.7 $ 151.4 $ 4,203.3 $ 3,371.3
243.4
224.1
86.8
73.4
12.0
13.0
342.2
310.5
1.2
47.0
34.5
42.1
(3.5)
6.2
3.0
6.4
430.3
224.1
35.7
56.0
485.3
314.7
53.1
119.2
(0.1)
—
8.0
9.7
4.3
—
4.1
10.6
(2.4)
53.2
474.0
548.1
41.8
48.5
284.2
444.5
Reconciliation of adjusted segment operating income is as follows:
Operating income
$ 430.3 $ 224.1 $
35.7 $
56.0 $
8.0 $
4.1 $ 474.0 $ 284.2
Restructuring, integration and acquisition costs (Note 5)
52.0
79.0
10.6
61.4
1.7
6.5
64.3
146.9
Defense
Civil Aviation
and Security
Healthcare
2023
2022
2023
2022
2023
2022
2023
Total
2022
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets following
their repurposing and optimization (Note 5)
Cloud computing transition adjustment (Note 4)
3.0
—
—
11.6
6.8
—
—
1.8
—
—
—
—
9.8
—
—
13.4
Adjusted segment operating income
$ 485.3 $ 314.7 $
53.1 $ 119.2 $
9.7 $
10.6 $ 548.1 $ 444.5
86 | CAE Financial Report 2023
Capital expenditures by segment, which consist of property, plant and equipment expenditures and intangible assets expenditures
(excluding those acquired in business combinations), are as follows:
Notes to the Consolidated Financial Statements
Civil Aviation
Defense and Security
Healthcare
Total capital expenditures
2023
2022
$ 329.2 $ 300.7
53.6
12.4
46.5
15.6
$ 395.2 $ 362.8
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
Defense and Security
Healthcare
Assets not included in assets employed
Total assets
Liabilities employed
Civil Aviation
Defense 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, software and services
Total external revenue
2023
2022
$ 5,852.4
$ 5,269.6
3,436.2
3,163.1
310.1
837.8
269.2
876.9
$ 10,436.5
$ 9,578.8
$ 1,142.0
$ 1,012.7
871.2
69.3
824.8
64.9
3,765.1
3,589.8
$ 5,847.6
$ 5,492.2
2023
2022
$ 1,570.8
$ 1,403.6
2,632.5
1,967.7
$ 4,203.3
$ 3,371.3
CAE Financial Report 2023 | 87
Notes to the Consolidated Financial Statements
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, deferred tax assets and employee benefits assets
Canada
United States
United Kingdom
Rest of Americas
Europe
Asia
Oceania and Africa
NOTE 4 – OTHER (GAINS) AND LOSSES
Net gain on foreign currency exchange differences
Cloud computing transition adjustment
Remeasurement of royalty obligations
Remeasurement of contingent consideration arising on business combinations
Other
Other (gains) and losses
2023
2022
$
372.0
$
366.8
2,184.7
1,682.5
264.2
89.6
574.0
627.0
91.8
208.5
78.4
473.4
472.2
89.5
$ 4,203.3
$ 3,371.3
2023
2022
$ 1,641.2
$ 1,570.8
4,049.8
3,554.2
383.9
180.8
982.4
519.8
112.5
370.4
177.0
916.3
498.1
79.5
$ 7,870.4
$ 7,166.3
2023
2022
$
(11.7)
$
(0.9)
—
(8.8)
2.6
(4.9)
(22.8)
$
13.4
(23.8)
(11.4)
(14.3)
(37.0)
$
Cloud computing transition adjustment
In fiscal 2022, the IFRS Interpretations Committee published a final agenda decision that clarified how to recognize certain
configuration and customization expenditures related to cloud computing arrangements with retrospective application. Costs that do
not meet the capitalization criteria should be expensed as incurred. The Company modified its accounting policy to align with the
agenda decision and previously capitalized costs of $13.4 million that no longer qualified for capitalization were expensed in
fiscal 2022.
88 | CAE Financial Report 2023
NOTE 5 – RESTRUCTURING, INTEGRATION AND ACQUISITION COSTS
Notes to the Consolidated Financial Statements
Integration and acquisition costs
Impairment of non-financial assets – net
Severances and other employee related costs
Other costs
Impairment reversal of non-financial assets following their repurposing and optimization
Total restructuring, integration and acquisition costs
2023
66.3
2.3
2.7
2.8
(9.8)
64.3
$
$
2022
87.8
37.1
6.9
15.1
—
146.9
$
$
For the year ended March 31, 2023, restructuring, integration and acquisition costs associated with the fiscal 2022 acquisition of
L3H MT amounted to $17.6 million (2022 – $63.5 million) and those related to the fiscal 2022 acquisition of AirCentre amounted to
$48.9 million (2022 – $18.1 million).
Impairment reversal of non-financial assets following their repurposing and optimization
For the year ended March 31, 2023, restructuring, integration and acquisition costs include gains on the reversal of impairment of an
intangible asset of $6.8 million in the Defense and Security segment and property, plant and equipment of $3.0 million in the Civil
Aviation segment, following their repurposing and optimization and new customer contracts and opportunities.
NOTE 6 – FINANCE EXPENSE – NET
Finance expense:
Long-term debt (other than lease liabilities)
Lease liabilities
Royalty obligations
Employee benefits obligations (Note 19)
Other
Borrowing costs capitalized
Finance expense
Finance income:
Loans and investment in finance leases
Other
Finance income
Finance expense – net
NOTE 7 – INCOME TAXES
Income tax expense
2023
2022
$
141.6
$
104.1
18.3
10.9
3.3
24.9
(7.9)
$
191.1
$
(10.3)
$
16.0
11.9
5.3
13.2
(7.1)
143.4
(9.1)
(3.7)
(3.1)
(13.4)
177.7
$
$
$
$
(12.8)
130.6
The reconciliation of income taxes at Canadian statutory rates with the income tax expense is as follows:
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) Non-deductible expenses
Tax impact on after-tax profit of equity accounted investees
Prior years' tax adjustments
Other
Income tax expense
Effective tax rate
2023
2022
$ 296.3
$ 153.6
26.53 %
26.54 %
$ 78.6
$ 40.8
(3.5)
1.4
(2.8)
(13.0)
0.5
3.2
(16.8)
2.2
1.5
(12.1)
(1.5)
(10.5)
$ 64.4
$
3.6
22 %
2 %
The Company's applicable tax rate corresponds to the combined Canadian tax rates applicable in the provinces where the Company
operates.
CAE Financial Report 2023 | 89
Notes to the Consolidated Financial Statements
Significant components of the provision for the income tax expense are as follows:
Current income tax 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 expense
2023
2022
$
$
53.2
0.8
(2.2)
—
12.6
64.4
$
30.4
3.1
(4.1)
(6.6)
(19.2)
$
3.6
Deferred tax assets and liabilities
During the year ended March 31, 2023, 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
$
96.9 $
(3.3) $
— $
— $
— $
5.7 $
99.3
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
86.6
4.4
(85.4)
(86.2)
(90.2)
1.2
2.6
(0.2)
27.2
83.1
(16.3)
75.8
4.9
3.3
(23.8)
(19.6)
(21.6)
(8.9)
5.0
0.2
(4.7)
(17.7)
—
—
—
—
—
—
4.2
5.7
(19.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2.8)
—
1.5
—
(0.8)
—
—
—
(0.1)
—
—
(7.0)
(4.9)
(0.3)
(0.3)
(1.1)
—
1.9
0.5
162.3
9.3
(82.1)
(119.8)
(114.7)
(19.2)
(2.4)
8.6
7.7
80.3
(33.5)
Net deferred tax assets (liabilities)
$
23.7 $
(10.4) $
(9.8) $
— $
(2.1) $
(5.6) $
(4.2)
During the year ended March 31, 2022, movements in temporary differences are as follows:
Balance
Foreign
currency
beginning Recognized Recognized Recognized
Business
exchange
Balance
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
of year
48.1
70.8
1.1
(76.4)
(75.2)
(92.5)
1.5
(1.4)
(6.5)
57.2
65.0
in income
$
48.3 $
15.9
1.0
(9.0)
(6.5)
8.3
(42.2)
9.2
6.2
4.3
4.6
(10.3)
(10.2)
in OCI
in equity combinations
differences end of year
—
—
—
—
—
—
—
(4.9)
0.6
(33.4)
—
—
— $
0.2 $
0.3 $
—
—
—
—
—
—
—
—
—
—
3.7
(0.1)
2.3
—
(4.6)
(5.9)
41.6
—
—
—
13.5
—
—
—
—
0.1
(0.1)
0.3
(0.3)
(0.5)
(0.9)
—
0.5
96.9
86.6
4.4
(85.4)
(86.2)
(90.2)
1.2
2.6
(0.2)
27.2
83.1
(16.3)
Net deferred tax (liabilities) assets
$
(18.6) $
29.9 $
(37.7) $
3.7 $
47.0 $
(0.6) $
23.7
As at March 31, 2023, net deferred tax assets of $81.5 million (2022 – $88.7 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, 2023, a deferred income tax liability on taxable temporary differences of $2,866.1 million (2022 – $2,468.6 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.
90 | CAE Financial Report 2023
The non-capital losses incurred in various jurisdictions expire as follows:
Expiry date
2024-2028
2029-2043
No expiry date
Notes to the Consolidated Financial Statements
Unrecognized
Recognized
$
31.4
26.8
146.0
$
18.4
149.9
212.2
$
204.2
$
380.5
As at March 31, 2023, the Company has $115.5 million (2022 – $118.8 million) of deductible temporary differences for which deferred
tax assets have not been recognized. The Company also has $19.9 million of capital losses for which deferred tax assets have not
been recognized with no expiry date.
NOTE 8 – SHARE CAPITAL AND EARNINGS PER SHARE
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, 2023, the number of common shares issued and fully paid was 317,906,290 (2022 – 317,024,123).
Issuance of common shares upon conversion of subscription receipts
On July 2, 2021, concurrent with the completion of the fiscal 2022 acquisition of L3H MT, 22,400,000 outstanding subscription receipts
were converted into CAE common shares in accordance with the terms of the subscription receipts, on a one-for-one basis. Proceeds
from the issuance of the subscription receipts of $700.0 million together with interest earned of $0.4 million were released from escrow
and used to fund the L3H MT acquisition. Total issuance-related costs amounted to $31.0 million, less income tax recovery of
$8.2 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
2023
2022
317,660,608
311,016,278
756,871
318,417,479
1,885,078
312,901,356
As at March 31, 2023, stock options to acquire 2,176,800 common shares (2022 – 663,430) have been excluded from the above
calculation since their inclusion would have had an anti-dilutive effect.
CAE Financial Report 2023 | 91
Notes to the Consolidated Financial Statements
NOTE 9 – 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 14)
Receivables from related parties (Note 31)
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 10 – BALANCE FROM CONTRACTS WITH CUSTOMERS
Net contract liabilities are as follows:
Contract assets - current
Contract assets - non-current (Note 15)
Contract liabilities - current
Contract liabilities - non-current (Note 20)
Net contract liabilities
2023
280.6
$
2022
230.4
$
68.4
28.3
16.8
85.2
50.4
29.0
15.0
121.2
$
479.3
$
446.0
13.5
57.5
90.9
(25.5)
21.6
40.3
76.9
(27.9)
$
615.7
$
556.9
2023
2022
$
(27.9)
$
(34.4)
(3.2)
4.7
1.9
(1.0)
(4.7)
8.9
0.8
1.5
$
(25.5)
$
(27.9)
2023
2022
$
693.8
$
608.3
41.9
(905.7)
(94.0)
34.1
(788.3)
(130.3)
$
(264.0)
$
(276.2)
During the year ended March 31, 2023, the Company recognized revenue of $632.2 million (2022 – $482.6 million) that was included
in the contract liability balance at the beginning of the year.
During the year ended March 31, 2023, the Company recognized a reduction of revenue of $11.3 million (2022 – recognized revenue
of $55.5 million) related to performance obligations partially 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, 2023, the amount of the revenues expected to be realized in future years from performance obligations that are
unsatisfied, or partially unsatisfied, was $5,956.0 million. The Company expects to recognize approximately 40% of these remaining
performance obligations as revenue by March 31, 2024, an additional 26% by March 31, 2025 and the balance thereafter.
NOTE 11 – INVENTORIES
Work in progress
Raw materials, supplies and manufactured products
Total inventories
2023
282.4
301.0
583.4
$
$
2022
291.5
228.3
519.8
$
$
During the year ended March 31, 2023, the use of inventory recognized in cost of sales amounted to $494.0 million
(2022 ⁃ $413.9 million), and the impairment of inventories to net realizable value amounted to $5.6 million (2022 – $5.2 million).
92 | CAE Financial Report 2023
NOTE 12 – PROPERTY, PLANT AND EQUIPMENT
Notes to the Consolidated Financial Statements
(amounts in millions)
Net book value as at March 31, 2021
Additions
Business combinations (Note 2)
Disposals
Depreciation
Impairment
Purchase of assets under lease (Note 14)
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2022
Additions
$
Disposals
Depreciation
(Impairment) reversal – net
Purchase of assets under lease (Note 14)
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2023
$
(amounts in millions)
Cost
Accumulated depreciation and impairment
Net book value as at March 31, 2022
Cost
Accumulated depreciation and impairment
Net book value as at March 31, 2023
NOTE 13 – INTANGIBLE ASSETS
(amounts in millions)
Net book value as at March 31, 2021
Additions – internal development
Business combinations (Note 2)
Amortization
Impairment
Cloud computing transition adjustment (Note 5)
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2022
Additions – internal development
Business combinations (Note 2)
Amortization
Impairment reversal – net
Transfers and others
Buildings
and land
282.1
$
Simulators
$ 1,423.1
Machinery
and
equipment
48.3
$
Assets
under
Aircraft
76.1
$
construction
139.8
$
Total
$ 1,969.4
29.4
52.1
(2.2)
(21.4)
(13.8)
—
1.1
(7.2)
320.1
34.6
(3.6)
(23.3)
—
—
27.6
13.7
369.1
Buildings
and land
14.5
18.7
(0.4)
(101.1)
(10.5)
21.7
97.6
(48.5)
$ 1,415.1
$
20.1
(3.2)
(113.2)
2.1
34.6
208.8
88.6
$ 1,652.9
$
15.5
21.5
(0.1)
(19.3)
—
—
1.1
(0.8)
66.2
16.7
(0.1)
(21.2)
(0.1)
—
(5.5)
3.1
59.1
1.6
2.1
(1.1)
(5.2)
—
—
(1.0)
(1.0)
71.5
0.2
(0.6)
(5.4)
(0.3)
—
6.0
5.1
76.5
$
$
Machinery
and
272.2
96.5
(3.8)
(147.0)
(24.3)
21.7
3.3
(58.7)
$ 2,129.3
268.8
(7.5)
(163.1)
1.7
34.6
5.4
117.9
$ 2,387.1
211.2
2.1
—
—
—
—
(95.5)
(1.2)
256.4
197.2
—
—
—
—
$
(231.5)
7.4
229.5
$
Assets
under
Simulators
equipment
Aircraft
construction
Total
$
561.9
$ 2,180.7
$
209.2
$
89.4
$
256.4
$ 3,297.6
(241.8)
320.1
(765.6)
$ 1,415.1
623.9
$ 2,558.1
(254.8)
369.1
(905.2)
$ 1,652.9
$
$
$
(143.0)
66.2
208.9
(149.8)
59.1
$
$
$
(17.9)
71.5
103.1
(26.6)
76.5
$
$
$
—
256.4
229.5
—
229.5
$
$
$
(1,168.3)
$ 2,129.3
$ 3,723.5
(1,336.4)
$ 2,387.1
Capitalized
development
Customer
Technology,
Other
software
intangible
costs relationships
215.7 $
Licenses
and ERP
Goodwill
$ 1,173.2
$
—
1,316.8
—
—
—
—
55.6
2.2
(32.7)
(4.2)
—
(2.1)
(25.7)
$ 2,464.3
$
(0.1)
234.4 $
—
35.8
—
—
—
87.1
—
(31.1)
6.3
(3.7)
297.5 $ 279.4 $
—
323.7
(40.7)
—
—
(0.1)
(5.4)
—
—
(16.0)
—
—
(0.1)
(0.5)
575.0 $ 262.8 $
—
(11.8)
(44.4)
—
(1.3)
36.8
—
—
(16.1)
—
—
6.7
71.5 $
35.0
169.7
(18.3)
—
(13.4)
0.4
assets
Total
18.5 $ 2,055.8
—
—
90.6
1,812.4
(1.8)
(109.5)
—
—
—
(4.2)
(13.4)
(1.9)
(1.2)
243.7 $
(0.6)
(33.5)
16.1 $ 3,796.3
39.3
3.0
(29.5)
—
(0.9)
14.0
—
—
126.4
27.0
(1.8)
(122.9)
—
0.4
6.3
(5.5)
0.8
223.2
15.5 $ 4,050.8
CAE Financial Report 2023 | 93
During the year ended March 31, 2023, depreciation of $161.5 million (2022 – $145.0 million) has been recorded in cost of sales, nil
(2022 – $0.5 million) in research and development expenses and $1.6 million (2022 – $1.5 million) in selling, general and
administrative expenses.
Foreign currency exchange differences
Net book value as at March 31, 2023
163.2
$ 2,663.3
$
1.7
294.7 $
554.3 $ 253.4 $
269.6 $
Notes to the Consolidated Financial Statements
Capitalized
development
Customer
Technology,
software
Goodwill
costs relationships
Licenses
and ERP
Other
intangible
assets
Total
Cost
$ 2,501.8 $
480.9 $
794.7 $
312.8 $
445.4 $
51.1 $ 4,586.7
Accumulated amortization and impairment
Net book value as at March 31, 2022
Cost
(37.5)
$ 2,464.3 $
(246.5)
234.4 $
(219.7)
575.0 $
(50.0)
262.8 $
(201.7)
243.7 $
(35.0)
(790.4)
16.1 $ 3,796.3
$ 2,699.7 $
573.3 $
829.6 $
320.9 $
513.2 $
54.0 $ 4,990.7
Accumulated amortization and impairment
Net book value as at March 31, 2023
(36.4)
$ 2,663.3 $
(278.6)
294.7 $
(275.3)
554.3 $
(67.5)
253.4 $
(243.6)
269.6 $
(38.5)
(939.9)
15.5 $ 4,050.8
During the year ended March 31, 2023, amortization of $92.9 million (2022 – $77.2 million) has been recorded in cost of sales,
$29.0 million (2022 – $30.6 million) in research and development expenses and $1.0 million (2022 – $1.7 million) in selling, general
and administrative expenses.
Goodwill
The carrying amount of goodwill allocated to the Company's CGUs per operating segment is as follows:
Net book value as at March 31, 2021
Business combinations (Note 2)
Foreign currency exchange differences
Net book value as at March 31, 2022
Business combinations (Note 2)
Foreign currency exchange differences
Net book value as at March 31, 2023
Defense
Civil Aviation
and Security
Healthcare
Total
$
789.2
$
279.3
$
104.7
$ 1,173.2
283.4
1,025.6
(25.8)
$ 1,046.8
0.9
$ 1,305.8
$
25.6
53.2
10.2
101.3
7.8
(0.8)
111.7
—
8.7
1,316.8
(25.7)
$ 2,464.3
35.8
163.2
$ 1,125.6
$ 1,417.3
$
120.4
$ 2,663.3
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 2023. The Company determined the
recoverable amount of the Civil Aviation, Defense 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. The discount rates used to calculate the recoverable
amounts reflect each CGUs’ specific risks and market conditions and range from 8% to 15%.
During the year ended March 31, 2023, the estimated recoverable amount of each CGU exceeded their carrying amount. As a result,
there was no impairment identified.
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, 2023, 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 in any of our CGUs or group of
CGUs.
94 | CAE Financial Report 2023
NOTE 14 – LEASES
Leases as lessee
Right-of-use assets
Net book value as at March 31, 2021
Additions and remeasurements
Business combinations (Note 2)
Depreciation
Impairment
Purchase of assets under lease (Note 12)
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2022
Additions and remeasurements
Depreciation
Purchase of assets under lease (Note 12)
Transfers and others
Foreign currency exchange differences
Net book value as at March 31, 2023
Notes to the Consolidated Financial Statements
Buildings
Machinery
and
and land
Simulators
equipment
Aircraft
$
212.0 $
65.9 $
18.1 $
12.5 $
59.4
32.7
(31.2)
(8.1)
—
(3.3)
60.0
—
(13.8)
—
(21.7)
0.5
(6.2)
255.3 $
(0.4)
90.5 $
$
120.9
(36.6)
—
(6.1)
13.2
7.3
(9.9)
(34.6)
(2.3)
5.9
0.2
—
(2.6)
—
—
(0.2)
—
—
—
(0.8)
—
—
—
—
15.5 $
11.7 $
—
(2.8)
—
(0.3)
—
—
(0.8)
—
—
—
Total
308.5
119.6
32.7
(48.4)
(8.1)
(21.7)
(3.0)
(6.6)
373.0
128.2
(50.1)
(34.6)
(8.7)
19.1
$
346.7 $
56.9 $
12.4 $
10.9 $
426.9
During the year ended March 31, 2023, depreciation of $47.5 million (2022 – $46.0 million) has been recorded in cost of sales and
$2.6 million (2022 – $2.4 million) in selling, general and administrative expenses.
Short-term leases, leases of low-value assets and variable lease payments
During the year ended March 31, 2023, expenses of $16.8 million (2022 – $15.4 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, 2023, the net book value of property, plant and equipment leased under operating leases to third parties was
$76.1 million (2022 – $51.8 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
2023
33.0 $
$
32.6
30.0
21.7
16.5
13.8
2022
36.3
24.1
23.3
21.0
13.6
26.8
Total undiscounted lease payments receivable
$
147.6 $
145.1
CAE Financial Report 2023 | 95
Notes to the Consolidated Financial Statements
Finance Leases
Undiscounted lease payments to be received under finance 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
Total undiscounted lease payments receivable
Unearned finance income
Discounted unguaranteed residual values of leased assets
Total investment in finance leases
Current portion (Note 9)
Non-current portion (Note 15)
NOTE 15 – OTHER NON-CURRENT ASSETS
Contract assets (Note 10)
Prepaid rent to a portfolio investment
Advances to a portfolio investment
Advance payments for property, plant and equipment
Investment in finance leases (Note 14)
Non-current receivables
Investment tax credits
Other
NOTE 16 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable trade
Accrued and other liabilities
Amount due to related parties (Note 31)
Current portion of royalty obligations
2023
16.6 $
$
14.6
15.1
16.3
13.6
2022
24.9
12.0
12.9
11.1
11.8
128.2
114.5
$
204.4 $
187.2
(68.0)
(10.7)
(59.1)
(9.4)
$
125.7 $
118.7
13.5
$
112.2 $
21.6
97.1
2023
41.9 $
2022
34.1
$
13.4
10.7
30.7
112.2
42.8
325.3
43.6
18.2
10.5
—
97.1
42.0
315.1
32.7
$
620.6 $
549.7
2023
2022
$
522.1 $
436.2
498.6
5.7
10.3
514.7
5.1
19.1
$ 1,036.7 $
975.1
96 | CAE Financial Report 2023
NOTE 17 – PROVISIONS
Changes in provisions are as follows:
Provisions, as at March 31, 2022
Additions
Amount used
Reversal of unused amounts
Foreign currency exchange differences
Transfers and others
Provisions, as at March 31, 2023
Current portion
Non-current portion
NOTE 18 – DEBT FACILITIES
Long-term debt, net of transaction costs is as follows:
Notes to the Consolidated Financial Statements
Restoration
and simulator Restructuring
removal
(Note 5)
Legal Warranties
Other
$
9.4 $
9.2 $
8.0 $
25.0 $
5.7 $
0.2
—
(1.0)
0.4
0.2
9.2 $
—
4.3
(10.8)
(1.6)
0.2
0.1
(5.8)
(0.6)
0.1
(0.2)
1.1 $
—
1.8 $
9.8
(11.3)
(0.1)
0.2
0.3
1.7
—
(0.6)
0.4
3.6
23.9 $
10.8 $
1.1
1.5
15.5
8.6
9.2 $
— $
0.3 $
8.4 $
2.2 $
$
$
Total
57.3
16.1
(27.9)
(3.9)
1.3
3.9
46.8
26.7
20.1
Notional amount
Repayment
period
2023
2022
Current
Non-current
Current
Non-current
Unsecured senior notes
U.S. dollar, fixed rate - 3.60% to 4.90%
US$ 947.0
2024-2034
$
Canadian dollar, fixed rate - 4.15%
$
24.3
2024-2027
Term loans
U.S. dollar, variable rate
Canadian dollar, variable rate
Other
Lease liabilities
U.S. dollar
Other
R&D obligations
Canadian dollar
Revolving credit facilities
U.S. dollar, variable rate
Total long-term debt
US$ 350.0
2024-2025
$
29.6
2023-2028
2023-2026
2023-2053
2023-2043
2023-2042
18.5
2.9
67.0
5.6
15.2
55.7
25.5
24.2
$ 1,257.9
$
21.4
405.4
23.8
47.4
241.3
133.4
471.9
17.4
2.9
69.7
5.6
14.1
66.1
32.9
33.1
$ 1,176.5
24.2
443.1
29.4
58.4
164.6
131.4
439.9
—
433.0
—
336.9
$
214.6
$ 3,035.5
$
241.8
$ 2,804.4
Term loans
In September 2022, the Company extended the maturity of a US$175.0 million variable interest-bearing term loan from July 2023 to
July 2024.
In March 2023, the Company repaid a term loan of US$50.0 million.
Revolving credit facility amendments
In October 2022, the Company amended its US$850.0 million unsecured revolving credit facility to increase the total capacity to
US$1.0 billion and extended the maturity by one year to September 2027. In addition, the Company terminated its $300.0 million
Sidecar unsecured revolving credit facility, which had no borrowings and was coming to maturity in April 2023.
CAE Financial Report 2023 | 97
Notes to the Consolidated Financial Statements
Information on the change in long-term debt for which cash flows have been classified as financing activities in the statement of cash
flows are as follows:
Unsecured
senior
notes
$ 1,249.5
Term
loans
331.2
$
Lease
R&D
Revolving
credit
liabilities
347.2
$
obligations
423.6
$
facility
Total
— $ 2,351.5
$
Total changes from financing cash flows
$
(20.5)
$
291.5
$
Net book value as at March 31, 2021
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
Non-cash changes
Business combinations (Note 2)
Foreign currency exchange differences
Additions and remeasurement of lease liabilities
Accretion
Other
Total non-cash changes
Net book value as at March 31, 2022
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
—
—
(20.5)
—
—
402.3
(110.8)
—
—
(8.5)
—
—
0.5
0.2
(4.1)
—
—
1.5
—
—
(21.8)
—
—
—
(106.1)
—
Total changes from financing cash flows
$
(21.8)
$
(106.1)
$
Non-cash changes
Foreign currency exchange differences
Additions and remeasurement of lease liabilities
Accretion
Other
101.1
—
—
0.4
48.9
—
—
1.3
Total non-cash changes
Net book value as at March 31, 2023
101.5
$
$ 1,300.7
$
$
50.2
564.4
$
$
144.3
455.9
$
$
—
—
—
(89.5)
(89.5)
34.9
(7.8)
119.6
—
(9.4)
—
26.8
(0.8)
—
344.6
—
—
—
344.6
429.1
(132.1)
(89.5)
$
26.0
$
344.6 $
552.1
—
—
—
25.3
(1.9)
—
(7.7)
—
—
—
35.1
(28.1)
119.6
25.3
(9.3)
—
—
—
(83.4)
(83.4)
21.7
128.2
—
(5.6)
—
31.2
(33.1)
—
44.5
—
—
—
44.5
31.2
(161.0)
(83.4)
$
(1.9)
$
44.5 $
(168.7)
—
—
25.0
—
25.0
496.1
51.6
—
—
—
223.3
128.2
25.0
(3.9)
$
$
51.6 $
372.6
433.0 $ 3,250.1
(8.0)
$
$ 1,221.0
$
$
(2.4)
620.3
$
$
137.3
395.0
$
$
23.4
473.0
$
$
(7.7) $
142.6
336.9 $ 3,046.2
The Company's unsecured senior notes, term loans and revolving credit facility include standard events of default and covenant
provisions whereby accelerated repayment and/or termination of the agreements may result if the Company were to default on
payment or violate certain covenants. As at March 31, 2023, the Company is in compliance with all of its covenants, as amended from
time to time.
NOTE 19 – 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 a funded
pension plan for employees in the United Kingdom that provides 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, 2023, the
Company has issued letters of credit totalling $56.5 million (2022 – $67.0 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.
98 | CAE Financial Report 2023
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 - net
Employee benefit assets
Employee benefit obligations
Notes to the Consolidated Financial Statements
2023
2022
$
590.7
$
638.7
641.7
$
(51.0)
$
91.8
40.8
(51.1)
91.9
$
$
$
$
$
$
623.9
14.8
94.9
109.7
—
109.7
Changes in funded defined benefit pension obligations and fair value of plan assets are as follows:
Canadian
Foreign
Pension obligations, beginning of year
$
631.8
$
Current service cost
Interest cost
Past service cost
Actuarial loss (gain) arising from:
Experience adjustments
Economic assumptions
Demographic assumptions
Employee contributions
Pension benefits paid
Settlements
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
Settlements
Administrative costs
Foreign currency exchange differences
32.5
23.9
—
25.5
(102.8)
2.6
9.2
(25.5)
(11.7)
—
585.5
617.1
23.9
(10.1)
33.0
9.2
(25.5)
(11.7)
(0.6)
—
$
$
Fair value of plan assets, end of year
$
635.3
$
6.9
—
0.2
—
0.2
(1.8)
(0.1)
—
(0.2)
—
—
5.2
6.8
0.2
(0.9)
0.4
—
(0.2)
—
—
0.1
6.4
2023
Total
Canadian
Foreign
2022
Total
$
638.7
$
687.0
$
74.5
$
761.5
32.5
24.1
—
25.7
(104.6)
2.5
9.2
(25.7)
(11.7)
—
590.7
623.9
24.1
(11.0)
33.4
9.2
(25.7)
(11.7)
(0.6)
0.1
$
$
35.0
19.2
—
(2.6)
(92.1)
—
7.8
(22.5)
—
—
631.8
574.7
16.4
16.6
25.1
7.8
(22.5)
—
(1.0)
—
$
$
$
$
$
641.7
$
617.1
$
1.4
0.6
(5.9)
0.2
(1.7)
—
0.3
(1.2)
(60.3)
(1.0)
6.9
67.2
0.5
1.6
(0.1)
0.3
(1.2)
(60.3)
(0.1)
(1.1)
6.8
36.4
19.8
(5.9)
(2.4)
(93.8)
—
8.1
(23.7)
(60.3)
(1.0)
638.7
641.9
16.9
18.2
25.0
8.1
(23.7)
(60.3)
(1.1)
(1.1)
$
$
$
623.9
Changes in unfunded defined benefit pension obligations are as follows:
Canadian
Foreign
2023
Total
Canadian
Foreign
2022
Total
Pension obligations, beginning of year
$
82.6
$
12.3
$
94.9
$
88.6
$
14.0
$
102.6
Current service cost
Interest cost
Past service cost
Actuarial loss (gain) arising from:
Experience adjustments
Economic assumptions
Pension benefits paid
Foreign currency exchange differences
4.1
3.0
—
5.5
(11.0)
(2.9)
—
Pension obligations, end of year
$
81.3
$
1.0
0.3
0.2
(0.6)
(2.7)
(0.6)
0.6
10.5
5.1
3.3
0.2
4.9
(13.7)
(3.5)
0.6
91.8
$
4.4
2.2
—
0.3
(9.8)
(3.1)
—
0.8
0.2
0.3
(0.4)
(1.3)
(0.6)
(0.7)
5.2
2.4
0.3
(0.1)
(11.1)
(3.7)
(0.7)
$
82.6
$
12.3
$
94.9
CAE Financial Report 2023 | 99
Notes to the Consolidated Financial Statements
Net pension cost is as follows:
Canadian
Foreign
Funded plans
Current service cost
Interest cost
Interest income
Past service cost
Administrative cost
$
$
32.5
23.9
(23.9)
—
0.6
Net pension cost of funded plans
$
33.1
$
Unfunded plans
Current service cost
Interest cost
Past service cost
Net pension cost of unfunded plans
Total net pension cost
$
$
$
4.1
3.0
—
7.1
40.2
$
$
$
—
0.2
(0.2)
—
—
—
1.0
0.3
0.2
1.5
1.5
$
2023
Total
32.5
24.1
(24.1)
—
0.6
Canadian
Foreign
$
$
35.0
19.2
(16.4)
—
1.0
$
33.1
$
38.8
$
$
$
$
5.1
3.3
0.2
8.6
41.7
$
$
$
4.4
2.2
—
6.6
45.4
$
$
$
1.4
0.6
(0.5)
(5.9)
0.1
(4.3)
0.8
0.2
0.3
1.3
(3.0)
$
$
$
$
$
2022
Total
36.4
19.8
(16.9)
(5.9)
1.1
34.5
5.2
2.4
0.3
7.9
42.4
During the year ended March 31, 2023, pension costs of $20.9 million (2022 – $17.9 million) have been charged in cost of sales,
$5.8 million (2022 – $7.7 million) in research and development expenses, $8.5 million (2022 – $9.8 million) in selling, general and
administrative expenses, and $3.3 million (2022 – $5.3 million) in finance expense. In addition, pension costs of $3.2 million
(2022 – $1.7 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
Private and property investments
Cash and cash equivalents
Other
Total Canadian plans
Foreign plans
Equity instruments
Debt instruments
Corporate
Other
Total Foreign plans
Total plans
Quoted
Unquoted
2023
Total
Quoted
Unquoted
2022
Total
$
$
—
—
—
—
—
—
—
—
$
45.6
$
45.6
$
174.8
174.8
133.3
74.4
191.7
14.4
1.1
133.3
74.4
191.7
14.4
1.1
$
635.3
$
635.3
$
—
—
—
—
—
—
—
—
$
72.9
$
72.9
145.4
145.4
115.4
105.7
164.8
12.1
0.8
115.4
105.7
164.8
12.1
0.8
$
617.1
$
617.1
$
2.3
$
—
$
2.3
$
2.6
$
—
$
2.6
3.3
—
5.6
5.6
—
0.8
0.8
636.1
$
$
3.3
0.8
6.4
641.7
$
$
$
$
3.6
—
6.2
6.2
—
0.6
0.6
617.7
$
$
3.6
0.6
6.8
623.9
$
$
$
$
As at March 31, 2023 and March 31, 2022, 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
100 | CAE Financial Report 2023
2023
5.05 %
3.66 %
4.14 %
3.65 %
Canadian
2022
4.14 %
3.65 %
3.32 %
3.65 %
2023
4.70 %
2.54 %
2.41 %
2.66 %
Foreign
2022
2.41 %
2.66 %
1.06 %
2.06 %
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:
Notes to the Consolidated Financial Statements
As at March 31, 2023
(in years)
Country
Canada
Germany
Mortality table
CPM private tables
Heubeck RT2018G
United Kingdom
S2PxA CMI 2020
United States
CPM private tables
As at March 31, 2022
(in years)
Country
Canada
Germany
Mortality table
CPM private tables
Heubeck RT2018G
United Kingdom
S2PxA CMI 2020
United States
CPM private tables
Life expectancy over 65 for a member
at age 45
at age 65
at age 45
Male
23.7
23.4
22.6
24.9
22.2
20.6
21.6
23.5
26.1
26.3
24.6
26.4
Female
at age 65
24.8
24.0
23.4
25.1
Life expectancy over 65 for a member
at age 45
at age 65
at age 45
Male
23.6
23.2
23.1
24.9
22.1
20.5
22.1
23.4
25.7
26.2
25.2
26.4
Female
at age 65
24.4
23.9
24.0
25.0
As at March 31, 2023, the weighted average duration of the defined benefit obligation is 16 years.
The impact on the defined benefit obligation as a result of a 0.25% change in the significant assumptions as at March 31, 2023 are as
follows:
Discount rate:
Increase
Decrease
Compensation rate:
Increase
Decrease
Funded plans
Unfunded plans
Canadian
Foreign
Canadian
Foreign
Total
$
(22.7)
$
(0.1)
$
(2.3)
$
(0.3)
$
(25.4)
24.1
8.4
(8.0)
0.1
—
—
2.4
0.3
(0.3)
0.3
—
—
26.9
8.7
(8.3)
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
NOTE 20 – OTHER NON-CURRENT LIABILITIES
Contract liabilities (Note 10)
Share-based payments liabilities (Note 23)
Contingent consideration arising on business combinations
Interest payable
Other
Canadian
31.9
$
Foreign
—
$
$
2.9
0.7
Total
31.9
3.6
$
2023
94.0
63.2
—
8.8
32.2
2022
$
130.3
70.0
3.7
14.4
27.2
$
198.2
$
245.6
CAE Financial Report 2023 | 101
Notes to the Consolidated Financial Statements
NOTE 21 – SUPPLEMENTARY CASH FLOWS INFORMATION
Changes in non-cash working capital are as follows:
Cash provided by (used in) 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
2023
2022
$
4.1
$
34.2
(66.6)
(65.6)
(9.7)
(13.2)
21.8
(15.3)
30.0
(49.3)
107.3
(5.6)
(11.5)
(24.6)
(25.8)
(2.2)
$
(114.5)
$
22.5
2023
$
174.7
$
13.3
34.7
2022
93.8
13.1
44.5
NOTE 22 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Foreign currency
exchange differences
Net changes in
on translation of
Net changes in
financial assets
foreign operations
cash flow hedges
carried at FVOCI
2023
2022
2023
2022
2023
2022
2023
Total
2022
$
(29.4) $
64.5 $
(0.5) $
(5.2) $
(1.3) $
(1.2) $
(31.2) $
58.1
212.2
(93.9)
(13.8)
4.7
—
(0.1)
198.4
(89.3)
$ 182.8 $
(29.4) $
(14.3) $
(0.5) $
(1.3) $
(1.3) $ 167.2 $
(31.2)
Balances, beginning of year
Other comprehensive (loss) income
Balances, end of year
NOTE 23 – 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 29)
Amount capitalized
Share-based payments expense, net of equity swap (Note 24)
102 | CAE Financial Report 2023
2023
2022
$
6.1
$
7.8
12.8
3.3
5.9
0.4
28.5
5.3
(0.9)
32.9
$
$
$
$
11.6
1.1
1.3
9.2
31.0
9.2
(0.5)
39.7
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 20)
Notes to the Consolidated Financial Statements
2023
2022
$
$
$
21.3
40.5
12.7
74.5
11.3
63.2
$
$
$
20.6
42.4
26.8
89.8
19.8
70.0
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, 2023,
a total of 9,054,276 common shares (2022 – 9,936,443) remained authorized for issuance under the stock option plan.
Changes in outstanding stock options are as follows:
2023
Weighted
2022
Weighted
Number of
average exercise
Number of
average exercise
stock options
price
stock options
Stock options outstanding, beginning of year
6,783,444
$
25.08
Granted
Exercised
Forfeited
Expired
Stock options outstanding, end of year
Stock options exercisable, end of year
624,700
(882,167)
(202,440)
—
6,323,537
3,877,399
32.92
18.49
29.28
—
26.63
25.62
$
$
7,476,902
712,477
(1,268,660)
(134,275)
(3,000)
6,783,444
3,395,732
price
$
23.39
36.79
21.37
28.57
14.66
25.08
23.35
$
$
During the year ended March 31, 2023, the weighted average market share price for stock options exercised was $31.95
(2022 ⁃ $38.13).
As at March 31, 2023, summarized information about the stock options issued and outstanding is as follows:
Range of
exercise prices
$16.15 to $20.86
$21.61 to $27.14
$28.95 to $38.01
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)
price
exercisable
2,168,433
1,978,304
2,176,800
6,323,537
3.83
1.79
4.57
3.44
$
20.22
24.80
34.69
$
26.63
1,073,383
1,952,804
851,212
3,877,399
price
$
19.87
24.83
34.66
$
25.62
During the year ended March 31, 2023, the weighted average fair value of stock options granted was $10.85 (2022 – $11.53).
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
2023
$ 30.87
$ 32.92
2022
$ 37.24
$ 36.79
0.65 %
42.12 %
3.30 %
0.64 %
40.51 %
0.76 %
4.5 years
4.0 years
Expected volatility is estimated by considering historical average common share price volatility over the expected life of the stock
options.
CAE Financial Report 2023 | 103
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 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
DSUs vested and outstanding, end of year
2023
634,342
143,206
(79,568)
697,980
2022
550,742
86,876
(3,276)
634,342
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
RSUs outstanding, end of year
RSUs vested, end of year
2023
2022
1,529,704
1,430,524
285,279
(31,505)
(248,843)
289,745
(13,690)
(176,875)
1,534,635
1,289,049
1,529,704
1,303,042
As at March 31, 2023, vested and outstanding RSUs includes 850,393 RSUs granted under the previous plan (2022 – 922,665),
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.
104 | CAE Financial Report 2023
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 24 – 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 23)
Post-employment benefits – defined benefit plans (Note 19)
Post-employment benefits – defined contribution plans
Termination benefits
Total employee compensation
NOTE 25 – GOVERNMENT PARTICIPATION
Government contributions were recognized as follows:
Credited to non-financial assets
Credited to income
Notes to the Consolidated Financial Statements
2023
847,171
817,218
(48,601)
(467,486)
1,148,302
687,120
2022
820,090
571,459
(23,135)
(521,243)
847,171
570,457
2023
2022
$ 1,564.5
$ 1,326.2
32.9
38.5
25.4
2.7
39.7
40.7
17.9
6.9
$ 1,664.0
$ 1,431.4
2023
19.6
26.1
45.7
$
$
2022
15.9
33.1
49.0
$
$
NOTE 26 – CONTINGENCIES AND COMMITMENTS
Contingencies
From time to time, the Company is involved in legal proceedings, audits, litigations and claims arising in the ordinary course of its
business. The Company operates in a highly regulated environment across many jurisdictions and is subject to, without limitation,
laws and regulations relating to import-export controls, trade sanctions, anti-corruption, health and medical devices, national security
and aviation safety of each country. In addition, contracts with government agencies are subject to procurement regulations and other
specific legal requirements. The Company is also required to comply with tax laws and regulations of any country in which it operates.
The Company is subject to investigations and audits from various government and regulatory agencies. In addition, the Company may
identify, investigate, remediate and voluntarily disclose potential non-compliance with those laws and regulations. As a result, the
Company can be subject to potential liabilities associated with those matters. 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 statements.
During fiscal 2015, the Company received tax notices of reassessment from the Canada Revenue Agency (CRA) in connection with
the Company’s characterization of amounts received under the Strategic Aerospace and Defence Initiative (SADI) program during its
2012 and 2013 taxation years. Under the SADI program, the Company received funding from the Government of Canada for its
eligible spending in R&D projects, in the form of an unconditionally repayable interest-bearing loan, for which the Company
commenced repayment of the principal and interest in fiscal 2016 in accordance with the terms of the agreement. The CRA has taken
the position that amounts received under the SADI program qualify as government assistance. The Company filed notices of objection
against the CRA’s reassessments and subsequently filed a notice of appeal to the Tax Court of Canada.
In September 2021, the Tax Court of Canada ruled in favour of the CRA’s contention and held that the amounts received under the
SADI program qualified as government assistance. The Company subsequently filed an appeal to the Federal Court of Appeal against
the Tax Court’s decision. In October 2022, the Federal Court of Appeal issued a decision in which it rejected the appeal. In
December 2022, the Company filed an application for leave to appeal to the Supreme Court of Canada.
In May 2023, the Supreme Court of Canada denied the application for leave to appeal. The Company considers this matter closed as
the Supreme Court’s decision cannot be appealed. The outcome did not have a material impact on the Company’s consolidated
financial statements as at March 31, 2023.
CAE Financial Report 2023 | 105
Notes to the Consolidated Financial Statements
Commitments
Contractual purchase commitments that are not recognized as liabilities are as follows:
Less than 1 year
Between 1 and 5 years
Later than 5 years
Total contractual purchase commitments
2023
2022
$
297.5
$
290.9
249.6
1.9
210.0
3.6
$
549.0
$
504.5
As at March 31, 2023, the Company had additional commitments of $80.2 million related to leases not yet commenced that have not
been recognized as a lease liability nor included in the table above.
NOTE 27 – 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, accounts receivable and accounts payable and accrued liabilities 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).
106 | CAE Financial Report 2023
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
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)
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
2023
2022
Level 1
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 3
$
217.6
$
217.6
$
346.1
$
346.1
(11.8)
(5.3)
—
10.5
(20.5)
555.3
125.7
10.7
21.4
(11.8)
(5.3)
—
10.5
(20.5)
555.3
126.1
10.7
21.4
(13.0)
7.0
(3.7)
8.2
8.3
501.7
118.7
10.5
26.9
(13.0)
7.0
(3.7)
8.2
8.3
501.7
124.4
10.5
26.9
(799.3)
(799.3)
(696.6)
(696.6)
(2,800.3)
(2,788.2)
(2,658.8)
(2,765.4)
(137.6)
(125.1)
(151.8)
(164.5)
1.4
1.4
1.4
1.4
$ (2,832.2)
$ (2,807.2)
$ (2,495.0)
$ (2,608.6)
(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:
Balances as at March 31, 2022
Total realized and unrealized losses included in income
Settlement
Balances as at March 31, 2023
Contingent
consideration
arising on
business
Equity
combinations
investments
$
(3.7) $
1.4 $
(2.7)
6.4
—
—
$
— $
1.4 $
Total
(2.3)
(2.7)
6.4
1.4
CAE Financial Report 2023 | 107
Notes to the Consolidated Financial Statements
NOTE 28 – CAPITAL RISK MANAGEMENT
The Company’s capital allocation priorities are focused on:
(i) Organic investments for sustainable and accretive growth;
(ii) Maintaining a strong balance sheet for optimal resiliency and financial flexibility;
(iii) Balancing returns to shareholders with leverage targets and growth investment opportunities.
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 total equity plus net debt. Net debt is calculated as total long-term debt, including the
current portion of long-term debt less cash and cash equivalents. Total equity comprises share capital, contributed surplus,
accumulated other comprehensive income, retained earnings and non-controlling interests.
The level of debt versus equity in the capital structure is monitored, and the ratios are as follows:
Total long-term debt (Note 18)
Less: cash and cash equivalents
Net debt
Equity
Total net debt plus equity
Net debt-to-capital
2023
2022
$ 3,250.1
$ 3,046.2
(217.6)
(346.1)
$ 3,032.5
$ 2,700.1
4,588.9
4,086.6
$ 7,621.4
$ 6,786.7
%
39.8
%
39.8
NOTE 29 – 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 held with a wide range
of commercial and government organizations and agencies. 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 facility). 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 9 and Note 27 represent the maximum exposure to credit risk for each respective financial
asset as at the relevant dates.
108 | CAE Financial Report 2023
Exposure to credit risk and credit loss allowances for accounts receivable and contract assets by segment are as follows:
Notes to the Consolidated Financial Statements
As at March 31, 2023
Gross accounts receivable
Gross contract assets
Total
Credit loss allowances
As a %
As at March 31, 2022
Gross accounts receivable
Gross contract assets
Total
Credit loss allowances
As a %
Civil Aviation
Defense and
Security
Healthcare
Amounts not
allocated to a
segment
$
354.1
$
198.1
$
65.4
$
23.6
$
$
$
160.6
514.7
(23.1)
4.5 %
$
$
571.6
769.7
(1.0)
0.1 %
$
$
3.5
68.9
(1.4)
2.0 %
$
$
—
23.6
—
— %
$
$
Civil Aviation
Defense and
Security
Healthcare
Amounts not
allocated to a
segment
$
293.4
$
219.9
$
53.2
$
18.3
$
$
$
137.2
430.6
(25.7)
6.0 %
$
$
500.9
720.8
(0.8)
0.1 %
$
$
4.3
57.5
(1.4)
2.4 %
$
$
—
18.3
—
— %
$
$
Total
641.2
735.7
1,376.9
(25.5)
1.9 %
Total
584.8
642.4
1,227.2
(27.9)
2.3 %
Client concentration risk
For the year ended March 31, 2023, contracts with the U.S. federal government and its various agencies included in the Defense and
Security segment accounted for 22% (2022 – 23%) of consolidated revenue.
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 a committed unsecured revolving credit facility of US$1.0 billion
(2022 – US$850.0 million and $300.0 million available through a Sidecar unsecured revolving credit facility). As well, the Company
has agreements to sell interests in certain of its accounts receivable (receivable purchase facility) for an amount of up to
US$400.0 million (2022 – US$400.0 million). As at March 31, 2023, the carrying amount of the original accounts receivable sold to a
financial institution pursuant to the receivable purchase facility totaled $266.7 million (2022 – $213.9 million) of which $42.4 million
(2022 – $21.0 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 the contractual maturity date of the Company’s financial liabilities 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:
CAE Financial Report 2023 | 109
Notes to the Consolidated Financial Statements
As at March 31, 2023
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1)
Total long-term debt (2)
Carrying Contractual Less than
1 year
cash flows
amount
1 and
2 and
3 and
4 and More than
2 years
3 years
4 years
5 years
5 years
Between
Between
Between
Between
$
799.3 $
799.3 $
799.3 $
— $
— $
— $
— $
—
Long-term debt (other than lease liabilities)
2,794.2
2,794.2
Interest and accretion
Lease liabilities
Other non-current liabilities (3)
—
455.9
137.6
734.5
724.6
277.7
133.4
120.2
104.5
—
486.7
264.2
171.5
562.7
1,175.7
93.8
62.7
28.5
73.9
55.9
27.6
67.5
51.5
26.0
53.9
47.6
33.2
325.2
402.4
162.4
$ 4,187.0 $ 5,330.3 $ 1,157.4 $
671.7 $
421.6 $
316.5 $
697.4 $ 2,065.7
Net derivative financial liabilities (assets)
Forward foreign currency contracts (4)
$
25.8
Outflow
Inflow
Foreign currency and
interest rate swap agreements
Equity swap agreements
$ 2,119.4 $ 1,852.8 $
186.3 $
66.5 $
13.8 $
— $
(2,092.2)
(1,832.5)
(182.2)
(64.1)
(13.4)
—
(10.5)
11.8
(11.3)
11.8
(6.5)
11.8
(3.2)
—
(1.1)
—
(0.4)
—
(0.1)
—
$
27.1 $
27.7 $
25.6 $
0.9 $
1.3 $
— $
(0.1) $
—
—
—
—
—
$ 4,214.1 $ 5,358.0 $ 1,183.0 $
672.6 $
422.9 $
316.5 $
697.3 $ 2,065.7
As at March 31, 2022
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1)
Total long-term debt (2)
Carrying Contractual
cash flows
amount
Less than
1 year
1 and
2 years
2 and
3 years
3 and
4 years
4 and More than
5 years
5 years
Between
Between
Between
Between
$
696.6 $
696.6 $
696.6 $
— $
— $
— $
— $
—
Long-term debt (other than lease liabilities)
2,651.2
2,651.2
Interest and accretion
Lease liabilities
Other non-current liabilities (3)
—
395.0
155.5
741.3
487.8
330.1
142.8
81.9
113.0
—
345.3
232.5
238.4
489.9
1,202.3
80.3
66.7
35.5
70.6
44.2
31.2
59.7
39.1
30.8
48.7
34.4
30.2
400.1
190.4
202.4
$ 3,898.3 $ 4,907.0 $ 1,034.3 $
527.8 $
378.5 $
368.0 $
603.2 $ 1,995.2
Net derivative financial liabilities (assets)
Forward foreign currency contracts (4)
$
(15.3)
Outflow
Inflow
Foreign currency and
interest rate swap agreements
Equity swap agreements
$ 1,320.5 $ 1,175.3 $
118.1 $
15.4 $
11.7 $
— $
(1,336.9)
(1,188.6)
(121.0)
(15.7)
(11.6)
—
(8.2)
13.0
(2.9)
13.0
(1.4)
13.0
(0.9)
—
(0.3)
—
(0.1)
—
(0.2)
—
$
(10.5) $
(6.3) $
(1.7) $
(3.8) $
(0.6) $
— $
(0.2) $
—
—
—
—
—
$ 3,887.8 $ 4,900.7 $ 1,032.6 $
524.0 $
377.9 $
368.0 $
603.0 $ 1,995.2
(1) Includes trade accounts payable, accrued liabilities, interest payable, current portion of royalty obligations and certain payroll-related liabilities.
(2) Contractual cash flows include contractual interest and principal payments related to debt obligations. Contractual interests on debt obligations with variable
interest rate are presented using the period-end rate.
(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.
The Company is party to an agreement that includes a put option, that if exercised, requires CAE to purchase the remaining equity
interest in a joint venture. Under the terms of the agreement, the counterparty has the option to sell its shares in the joint venture at
fair value. As at March 31, 2023, no value has been ascribed to the put option as the purchase price for the shares corresponds to
their fair value.
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.
110 | CAE Financial Report 2023
Notes to the Consolidated Financial Statements
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.
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
Between 3 and 5 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
Total
2023
Notional
Average
Notional
amount
(1)
rate
amount
(1)
2022
Average
rate
$
864.6
179.1
12.8
249.5
61.8
1.0
73.4
1.2
323.4
10.7
341.9
—
$ 2,119.4
0.74
0.76
0.77
0.68
0.71
0.70
0.62
0.61
1.35
1.31
n.a.
n.a.
$
514.5
85.0
11.5
169.9
15.7
0.2
72.0
2.3
132.1
30.3
286.8
0.3
$ 1,320.6
0.80
0.78
0.79
0.67
0.65
0.64
0.59
0.58
1.29
1.28
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.
2023
2022
USD
Net income
0.5
(5.6)
$
€
GBP
OCI
$ (10.9)
(8.0)
Net income
0.6
(2.1)
$
$
OCI
(5.0)
(0.7)
Net income
0.2
—
$
$
OCI
(0.1)
0.1
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 facility 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.
CAE Financial Report 2023 | 111
Notes to the Consolidated Financial Statements
Derivative financial instruments used to manage interest rate exposures are mainly interest rate swap agreements. As at
March 31, 2023, 73% (2022 – 75%) 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, 2023, a 1% increase in interest rates would decrease net income by $8.8 million
(2022 – $5.0 million) and would not have a significant impact on OCI (2022 – not significant) assuming all other variables remained
constant. A 1% decrease in interest rates would have an opposite impact on net income.
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 cash-settled share-based payments plans. 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 cash-settled share-based payments plans. As at March 31, 2023, the equity
swap agreements covered 2,700,000 common shares (2022 – 2,700,000) of the Company.
Hedge of net investments in foreign operations
As at March 31, 2023, the Company has designated a portion of its unsecured senior notes, term loans and revolving credit facility
totaling US$1,054.8 million (2022 – US$1,068.8 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 denominated 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, 2023, the Company had outstanding letters of credit and performance guarantees in the amount of $242.5 million
(2022 – $216.1 million) issued in the normal course of business. These guarantees are issued under the revolving credit facility 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
$
2023
50.8
106.7
21.4
59.7
3.9
$
2022
42.0
83.9
19.5
69.2
1.5
$
242.5
$
216.1
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, including insurance, 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.
112 | CAE Financial Report 2023
NOTE 30 – 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 Arabia LLC
CAE (UK) plc
CAE (US) Inc.
CAE Aircrew Training Services plc
CAE Australia Pty Ltd.
CAE Aviation Services Pte Ltd.
CAE Aviation Training Australia Pty 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 Crew Solutions B.V
CAE Doss Aviation, Inc.
CAE El Salvador Flight Training S.A. de C.V.
CAE Engineering Korlatolt Felelossegu Tarsasag
CAE Entrenamiento de Vuelo Chile Limitada
CAE Flight Services Austria GmbH
CAE Flight Services New Zealand Limited.
CAE Flight Services Poland Sp z.o.o
CAE Flight Services Sweden AB
CAE Flight Services USA, Inc.
CAE Flight & Simulator Services Sdn. Bhd.
CAE Flight Training (India) Private Limited
CAE Flight Training Center Mexico, S.A. de C.V.
CAE France SAS
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
Country of incorporation
Spain
Saudi Arabia
United Kingdom
United States
United Kingdom
Australia
Singapore
Australia
Netherlands
Peru
Thailand
Brunei
Netherlands
Belgium
Denmark
China
Norway
Sweden
Netherlands
United States
Colombia
Netherlands
United States
El Salvador
Hungary
Chile
Austria
New Zealand
Poland
Sweden
United States
Malaysia
India
Mexico
France
Portugal
Germany
Canada
United States
India
Australia
Canada
2023
100.0 %
50.0 %
100.0 %
100.0 %
76.5 %
100.0 %
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 %
100.0 %
99.5 %
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 %
2022
100.0 %
50.0 %
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 %
100.0 %
99.5 %
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 %
CAE Financial Report 2023 | 113
Notes to the Consolidated Financial Statements
Investments in subsidiaries consolidated in the Company’s financial statements (continued):
Name
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 GmbH
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.
CAE Singapore (S.E.A.) Pte Ltd.
CAE South America Flight Training do Brasil Ltda.
CAE STS Limited
CAE Training & Services Brussels N.V.
CAE Training & Services UK Ltd.
CAE Training Norway AS
CAE TSP Inc.
CAE USA Inc.
CAE Vietnam Limited Liability Company
Medicor Lab Inc.
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.
Country of incorporation
Malaysia
Luxembourg
UAE
UAE
Canada
New Zealand
United States
Norway
United States
Germany
Italy
Spain
China
United States
India
Canada
Singapore
Brazil
United Kingdom
Belgium
United Kingdom
Norway
Canada
United States
Vietnam
Canada
United Kingdom
Ireland
Ireland
United Kingdom
Ireland
Canada
Canada
Canada
France
United States
Spain
Spain
% equity
interest
2023
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 %
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
2022
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 %
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 %
114 | CAE Financial Report 2023
Investments in joint ventures and affiliates accounted for under the equity method:
Notes to the Consolidated Financial Statements
Name
Aviation Training Northeast Asia B.V.
CAE Flight and Simulator Services Korea, Ltd.
CAE Icelandair Flight Training ehf
CAE-LIDER Training do Brasil Ltda.
CAE Melbourne Flight Training Pty Ltd
CAE Middle East Pilot Services L.L.C
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 Uçus 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.
SkyWarrior Flight Training LLC
Xebec Government Services, LLC
Country of incorporation
Netherlands
Korea
Iceland
Brazil
Australia
United Arab Emirates
India
United States
UAE
Germany
India
Germany
Germany
Japan
Italy
India
Turkey
Philippines
Italy
United States
United States
Singapore
United States
United States
% equity
interest
% equity
interest
2023
50.0 %
50.0 %
33.3 %
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 %
37.0 %
49.0 %
2022
50.0 %
50.0 %
33.3 %
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 %
37.0 %
49.0 %
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, 2023, the Company's unrecognized share of losses in joint ventures was $0.1 million (2022 – profit of $1.6 million). As at
March 31, 2023, the cumulative unrecognized share of losses for these joint ventures was $12.3 million (2022 – $12.2 million) and the
cumulative unrecognized share of comprehensive loss of these joint ventures was $11.4 million (2022 – $11.2 million).
SkyWarrior Flight Training LLC
In August 2021, the Company acquired a 37% equity interest in SkyWarrior Flight Training LLC (SkyWarrior) for cash consideration of
$4.3 million. SkyWarrior is a flight training operation which primarily delivers Phase 1 initial flight training to U.S. and international
military customers.
CAE Financial Report 2023 | 115
Notes to the Consolidated Financial Statements
NOTE 31 – RELATED PARTY TRANSACTIONS
The Company’s outstanding balances with its equity accounted investees are as follows:
Accounts receivable (Note 9)
Contract assets
Other non-current assets
Accounts payable and accrued liabilities (Note 16)
Contract liabilities
Other non-current liabilities
The Company’s transactions with its equity accounted investees are as follows:
Revenue
Purchases
Other income
$
2023
59.5
25.6
17.1
5.7
58.0
—
$
2022
49.7
23.0
12.8
5.1
46.5
1.5
2023
2022
$
223.0
$
111.8
4.6
1.2
3.5
3.8
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 members of the Board of Directors and certain executive officers. The compensation expense of key
management for employee services recognized in income are as follows:
Salaries and other short-term employee benefits
Post-employment benefits – defined benefit plans
Share-based payments expense
$
2023
7.6
4.4
1.7
$
2022
8.4
2.2
6.6
$
13.7
$
17.2
For the year ended March 31, 2023, the compensation earned by non-employee Directors of the Company amounted to $2.9 million
(2022 – $2.4 million), which include the grant date fair value of deferred share units (DSUs) as well as cash payments.
116 | CAE Financial Report 2023
Board of Directors and Executive Officers
Marc Parent, C.M.
President and Chief Executive
Officer, CAE Inc.
Montreal, Quebec
Gen. David G. Perkins, USA
(Ret.) 1, 3
Corporate Director
Jackson, New Hampshire
2, 3
Michael E. Roach
Corporate Director
Montreal, Quebec
The Honourable Patrick M.
Shanahan 2, 3
Corporate Director
Seattle, Washington
1, 3
Andrew J. Stevens
Corporate
Director
Cheltenham, Gloucestershire
BOARD OF DIRECTORS
Ayman Antoun 1
Corporate Director
Oakville, Ontario
Margaret S. (Peg) Billson 1, 3*
Corporate Director
Albuquerque, New Mexico
1, 2
Elise Eberwein
Corporate Director
Scottsdale, Arizona
The Honourable Michael M. Fortier,
P.C. 1*
Vice Chair
RBC Capital Markets
Montreal, Quebec
Marianne Harrison 2*, 3
Corporate Director
Boston, Massachusetts
Alan N. MacGibbon
Chair of the Board, CAE Inc. and
Corporate Director
Toronto, Ontario
Mary Lou Maher 1, 2
Corporate Director
Toronto, Ontario
François Olivier 2, 3
Corporate Director
Montreal, Quebec
1
2
Member of the Human Resources Committee
Member of the Audit Committee
3
Member of the Governance Committee
(*) indicates Chair of the Committee
EXECUTIVE OFFICERS
Marc Parent, C. M.
President and Chief Executive Officer
Andrew Arnovitz
Senior Vice President, Investor Relations
and Enterprise Risk Management
Sonya Branco
Executive Vice President, Finance and
Chief Financial Officer
Carter Copeland
Senior Vice President, Global Strategy
Abha Dogra
Chief Technology and Product Officer
Hélène V. Gagnon
Chief Sustainability Officer and Senior Vice
President, Stakeholder Engagement
Daniel Gelston
Group President, Defense and Security
Pascal Grenier
Senior Vice President, Flight Services and
Global Operations
Mark Hounsell
General Counsel, Chief Compliance Officer
and Corporate Secretary
Nick Leontidis
Group President, Civil Aviation
Bob Lockett
Chief People Officer
CAE Financial Report 2023 | 117
Shareholder and Investor Information
CAE SHARES
2023 ANNUAL MEETING
TRADEMARKS
The Annual Shareholders Meeting will
be held at 11 a.m. (Eastern Time), on
Wednesday, August 9, 2023 via live
webcast
that will be available at
cae.com/investors/.
AUDITORS
PricewaterhouseCoopers LLP
Chartered Professional Accountants
Montreal, Quebec
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
registered
and/or
Trademarks
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, CAE Air1 and PRESAGIS.
All other brands and product names
registered
are
trademarks of
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.
trademarks or
their
Most of the New York Exchange’s
(NYSE) corporate governance listing
standards are not mandatory for CAE.
Significant differences between CAE’s
practices
requirements
applicable to U.S. companies listed on
the NYSE are summarized on CAE’s
in
is
website. CAE
compliance
NYSE
with
requirements in all significant respects.
otherwise
the
and
the
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
www.computershare.com
in Canada and the U.S.)
DUPLICATE MAILINGS
To eliminate duplicate mailings by
registered
consolidating
shareholders
contact
Computershare Trust Company of
Canada; non-registered shareholders
must contact their investment brokers.
accounts,
must
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, Quebec
H4T 1G6
Tel. : 1-866-999-6223
investor.relations@cae.com
Version française
Pour obtenir la version française du
rapport
à
investisseurs@cae.com.
s’adresser
financier,
118 | CAE Financial Report 2023
As an eTree member, CAE Inc. is committed to meeting shareholder needs while
being environmentally friendly. For each shareholder that receives electronic
copies of shareholder communications, CAE will plant a tree through Tree
Canada, the leader in Canadian urban reforestation. To date CAE has
helped plant 5,274 trees.
Contains FSC® certified post-consumer and 70% virgin fibre
Certified EcoLogo and FSC® Mixed Sources
Manufactured using biogas energy
Financial Report
FISCAL YEAR ENDED MARCH 31, 2023
CAE.COM