<Page>
                                AUDITORS' REPORT

TO THE BOARD OF DIRECTORS OF CAE INC.

We have audited the consolidated balance sheets of CAE Inc. as at March 31, 2002
and 2001 and the consolidated statements of earnings and retained earnings and
cash flows for each of the years in the three-year period ended March 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at March 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three-year period ended March 31, 2002 in accordance with Canadian
generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Canada
May 8, 2002 except for Note 21 D which is as at July 3, 2002

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the company's financial statements, such as the changes described in Note 1
to the consolidated financial statements. Our report to the shareholders dated
May 8, 2002 except for Note 21 D which is as at July 3, 2002 is expressed in
accordance with Canadian reporting standards which do not require a reference to
such a change in accounting principles in the auditors' report when the change
is properly accounted for and adequately disclosed in the financial statements.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Canada
May 8, 2002 except for Note 21 D which is as at July 3, 2002

                                       1
<Page>
                                    CAE INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                  AS AT MARCH 31
                                                              -----------------------
                                                                 2002         2001
                                                              ----------   ----------
                                                              (amounts in millions of
                                                                   Cdn dollars)
<S>                                                           <C>          <C>
ASSETS
Current assets
  Cash......................................................   $   88.8     $  156.8
  Short-term investments....................................       21.3        122.8
  Accounts receivable (note 4)..............................      378.2        245.6
  Inventories (note 5)......................................      130.9         99.4
  Prepaid expenses..........................................        9.9          8.6
  Income taxes recoverable..................................       15.8          8.2
  Future income taxes (note 14).............................       28.9         15.4
                                                               --------     --------
                                                                  673.8        656.8
                                                               --------     --------
Assets of discontinued operations (note 3)..................      123.8        370.9
Property, plant and equipment, net (note 6).................      838.5        227.2
Future income taxes (note 14)...............................       71.3         15.9
Intangible assets (note 7)..................................      163.4       --
Goodwill (note 8)...........................................      375.5         18.5
Other assets (note 9).......................................      138.5         82.8
                                                               --------     --------
                                                               $2,384.8     $1,372.1
                                                               ========     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable and accrued liabilities..................   $  420.5     $  315.0
  Deposits on contracts.....................................      189.1        175.9
  Long-term debt due within one year........................       37.5          2.3
  Future income taxes (note 14).............................       50.4         14.5
                                                               --------     --------
                                                                  697.5        507.7
                                                               --------     --------
Liabilities of discontinued operations (note 3).............       40.5        106.6
Long-term debt (note 10)....................................      889.0        263.0
Long-term liabilities.......................................       73.7         20.7
Future income taxes (note 14)...............................       65.6         10.0
                                                               --------     --------
                                                                1,766.3        908.0
                                                               --------     --------
SHAREHOLDERS' EQUITY
Capital stock (note 11).....................................      186.8        159.4
Retained earnings...........................................      446.8        321.2
Currency translation adjustment.............................      (15.1)       (16.5)
                                                               --------     --------
                                                                  618.5        464.1
                                                               --------     --------
                                                               $2,384.8     $1,372.1
                                                               ========     ========
</Table>

Contingencies (note 16)

Approved by the Board:

<Table>
<S>                                              <C>
              (Signed) D.H. BURNEY                             (Signed) L.R. WILSON
                    Director                                         Director
</Table>

                                       2
<Page>
                                    CAE INC.

                      CONSOLIDATED STATEMENTS OF EARNINGS

<Table>
<Caption>
                                                                   YEARS ENDED MARCH 31
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                 (amounts in millions of
                                                              Cdn dollars, except per share
                                                                         amounts)
<S>                                                           <C>        <C>        <C>
Revenue
  Civil Simulation and Training.............................  $  545.2    $481.5     $480.2
  Military Simulation and Marine Controls...................     581.3     409.9      384.9
                                                              --------    ------     ------
                                                              $1,126.5    $891.4     $865.1
                                                              --------    ------     ------
Operating earnings
  Civil Simulation and Training.............................  $  152.3    $117.0     $ 82.3
  Military Simulation and Marine Controls...................      90.0      34.9       15.4
                                                              --------    ------     ------
Earnings from continuing operations before interest and
  income taxes..............................................     242.3     151.9       97.7
Interest expense (income), net (note 10A (xi))..............      22.7      (6.3)       7.3
                                                              --------    ------     ------
Earnings from continuing operations before income taxes.....     219.6     158.2       90.4
Income taxes (note 14)......................................      70.3      53.0       28.1
                                                              --------    ------     ------
Earnings from continuing operations.........................  $  149.3    $105.2     $ 62.3
Results of discontinued operations (note 3).................       1.3       2.9       36.2
                                                              --------    ------     ------
Net earnings................................................  $  150.6    $108.1     $ 98.5
                                                              ========    ======     ======
Earnings and diluted earnings per share from continuing
  operations................................................  $   0.69    $ 0.49     $ 0.28
                                                              ========    ======     ======
Net earnings and diluted net earnings per share.............  $   0.69    $ 0.50     $ 0.45
                                                              ========    ======     ======
Average number of shares outstanding........................     217.6     215.7      219.0
                                                              ========    ======     ======
</Table>

                                       3
<Page>
                                    CAE INC.

                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

<Table>
<Caption>
                                                                   YEARS ENDED MARCH 31
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                 (amounts in millions of
                                                                       Cdn dollars)
<S>                                                           <C>        <C>        <C>
Retained earnings at beginning of year......................   $321.2     $241.9     $194.2
Adjustment for changes in accounting policies (note 1)......    --          (6.0)     --
Excess of common share purchase price over amount charged to
  capital stock.............................................    --          (1.2)     (30.2)
Net earnings................................................    150.6      108.1       98.5
Dividends...................................................    (25.0)     (21.6)     (20.6)
                                                               ------     ------     ------
Retained earnings at end of year............................   $446.8     $321.2     $241.9
                                                               ======     ======     ======
</Table>

                                       4
<Page>
                                    CAE INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW

<Table>
<Caption>
                                                                   YEARS ENDED MARCH 31
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                 (amounts in millions of
                                                                       Cdn dollars)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Earnings from continuing operations.........................  $ 149.3    $ 105.2    $  62.3
Adjustments to reconcile earnings to cash flows from
  operating activities:
  Amortization..............................................     43.1       19.1       22.3
  Future income taxes.......................................      7.5       (7.7)      (9.1)
  Investment tax credit.....................................    (19.0)     (22.5)     (18.3)
  Other.....................................................     (0.2)     (13.5)      (1.9)
  Decrease (increase) in non-cash working capital
    (note 15)...............................................     (7.6)      79.1      144.1
                                                              -------    -------    -------
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES........    173.1      159.7      199.4
                                                              -------    -------    -------
INVESTING ACTIVITIES
Purchase of businesses (note 2).............................   (757.6)     --         --
Proceeds from disposal of businesses (note 3)...............    187.1        5.7       52.5
Short-term investments......................................    101.5      (51.7)     (71.1)
Capital expenditures........................................   (249.6)     (76.3)     (21.8)
Proceeds from sale and leaseback of assets..................     42.6      --          35.5
Deferred development costs..................................    (31.1)     (13.7)     --
Deferred pre-operating costs................................    (15.1)      (4.2)      (1.9)
Other assets................................................    (33.0)      (7.8)     (10.1)
                                                              -------    -------    -------
NET CASH USED IN CONTINUING INVESTING ACTIVITIES............   (755.2)    (148.0)     (16.9)
                                                              -------    -------    -------
FINANCING ACTIVITIES
Proceeds from long-term debt................................    755.8      --         --
Repayments of long-term debt................................   (195.6)     (16.2)      (5.5)
Dividends paid..............................................    (24.8)     (21.2)     (20.4)
Purchase of capital stock...................................    --          (1.3)     (36.3)
Common stock issuance.......................................      6.1        6.9        3.9
Other.......................................................     (2.3)      (3.0)      (3.3)
                                                              -------    -------    -------
NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING
  ACTIVITIES................................................    539.2      (34.8)     (61.6)
NET CASH (USED IN) PROVIDED BY DISCONTINUED ACTIVITIES
  (NOTE 3)..................................................    (24.5)      10.4       20.1
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH.............     (0.6)       6.0       (3.1)
                                                              -------    -------    -------
NET (DECREASE) INCREASE IN CASH.............................    (68.0)      (6.7)     137.9
CASH AT BEGINNING OF YEAR...................................    156.8      163.5       25.6
                                                              -------    -------    -------
CASH AT END OF YEAR.........................................  $  88.8    $ 156.8    $ 163.5
                                                              =======    =======    =======
</Table>

                                       5
<Page>
                                    CAE INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The accounting policies of CAE Inc. ("CAE" or "the Company") and its
    subsidiaries conform with Canadian generally accepted accounting principles
    ("GAAP").

    NATURE OF OPERATIONS

    CAE designs and provides simulation equipment and services and develops
    integrated training solutions for the military, commercial airlines,
    business aircraft operators, aircraft manufacturers and marine vessel
    operators.

    CAE's flight simulators replicate aircraft performance in normal and
    abnormal operations and a comprehensive set of environmental conditions,
    utilizing visual systems with an extensive database of airports, other
    landing areas and flying environments and motion and sound cues to create a
    fully immersive training environment. The Company offers a full range of
    flight training devices based on the same software used in its simulators.
    CAE is developing a global network of training centres in locations around
    the world.

    The Company also provides simulators and training services for sea and
    land-based activities and supplies marine automation systems for military
    and civil applications. CAE's marine control systems monitor and control
    propulsion, electrical steering, ancillary, auxiliary and damage control
    systems.

    CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
    and all subsidiaries. All inter-corporate accounts and transactions have
    been eliminated. Acquisitions are accounted for by the purchase method and,
    accordingly, the results of operations of subsidiaries are included from the
    dates of acquisition. Entities jointly controlled, referred to as joint
    ventures, are proportionately consolidated. Portfolio investments are
    accounted for using the cost method.

    REVENUE RECOGNITION

    Revenue from long-term contracts for building simulators and training and
    control systems is recognized using the percentage-of-completion method
    where revenue, earnings and unbilled accounts receivable are recorded as
    related costs are incurred, on the basis of percentage costs incurred to
    date on a contract, relative to the estimated total costs. Revisions in cost
    and earnings estimates during the term of the contract are reflected in the
    period in which the need for revision becomes known. Losses, if any, are
    recognized fully when first anticipated. Generally, the terms of long-term
    contracts provide for progress billing based on completion of certain phases
    of work. Warranty provisions are recorded at the time revenue is recognized,
    based on past experience. No right of return or complimentary upgrades are
    provided to customers. Post-delivery customer support is billed separately
    and revenue is recorded ratably over the support period.

    Training service revenues are recognized in the period such services are
    provided. All other revenue is recorded and related costs transferred to
    cost of sales at the time the product is delivered and the benefits and the
    risks of ownership associated with the product are transferred to the
    customer.

    CASH AND SHORT-TERM INVESTMENTS

    Cash consists of cash and cash equivalents which are short-term, highly
    liquid investments with maturities of 90 days and less. Short-term
    investments include money market instruments and commercial paper carried at
    the lower of cost or market value.

    INVENTORIES

    Inventories are stated at the lower of average cost and net realizable
    value. Cost includes material, labour and an allocation of manufacturing
    overhead.

    PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost. The declining balance and
    straight-line methods are used in computing amortization over the estimated
    useful lives of the assets. Useful lives are estimated as follows:

<Table>
    <S>                                                           <C>
    Building and improvements...................................  20 to 40 years
    Machinery and equipment.....................................  3 to 10 years
    Simulators..................................................  15 to 30 years
</Table>

    The Company regularly reviews the carrying value of its property, plant and
    equipment. If their carrying value exceeds the amount recoverable, a
    write-down is charged to earnings.

                                       6
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    LEASES

    Leases entered into by the Company in which substantially all the benefits
    and risks of ownership are transferred to the Company are recorded as
    capital leases and classified as property, plant and equipment and long-term
    borrowings. All other leases are classified as operating leases under which
    leasing costs are expensed in the period in which they are incurred. Gains
    and losses on the sale and leaseback of assets are deferred and amortized
    over the term of the lease.

    BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS

    During the first quarter of 2002, the Company adopted the CANADIAN INSTITUTE
    OF CHARTERED ACCOUNTANTS ("CICA") HANDBOOK Section 1581, "Business
    Combinations", which requires all business combinations to be accounted for
    using the purchase method. In addition, any goodwill and intangible assets
    with indefinite useful lives acquired in a business combination are to be
    accounted for under CICA HANDBOOK Section 3062, "Goodwill and Other
    Intangible Assets". This section requires that goodwill and intangible
    assets with indefinite useful lives not be amortized. Their fair value is to
    be assessed annually and, if necessary, written down for any
    impairment. (See note 8 for the impact of the adoption of the new standard).

    Goodwill represents the cost of investments in subsidiaries in excess of the
    fair value of the net identifiable assets acquired. Goodwill for
    acquisitions made prior to fiscal 2002 was amortized up to March 31, 2001
    using the straight-line method over 40 years.

    Intangible assets are recorded at their allocated cost at the date of
    acquisition of the related operating companies. Amortization is provided for
    all intangible assets on a straight-line basis over their estimated useful
    lives. Useful lives are estimated as follows:

<Table>
<Caption>
                                                                                     WEIGHTED
                                                                                     AVERAGE
                                                                   AMORTIZATION    AMORTIZATION
                                                                      PERIOD          PERIOD
                                                                  --------------   ------------
    <S>                                                           <C>              <C>
                                                                           20 to
    Trade names.................................................       25 years         20
    Backlog and contractual agreements..........................  1 to 10 years          6
                                                                           20 to
    Customer relationships......................................       25 years         24
                                                                           10 to
    Other.......................................................       20 years         11
</Table>

    INTEREST CAPITALIZATION

    Interest costs relating to the construction of training centres are
    capitalized as part of the cost of property, plant and equipment.
    Capitalization of interest ceases when the training centre is completed and
    ready for productive use.

    FOREIGN CURRENCY TRANSLATION

    Assets and liabilities denominated in currencies other than Canadian dollars
    are translated at exchange rates in effect at the balance sheet date.
    Revenue and expense items are translated at average rates of exchange for
    the year. Translation gains or losses are included in the determination of
    earnings, except for gains or losses arising on translation of accounts of
    foreign subsidiaries considered self-sustaining and gains or losses arising
    from the translation of foreign currency debt that has been designated as a
    hedge of the net investment in subsidiaries, which are deferred as a
    separate component of shareholders' equity.

    Gains or losses arising from the translation of foreign currency debt not
    designated as a hedge of the net investment in subsidiaries are deferred,
    included in other assets and amortized on a straight-line basis over the
    term of the debt.

    Effective April 1, 2002, the Company will no longer amortize the exchange
    gains or losses arising on the translation of long-term foreign currency
    denominated items, in accordance with a recent amendment to CICA HANDBOOK
    Section 1650 on Foreign Currency Translation. The exchange gains or losses
    arising on translation will be included in earnings as incurred. At
    March 31, 2002, the unamortized exchange loss relating to the existing
    long-term foreign currency items amounted to $9.2 million
    (2001 -- $7.6 million; 2000 -- $4.6 million; 1999 -- $6.0 million). This
    standard will be applied retroactively and consequently, prior years'
    financial statements will be restated through a charge to fiscal 2002
    earnings of $1.1 million (2001 -- $2.0; 2000 -- ($1.0)), net of
    $0.5 million (2001 -- $1.0; 2000 -- ($0.4)) in taxes, and a charge to fiscal
    2000 opening retained earnings of $4.3 million, net of $1.7 million of
    taxes.

    RESEARCH AND DEVELOPMENT COSTS

    Research costs are charged to earnings in the periods in which they are
    incurred. Development costs are also charged in the period incurred unless
    they meet the criteria for deferral. Government assistance arising from
    research and development costs is deducted from the related cost.
    Amortization of development costs deferred to future periods commences with
    the commercial production of the product and is charged to earnings based on
    anticipated sales of the product, over a period not exceeding 5 years.

                                       7
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    PRE-OPERATING COSTS

    The Company defers expenditures related to the operation of all new training
    centres until the opening of the centre. Expenditures directly related to
    placing a new training centre into commercial service are incremental in
    nature and are considered by management to be recoverable from the future
    operations of the new training centre. Capitalization ceases at the opening
    of the training centre. Amortization of the deferred costs is taken over 5
    to 20 years based on the expected period and pattern of benefit of the
    deferred expenditures.

    DEFERRED FINANCING COSTS

    Costs incurred relating to the issuance of long-term debt are deferred and
    amortized over the term of the related debt.

    INCOME TAXES

    Future income taxes relate to the expected future tax consequences of
    differences between the carrying amount of balance sheet items and their
    corresponding tax values. Future tax assets are recognized only to the
    extent that, in the opinion of management, it is more likely than not that
    the future income tax assets will be realized. Future income tax assets and
    liabilities are adjusted for the effects of changes in tax laws and rates on
    the date of enactment or substantive enactment.

    Investment tax credits arising from research and development are deducted
    from the related costs and are accordingly included in the determination of
    earnings in the same year as the related costs. Investment tax credits
    arising from the acquisition of property, plant and equipment and deferred
    development costs are deducted from the cost of those assets with
    amortization calculated on the net amount.

    On April 1, 2000, CAE adopted the recommendations of the CICA HANDBOOK
    section 3465, "Income Taxes", which replaces the deferral method with the
    liability method of tax allocation. CAE applied the new recommendations
    retroactively without restating prior years. The cumulative effect of
    adopting the new recommendations as at April 1, 2000, was to increase net
    future income tax assets by $12.8 million, increase net future income tax
    liabilities by $27.0 million, increase other assets by $30.8 million, reduce
    income taxes recoverable by $18.3 million, reduce net assets of discontinued
    operations by $2.8 million and reduce retained earnings by $4.3 million.

    PENSIONS

    The Company accrues its obligations under employee pension plans and the
    related costs, net of plan assets. The cost of pensions is actuarially
    determined using the projected benefits method pro rated on service,
    expected plan investment performance, salary escalation and retirement ages
    of employees. For the purpose of calculating the expected return on plan
    assets, those assets are valued at fair market value.

    The excess of the net actuarial gain (loss) over 10% of the greater of the
    benefit obligation and the fair value of plan assets is amortized over the
    remaining service period of active employees.

    On April 1, 2000, CAE adopted the recommendations of the CICA Handbook
    section 3461, Employee Future Benefits, which changes the accounting for
    pensions and other types of employee future benefits. The new recommendation
    was adopted retroactively through an adjustment to retained earnings and
    prior year results have not been restated. As a result, a liability for
    employee future benefits of $1.7 million was recorded and a corresponding
    charge to retained earnings was taken.

    STOCK-BASED COMPENSATION PLANS

    The Company's stock-based compensation plans consist of an Employee Stock
    Option Plan ("ESOP"), an Employee Stock Purchase Plan ("ESPP") and Deferred
    Share Unit ("DSU") plans for directors and key executives which are
    described in note 12. No compensation expense is recognized for the ESOP
    when stock options are issued to employees. Consideration paid by employees
    on the exercise of stock options is credited to capital stock. A
    compensation expense is recognized for the Company's portion of the
    contributions made under the ESPP and for amounts due under the DSU plans.

    The CICA has issued a new standard on the measurement of stock options and
    other stock-based compensation for fiscal years beginning on or after
    January 1, 2002. This standard applies to awards granted after January 1,
    2002, and is to be applied prospectively. The Company will not change the
    method currently used to account for stock options granted to employees, but
    will provide the required pro forma disclosures on the impact of the fair
    value method, which produces estimated compensation charges. Stock
    compensation arrangements that can be settled in cash will continue to be
    recognized as compensation expense.

    DERIVATIVE FINANCIAL INSTRUMENTS

    The Company enters into forward, swap and option contracts to manage its
    exposure to fluctuations in interest rates and foreign exchange rates. These
    derivative financial instruments are effective in meeting the risk reduction
    objectives of the Company by

                                       8
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    generating offsetting cash flows related to the underlying position in
    respect of amount and timing. CAE does not hold or issue derivative
    financial instruments for trading purposes.

    The foreign currency risk associated with purchase and sale commitments
    denominated in a foreign currency is hedged through a combination of forward
    contracts and options. The foreign currency gains and losses on these
    contracts are not recognized in the consolidated financial statements until
    the underlying firm commitment is recorded in earnings. At that time, the
    gains or the losses on such derivatives are recorded in earnings as an
    adjustment to the underlying transaction. Premiums paid with respect to
    options are deferred and charged to net earnings over the contract period.

    Interest rate swap contracts are designated as hedges of the interest rate
    of certain financial instruments. The interest payments relating to swap
    contracts are recorded in net earnings over the life of the underlying
    transaction on an accrual basis as an adjustment to interest income or
    interest expense.

    Beginning in fiscal 2004, the Company will adopt the new CICA accounting
    guideline, which establishes certain conditions for when hedge accounting
    may be applied. The Company is studying the new guideline but has not yet
    determined its impact.

    EARNINGS PER SHARE

    The calculation of earnings per share is based on the weighted average
    number of shares issued and outstanding. Diluted earnings per share is
    calculated by dividing net earnings available to common shareholders by the
    weighted average shares used in the basic earnings per share calculation
    plus the number of common shares that would be issued assuming conversion of
    all potentially dilutive common shares outstanding using the treasury stock
    method.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with GAAP requires
    management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities and the disclosure of the contingent
    assets and liabilities at the date of the financial statements and revenue
    and expenses for the period reported. Actual results could differ from those
    estimates.

2.  BUSINESS ACQUISITIONS

    During the fiscal year, CAE completed four strategic acquisitions, two of
    which accelerated CAE's move into aviation training, one which significantly
    improved the Company's access to the US defence market and one which
    provided immediate entry into the commercial marine control systems market.

    On April 2, 2001, the Company acquired all of the issued and outstanding
    shares of BAE Systems Flight Simulation and Training Inc. located in Tampa,
    Florida, for a total cash consideration of US$76 million. The business has a
    well-established position in the US defence market for the manufacture of
    transport and helicopter simulation equipment and has significant training
    and support service activities for both civil and military markets.

    On August 1, 2001, the Company acquired all of the issued and outstanding
    shares of Valmarine AS of Norway, for a cash consideration of
    NOK238.6 million and a CAE share issuance of NOK125.4 million, based on the
    average closing price of CAE's shares for the 10 days prior to August 1st.
    Valmarine is the global leader for marine control systems for the commercial
    market. The purchase price is subject to adjustment based on the future
    performance of the business. Contingent consideration up to a maximum of
    NOK58 million will be recognized as an additional cost of the purchase when
    the contingency is resolved.

    On August 24, 2001, the Company acquired all of the issued and outstanding
    shares of the Netherland-based Schreiner Aviation Training B.V. for a total
    cash consideration of E193.4 million. The business provides simulator and
    ground-school civil aviation training.

    On December 31, 2001, the Company acquired all of the issued and outstanding
    shares of SimuFlite Training International Inc. ("SimuFlite"), based in
    Dallas, Texas, for a total cash consideration of US$210.9 million. In
    addition, property, plant and equipment in the amount of US$54 million were
    sold to the vendor and leased back. SimuFlite is the world's second largest
    provider of business aviation training.

    These acquisitions were accounted for under the purchase method and their
    operating results have been included from the respective acquisition dates.

                                       9
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

2.  BUSINESS ACQUISITIONS (CONTINUED)
    The net assets acquired are summarized as follows:

<Table>
<Caption>
                                                             BAE SYSTEMS    VALMARINE AS    SCHREINER   SIMUFLITE    TOTAL
                                                             ------------   -------------   ---------   ---------   --------
    <S>                                                      <C>            <C>             <C>         <C>         <C>
    Current assets.........................................     $ 36.2          $16.3        $ 15.3      $ 23.0     $  90.8
    Current liabilities....................................      (65.8)          (8.7)        (37.0)       (8.2)     (119.7)
    Property, plant and equipment..........................       59.0            0.5         167.9       262.0       489.4
    Intangible assets
      Trade names..........................................     --                3.2         --           37.1        40.3
      Customer relations...................................     --                9.8          66.0        29.2       105.0
      Customer contractual agreements......................     --                2.3           2.2         3.6         8.1
      Other intangible.....................................        2.5            3.1         --            7.0        12.6
    Goodwill...............................................      104.2           40.4         102.8       106.3       353.7
    Future income taxes....................................       36.6           (3.9)        (34.2)       15.1        13.6
    Long-term debt.........................................      (17.3)        --             (23.1)      (52.4)      (92.8)
    Long-term liabilities..................................      (36.1)        --             --          --          (36.1)
                                                                ------          -----        ------      ------     -------
                                                                 119.3           63.0         259.9       422.7       864.9
    Less: Sale and leaseback of assets.....................     --             --             --          (86.2)      (86.2)
         Shares issued (note 11)...........................     --              (21.1)        --          --          (21.1)
                                                                ------          -----        ------      ------     -------
    Total cash consideration:..............................     $119.3          $41.9        $259.9      $336.5     $ 757.6
                                                                ======          =====        ======      ======     =======
</Table>

    The net assets of Schreiner, SimuFlite and approximately 10% of the net
    assets of BAE Systems are included in the Civil Simulation and Training
    segment. The balance of the net assets of BAE Systems and Valmarine are
    included in the Military Simulation and Marine Controls segment.

    The goodwill on the SimuFlite acquisition is the sole deductible goodwill
    for tax purposes.

    The allocation of the purchase price is based on management's estimate of
    the fair value of assets acquired and liabilities assumed. Allocation of the
    purchase price involves a number of estimates as well as gathering of
    information over a number of months. This estimation process will be
    completed in the next six months and accordingly there may be some changes
    to the goodwill and intangibles values presented above for Valmarine as well
    as adjustments to Simuflite arising from the finalization of amounts with
    the seller.

3.  DISCONTINUED OPERATIONS

    On December 3, 1999, the Corporation completed the sale of substantially all
    of the assets of its Railway Technologies and Services business segment for
    an amount of $65.6 million, resulting in an after-tax gain on disposition of
    $13.6 million.

    On February 2, 2000, the Board of Directors approved a plan to divest its
    Cleaning Technologies and Energy Control Systems businesses. On May 31, 2000
    the Company completed the sale of substantially all of the assets of the
    Energy Control Systems businesses to SNC-Lavalin. The net assets of the
    Cleaning Technologies operations were written down to their estimated
    realizable values as at March 31, 2001.

    On December 18, 2001, the Board of Directors approved a plan to divest its
    Forestry Systems. As a result of the planned divestiture, the results of
    operations for the Forestry Systems have been reported separately in the
    consolidated statements of earnings together with its Cleaning Technologies
    businesses and Railway Technologies and Services (together the "Discontinued
    Operations"). Previously reported financial statements have been restated
    and interest expense has been allocated to the Discontinued Operations based
    on their share of the Company's net assets.

    On February 28, 2002, the Company completed the sale of two of CAE's
    Cleaning Technologies operations. The Company sold CAE Ransohoff Inc., of
    Cincinnati, Ohio and CAE Ultrasonics Inc., of Jamestown, New York, to the
    former management of these operations for a total consideration of
    US$21.4 million, comprised of US$9.2 million cash, a holdback of
    US$1.6 million payable within 120 days of closing subject to completing an
    audit of the closing date financial position and the balance in long-term
    subordinated notes, with senior debt financing. The remaining net assets of
    the Cleaning Technologies operations were written down to their estimated
    realizable values as at March 31, 2002.

                                       10
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

3.  DISCONTINUED OPERATIONS (CONTINUED)
    On March 28, 2002, CAE completed the sale of its fiber screening business to
    the Advanced Fiber Technologies Income Fund ("AFT") for cash proceeds of
    $162 million.

    The remaining Discontinued Operations are expected to be sold within the
    next six months.

    Summarized financial information for the discontinued operations is as
    follows:

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Revenue
      Railway Technologies and Services.........................   $--        $--        $ 46.4
      Cleaning Technologies.....................................     86.5      119.5      127.3
      Forestry systems..........................................    193.5      300.0      299.2
                                                                   ------     ------     ------
                                                                   $280.0     $419.5     $472.9
                                                                   ------     ------     ------
    Net earnings from Forestry Systems prior to measurement
      date, net of tax
      (2002 -- $4.0; 2001 -- $14.9; 2000 -- $12.7)..............   $  8.5     $ 29.5     $ 28.4
    Net gain from Forestry Systems after measurement date net of
      tax  -- $15.2.............................................     17.9      --         --
    Net loss from Cleaning Technologies, prior to measurement
      date net of tax recovery
      (2000 -- $3.1)............................................    --         --          (6.0)
    Net gain from Railway Technologies and Services, net of tax
      of $2.7...................................................    --         --          13.8
    Net (loss) from Cleaning Technologies after measurement
      date, net of tax recovery
      (2002 -- $7.3; 2001 -- $18.9).............................    (25.1)     (26.6)     --
                                                                   ------     ------     ------
    Net earnings from discontinued operations...................   $  1.3     $  2.9     $ 36.2
                                                                   ======     ======     ======
</Table>

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Net cash (used in) provided by operating activities.........   $(15.9)    $ 23.6     $ 40.1
    Net cash used in investing activities.......................     (4.7)     (11.1)     (19.5)
    Net cash used in financing activities.......................     (3.9)      (2.1)      (1.0)
                                                                   ------     ------     ------
    Net cash (used in) provided by discontinued operations......   $(24.5)    $ 10.4     $ 19.6
                                                                   ======     ======     ======
</Table>

<Table>
<Caption>
                                                                           2002                      2001
                                                                  -----------------------   -----------------------
                                                                  FORESTRY     CLEANING     FORESTRY     CLEANING
                                                                  SYSTEMS    TECHNOLOGIES   SYSTEMS    TECHNOLOGIES
                                                                  --------   ------------   --------   ------------
    <S>                                                           <C>        <C>            <C>        <C>
    Current assets..............................................   $40.8        $ 20.8       $ 79.6       $ 82.7
    Property, plant and equipment, net..........................    15.7           5.4         50.5         16.6
    Goodwill....................................................    30.2           9.2        122.5         17.4
    Other assets................................................     0.6           1.1          0.7          0.9
                                                                   -----        ------       ------       ------
                                                                    87.3          36.5        253.3        117.6
                                                                   -----        ------       ------       ------
    Assets of discontinued operations...........................                $123.8                    $370.9
                                                                                ======                    ======
    Current liabilities.........................................    26.4          13.7         71.1         26.1
    Other liabilities...........................................     0.4        --              9.2          0.2
                                                                   -----        ------       ------       ------
                                                                   $26.8        $ 13.7       $ 80.3       $ 26.3
                                                                   -----        ------       ------       ------
    Liabilities of discontinued operations......................                $ 40.5                    $106.6
                                                                                ======                    ======
</Table>

                                       11
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

4.  ACCOUNTS RECEIVABLE

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Trade.......................................................   $107.8     $ 69.7
    Allowance for doubtful accounts.............................     (6.8)      (5.6)
    Unbilled receivables........................................    223.8      156.3
    Other receivables...........................................     53.4       25.2
                                                                   ------     ------
                                                                   $378.2     $245.6
                                                                   ======     ======
</Table>

    Approximately $10 million of the March 31, 2002 unbilled receivables are not
    expected to be recovered within one year.

5.  INVENTORIES

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Work-in-progress............................................   $105.9     $ 81.1
    Raw materials, supplies and manufactured products...........     25.0       18.3
                                                                   ------     ------
                                                                   $130.9     $ 99.4
                                                                   ======     ======
</Table>

6.  PROPERTY, PLANT AND EQUIPMENT

<Table>
<Caption>
                                                                    2002                                  2001
                                                     -----------------------------------   -----------------------------------
                                                                ACCUMULATED    NET BOOK               ACCUMULATED    NET BOOK
                                                       COST     AMORTIZATION     VALUE       COST     AMORTIZATION     VALUE
                                                     --------   ------------   ---------   --------   ------------   ---------
    <S>                                              <C>        <C>            <C>         <C>        <C>            <C>
    Land...........................................   $ 19.2       $--          $ 19.2      $ 10.1       $--          $ 10.1
    Buildings and improvements.....................    229.6         40.4        189.2       121.4         32.6         88.8
    Machinery and equipment........................    229.7        105.8        123.9        99.8         83.4         16.4
    Simulators.....................................    369.5         13.8        355.7        45.1          7.1         38.0
    Assets under construction
      Buildings....................................      4.5       --              4.5         5.8       --              5.8
      Equipment....................................    146.0       --            146.0        68.1       --             68.1
                                                      ------       ------       ------      ------       ------       ------
                                                      $998.5       $160.0       $838.5      $350.3       $123.1       $227.2
                                                      ======       ======       ======      ======       ======       ======
</Table>

7.  INTANGIBLE ASSETS

<Table>
<Caption>
                                                                                 2002
                                                                  -----------------------------------
                                                                             ACCUMULATED    NET BOOK
                                                                    COST     AMORTIZATION     VALUE
                                                                  --------   ------------   ---------
    <S>                                                           <C>        <C>            <C>
    Trade names.................................................   $ 40.5        $0.5        $ 40.0
    Customer relations..........................................    104.9         1.8         103.1
    Customer contractual agreements.............................      7.9         0.1           7.8
    Other intangible assets.....................................     13.1         0.6          12.5
                                                                   ------        ----        ------
                                                                   $166.4        $3.0        $163.4
                                                                   ======        ====        ======
</Table>

    Civil Aviation and Training intangible assets include $37.3 million in trade
    names, $95.1 million in customer relations, $5.6 million in customer
    contractual agreements and $7.5 million in other intangibles. Military
    Simulation and Marine Controls intangibles include $3.2 million in trade
    names, $9.8 million in customer relations, $2.3 million in customer
    contractual agreements and $5.6 million in other intangibles. The yearly
    estimated amortization expense for the five following years will be
    approximately $9.0 million.

                                       12
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

7.  INTANGIBLE ASSETS (CONTINUED)
    The continuity of intangible assets by business segment is as follows:

<Table>
<Caption>
                                                                                        2002
                                                                  -------------------------------------------------
                                                                  CIVIL SIMULATION   MILITARY SIMULATION
                                                                    AND TRAINING     AND MARINE CONTROLS    TOTAL
                                                                  ----------------   -------------------   --------
    <S>                                                           <C>                <C>                   <C>
    Beginning balance...........................................      -$-                 --$               $--
    Additions...................................................        145.1                20.9            166.0
    Amortization................................................         (2.7)               (0.3)            (3.0)
    Foreign exchange............................................         (0.9)                1.3              0.4
                                                                       ------               -----           ------
    Ending balance..............................................       $141.5               $21.9           $163.4
                                                                       ======               =====           ======
</Table>

8.  GOODWILL

    The following table summarizes the impact of the adoption of the new
    standard:

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
                                                                       (amounts in millions
                                                                     except per share amount)
    <S>                                                           <C>        <C>        <C>
    Reported net earnings.......................................   $150.6     $108.1     $ 98.5
    Add back goodwill amortization..............................    --           5.1        6.3
                                                                   ------     ------     ------
    Adjusted net earnings.......................................   $150.6     $113.2     $104.8
                                                                   ======     ======     ======
    Reported net earnings and diluted net earnings per share....   $ 0.69     $ 0.50     $ 0.45
    Add back goodwill amortization..............................    --          0.02       0.03
                                                                   ------     ------     ------
    Adjusted net earnings and diluted net earnings per share....   $ 0.69     $ 0.52     $ 0.48
                                                                   ======     ======     ======
</Table>

    The continuity of goodwill by business segment is as follows:

<Table>
<Caption>
                                                              2002                                     2001
                                             --------------------------------------   --------------------------------------
                                             CIVIL SIMULATION   MILITARY SIMULATION   CIVIL SIMULATION   MILITARY SIMULATION
                                               AND TRAINING     AND MARINE CONTROLS     AND TRAINING     AND MARINE CONTROLS
                                             ----------------   -------------------   ----------------   -------------------
    <S>                                      <C>                <C>                   <C>                <C>
    Beginning balance......................      -$-                  $ 18.5              -$-                   $22.2
    Additions..............................        219.0               134.7              --                  --
    Amortization...........................      --                  --                   --                     (0.6)
    Foreign exchange.......................         (1.2)                4.5              --                     (3.1)
                                                  ------              ------               ------               -----
    Ending balance.........................       $217.8              $157.7              -$-                   $18.5
                                                  ------              ------               ------               -----
    Total goodwill.........................                           $375.5                                    $18.5
                                                                      ======                                    =====
</Table>

                                       13
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

9.  OTHER ASSETS

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Investment tax credits (i)..................................   $  0.7     $25.4
    Investment in and advances to CVS Leasing Ltd. (ii).........     24.0      21.0
    Deferred pre-operating costs................................     26.6      13.7
    Deferred development costs (iii)............................     30.1      13.7
    Deferred financing costs....................................     16.3      --
    Restricted cash (note 10A (iv)).............................     15.6      --
    Other.......................................................     25.2       9.0
                                                                   ------     -----
                                                                   $138.5     $82.8
                                                                   ======     =====
</Table>

    (i) Investment tax credits are available to reduce future federal income
        taxes payable in Canada.

    (ii) The Company led a consortium which was contracted by the U.K. Ministry
         of Defence ("MoD") to design, construct, manage, finance and operate an
         integrated simulator based aircrew training facility for the Medium
         Support Helicopter fleet of the Royal Air Force. The contract covers a
         40-year period, which can be terminated by the MoD after 20 years, in
         2018.

       In connection with the contract, the Company has established a
       subsidiary, CAE Aircrew Training Plc ("Aircrew"), of which it owns 74%
       with the balance held by the other consortium partners. This subsidiary
       has leased the land from the MoD, has built the facility and operates the
       training centre, and has been consolidated with the accounts of the
       Company.

       In addition, the Company has a minority shareholding of 11% in, and has
       advanced funds to, CVS Leasing Ltd. (CVS), a company established to
       acquire the simulators and other equipment that are leased to Aircrew.
       CVS obtained project financing which amounts to L79 million at March 31,
       2002 and expires in October 2015. This financing is secured solely by the
       assets of CVS with no recourse to CAE.

   (iii) Research and development expenditures aggregated $104.7 million during
         the year (2001 -- $104.9 million; 2000 -- $108.3 million). The Company
         has received government assistance of $15.8 during the year
         (2001 -- $3.5 million; 2000 -- $8.0 million), of which $9.5 million
         (2001 -- nil; 2000 -- nil) was recorded against deferred costs incurred
         to develop new products.

10. DEBT FACILITIES

    A. LONG-TERM DEBT

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Senior notes (i)............................................   $192.1     $190.4
    Revolving unsecured term credit facilities,
      5 years maturing April 2006, US$350.0 (ii) (outstanding
        March 31, 2002 -- $25.0 and US$139.0)...................    246.4      --
      5 years maturing April 2006, Euro100.0 (2001 -- DM65.0)
        (ii)....................................................    --          46.1
      18 months, maturing June 2003, (US$200.0) (iii)
        (outstanding March 31, 2002 -- US$174.0)................    277.3      --
    Term loan of US$36.4, secured, maturing in 2009 (iv)........     58.0      --
    Term loan of L12.7, secured, maturing in 2015 (v)...........     25.9       26.8
    Grapevine Industrial Development Corporation bonds, secured,
      (US$8.0 and US$19.0), maturing in 2010 and 2013 (vi)......     43.1      --
    Secured loans, (US$5.8 and RMB29.0) (vii)...................     14.3      --
    Unsecured loans, (US$8.6 and L9.2) (viii)...................     34.4      --
    Obligations under capital lease commitments (ix)............     35.0        2.0
                                                                   ------     ------
                                                                    926.5      265.3
    Less: Long-term debt due within one year....................     37.5        2.3
                                                                   ------     ------
                                                                   $889.0     $263.0
                                                                   ======     ======
</Table>

                                       14
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

10. DEBT FACILITIES (CONTINUED)
    (i) Pursuant to a private placement with certain investors, the Company
        borrowed US$108 million and $20 million. These unsecured senior notes
        rank equally with the term bank financing with fixed repayment amounts
        in 2005, 2007, 2009 and 2012. Fixed interest at an average rate of 7.5%
        is payable semi-annually in June and December. The Company has entered
        into interest rate swap agreements converting the initial fixed interest
        rate into a 3-month BA borrowing plus 1.05% on $52.5 million of the
        senior notes.

    (ii) These facilities are unsecured and the interest rate payable is based
         on LIBOR (BAs) or EURIBOR plus 0.50%. The Company has entered into
         interest rate swap agreements to fix the rate. Of this amount,
         $205 million is fixed until February 2003 with an average rate of
         2.72%, and $35 million has been fixed until April 2006 at a rate of
         4.97%. The average interest rate for the period ended March 31, 2002 is
         5.2% (2001 -- 4.6%; 2000 -- 3.4%).

   (iii) The revolving credit facility of US$200 million expires in June 2003.
         The facility is unsecured and the interest rate payable is based on
         LIBOR plus 0.50%.

    (iv) The Company arranged project financing for its training centre in Sao
         Paulo, Brazil. This term loan is secured by the assets of the training
         centre and $15.6 million in restricted cash and is repayable
         semi-annually until April 30, 2009. Interest on the loan is charged at
         a rate approximating 7.7%.

    (v) The Company arranged project financing for one of its subsidiaries to
        finance the Company's Medium Support Helicopter Programme for the MoD in
        the United Kingdom. The credit facility includes a term loan that is
        secured by the project assets of the subsidiary and is repayable over
        18 years to October 1, 2015. The facility also includes a standby loan
        of L4.0 million and a working capital loan of L1.0 million, both
        maturing in October 2015. Interest on the loans is charged at a rate
        approximating LIBOR plus 1.00%. The Company has entered into interest
        rate swaps totaling L10.3 million fixing the interest rate at
        approximately 6.82% (note 9(ii)).

    (vi) Airport Improvement Revenue Bonds issued by the Grapevine Industrial
         Development Corporation, Grapevine, Texas for amounts of
         US$8.0 million and US$19.0 million and maturing respectively in 2010
         and 2013. The Bonds are secured by real property improvements, fixtures
         and specified simulation equipment. The rate is the lesser of the
         lawful rate and 80% of the 91-day T-Bill rate, which approximates 2.83%
         for the period ended March 31, 2002.

   (vii) Secured loans consist of a US$5.8 million loan secured by property,
         plant and equipment expiring in June 2002 with interest payable based
         on commercial paper (USA) plus 1% and a loan of RMB29 million expiring
         in December 2011 with interest at 6.83%.

  (viii) Unsecured loans consist of a US$8.6 million loan expiring in 2002 with
         interest rate payable based on LIBOR plus 0.90% and a loan of
         L9.2 million expiring from September 2004 to March 2030 with interest
         at an average rate of 5.6%.

    (ix) The effective interest rate on obligations under capital leases was
         approximately 5.3% (2001 -- 5.2%; 2000 -- 7%).

    (x) Payments required in each of the next five years to meet the retirement
        provisions of the long-term debt are as follows:

<Table>
    <S>                                                           <C>
    Years ending March 31,
      2003......................................................   $ 37.5
      2004......................................................    289.4
      2005......................................................     14.0
      2006......................................................     31.9
      2007......................................................    258.4
      Thereafter................................................    295.3
                                                                   ------
                                                                   $926.5
                                                                   ======
</Table>

                                       15
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

10. DEBT FACILITIES (CONTINUED)
    (xi) Details of net interest expense (income) are as follows:

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Interest expense (income)...................................   $30.2      $(2.3)     $13.8
    Allocation of interest expense to discontinued operations...    (3.6)      (4.0)      (6.5)
    Interest capitalized........................................    (3.9)      --         --
                                                                   -----      -----      -----
    Interest expense (income) as reported.......................   $22.7      $(6.3)     $ 7.3
                                                                   =====      =====      =====
</Table>

    B. SHORT-TERM DEBT

    The Company has unused unsecured bank lines of credit available in various
    currencies totaling $57.8 million (2001 -- $85 million). The effective rate
    on the short-term borrowings was 5.6% (2001 -- 8.4%; 2000 -- 7.6%).

    Certain of the Company's debt instruments include customary positive and
    negative covenants which include interest coverage, leverage ratios, and
    restrictions on the sale of assets. The Company is in compliance with its
    debt covenants.

11. CAPITAL STOCK

    (i) The Company's articles of incorporation authorize the issuance of an
        unlimited number of preferred shares, issuable in series, and an
        unlimited number of common shares. To date, the Company has not issued
        any preferred shares.

    (ii) A reconciliation of the issued and outstanding common shares of the
         Company is as follows:

<Table>
<Caption>
                                                                           2002                     2001
                                                                  ----------------------   ----------------------
                                                                   NUMBER OF     STATED     NUMBER OF     STATED
                                                                   SHARES(D)     VALUE      SHARES(D)     VALUE
                                                                  -----------   --------   -----------   --------
    <S>                                                           <C>           <C>        <C>           <C>
    Balance at beginning of year................................  216,399,856    $159.4    215,158,370    $152.3
    Stock options exercised.....................................   1,118,400        6.1     1,413,076        6.9
    Stock dividends (a).........................................      17,605        0.2        34,410        0.3
    Purchase of capital stock (b)...............................      --          --         (206,000)      (0.1)
    Treasury issue (note 2).....................................   1,419,919       21.1        --          --
                                                                  -----------    ------    -----------    ------
    Balance at end of year......................................  218,955,780    $186.8    216,399,856    $159.4
                                                                  ===========    ======    ===========    ======
</Table>

    (a) The Company provides that its shareholders may elect to receive common
       stock dividends in lieu of cash dividends.

    (b) During the first quarter of fiscal 2001 the Company purchased 206,000
       common shares on the Toronto Stock Exchange under its normal course
       issuer bid. The Company has purchased 8,877,000 common shares since the
       inception of the program on June 21, 1999. Shares purchased by the
       Company were cancelled. The bid expired on June 20, 2000.

    (c) The Company has an amended and restated shareholder protection rights
       plan agreement whereby one right has been issued for each outstanding
       common share of the Company. The rights remain attached to the shares and
       are not exercisable until the occurrence of certain designated events.
       Upon the occurrence of such an event, the right entitles a shareholder of
       the Company to acquire additional common shares from treasury at half
       their market value. The rights expire on the date immediately after the
       Company's Annual Meeting of Shareholders to be held in 2003, unless
       terminated at an earlier date by the Board of Directors.

    (d) On June 20, 2001, the Board of Directors declared a 100% stock dividend
       in respect of the common shares in the capital of the Company,
       effectively achieving a two-for-one split of CAE's outstanding common
       shares. The stock dividend was payable to shareholders of record at the
       close of business on July 9, 2001 ("Record Date"), on the basis of one
       additional share for each common share held as of the Record Date. CAE's
       common shares commenced trading on a split basis on July 5, 2001 on the
       Toronto Stock Exchange. The Company ascribed no monetary value to the
       stock dividend. The number of shares and options, the option exercise
       prices and the net earnings and diluted net earnings per share have been
       restated retroactively to reflect the stock dividend.

                                       16
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

11. CAPITAL STOCK (CONTINUED)
    (e) The following is a reconciliation of the denominators for the basic and
       diluted earnings per share computations:

<Table>
<Caption>
                                                                     2002          2001          2000
                                                                  -----------   -----------   -----------
    <S>                                                           <C>           <C>           <C>
    Weighted average number of common shares outstanding
      -- Basic..................................................  217,592,039   215,666,346   218,986,692
    Effect of dilutive stock options............................    2,544,722     2,570,454     2,818,074
                                                                  -----------   -----------   -----------
    Weighted average number of common shares outstanding
      -- Diluted................................................  220,136,761   218,236,800   221,804,766
                                                                  ===========   ===========   ===========
</Table>

    The effect of the conversion of the outstanding stock options would not
    materially dilute earnings per share.

12. STOCK-BASED COMPENSATION PLANS

    EMPLOYEE STOCK OPTION PLAN

    Under the long-term incentive program of the Company, options may be granted
    to officers and other key employees of the Company and its subsidiaries to
    purchase common shares of the Company at a subscription price of 100% of
    market value. Market value is determined as the closing price of the common
    shares on the Toronto Stock Exchange on the last day of trading prior to the
    effective date of the grant.

    At March 31, 2002, a total of 12,462,822 common shares remained authorized
    for issuance under the Plan. The options are exercisable during a period not
    to exceed six years and are not exercisable during the first 12 months after
    the date of the grant. The right to exercise all of the options accrues over
    a period of four years of continuous employment. However, if there is a
    change of control of the Company, the options become immediately
    exercisable. Options are adjusted proportionately for any stock dividends or
    stock splits attributed to the common shares of the Company.

    A reconciliation of the outstanding options is as follows:

<Table>
<Caption>
                                                                                 AS AT MARCH 31(NOTE 11(D))
                                                                  ---------------------------------------------------------
                                                                             2002                          2001
                                                                  ---------------------------   ---------------------------
                                                                                  WEIGHTED                      WEIGHTED
                                                                    NUMBER        AVERAGE         NUMBER        AVERAGE
                                                                  OF OPTIONS   EXERCISE PRICE   OF OPTIONS   EXERCISE PRICE
                                                                  ----------   --------------   ----------   --------------
    <S>                                                           <C>          <C>              <C>          <C>
    Options outstanding at beginning of year....................  5,114,350        $ 5.70       5,479,326        $ 4.96
    Granted.....................................................  1,698,012        $12.19       2,018,400        $ 6.84
    Exercised...................................................  (1,118,400)      $ 5.41       (1,413,076)      $ 4.90
    Forfeited/expired...........................................   (694,884)       $ 7.63        (970,300)       $ 5.06
                                                                  ----------       ------       ----------       ------
    Options outstanding at end of year..........................  4,999,078        $ 7.70       5,114,350        $ 5.70
                                                                  ==========       ======       ==========       ======
    Options exercisable at end of year..........................  1,417,878        $ 5.70       1,268,500        $ 5.34
                                                                  ==========       ======       ==========       ======
</Table>

    The following table summarizes information about the Company's ESOP as at
    March 31, 2002 (note 11(d)):

<Table>
<Caption>
                                                                       OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                                                                ---------------------------------   ----------------------
                                                                                         WEIGHTED                 WEIGHTED
                                                                   WEIGHTED AVERAGE      AVERAGE                  AVERAGE
                                                    NUMBER      REMAINING CONTRACTUAL    EXERCISE     NUMBER      EXERCISE
    RANGE OF EXERCISE PRICES                      OUTSTANDING        LIFE (YEARS)         PRICE     EXERCISABLE    PRICE
    ------------------------                      -----------   ----------------------   --------   -----------   --------
    <S>                                           <C>           <C>                      <C>        <C>           <C>
    $4.10 to $5.70..............................   1,596,000              2.8             $ 4.54       805,000     $4.88
    $6.425 to $9.60.............................   1,928,450              3.8             $ 6.83       604,750     $6.70
    $12.225 to $14.60...........................   1,474,628              5.2             $12.26         8,128     $0.17
                                                   ---------             ----             ------     ---------     -----
    Total.......................................   4,999,078             3.86             $ 7.70     1,417,878     $5.70
                                                   =========             ====             ======     =========     =====
</Table>

                                       17
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

12. STOCK-BASED COMPENSATION PLANS (CONTINUED)
    EMPLOYEE STOCK PURCHASE PLAN

    The Company maintains an ESPP to enable employees of the Company and its
    participating subsidiaries to acquire CAE common shares through regular
    payroll deductions plus employer contributions. The Plan allows employees to
    contribute up to 10% of their annual base salary. The Company and its
    participating subsidiaries match the first $500 employee contribution and
    contribute $1 for every $3 of additional employee contributions, to a
    maximum of 2% of the employee's base salary. Common shares of the Company
    are purchased by the ESPP trustee on behalf of the participants on the open
    market, through the facilities of the Toronto Stock Exchange. Participation
    at March 31, 2002 was 3,077 employees or 41.1% of CAE's employees
    (2001 -- 2,639 or 41.8%). The Company recorded compensation expense in the
    amount of $1.9 million (2001 -- $2.1 million) in respect of employer
    contributions under the Plan.

    DEFERRED SHARE UNIT PLAN

    Effective May 1, 2000, the Company adopted a Deferred Share Unit ("DSU")
    Plan for key executives whereby an executive may elect to receive any cash
    incentive compensation in the form of deferred share units. The Plan is
    intended to enhance the Company's ability to promote a greater alignment of
    interests between such key executives and the shareholders of the Company. A
    deferred share unit is equal in value to one common share of the Company.
    The units are issued on the basis of the average closing board lot sale
    price per share of CAE common shares on the Toronto Stock Exchange during
    the last 10 days on which such shares traded prior to the date of issue. The
    units also accrue dividend equivalents payable in additional units in an
    amount equal to dividends paid on CAE common shares. Deferred share units
    mature upon termination of employment, whereupon a key executive is entitled
    to receive the fair market value of the equivalent number of common shares,
    net of withholdings, in cash.

    In fiscal 2000, the Company adopted a DSU Plan for Non-Employee Directors. A
    non-employee director holding less than 10,000 common shares of the Company
    receives the Board retainer and attendance fees in the form of deferred
    share units. A non-employee director holding at least 10,000 common shares
    may elect to participate in the Plan in respect of part or all of his or her
    retainer and attendance fees. The terms of the Plan are essentially
    identical to the key executive DSU Plan except that the share price used to
    value the deferred share unit is based on the closing price per share of CAE
    common shares on the Toronto Stock Exchange on the day preceding the last
    business day of March, June, September and December.

    The Company records the cost of the DSU plans as compensation expense. As at
    March 31, 2002, 194,581 units were outstanding at a value of $2.3 million
    (2001 -- 53,220 units at a value of $1.3 million; 2000 -- 3,929 units at a
    value of $0.1 million).

13. FINANCIAL INSTRUMENTS

    FOREIGN CURRENCY RISK

    The fair value of the forward foreign exchange contracts is represented by
    the estimated amounts that the Company would receive or pay to settle the
    contracts at the balance sheet date, taking into account the unrealized gain
    or loss. The Company entered into forward foreign exchange contracts
    totaling $144.1 million (buy contracts $42.3 million and sell contracts
    $101.8). The total unrealized loss as of March 31, 2002, is $0.9 million (on
    buy contracts $0.5 million and on sell contracts $0.4 million). Unrealized
    gains or losses on outstanding forward contracts are not recognized in the
    statements of earnings until maturity of the contracts.

    The Company entered into cross currency rate swap contracts maturing on
    December 13, 2002 in respect of certain inter-company loan transactions. The
    Company receives interest, calculated semi-annually on a notional balance of
    US$21 million and $30 million, at a weighted average interest rate of LIBOR
    plus 3.6% (effective rate of 5.5%) and BA plus 0.4% (effective rate of
    2.6%). The Company pays interest calculated semi-annually on notional
    balances of E16.5 million, SEK27.4 million, and US$20.7 million at weighted
    average interest rates of EURIBOR plus 3.4% (effective rate of 6.65%),
    STIBOR plus 2.9% (effective rate of 6.82%) and LIBOR plus 0.5% (effective
    rate of 2.4%).

    CREDIT RISK

    The Company is exposed to credit risk on billed and unbilled accounts
    receivable. However, its customers are primarily established companies with
    good credit ratings or government agencies, factors that minimize the risk.
    In addition, the Company typically receives substantial non-refundable
    deposits on contracts.

    The Company is exposed to credit risk in the event of non-performance by
    counterparties to its derivative financial instruments, but does not expect
    non-performance by any of the counterparties. The counterparties for
    financial instruments are major, highly rated financial institutions.

                                       18
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

13. FINANCIAL INSTRUMENTS (CONTINUED)
    INTEREST RATE EXPOSURE

    The Company is exposed to the volatility of interest rates on its long-term
    debt. As at March 31, 2002, the Company has entered into seven interest rate
    swap agreements with three different financial institutions to mitigate
    these risks for a total notional value of $334.1 million. One agreement,
    with a notional value of $52.6 million (US$33 million), has converted fixed
    interest rate debt into floating whereby the Company pays the BA rate plus
    1.05% quarterly and receives a fixed interest rate of 7.76% up to
    June 2012. The remaining six contracts are converting floating interest rate
    debt into fixed for a notional value of $281.5 million whereby the Company
    will receive quarterly LIBOR and pay fixed interest payments as follows:

    - Until February 2003 on two contracts totaling $205.6 million
      (US$129 million), the Company will pay annually a fixed interest rate of
      2.72%;

    - Until April 2006 on $35 million, the Company will pay quarterly a fixed
      interest rate of 4.97%;

    - Until September 2005 on $17.5 million (US$11 million), the Company will
      pay monthly a fixed annual interest rate of 4.95%;

    - Until October 2011 on two contracts totaling $23.4 million
      (L10.3 million), the Company will pay quarterly a fixed annual interest
      rate of 6.82%.

    After taking into consideration these swap agreements, as at March 31, 2002,
    55% of the long-term debt bears fixed interest rates.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The following methods and assumptions have been used to estimate the fair
    value of the financial instruments:

    - Cash and short-term investments, accounts receivable, accounts payable and
      accrued liabilities are valued at their carrying amounts on the balance
      sheet, which represent an appropriate estimate of their fair values due to
      their near-term maturities.

    - Capital leases are valued using the discounted cash flow method.

    - Long-term debt value is estimated based on discounted cash flows using
      current interest rates for debt with similar terms and remaining
      maturities.

    - Interest rate and currency swap contracts reflect the present value of the
      potential gain or loss if settlement were to take place on March 31, 2002.

    The fair value and the carrying amount of the financial instruments as at
    March 31 is as follows:

<Table>
<Caption>
                                                                          2002                    2001
                                                                  ---------------------   ---------------------
                                                                               CARRYING                CARRYING
                                                                  FAIR VALUE    AMOUNT    FAIR VALUE    AMOUNT
                                                                  ----------   --------   ----------   --------
    <S>                                                           <C>          <C>        <C>          <C>
    Long-term debt..............................................    $898.1      $889.0      $276.7      $263.3
    Capital lease obligations...................................      35.0        35.0         3.7         3.7
    Net forward foreign exchange contracts......................      (0.9)      --           (5.5)      --
    Interest rate swap contracts................................      (2.2)      --            2.6       --
    Currency swap contracts.....................................       3.9       --            4.5       --
</Table>

    GUARANTEES

    As at March 31, 2002, CAE had outstanding letters of credit and performance
    guarantees in the amount of $243 million (2001 -- $68 million) issued in the
    normal course of business. These guarantees are issued under standby
    facilities available to the Company through various financial institutions.

                                       19
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

14. INCOME TAXES

    A reconciliation of income taxes at Canadian statutory rates with the
    reported income taxes is as follows:

<Table>
<Caption>
                                                                       LIABILITY        DEFERRAL
                                                                        METHOD           METHOD
                                                                  -------------------   --------
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Earnings from continuing operations before income taxes.....   $219.6     $158.2     $90.4
                                                                   ------     ------     -----
    Statutory income tax rates in Canada........................     40.9%      44.6%     44.6%
    Income taxes at Canadian statutory rates....................   $ 89.9     $ 70.6     $40.3
    Difference between Canadian statutory rates and those
      applicable to foreign subsidiaries........................     (2.3)     (10.7)     (5.2)
    Manufacturing and processing allowance......................    (13.1)      (8.3)     (7.1)
    Losses not tax effected.....................................     11.0        3.6      --
    Tax benefit of losses not previously recognized.............     (6.7)      (0.2)      0.7
    Research and development investment tax credit..............     (3.0)      (1.1)     (0.8)
    Other.......................................................     (5.5)      (0.9)      0.2
                                                                   ------     ------     -----
    Total income tax expense....................................   $ 70.3     $ 53.0     $28.1
                                                                   ======     ======     =====
</Table>

    Significant components of the provision for income tax expense attributable
    to continuing operations are as follows:

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Current tax expense.........................................   $ 62.8     $ 60.7
                                                                   ------     ------
    Change in temporary differences.............................      9.4       (9.5)
    Recognition of loss carryforwards...........................     (2.3)       2.4
    Tax rate changes............................................      0.4       (0.6)
                                                                   ------     ------
    Future income tax expense (benefit).........................      7.5       (7.7)
                                                                   ------     ------
    Total income tax expense....................................   $ 70.3     $ 53.0
                                                                   ======     ======
</Table>

    The tax effects of temporary differences that gave rise to future tax
    liabilities and assets are as follows:

<Table>
<Caption>
                                                                      AT MARCH 31
                                                                  -------------------
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Non-capital tax loss carryforwards..........................   $101.3     $120.0
    Capital tax loss carryforwards..............................      4.8        5.3
    Investment tax credits......................................    (22.6)     (31.5)
    Capital assets..............................................    (40.8)     (12.8)
    Employee pension plans......................................      3.2       (3.1)
    Amounts not currently deductible............................     20.5       20.9
    Percentage of completion versus completed contract..........    (30.0)     (18.6)
    Other.......................................................     (5.6)       2.8
                                                                   ------     ------
                                                                   $ 30.8     $ 83.0
                                                                   ------     ------
    Valuation allowance.........................................    (46.6)     (76.2)
                                                                   ------     ------
    Total future income taxes...................................   $(15.8)    $  6.8
                                                                   ======     ======
</Table>

    As of March 31, 2002, the Company has accumulated non-capital tax losses
    carried forward relating to operations in the United States for an amount of
    approximately US$147.8 million. The losses for income tax purposes expire in
    the year 2005 through 2013. For financial reporting purposes, a future tax
    asset of US$26.9 million has been recognized in respect of these loss
    carryforwards.

                                       20
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

14. INCOME TAXES (CONTINUED)
    The Company has accumulated non-capital tax losses carried forward relating
    to its operations in other countries of approximately $64.0 million. These
    losses can be carried forward without time limitation. For financial
    reporting purposes, a future tax asset of $9.2 million has been recognized.

    The valuation allowance relates principally to loss carryforward benefits
    where realization is not likely due to a history of loss carryforwards and
    to the uncertainty of sufficient taxable earnings in the future, together
    with time limitations in the tax legislation giving rise to the potential
    benefit. In 2002, $21.8 million (2001: $13.7 million) of the valuation
    allowance balance was reversed when it became more likely than not that
    benefits would be realized.

15. SUPPLEMENTARY CASH FLOW INFORMATION

    Cash provided by (used in) non-cash working capital:

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Accounts receivable.........................................   $(50.4)    $ 21.8     $(41.5)
    Inventories.................................................    (23.8)     (45.7)      18.8
    Prepaid expenses............................................      1.9        5.9       (0.1)
    Income taxes recoverable....................................     36.9       49.7       27.7
    Accounts payable and accrued liabilities....................     27.9       71.0       71.7
    Deposits on contracts.......................................     (0.1)     (23.6)      67.5
                                                                   ------     ------     ------
                                                                   $ (7.6)    $ 79.1     $144.1
                                                                   ======     ======     ======
    Interest paid (received)....................................   $ 25.3     $ 20.6     $(10.8)
    Income taxes paid (received)................................   $ 14.3     $  8.8     $ (1.3)
    Amortization of other assets................................   $  3.2     $--        $--
</Table>

16. CONTINGENCIES

    Through the normal course of operations, the Company is party to a number of
    lawsuits, claims and contingencies. Accruals are made in instances where it
    is probable that liabilities will be incurred and where such liabilities can
    be reasonably estimated. Although it is possible that liabilities may be
    incurred in instances for which no accruals have been made, the Company has
    no reason to believe that the ultimate outcome of these matters will have a
    material impact on its financial position.

17. GOVERNMENT COST SHARING

    The Company has signed agreements with the Government of Canada whereby the
    Government shares in the cost of certain visual research and development
    programs as well as advanced flight simulation technology for civil
    applications. Funding in the amount of $31.2 million related to the visual
    research and development programs was completed during 2001. Funding for
    flight simulation, which is ongoing, amounts to $41.4 million. These
    programs are repayable in the form of royalties based on future sales
    levels. The royalty payments on one of the programs have already started and
    will continue until March 31, 2012, up to an amount not to exceed
    $41.9 million for the visual research and development programs and
    $66 million for the flight simulation program.

                                       21
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

18. OPERATING LEASE COMMITMENTS

    Future minimum lease payments under operating leases, the most significant
    of which relate to the Medium Support Helicopter contract with the UK MoD as
    described in Note 9(ii), are as follows:

<Table>
    <S>                                                           <C>
    Year ending March 31,
      2003......................................................   $ 64.4
      2004......................................................     67.1
      2005......................................................     63.2
      2006......................................................     56.6
      2007......................................................     42.4
      Thereafter................................................    307.8
                                                                   ------
                                                                   $601.5
                                                                   ======
</Table>

19. PENSIONS

    The Company has defined benefit plans that provide benefits based on length
    of service and final average earnings. The Company has an obligation to
    ensure that there are sufficient funds in the plans to pay the benefits
    earned.

    Contributions reflect actuarial assumptions concerning future investment
    returns, salary projections and future service benefits. Plan assets are
    represented primarily by Canadian and foreign equities and government and
    corporate bonds.

    The changes in the pension obligations and in the fair value of assets and
    the funded status of the defined benefit plans were as follows:

<Table>
<Caption>
                                                                      AT MARCH 31
                                                                  -------------------
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Change in pension obligations
      Pension obligation, beginning of year.....................   $126.0     $111.5
      Current service cost......................................      4.2        3.3
      Interest cost.............................................      8.1        7.8
      Settlement gain on discontinued operations................     (2.5)     --
      Employee contributions....................................      2.2        2.3
      Loss on plan amendments...................................      1.1        1.6
      Pension benefits paid.....................................     (8.8)      (8.4)
      Actuarial loss............................................      1.1        7.9
                                                                   ------     ------
    Pension obligation, end of year.............................   $131.4     $126.0
                                                                   ------     ------
    Change in fair value of plan assets
      Fair value of plan assets, beginning of year..............   $121.5     $120.8
      Return on plan assets.....................................     10.6       10.7
      Pension benefits paid.....................................     (8.8)      (8.4)
      Settlement loss on discontinued operations................     (2.5)     --
      Employee contributions....................................      2.2        2.3
      Employer contributions....................................      0.6        0.7
      Actuarial loss............................................    (11.9)      (4.6)
                                                                   ------     ------
    Fair value of plan assets, end of year......................   $111.7     $121.5
                                                                   ------     ------
      Funded status-plan deficit................................   $(19.7)    $ (4.5)
      Unrecognized net actuarial loss...........................     24.9       12.5
      Unamortized past service cost.............................      2.6        1.6
                                                                   ------     ------
    Accrued pension asset.......................................   $  7.8     $  9.6
                                                                   ======     ======
</Table>

                                       22
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

19. PENSIONS (CONTINUED)
    The actuarial present value of accrued pension benefits has been estimated
    taking into consideration economic and demographic factors over an extended
    future period. Significant assumptions used in the calculation are as
    follows:

<Table>
<Caption>
                                                                       2002             2001
                                                                  --------------   --------------
    <S>                                                           <C>              <C>
    Return on plan assets.......................................            9.0%             9.0%
    Discount rate for pension benefit obligations...............            6.5%             6.5%
    Compensation rate increases.................................  2.75% to 5.25%   2.75% to 5.25%
                                                                  --------------   --------------
</Table>

    The net pension expense for the year ended March 31, 2002 included the
    following components:

<Table>
<Caption>
                                                                    2002       2001
                                                                  --------   --------
    <S>                                                           <C>        <C>
    Current service cost........................................   $  4.2     $  3.3
    Interest cost on projected pension obligations..............      8.1        7.8
    Expected return on plan assets..............................    (10.6)     (10.7)
    Amortization of past service costs..........................      0.1      --
                                                                   ------     ------
    Net pension expense.........................................   $  1.8     $  0.4
                                                                   ======     ======
</Table>

20. BUSINESS SEGMENTS

    The Company's significant business segments include:

    (i) Civil Simulation and Training -- a world-leading supplier of civil
        flight simulators and visual systems, and a provider of business and
        civil aviation training.

    (ii) Military Simulation and Marine Controls -- a premier supplier of
         military flight and land-based simulators, visual and training systems.
         The segment also supplies marine controls and training systems.

    Each operating segment is led by a senior executive and offers different
    products and uses different technology and marketing strategies. The Company
    evaluates performance based on operating earnings before interest and income
    taxes and uses capital employed to assess resources allocated to each
    segment. Capital employed includes accounts receivable, inventories, prepaid
    expenses, property, plant and equipment, goodwill, intangible assets and
    other assets less accounts payable and accrued liabilities, deposits on
    contracts and contingent consideration due to acquisitions included in other
    long-term liabilities.

                                       23
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

20. BUSINESS SEGMENTS (CONTINUED)
    Financial information on the Company's operating segments is shown in the
    following table:

    BUSINESS SEGMENTS

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Capital employed
      Civil Simulation and Training.............................  $1,057.3   $   74.5
      Military Simulation and Marine Controls...................     273.3       79.0
      Other.....................................................      21.0       17.0
                                                                  --------   --------
    Total capital employed......................................  $1,351.6   $  170.5
      Cash......................................................      88.8      156.8
      Short-term investments....................................      21.3      122.8
      Income taxes recoverable..................................      15.8        8.2
      Accounts payable and accrued liabilities..................     420.5      315.0
      Deposits on contract......................................     189.1      175.9
      Future income taxes -- short-term.........................      28.9       15.4
      Future income taxes -- long-term..........................      71.3       15.9
      Long-term liabilities.....................................      73.7       20.7
      Assets of discontinued operations.........................     123.8      370.9
                                                                  --------   --------
    Total assets................................................  $2,384.8   $1,372.1
                                                                  ========   ========
    Total assets by segment
      Civil Simulation and Training.............................  $1,380.9   $  348.5
      Military Simulation and Marine Controls...................     609.7      319.0

    Capital expenditures
      Civil Simulation and Training.............................  $  216.7   $   72.9   $   11.7
      Military Simulation and Marine Controls...................      32.9        3.4       10.1
                                                                  --------   --------   --------
                                                                  $  249.6   $   76.3   $   21.8
                                                                  ========   ========   ========
    Amortization of property, plant and equipment
      Civil Simulation and Training.............................  $   24.4   $    9.3   $   11.3
      Military Simulation and Marine Controls...................      12.5        9.2       10.6
                                                                  --------   --------   --------
                                                                  $   36.9   $   18.5   $   21.9
                                                                  ========   ========   ========
    Amortization of goodwill
      Civil Simulation and Training.............................  $  --      $  --      $  --
      Military Simulation and Marine Controls...................     --           0.6        0.4
                                                                  --------   --------   --------
                                                                  $  --      $    0.6   $    0.4
                                                                  ========   ========   ========
</Table>

                                       24
<Page>
                                    CAE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

20. BUSINESS SEGMENTS (CONTINUED)
    GEOGRAPHIC SEGMENTS

<Table>
<Caption>
                                                                    2002       2001       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    Revenue from external customers based on their location
      Canada....................................................  $  102.7   $  109.8   $   95.2
      US........................................................     347.0      268.7      292.6
      Great Britain.............................................     127.4      141.9      144.1
      Germany...................................................      91.2      101.2      113.1
      Other European countries..................................     173.8      128.1       79.3
      Other countries...........................................     284.4      141.7      140.8
                                                                  --------   --------   --------
                                                                  $1,126.5   $  891.4   $  865.1
                                                                  ========   ========   ========
    Property, plant and equipment and goodwill
      Canada....................................................  $  126.6   $   95.7
      US........................................................     500.7        6.2
      Europe....................................................     435.5       79.6
      Other countries...........................................     151.2       64.2
                                                                  --------   --------
                                                                  $1,214.0   $  245.7
                                                                  ========   ========
</Table>

                                       25
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES

    The consolidated financial statements have been prepared in accordance with
    Canadian generally accepted accounting principles and practices (Canadian
    GAAP), which differ in certain respects from those principles and practices
    that the Company would have followed had its financial statements been
    prepared in accordance with accounting principles and practices generally
    accepted in the United States (US GAAP).

    Additional disclosures required under US GAAP have been provided in the
    accompanying financial statements and notes. In accordance with the
    accommodation provided by the Securities and Exchange Commission for initial
    registrations by foreign registrants, the US GAAP information is only
    provided for the two years ended March 31, 2002.

    The reconciliation of net earnings in accordance with Canadian GAAP to
    conform to US GAAP is as follows:

<Table>
<Caption>
                                                                   FOR THE YEAR      FOR THE YEAR
                                                                       ENDED             ENDED
                                                                  MARCH 31, 2002    MARCH 31, 2001
                                                                  ---------------   ---------------
    <S>                                                           <C>               <C>
    Earnings from continuing operations for the period in
      accordance with Canadian GAAP.............................      $149.3            $105.2
    Deferred development costs, net of tax of $8.0
      (2001 -- $4.5) (A)........................................       (17.1)             (9.0)
    Deferred pre-operating costs, net of tax of $4.1
      (2001 -- $1.0) (B)........................................        (8.8)             (2.1)
    Derivative adjustments, net of tax of $0.2 (D)..............        (0.5)           --
    Amortization of deferred foreign exchange, net of tax of
      $0.5
      (2001 -- $1.0) (E)........................................        (0.7)             (1.9)
    Leases net of tax of $0.8 (2001 -- $0.8) (J)................        (1.8)             (1.5)
    Foreign exchange gain on purchase of subsidiary net of tax
      recovery of $3.4 (H)......................................         7.2            --
                                                                      ------            ------
    Earnings from continuing operations before cumulative effect
      of accounting change --
      US GAAP...................................................       127.6              90.7
    Discontinued operations.....................................         1.3               2.9
                                                                      ------            ------
    Net earnings before cumulative effect of accounting
      change -- US GAAP.........................................       128.9              93.6
    Cumulative effect on prior years of accounting
      change (D) (G)............................................         5.3            --
                                                                      ------            ------
    Net earnings for the period in accordance with US GAAP......      $134.2            $ 93.6
                                                                      ======            ======

    Earnings per share from continuing operations in accordance
      with US GAAP -- basic and diluted.........................      $ 0.59            $ 0.42
    Results per share from discontinued operations in accordance
      with US GAAP -- basic and diluted.........................      --                  0.01
                                                                      ------            ------
    Net earnings per share before cumulative effect of
      accounting change in accordance with US GAAP -- basic and
      diluted...................................................        0.59              0.43
                                                                      ======            ======
    Net earnings per share in accordance with US GAAP -- basic
      and diluted...............................................        0.62              0.43
                                                                      ======            ======
    Net earnings per share adjusted for goodwill
      amortization -- basic and diluted.........................        0.62              0.43
                                                                      ======            ======
    Weighted average number of shares outstanding used in
      calculating net earnings per share -- basic and diluted
      (in millions).............................................       217.6             215.7
                                                                      ======            ======
</Table>

                                       26
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)

<Table>
<Caption>
                                                                   FOR THE YEAR      FOR THE YEAR
                                                                       ENDED             ENDED
                                                                  MARCH 31, 2002    MARCH 31, 2001
                                                                  ---------------   ---------------
    <S>                                                           <C>               <C>
    COMPREHENSIVE INCOME
    Net earnings in accordance with US GAAP.....................      $134.2            $ 93.6
    Foreign currency translation adjustments....................        (2.2)              1.0
                                                                      ------            ------
    Comprehensive income........................................      $132.0            $ 94.6
                                                                      ======            ======
</Table>

<Table>
<Caption>
                                                                     CURRENCY
                                                                   TRANSLATION
                                                                    ADJUSTMENT
                                                                  --------------
    <S>                                                           <C>
    ACCUMULATED OTHER COMPREHENSIVE INCOME
    At April 1, 2001............................................      $(14.6)
    Change during the year......................................         1.0
                                                                      ------
    As at March 31, 2001........................................       (13.6)
    Change during the year......................................        (2.2)
                                                                      ------
    As at March 31, 2002........................................      $(15.8)
                                                                      ======
</Table>

    The effect of these adjustments on the shareholders' equity of the Company
    is as follows:

<Table>
<Caption>
                                                                   FOR THE YEAR      FOR THE YEAR
                                                                       ENDED             ENDED
                                                                  MARCH 31, 2002    MARCH 31, 2001
                                                                  ---------------   ---------------
    <S>                                                           <C>               <C>
    Shareholders' equity in accordance with Canadian GAAP.......      $618.5            $464.1
    Deferred development costs, net of tax of $12.5
      (2001 -- $4.5) (A)........................................       (26.1)             (9.0)
    Deferred pre-operating costs, net of tax of $8.7
      (2001 -- $4.6) (B)........................................       (17.9)             (9.1)
    Derivative adjustments, net of tax of $2.2 (D)..............         4.8            --
    Amortization of deferred foreign exchange, net of tax of
      $3.3 (E)
      (2001 -- $0.8)............................................        (6.4)             (2.1)
    Leases net of tax of $0.4 (2001 -- $(0.4))..................        (0.9)              0.9
    Foreign exchange gain on purchase of subsidiary net of tax
      of $3.4 (H)...............................................         7.2            --
                                                                      ------            ------
    Shareholders' equity in accordance with US GAAP.............      $579.2            $444.8
                                                                      ======            ======
</Table>

                                       27
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
    The balance sheets in accordance with US GAAP as at March 31, 2002 and
    March 31, 2001 are as follows:

<Table>
<Caption>
                                                                                MARCH 31, 2002          MARCH 31, 2001
                                                                             ---------------------   ---------------------
                                                                             CANADIAN                CANADIAN
                                                                NOTES          GAAP       US GAAP      GAAP       US GAAP
                                                           ---------------   ---------   ---------   ---------   ---------
    <S>                                                    <C>               <C>         <C>         <C>         <C>
    ASSETS
    Cash.................................................                    $   88.8    $   88.8    $  156.8    $  156.8
    Short-term investments...............................         C              21.3        21.3       122.8       122.8
    Accounts receivable..................................                       378.2       378.2       245.6       245.6
    Derivative instruments...............................         D             --            6.9       --          --
    Inventories..........................................                       130.9       130.9        99.4        99.4
    Prepaid expenses.....................................                         9.9         9.9         8.6         8.6
    Income taxes recoverable.............................                        15.8        15.8         8.2         8.2
    Future income taxes..................................                        28.9        28.9        15.4        15.4
                                                                             --------    --------    --------    --------
                                                                             $  673.8    $  680.7    $  656.8    $  656.8
                                                                             --------    --------    --------    --------
    Assets of discontinued operations....................                       123.8       123.8       370.9       370.9
    Property, plant and equipment, net...................         J             838.5       931.4       227.2       244.7
    Future income taxes..................................    A,B,D,E,H,J         71.3        90.3        15.9        27.1
    Intangible assets....................................                       163.4       163.4       --          --
    Goodwill.............................................         H             375.5       386.1        18.5        18.5
    Other assets.........................................       A,B,E           138.5        73.5        82.8        51.0
                                                                             --------    --------    --------    --------
                                                                             $2,384.8    $2,449.2    $1,372.1    $1,369.0
                                                                             ========    ========    ========    ========
    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES
    Accounts payable and accrued liabilities.............                    $  420.5    $  420.5    $  315.0    $  315.0
    Deposits on contracts................................                       189.1       189.1       175.9       175.9
    Long term debt due within one year...................         J              37.5        50.6         2.3         5.9
    Future income taxes..................................                        50.4        50.4        14.5        14.5
                                                                             --------    --------    --------    --------
                                                                             $  697.5    $  710.6    $  507.7    $  511.3

    Liabilities of discontinued operations...............                    $   40.5    $   40.5    $  106.6    $  106.6
    Long-term debt.......................................         J             889.0       997.0       263.0       291.0
    Long-term liabilities................................         J              73.7        56.3        20.7         5.3
    Future income taxes..................................                        65.6        65.6        10.0        10.0
                                                                             --------    --------    --------    --------
                                                                             $1,766.3    $1,870.0    $  908.0    $  924.2
                                                                             --------    --------    --------    --------
    SHAREHOLDERS' EQUITY
    Capital stock........................................         I          $  186.8    $  436.1    $  159.4    $  408.7
    Retained earnings....................................  A,B,D,E,G,H,I,J      446.8       158.9       321.2        49.7
    Currency translation adjustment......................                       (15.1)      --          (16.5)      --
    Accumulated other comprehensive income...............         C             --          (15.8)      --          (13.6)
                                                                             --------    --------    --------    --------
                                                                             $  618.5    $  579.2    $  464.1    $  444.8
                                                                             --------    --------    --------    --------
                                                                             $2,384.8    $2,449.2    $1,372.1    $1,369.0
                                                                             ========    ========    ========    ========
</Table>

    RECONCILIATION ITEMS

    A) DEFERRED DEVELOPMENT COSTS

       For US GAAP reporting purposes, development costs are charged to expense
       in the period incurred. For Canadian GAAP purposes, certain development
       costs are capitalized and amortized over their estimated useful lives if
       they meet the criteria for deferral. The difference between US GAAP and
       Canadian GAAP represents the gross development costs capitalized in the
       respective year, net of the reversal of amortization expense recorded for
       Canadian GAAP relating to amounts previously capitalized.

                                       28
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
    B) DEFERRED PRE-OPERATING COSTS

       For US GAAP reporting purposes, pre-operating costs are charged to
       expense in the period incurred. For Canadian GAAP purposes, the amounts
       are deferred and amortized over 5 to 20 years based on the expected
       period and pattern of benefit of the deferred expenditures.

    C) PORTFOLIO INVESTMENTS

       Under Canadian GAAP, portfolio investments (short-term investments) are
       accounted for using the cost method and gains or losses are recognized in
       the period in which the investment is sold. Under US GAAP, these
       portfolio investments are classified as held to maturity and thus are
       recorded at amortized cost. There is no material difference for US GAAP
       purposes. The investments held at March 31, 2002 and 2001 had maturity
       dates of within one month of March 31, 2002 and 2001 respectively.

    D) DERIVATIVE FINANCIAL INSTRUMENTS

       Under Canadian GAAP, the nature and fair values of derivative financial
       instruments are disclosed. The Company continues to recognize the gains
       and losses on forward contracts in income concurrently with the
       recognition of the firm commitments being hedged. The interest payments
       relating to swap contracts are recorded in net earnings over the life of
       the underlying transaction on an accrual basis as an adjustment to
       interest income or interest expense. Effective April 1, 2001 under
       US GAAP, all derivatives are recorded on the balance sheet at fair value.
       The Company has elected not to adopt the FASB's optional hedge accounting
       provisions. Accordingly, for US GAAP reporting purposes only, beginning
       in 2001, unrealized gains and losses resulting from the valuation of
       derivatives (including embedded derivatives in purchase and sale
       contracts) at market value are recognized in net earnings as the gains
       and losses arise and not concurrently with the recognition of the
       transactions being hedged.

       Upon the initial adoption of the FASB standards on April 1, 2001, the
       cumulative effect of the accounting change resulted in an increase in net
       earnings of $5.8 million net of taxes.

    E) AMORTIZATION OF DEFERRED FOREIGN EXCHANGE LOSS

       For US GAAP purposes, all unrealized gains and losses arising on the
       translation of long term monetary items, except those related to hedges
       of net investments in self-sustaining foreign subsidiaries, are
       recognized in income immediately. For Canadian GAAP purposes, these
       unrealized exchange losses are deferred on the balance sheet and
       amortized over the remaining life of the related items. As noted in
       note 1, effective April 1, 2002, the Company will adopt, under Canadian
       GAAP, the amendments to Canadian Institute of Chartered Accountants
       (CICA) standard # 1650 -- Foreign Currency Translation, which no longer
       permits the deferral and amortization of long-term foreign currency
       denominated assets and liabilities.

    F) JOINT VENTURES

       Under Canadian GAAP, joint ventures are accounted for using the
       proportionate consolidation method, while under US GAAP, joint ventures
       are accounted for under the equity method. Under an accommodation of the
       US Securities and Exchange Commission, accounting for joint ventures need
       not be reconciled from Canadian to US GAAP. The different accounting
       treatment affects only the display and classification of financial
       statement items and not net earnings or shareholders' equity. CAE's joint
       ventures are not material for separate disclosure.

    G) ADJUSTMENTS FOR CHANGES IN ACCOUNTING POLICIES

       Under US GAAP, the cumulative effect of certain accounting changes must
       be included in earnings in the year of the change. Under Canadian GAAP,
       the impact is included in opening retained earnings.

    H) FOREIGN EXCHANGE GAIN ON PURCHASE OF SUBSIDIARY

       Under Canadian GAAP, upon the purchase of Schreiner, a foreign exchange
       gain was recorded as a reduction of goodwill on the forward contract
       hedge of the foreign currency denominated purchase price. Under US GAAP,
       this gain is recorded in earnings.

    I)  REDUCTION OF STATED CAPITAL

       On July 7, 1994, the Company applied a portion of its deficit as a
       reduction of its stated capital in the amount of $249.3 million. Under
       US GAAP, the reduction of stated capital would not be permitted.

                                       29
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
    J)  LEASES

       Under Canadian GAAP, certain of the Company's leases of simulators, with
       aggregate minimum future lease payments of $175.2 million are accounted
       for as operating leases.

       Under these agreements, the lessors hold the simulators under lease and
       the related liabilities through Special Purpose Entities (SPE's). Under
       US GAAP, since the legal stated capital of these SPE's represent less
       than 3% of the assets of the SPE's, the assets, liabilities, results of
       operations and cash flows of the SPE must be consolidated into those of
       the Company. Amortization expense related to these leases amounts to
       $2.0 million in 2002 (2001 -- $0.6 million)

    K) COMPREHENSIVE INCOME

       US GAAP requires disclosure of comprehensive income, which comprises
       income and other components of comprehensive income. Other comprehensive
       income includes items that cause changes in shareholders' equity but are
       not related to share capital or net earnings which, for the Company,
       comprises only currency translation adjustments. Under Canadian GAAP,
       there is no requirement to report comprehensive income.

    CONSOLIDATED STATEMENT OF CASH FLOWS

    Under US GAAP reporting, separate subtotals within operating, financing and
    investment activities would not be presented.

    The reconciliation of cash flows under Canadian GAAP to conform to US GAAP
    is as follows:

<Table>
<Caption>
                                                                              FOR THE YEAR      FOR THE YEAR
                                                                                  ENDED             ENDED
                                                                    NOTE     MARCH 31, 2002    MARCH 31, 2001
                                                                  --------   ---------------   ---------------
    <S>                                                           <C>        <C>               <C>
    Cash flows from operating activities in accordance with
      Canadian GAAP.............................................                 $ 173.1           $ 159.7
    Deferred development costs..................................    A              (30.1)            (13.5)
    Deferred pre-operating costs................................    B              (13.4)             (4.0)
    Discontinued operations.....................................                   (15.9)             23.6
    Foreign exchange gain on purchase of a subsidiary...........    H               10.6
    Leases......................................................    J                3.8               0.7
                                                                                 -------           -------
    Cash flows from operating activities in accordance with
      US GAAP...................................................                 $ 128.1           $ 166.5
                                                                                 =======           =======
    Cash flows from investing activities in accordance with
      Canadian GAAP.............................................                 $(755.2)          $(148.0)
    Deferred development costs..................................    A               30.1              13.5
    Deferred pre-operating costs................................    B               13.4               4.0
    Discontinued operations.....................................                    (4.7)            (11.1)
    Foreign exchange gain on purchase of a subsidiary...........    H              (10.6)          --
                                                                                 -------           -------
    Cash flows from investing activities in accordance with
      US GAAP...................................................                 $(727.0)          $(141.6)
                                                                                 =======           =======
    Cash flows from financing activities in accordance with
      Canadian GAAP.............................................                 $ 539.2           $ (34.8)
    Discontinued operations.....................................                    (3.9)             (2.1)
    Leases......................................................    J               (3.8)             (0.7)
                                                                                 -------           -------
    Cash flows from financing activities in accordance with
      US GAAP...................................................                 $ 531.5           $ (37.6)
                                                                                 =======           =======
</Table>

    STOCK-BASED COMPENSATION COST

    Under Canadian GAAP, no compensation expense is recognised at the time of
    issuance of employee stock options. For U.S. GAAP reporting, the Company
    follows the provisions of FASB Statement No. 123 "Accounting for Stock-based
    Compensation" ("FAS 123") which allow companies to either expense the
    estimated fair value of stock options, or to continue to follow the
    intrinsic value method set forth in APB Opinion No. 25, "Accounting for
    Stock Issued to Employees" ("APB 25") but disclose the pro forma effects on
    the net earnings had the fair value of the options been expensed. CAE has
    elected to continue to apply APB 25 in accounting for its stock incentive
    plans. At March 31, 2002 no compensation cost has been recorded in the
    accounts. Had compensation cost for the Company's stock option plans been
    determined based upon the fair value method as prescribed in FAS 123, CAE's
    net earnings in the years ended March 31, 2002 and 2001 would have been
    approximately $131.2 million and $85.6 million, or $0.60 per share and $0.40
    per share respectively, on a diluted basis. The fair value of the options
    granted during the years ended March 31, 2002 and 2001 are estimated at
    $4.87 per share and $2.46 per share respectively.

                                       30
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
    The fair value of each option grant is estimated on the date of grant using
    the Black-Scholes option pricing model with the following weighted-average
    assumptions:

<Table>
<Caption>
                                                                   FOR THE YEAR      FOR THE YEAR
                                                                       ENDED             ENDED
                                                                  MARCH 31, 2002    MARCH 31, 2001
                                                                  ---------------   ---------------
    <S>                                                           <C>               <C>
    Expected option life (years)................................           6                 6
    Expected volatility.........................................        36.3%             31.7%
    Risk-free interest rate.....................................        5.17%             6.15%
    Dividend yield..............................................       1.040%            1.691%
</Table>

    NEW ACCOUNTING STANDARDS

    On July 20, 2001, the Financial Accounting Standards Board issued SFAS 141,
    "Business Combinations", and SFAS 142, "Goodwill and Other Intangible
    Assets". These standards are essentially the same as the recently issued
    Canadian accounting standards. See note 1 for a description of the impact on
    the Company.

    On June 15, 2001, the Financial Accounting Standards Board issued SFAS 143,
    "Accounting for Asset Retirement Obligation", which is effective for fiscal
    years beginning on or after June 15, 2002. This standard requires that the
    fair value of a liability for an asset retirement obligation be recognized
    in the period in which it is incurred if a reasonable estimate of fair value
    can be made. The Company is studying the new standard but has not yet
    determined its impact.

    In October 2001, the FASB issued SFAS 144, "Accounting for Impairment or
    Disposal of Long-Lived Assets", which supersedes SFAS 121 and the provisions
    of APB 30, "Reporting the Results of Operations -- Reporting the Effects of
    Disposal of a Segment of a Business, and Extraordinary, Unusual and
    Infrequently Occurring Events and Transactions", with regard to reporting
    the effects of a disposal of a segment of a business. SFAS 144 retains many
    of the provisions of SFAS 121, but significantly changes the criteria that
    would have to be met to classify an asset as held for disposal such that
    long-lived assets to be disposed of other than by sale are considered held
    and used until disposed of. In addition, SFAS 144 retains the basic
    provisions of APB 30 for presentation of discontinued operations in the
    statement of earnings but broadens that presentation to a component of an
    entity. This new standard is effective for fiscal years beginning after
    December 15, 2001. The Company is studying this new standard but has not yet
    determined its impact.

    In December 2001, the CICA issued AcG 13-"Hedging Relationships" ("AcG 13").
    The guideline presents the views of the Canadian Accounting Standards Board
    on the identification, designation, documentation and effectiveness of
    hedging relationships, for the purpose of applying hedge accounting. The
    guideline is effective for all fiscal years beginning on or after July 1,
    2002, which is the fiscal year beginning April 1, 2003 for the Company.

    In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements
    No. 4, 44, and 64. Amendment of FASB Statement No. 13, and Technical
    Corrections as of April 2002", which is effective for fiscal years beginning
    after May 15, 2002 and transactions occurring after May 15, 2002. The
    Company is studying this new standard but has not yet determined its impact.

    ADDITIONAL DISCLOSURES

    Additional disclosures required under US GAAP are as follows:

    i)  STATEMENTS OF EARNINGS

<Table>
<Caption>
                                                                       FOR THE YEAR ENDED      FOR THE YEAR ENDED
                                                                         MARCH 31, 2002          MARCH 31, 2001
                                                                      ---------------------   ---------------------
                                                                      CANADIAN                CANADIAN
                                                                        GAAP       US GAAP      GAAP       US GAAP
                                                                      ---------   ---------   ---------   ---------
        <S>                                                           <C>         <C>         <C>         <C>
        Revenues from sales of simulators and training and controls
          systems...................................................   $842.5       846.6       772.1       772.1
        Revenues from sales of services.............................   $284.0       284.0       119.3       119.3
        Cost of sales from simulators...............................   $468.2       469.8       463.5       462.9
        Cost of sales from services.................................   $167.6       169.2        60.3        66.4
        Research and development expenses...........................   $ 74.6       104.7        87.7       104.9
        Rental expense..............................................   $ 48.2        39.8        38.9        36.0
        Selling, general and administrative expenses................   $125.6       125.9        89.1        89.0
        Interest expense (income)...................................   $ 22.7        33.5        (6.3)       (4.2)
</Table>

                                       31
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
    ii)  BALANCE SHEET

<Table>
<Caption>
                                                                       FOR THE YEAR      FOR THE YEAR
                                                                           ENDED             ENDED
                                                                      MARCH 31, 2002    MARCH 31, 2001
                                                                      ---------------   ---------------
        <S>                                                           <C>               <C>
        Accounts payable trade......................................      $ 97.6            $ 63.0
        Contract liabilities........................................      $188.6            $167.4
        Other accrued liabilities...................................      $134.3            $ 84.6
                                                                          ------            ------
        Accounts payable and accrued liabilities....................      $420.5            $315.0
                                                                          ======            ======
        Accounts receivable from government amounted to $56.0 as of
          March 31, 2002 (2001 -- $16.1)............................
</Table>

    iii) For US GAAP purposes, property, plant and equipment are reviewed for
       impairment whenever events or changes in circumstances indicate that the
       carrying amount of an asset may not be recoverable. Recoverability of
       assets to be held and used is measured by a comparison of the carrying
       amount of an asset to undiscounted future net cash flows (before interest
       expense) expected to be generated by the asset. If such assets are
       considered to be impaired, the impairment to be recognized is measured by
       the amount by which the carrying amount of the assets exceeds the fair
       value of the assets. Assets to be disposed of are reported at the lower
       of the carrying amount or fair value less costs to sell.

    iv) INCOME TAXES

       The components of earnings from continuing operations and income taxes on
       a Canadian GAAP basis are as follows:

<Table>
<Caption>
                                                                      FOR THE YEAR ENDED   FOR THE YEAR ENDED
                                                                        MARCH 31, 2002       MARCH 31, 2001
                                                                      ------------------   ------------------
        <S>                                                           <C>                  <C>
        EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS
        Canada......................................................        $180.7               $153.7
        Other countries.............................................          38.9                  4.5
                                                                            ------               ------
                                                                             219.6                158.2
                                                                            ------               ------
        CURRENT INCOME TAXES
        Canada......................................................          59.3                 54.7
        Other countries.............................................           3.5                  6.0
                                                                            ------               ------
                                                                              62.8                 60.7
                                                                            ------               ------
        FUTURE TAXES
        Canada......................................................          (1.5)                (3.1)
        Other countries.............................................           9.0                 (4.6)
                                                                            ------               ------
                                                                               7.5                 (7.7)
                                                                            ------               ------
        Income tax provision........................................          70.3                 53.0
                                                                            ------               ------
</Table>

    v)  BUSINESS COMBINATIONS

       The following pro forma information for the fiscal years ended March 31,
       2002 and 2001 presents a summary of the pro forma consolidated statement
       of earnings of the Company as if all four acquisitions referred to in
       note 2 had occurred on April 1, 2000. This pro forma information is based
       on available information and includes certain assumptions and
       adjustments, which the management of CAE believes to be reasonable. The
       pro forma information does not give effect to any cost savings or
       synergies that CAE may enjoy as a result of these acquisitions.
       Accordingly, the pro forma information is not necessarily indicative of
       the results that might have been achieved, if the transactions reflected
       therein had been effective as at the

                                       32
<Page>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      YEARS ENDED MARCH 31, 2002 AND 2001
                      (AMOUNTS IN MILLIONS OF CDN DOLLARS)

21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
    AND PRACTICES (CONTINUED)
       beginning of the period presented, or of the results which may be
       obtained in the future. This pro forma financial information has been
       prepared for comparative purposes only.

<Table>
<Caption>
                                                                      FOR THE YEAR ENDED   FOR THE YEAR ENDED
                                                                        MARCH 31, 2002       MARCH 31, 2001
                                                                      ------------------   ------------------
                                                                          Unaudited            Unaudited
                                                                       (AMOUNTS IN MILLIONS OF CDN DOLLARS,
                                                                             EXCEPT PER SHARE AMOUNTS)
        <S>                                                           <C>                  <C>
        Revenue
          Civil Simulation and Training.............................       $  618.6             $  570.2
          Military Simulation and Marine Controls...................          593.8                576.4
                                                                           --------             --------
                                                                           $1,212.4             $1,146.6
                                                                           ========             ========
        Operating earnings
          Civil Simulation and Training.............................       $  148.9             $  136.0
          Military Simulation and Marine Controls...................           91.7                 46.0
                                                                           --------             --------
        Earnings from continuing operations before interest and
          income taxes..............................................          240.6                182.0
        Interest expense (income) net (note 10 (xi))................           44.6                 29.1
                                                                           --------             --------
        Earnings from continuing operations before income taxes.....          196.0                152.9
        Income taxes (note 14)......................................           61.4                 51.8
                                                                           --------             --------
        Earnings from continuing operations.........................       $  134.6                101.1
        Results of discontinued operations (note 3).................            1.3                  2.9
                                                                           --------             --------
        Net earnings................................................       $  135.9             $  104.0
                                                                           ========             ========
        Earnings and diluted earnings per share from continuing
          operations................................................       $   0.62             $   0.47
                                                                           ========             ========
        Net earnings and diluted net earnings per share.............       $   0.62             $   0.48
                                                                           ========             ========
        Average number of shares outstanding........................          218.2                217.1
                                                                           ========             ========
</Table>

22. COMPARATIVE FINANCIAL STATEMENTS

    Certain comparative figures for 2001 have been reclassified to conform to
    the presentation adopted in 2002.

                                       33